Vol. 24 No. 7 September 2017 orientaviation.com

SEASONED LCC WARRIOR Andrew Cowen has had lead roles in seven budget carrier start-ups. His experience shows in the winning formula of four-year-old HK Express

Gulf carriers ride Too many fingers One plane Longjiang roughshod over in region’s Airlines to become Srilankan Airlines leasing pie? global carrier by 2021 GEARED FOR THE FUTURE. TRANSFORMING AVIATION TODAY.

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A UNITED TECHNOLOGIES COMPANY CONTENTS Volume 24, Issue 7

COVER STORY 24 SEASONED

PUBLISHED BY LCC WARRIOR Andrew Cowen has had lead roles ORIENT AVIATION MEDIA GROUP Mailing address: in seven budget carrier start-ups. GPO Box 11435 Hong Kong His experience shows in the winning Office: formula of four-year-old HK Express 17/F Hang Wai Commercial Building, 231-233 Queen’s Road East, Wanchai, Hong Kong Tel: Editorial (852) 2865 1013 E-mail: [email protected] Website: www.orientaviation.com

Publisher & Editor-in-Chief Christine McGee E-mail: [email protected]

Chief Correspondent Tom Ballantyne Tel: (612) 9638 6895 Fax: (612) 9684 2776 E-mail: [email protected] Cover Photo: Graham Uden Greater China Correspondent Dominic Lalk Tel: (852) 2865 1013 COMMENT MAIN STORY E-mail: [email protected] 7 Stay off our patch 14 Too many fingers in region’s leasing pie?

North Asia Correspondent Geoffrey Tudor ADDENDUM Tel: (813) 3373 8368 E-mail: [email protected] 8 Japan Airlines-Vietjet code share disappoints analysts India Correspondent R. Thomas Tel: (852) 2865 1013 E-mail: [email protected]

Photographers Rob Finlayson, Graham Uden, Ryan Peters INDUSTRY ADDENDUM Chief Designer Chan Ping Kwan 37 Airbus names China innovation centre boss 8 Install onboard Wifi or fade away warns Inmarsat 37 Boeing to establish in-house avionics unit Printing Printing Station(2008) 9 Australia and New Zealand carriers continue to 37 Spairliners joint venture appoints new sales & deliver for shareholders marketing boss ADMINISTRATION 9 Korea Development bank sells off Asiana Airlines 37 Honeywell and ARI partner in Harbin in mid-to- General Manager shares late life aircraft venture Shirley Ho E-mail: [email protected] 37 Boeing, GAMECO and Hong Kong university NEWS BACKGROUNDERS expand research in future MRO technology ADVERTISING 11 Asia Pacific air cargo drought finally breaks 38 Singapore Airlines and CAE set up joint venture

Asia-Pacific, Europe & Middle East 13 Etihad board aborts loss-making “partners” training academy Clive Richardson strategy 38 FlightSafety International commences new Tel: (44) 7501 185257 E-mail: [email protected] 18 New Harbin carrier strikes out for the world content courses for aspiring pilots 38 AAR opens Shanghai supply chain hub The Americas / Canada Barnes Media Associates 38 Air Lease Corporation finalizes CFM order for its Ray Barnes B737 MAX -7s and -8s Tel: (1 434) 770 4108 Fax: (1 434) 927 5101 38 Boeing Shanghai wins contract from express E-mail: [email protected] Mainland courier, SF Airlines [email protected] 38 China’s COMAC selects Mobil Jet Oil to support its maiden flight Follow us on Twitter @orientaviation 21 Mainland airline juggernaut powers across the 38 Aviation consultancy, IBA, establishes air freight also - keep up with the news of the week with Orient Aviation’s Week in globe advisory division the Asia-Pacific 30 Srilankan Airlines going nowhere on capacity 38 Munich Airport announces new consultancy

© All rights reserved treadmill subsidiary Wilson Press HK Ltd., 32 Golden era ahead for region’s airlines predicts 38 Sabre signs global distribution partnership with Hong Kong, 2017 Malaysia Airlines boss Himalaya Airlines

SEPTEMBER 2017 / ORIENT AVIATION / 3 THE A330neo.

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The A330neo shares many of the same innovations as the groundbreaking A350 XWB, delivering a 25% saving in fuel consumption compared to others in the category. Both aircraft also bene t from a common type rating, which means pilot training costs are signi cantly lower too. And on top of that, they can be tted with our beautifully designed Airspace cabins, setting a new benchmark in passenger comfort and wellbeing. Innovation. We make it  y.

14043_AIR_A350XWB_Ad_273x404_Orient_Aviation_1.1.indd 1 16/08/2017 12:33 THE A330neo.

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The A330neo shares many of the same innovations as the groundbreaking A350 XWB, delivering a 25% saving in fuel consumption compared to others in the category. Both aircraft also bene t from a common type rating, which means pilot training costs are signi cantly lower too. And on top of that, they can be tted with our beautifully designed Airspace cabins, setting a new benchmark in passenger comfort and wellbeing. Innovation. We make it  y.

14043_AIR_A350XWB_Ad_273x404_Orient_Aviation_1.1.indd 1 16/08/2017 12:33 FRA_4433_2017_Imageanzeigen_SoE_202x273_5mm_R_OrientAviation_RZ01.indd 1 28.07.17 13:13 COMMENT

Stay off our patch

Growth of the commercial aircraft leasing sector in legislation in July that is intended to catapult the Special China has mirrored the country’s spectacular economic Administrative Region into the top three aircraft lessor development. No wonder, given forecasts that China capitals of the world. will require close to 7,000 new aircraft in the next two Whether Hong Kong’s ambitions will succeed decades. The same analysts believe that more than 40% remains to be seen. Already there are indications Ireland of these new airplanes will be delivered into Mainland is considering action in the tax area that will nullify Hong fleets under lease agreements. Kong’s appeal compared with Dublin. It also is certain There are an estimated 60 mainly domestic aircraft that Singapore will not be willing to lose any business of lessors operating in China with fleets as small as two value to Hong Kong. or three aircraft, but they still want their share of the The proliferation of Chinese lessors and the US$225 billion global leasing pie. subsequent competition for deals is pushing down lease Their rivals include established BOC Aviation in rates and making profitability difficult. For some lessors, Singapore, which is a 70% owned subsidiary of the Bank yields have shrunk to low single figures. of China, and Dublin-based Avolon, recently acquired by Deep pocketed Chinese lessors will survive. Smaller China’s globally acquisitive HNA Group. Avolon is now players either will go out of business or be absorbed by the world’s third largest lessor. their bigger rivals. Whether this evitable consolidation The strength, and until recently, the profits for will guarantee Hong Kong a place of significant aircraft aircraft lessors resulted in the passing of Hong Kong tax lessor business has yet to be revealed. ■

TOM BALLANTYNE Chief Correspondent Orient Aviation Media Group

The most trusted source of Asia-Pacific commercial aviation news and analysis

ORIENT AVIATION ORIENT AVIATION CHINA

“It has established itself as the primary source of information on industry topics in the Asia-Pacific region”

SEPTEMBER 2017 / ORIENT AVIATION / 7 ADDENDUM

Japan Airlines-Vietjet code share disappoints analysts

In an eyebrow raising development in late July, youthful low-cost carrier, VietJet Airlines, and venerable veteran, full service carrier, Japan Airlines (JAL) announced their intention to form a code share union. On a superficial level, it appeared an uncomfortable matching, but to industry observers it was hardly surprising. Pushing the odd couple carriers into the relationship was the simple fact that Vietnam’s flag carrier, Vietnam Airlines, and All Nippon Airways (ANA) had formed their own code from JAL now that the 8:12 ban is lifted. In the future, there could be international share last October after ANA invested 8.8% It’s really disappointing,” said Ushiba. network gains beyond Japan for VietJet (US$106 million) in the state-owned airline. Partnerships between LCCs and full and the opportunity to benefit from JAL’s The ANA investment abruptly ended a service carriers such as code shares are international know-how. For JAL, VietJet code share between JAL and Vietnam Airlines not unusual these days, Ushiba said. He could be a springboard beyond Vietnam to that had been in place since April 1996. cited precedents set by Ryanair and Air Southeast Asia. JAL operates daily non-stop Until March this year, JAL was not allowed Europe and Emirates and flydubai. flights between Tokyo/Narita and Ho to expand. The limitation was one of the “There are many cases where major Chi Minh City and Hanoi respectively, in conditions imposed on the carrier when it legacy carriers have internal LCCs, for addition to Tokyo/Haneda - Ho Chi Minh. was given government backed assistance to example, Lufthansa and Eurowings. IAG Vietjet started flying in December progress through its bankruptcy rehabilitation. has Level and Air France is launching 2011 and built its domestic market share The 8:12 Paper, drafted by the Ministry Joon,” said Ushiba, who added JAL is to 41.5% in 2016, which was just below of Transport, applied for five years from one of many full service airlines which Vietnam Airlines’ 42.5%. The Vietnamese August 2012. A director of Japan Aviation has a tie-up with JetBlue in the U.S. LCC plans to its double its international Management Research, Haruo Ushiba, Benefits for VietJet and JAL will include revenue by launching several regional said the JAL/VietJet code share agreement code-sharing and the transfer of frequent flyer destinations in the next 18 months. It has a was a replacement for the previous miles earned on one airline to the other. The fleet of 45 aircraft, operates 350 flights a day JAL/Vietnam Airlines code share. arrangement will apply on all routes between to 73 domestic and regional destinations “By itself, the JAL/VietJet partnership is Vietnam and Japan and to the domestic in Cambodia, China, Hong Kong, Malaysia, not impressive at all to those who expected routes of both carriers. VietJet plans to Myanmar, Singapore, South Korea, Taiwan a more dynamic, global expansion strategy launch scheduled services to Japan in 2018. and Thailand. By Geoffrey Tudor in Tokyo ■

Install onboard WiFi or fade away warns Inmarsat

Two out of three airline passengers in the are most sensitive to the quality of onboard Inflight Connectivity Survey has become a Asia-Pacific regard inflight WiFi as a necessity WiFi services. barometer of passenger sentiment. when they travel and rated it more highly The ability to connect to smartphones, “This year’s survey revealed 67% of than onboard inflight entertainment, a new laptops and tablets (40%) is one of the three passengers in the Asia-Pacific believed inflight Inmarsat survey has revealed. most important criteria for passengers, after WiFi is a necessity, not a luxury. This trend The study, conducted with market ticket price (53%) and flight slots (44%), will increase as more people experienced researcher. GtK, found more than half of all when booking airline travel. inflight connectivity. The opportunity airline passengers in China (59%) and India In China, passengers expected the “Big connectivity presented to airlines cannot be (51%) expected the same level of connectivity Three” carriers to offer the best inflight Wifi underestimated. Airlines in the Asia-Pacific at 35,000 feet that they receive on the ground. and rated them in the following order: Air are recognizing this fact.” The third annual Inflight Connectivity China (46%), China Eastern Airlines (22%) The region’s passengers are among the Survey, which concluded inflight broadband and China Southern Airlines (21%). most willing worldwide to pay for inflight WiFi, is revolutionizing passengers’ onboard Inmarsat vice president, Asia-Pacific, with 91% prepared to be charged for onboard experience, also revealed that 52% of Otto Gergye, said: “whether using the connectivity on long-haul leisure flights and airline passengers in the region would stop time to work, connect with friends and 79% on short-haul leisure flights. Some patronizing their preferred airline in the next family or pass time shopping or viewing 61% of passengers who have experienced 12 months if it did not allow them to stream entertainment, the availability of inflight inflight connectivity in Asia consider it more or browse online without interruption. broadband has become a major factor important than inflight entertainment when Passengers in China (55%) and India (52%) when choosing an airline and the annual selecting a carrier. By Tom Ballantyne ■

8 / ORIENT AVIATION / SEPTEMBER 2017 ADDENDUM

th 10 Air New Zealand and Qantas keep edition their shareholders happy

Qantas Airways continued to Boeing’s 777X, the range to fly strengthen its balance sheet non-stop and with a full passenger with the announcement that load on the routes. its latest full-year underlying The strong Qantas results profit was $1.4 billion (US$1.1 came a week after rival, Virgin billion), its second best result in Australia, posted a loss of its 97-year history. But in a tough $2.5 million for the year, a big year for international business, improvement on the $32.4 profit declined by 17%, to $852 million deficit of a year earlier and Seoul, Republic of Korea million (US$673.1 million), and well ahead of forecast losses of passenger revenue was down 1% $14.2 million. November 1 - 2 - 3 - 2017 for the 12 months. Across the Tasman, Air New COEX, Convention and Exhibition Center Qantas Group CEO, Alan Zealand (Air NZ) reported a 17% Joyce, said: “All of the group’s drop in after tax profit, to $NZ382 divisions - Qantas and Jetstar million (A$351 million), but said Including domestic, Qantas and Jetstar the results were still the second  International Carbon  Technical Posters international and its frequent best full year earnings in the Festival  VIP Club flyer program - were in the black. airline’s history.  Exhibition Jetstar posted its second highest Air New Zealand CEO,  Job Center  JEC Conference profit in 13 years, but said earnings Christopher Luxon, said: “This  Innovation Awards fell by 8%, to $417 million, year Air New Zealand faced an  B2B meetings  Composites Tours compared with 12 months ago. unprecedented increase in the  Innovation Corner Joyce confirmed he had level of competition from some written to Airbus and Boeing and of the world’s largest airlines and challenged them to produce an effectively rose to the challenge.” With the support of: Offi cial sponsor: Sponsored by: airliner that could fly non-stop There also was evidence that some between Sydney and London overseas carriers were pulling and Melbourne and New York back capacity, he said. by 2022. Based on current conditions Joyce said he had asked the and assuming an average jet fuel In partnership with: manufacturers to give their next- price of US$60 a barrel, the airline generation aircraft currently under is aiming to improve on its 2017 development, Airbus’ 350ULR and earnings. By Tom Ballantyne ■

Korea Development Bank sells off Asiana shares Get your badge now on www.jecasia-badges.com Korea Development Bank in Asiana parent, Kumho. (KDB) last month sold its Group chairman, Park Sam- 5.94% investment in South koo, met with HNA Group CEO, Korea’s second largest carrier, Adam Tan, last year to identify www.jec-asia.events Asiana Airlines, a sale that areas for cooperation. Asiana prompted speculation the and HNA have now launched buyer was the HNA Group. Gate Gourmet Korea. HNA Asiana and HNA declined to owns Gate Gourmet Switzerland comment on the divestment. GmbH. Separately, KDB said it Asiana has repeatedly would invest UA$130 million in a said it wanted to increase “One Belt, One Road project, the cooperation with HNA expansion of Haikou International Group carriers. In March, Airport, the home city of Hainan the Mainland conglomerate Airlines, whose parent is the purchased a minority stake HNA group. By Dominic Lalk ■

SEPTEMBER 2 2017 / ORIENT AVIATION / 9 A million reason$ to fl y ATR.

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O 17T0877_AP_05_OrientAviation_202x273mm_GB.indd 1 O 19/05/2017 17:51 O O

O O O O CARGO

Asia-Pacific air cargo drought finally breaks

Air cargo is emerging from a painful seven year slump and industry leaders are confident that recovering freight volumes are not a repeat of the false dawn of 2010.

By Tom Ballantyne

here have been signs since last year that air freight has been slowly and steadily recovering and Tnow statistics are available to back up the anecdotal trend. New data from the International Air Transport Association (IATA), released last month, reported demand measured in freight tonne kilometers (FTKs) grew by 10.4% in the first half of 2017 compared with the same period in 2016. IATA’s numbers were advantage of this momentum the Middle East and South The results, which are almost supported by the Association to accelerate modernization Asia (+54%), Belgium to the three times higher than the of Asia Pacific Airlines (AAPA) and improve the value it Asia-Pacific (+50%) and Belgium industry average growth of 3.9% latest statistics, which reported provides to customers. to North America (+46%) had in the last five years, represented broad-based increases in new “However, there are some the highest volume increases. the air cargo industry’s strongest export orders. “Global trade signs that the cyclical growth Between Asia and North performance since its short activity has picked up markedly period may have peaked. America yields and volume burst of prosperity in 2010. since the middle of last year, with The global inventory-to-sales reported a moderate capacity Asia-Pacific airfreight volume air freight volumes growing at a ratio has stopped falling. This increase, but there are signs air grew 10.1% in June alone robust pace, said AAPA director indicates that the period when cargo operators are preparing compared with the matching general, Andrew Herdman. companies look to restock to add to their fleets. Last period in 2016. In the same “Overall, Asian airlines inventories quickly, which month, Hong Kong Air Cargo, months, capacity expanded reported a 10.4% increase in often gives air cargo a boost, a subsidiary of Hong Kong by 7.8%. Seasonally adjusted international air cargo traffic may be nearing an end. Airlines, agreed to take on three international freight volumes are during the first half of 2017, “Regardless of these more B747-400 freighters via 4% above the levels of 2010, supported by an upswing in developments, the outlook for an aircraft, crew, maintenance two years after the onset of the export orders for both the air freight is optimistic with and insurance agreement Global Financial Crisis (GFC). leading emerging markets demand expected to grow at with Atlas Air Worldwide. The air freight market was and advanced economies. a robust rate of 8% during the “After strengthening our strongest on international routes “Expanding airline networks third quarter of this year.” regional network in recent within Asia and between Asia and the widespread availability Carriers worldwide annually years, it is time to expand our and Europe, at 13%-15%. All of competitive airfares will transport goods valued at $6 trans-Pacific network and look regions experienced positive also help to drive further trillion by airfreight, which to markets such as Europe, freight growth for the six months growth in travel demand.” generates $50 billion in revenue Australia, Africa and Latin to June 30, but Asia-Pacific IATA director general and for airlines. Asia-Pacific airlines America,” the chairman and and Europe carriers accounted CEO, Alexandre de Juniac, carry 40% of global cargo traffic. chief executive of Hong Kong Air for two-thirds of demand. said: “The industry is taking Markets from Turkey to Cargo, Guo Song Zhong, said. ■

SEPTEMBER 2017 / ORIENT AVIATION / 11 More uptime, less downtime.

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(24%),Virgin Australia (21.8%) Air Seychelles (40%) and Austria’s Etihad board aborts Niki (49.8%) as well as 33% of Swiss-based Darwin Airways. Etihad sold its interest in Darwin loss-making strategy Airways, which was rebranded as Etihad Regional, in July. The Etihad Aviation Group strategy of building a network Hogan’s strategy has allowed Etihad to penetrate deeply into through a string of airline investments worldwide continues to markets in Europe, Australia fall apart as yet another of its joint ventures, airberlin, enters and India. Where partners could bankruptcy proceedings. co-operate, the in-company alliance of airlines also brought significant savings to the group in pilot training, aircraft maintenance Tom Ballantyne reports and fleet acquisition. But some of the airline investments were high risk. Alitalia, for example, had long been a financial and service basket case. Some airlines in the group have performed better than airberlin and Alitalia. A re-launched Air Serbia is a solid feeder for the Etihad network and the investment in Jet Airways t’s not the best of times for investments, or lack thereof, from to airberlin as well as supporting helped Etihad enter the potentially Abu Dhabi’s Etihad Airways its partnerships in Alitalia, airberlin, the airline as it searched for lucrative Indian market. Virgin and its parent, the Etihad Virgin Australia, Jet Airways strategic options for the business. Australia has become a viable Aviation Group. In late July, and Air Seychelles. Etihad’s “However, airberlin competitor for Qantas, although the airline reported a massive financial exposure to Alitalia has deteriorated at an it is still reporting losses and has I$1.87 billion net loss for 2016. and airberlin alone is reported unprecedented pace, preventing yet to give Etihad’s shareholders That bad news was followed last to be more than $4.5 billion. it from overcoming its significant a return on their investment. month by the announcement that The 2016 losses compare challenges and also from “A culmination of factors one of Etihad’s European equity with a $103 million profit for implementing alternative contributed to the disappointing partners, German low-cost carrier, the carrier a year earlier. Etihad strategic solutions,” an Etihad results for 2016. The board and airberlin, was bankrup. attributed the loss to one Aviation Group statement said. executive team have been working Another member of the off impairment charges, fuel That was an understatement. since last year to address the Etihad airline partnership, Italian hedging losses, an $808 million The beleaguered German carrier issues and challenges through a flag carrier, Alitalia, went into charge on certain assets and has accumulated more than $3 comprehensive strategic review administration in May after exposure to equity partners, billion in losses in the last six aimed at driving improved unions refused to support the mainly airberlin and Alitalia. years and has net debts of $1.4 performance across the group, airline’s latest restructuring plan. When the German LCC billion. The carrier and Germany’s which includes a full review of And it could get worse for went under last month Etihad economic ministry said in separate our airline equity partnership the Abu Dhabi airline group. said it would withdraw financial statements that Lufthansa strategy,” said the chairman When he announced the 2016 support from the struggling and another unidentified of the Etihad Aviation Group, loss, Etihad Airways’ interim carrier. “This development is airline are “far advanced” with Mohammad Al Mazroui. group CEO, Ray Gammell, said extremely disappointing for all plans for a partial rescue. At home base, Etihad the “ever-evolving competitive parties, especially as Etihad has Most analysts believe Etihad’s Airways CEO, Peter Baumgartner, environment is likely to impact provided extensive support to grand plan to rule the world’s said his airline faced the same overall performance in 2017”. airberlin for its liquidity challenges airways is in deep trouble. Under issues as the industry in general. Since Gammell formally and restructuring efforts over former group CEO Hogan, the “Overcapacity, declining succeeded James Hogan on July 1, the past six years,” said Etihad. airline group embarked on an market sizes on key routes and it has become increasingly clear the In April this year, the Etihad equity acquisition spree that saw changing consumer behaviour airline’s owners, the government Aviation Group said it had it acquire shareholdings in Alitalia are combining with a weak of Abu Dhabi, are far from provided “250 million euros ($295 (49%), airberlin (29.2%), Air global economy that is affecting happy with the returns on their million) of additional funding” Serbia (49%), India’s Jet Airways spending appetite,” he said. ■

SEPTEMBER 2017 / ORIENT AVIATION / 13 MAIN STORY TOO MANY FINGERS IN THE LEASING PIE? Agile aircraft lessors have been earning spectacular profits as the region’s airlines move towards domination of the global market. But increasing competition is depressing yields even as leasing companies pivot to Asia for growth.

By Tom Ballantyne

decade ago, Chinese aircraft lessors owned leasing arm, Wang Fuhou, who told delegates at a recent 22 of China’s 430 leased aircraft. In January Shanghai conference that “this is a highly specialized this year, Mainland controlled lessors had a and international funding and technologically intensive portfolio of 583 airplanes in a leased fleet of business. I believe we will see many withdraw or be forced 1,235 China-based aircraft. by business problems to quit. We don’t need this many AEven more attention grabbing is the number of Chinese (Chinese) aircraft leasing firms”, he said. lessors in play. “There are a lot of leasing companies in Managing director of aircraft leasing and financing China,” head of the Aerospace Finance Focus Group and platform, Novus Aviation Capital, Hani Kuzbari, said the a member of the Working Group on Transportation of the competition in China [among lessors] is putting severe Hong Kong Economic Development Commission, Dewey pressure on leasing factors and returns. There is “all-time Yee, told Orient Aviation last month. “The last count was 60.” high liquidity and all-time low returns. In the industry cycle He was speaking as Hong Kong formalized its grab we’re very much around the peak or post the peak,” he said. for market share in the lucrative aircraft leasing business – Separately, it is reported that certain Chinese lessors valued at $225 billion globally in 2017 - after changes in the have told prospective airline customers “whatever offer our tax regime were passed into law in Hong Kong in July. competitor has made, take 5%-10% off it. That is what we The new regime is intended to make Hong Kong will give you”. a genuine competitor with global aircraft leasing giant Dublin, and to a lesser degree, Singapore and China’s Tianjin special economic zone. A career veteran of the industry who also is a special advisor to the Board of Ireland-based Aergo Capital Limited, Yee said while the overall number of Mainland lessors is big, many of them only have one or two aircraft on their books. In the next several years, he said, there probably would be “a significant consolidation or inactivity by a lot of those lessors”. “Simply, we will have too many people in the sandbox. There will not be not enough toys to play with and not enough profit to make,” he said. Yee’s view is shared by the president of Minsheng Commercial Aviation’s aircraft

14 / ORIENT AVIATION / SEPTEMBER 2017 MAIN STORY

Speaking from Hong Kong, Yee 2.61%, 3.57% and 4.71%, respectively, said there is not only pressure on lease compared with 12 months ago. Boeing rates. “There is pressure on each other 737-800 lease rates have slumped to capture the market. All the big by 10.62%, although lease rates on boys are trying to grow as fast as they Airbus 320-200s increased by 3.84%. can,” he said. Significant decreases in returns also were “They’ve got a ton of money. recorded for B777-200ERs (-32.90%0). They have cheap bank money and Airbus 330-200/300s and Boeing 777- there are new players coming in 300ERs declined by 11.32%, 9.59% and such as asset managers representing 6.98%, also respectively. institutional investors and private The volume of entrants muscling into network investors that need yield the leasing business is hardly surprising. and are very happy with a 3%, Close to 42% of the global airline fleet 4% or 5% return on their money. is leased and the percentage is rising. In a So yes, there is a lot of pressure business once dominated by western lessors, on profitability at these lessors Chinese banks, institutions and individual in China.” global investors are eager for a share of the still Not everyone is so pessimistic and the lucrative business. state of the business is not just about China. Hong Kong- Bank of China’s Singapore-headquartered based head of Asia-Pacific at Avolon, Simon Hanson, is one BOC Aviation Ltd is a long term player in the industry, of them. Avolon became the world’s third largest lessor when while Hainan Airlines parent, the HNA Group, the Bank a division of the HNA Group, Bohai Aviation, acquired it of Communications (BOCOM), China Minsheng Banking for $7.6 billion last year. He said the industry is cyclical and Corporation and CDBALF are more recent entrants in the dealing with it is nothing new. industry via their rapidly expanding subsidiaries. Since becoming Chinese-owned, Avolon also has They target Chinese airlines, but also, increasingly, are acquired U.S.-based CIT Leasing for $10 billion. Following doing deals globally, traditionally the domain of Western the acquisitions, the lessor has expanded from a fleet of lessors. Chinese local governments, including Tibet and 200 aircraft to 921 at June 30 this year. The book included Xiamen, as well as insurers, also have launched leasing arms, committed orders. supported by government measures to boost growth. “What are the risks?” Hanson asked. “The risks in Senior vice president of BOCOM Leasing, Li Ru, said this industry tend to be exogenous risks we can’t foresee. I these trends are behind the fierce competition for clients suppose those on the horizon are geopolitical. We would be and qualified staff. “Profit margins are shrinking every concerned about the various environments and potential for year. Rents are falling, but our plane-buying costs are still instability around the world. Is the cycle going to be like the growing annually,” he said. To be noted is the fact that in last cycle? Definitely not. the case of China many domestic lessors only lease aircraft to “Could it be altered by the amount of capital we’ve seen domestic airlines. come into the industry? Possibly. There are certainly high When it comes to the Mainland, there are valid reasons levels of liquidity around the world that may dampen the for global lessors’ attraction to Chinese airlines. In a report effect of the aircraft financing cycle. But I suspect it’s the one released in May, “Land of Silk and Money, an analysis of shock we have not thought about that will mark a China’s Aviation Market”, Avolon’s head of strategy, Dick change in direction for the industry. Forsberg, highlighted the impact of China as the world’s “We are sort of approaching that point, but largest generator of outbound travel, with more than 120 it’s hard to see where it is going to emerge. We million Chinese visiting international destinations in 2016. have managed through multi-cycles and we are “Today, 150 airlines provide international services from big believers in aircraft being good long-term 82 Chinese airports, operating 800,000 flights annually on investments.” 1,200 airport pairs. China’s international air traffic has been There is little doubt that leasing rates are taking growing at an annual rate of 14% since 2010 and reached a hit in the present environment, geopolitical 126 million passengers in 2016,” the report said. Forsberg or otherwise. The latest figures from Europe’s forecast more than 3,000 additional aircraft will be required AviaAM Leasing, for the second quarter of this by Chinese airlines in the next decade of which less than year, indicated a downward trend in aircraft lease 50% have been ordered. All of which is music to the ears of rates compared with the same quarter a year ago. lessors. And there is universal agreement that Asia, and It is one of the key reasons Hong Kong has passed into China in particular, are strongly influencing the law its generous new tax regime for aircraft lessors. The rate erosion. law offers a tax rate of 8.25%, half of the prevailing Hong Narrow body A319-100 and B737- Kong corporate tax rate. See Hong Kong’s new tax regime, 300/400/700 lease rates have dropped by 4.94%, page 17.

SEPTEMBER 2017 / ORIENT AVIATION / 15 MAIN STORY

We are just beginning to scratch the surface [for lessors], certainly in China and India. Having a positive spin on Asia-Pacific is important, particularly if you put it in the context of what Hong Kong wants to achieve as part of that. Its right bang in the centre of the largest growing market in the world. We don’t really see an end to that at the moment

Simon Hanson Head Asia-Pacific Avolon

So how difficult will Group Holdings (CALC). Chief executive, Poon Ho Man, it be to attract lessors and their specialized told Orient Aviation the government’s decision to move ahead staff from Dublin, a city with cleaner air, lower living costs with a dedicated tax regime to develop the aircraft leasing and a better quality of life than Hong Kong? business in Hong Kong is welcome news for the industry. Yee said that question has been answered. A number “Hong Kong has a well-developed and sound financial of companies, such as Avolon and GECAS - Dublin-based infrastructure with a relatively transparent and simple tax AerCap and GECAS are the only lessors larger than Avolon - filing procedure,” he said in a statement. “It will be a new and some others have set up in Hong Kong. driver for economic growth with ripple effects and benefits in But it is not about setting up, he said. “It’s about locating employment and Hong Kong’s competitiveness in the global the special purpose vehicle (SPV) in the Hong Kong market. jurisdiction. The main reason there are a lot of companies In the meantime, “CALC is working towards being a in Ireland is that the Irish SPV enables you to enjoy certain full value chain aircraft solutions provider for global airlines. double taxation benefits because of taxation treaties between We are well positioned to capture significant opportunities Ireland and a number of countries. globally”, CALC chairman, Chen Shuang, said when the “Ireland has 70 or 80 treaties where you lease an lessor announced its annual results last month. aircraft from an Irish SPV to a third country. Because of Poon said CALC will deliver 20 more aircraft by year- the agreements, you have a lower withholding tax rate end and will have a fleet of 110 airliners in the same period. that is anywhere between 6% to maybe 7% or 8%. If you He expected to take delivery of 40 aircraft annually from don’t have that treaty in place it’s as high as 15% to 20% in 2020, with half of them to be leased to customers outside withholding taxes on the rental income.” China. For those leasing aircraft into China from Hong Kong, In July, it ordered 50 B737 MAXs, worth $5.8 billion Yee explained, the withholding tax rate previously for at list prices. They will be delivered by 2023. In 2014, the Mainland China was 7%. The rates were 6% in Singapore lessor made a US$10 billion commitment for A320s. “We and Ireland. hope to play a role in facilitating Hong Kong to become “The [Hong Kong] government lowered the double an international aircraft leasing hub. We believe that the taxation, the treaty rate, to 5%. It is now 1% lower than revision of the tax code will allow Hong Kong to emulate Singapore and Ireland. That 1% is quite significant if you and catch up with Singapore and other aircraft leasing are dealing with very large sums of money,” he said. hubs,” said Poon. “But we have less than half the double taxation Whether it can remains to be seen. A clause in the treaty agreements with other countries of Singapore and legislation requires a lessor to have its central management Ireland. The Hong Kong government recognizes this and and control in Hong Kong, which requires the entity’s is negotiating with countries with that in mind, especially executive officers and senior management exercising day-to- when it comes to aircraft leasing. In fact, some recent treaties day decision-making powers to be based predominantly in are actually more favourable than those with Singapore and Hong Kong. Ireland.” A foreign corporation looking to take advantage of That optimism is shared by China Aircraft Leasing Hong Kong’s lower tax regime cannot operate through a

16 / ORIENT AVIATION / SEPTEMBER 2017 MAIN STORY

Hong Kong branch office. It is estimated about 60% of the world’s leased aircraft are owned and managed from Ireland. Hong Kong’s new tax regime Will any of these companies move their headquarters to Hong Kong? for aircraft lessors Avolon is an interesting case in point. It is now Chinese- After more than four years of effort by the Working owned, but the lessor appears to have no intention of moving Group on Transportation of Hong Kong’s Economic its head office from Dublin to Hong Kong. It has offices in Development Commission, Hong Kong’s tax legislation Hong Kong, Shanghai and Singapore, said Hanson, but they for aircraft financing and leasing business was passed into are staffed by “coverage people” who look after relationships law on July 7. Under the concessionary tax regime, the assessable with airline customers and banks or in the trading area. profits from prescribed activities by a qualifying aircraft “We increasingly have a locally based legal presence, a lessor and a qualifying aircraft leasing manager are subject team of lawyers who are documenting our transactions. We to profit tax of 8.5%. find it very helpful to have lawyers in the same jurisdictions The assessable profits of the aircraft lessor are calcu- as our trading and airline customers,” he said. lated at 20% on the net lease rental payments excluding “But the main hub of the business is out of Dublin. We depreciation allowances. The changes in Hong Kong are in daily contact at multiple levels with video conferences legislation offer a dedicated concessionary tax regime to and telephone calls. That’s the way this business works. It’s aircraft lessors as well as aircraft leasing managers consid- very much about going back to the global hub, which is ering entry into the aviation leasing market in the region. Dublin. The tax treaty network also is a critical factor for air- craft lessors and Hong Kong is behind other leasing centres “Then you have the situation where you ask do you want on this front. The Hong Kong Special Administrative Region to replicate the environment that Ireland has spent many (SAR) government is committed to working towards years investing in and nurturing? Clearly, that’s the way extending its tax treaty network and intends to provide Hong Kong and Singapore are looking at it at the moment. more industry training given the potential growth of the “From an Avolon perspective, we’re here because we aviation industry. need to be close to our customers. This is where the growth is Given Hong Kong’s proximity to Mainland China and and we resource that appropriately.” its similar culture and language, aircraft lessors based in Interestingly, Hanson said being Chinese-owned did the SAR have the advantage of understanding the senti- not mean it made it easier to lease planes in China. “We have ments of the growing aviation market. The introduction of to compete with the airlines like everybody else. Even with the concessionary tax regime is a key step in the right direction. HNA airlines it’s a competitive process. It’s pretty much Around 93% of respondents to a PwC survey in business as usual for us. We are the same as every other lessor February this year said they were confident Hong Kong knocking on doors.” would become a promising regional aircraft leasing hub Hong Kong would not be wise to ignore the possibility and supported the government initiative. of Ireland retaliating to its new lessor rival. A tax director PwC understands several aviation investors have with accountants BDO Ireland, Angela Fleming, last month expressed interest and have commenced to plan their warned about moves [in leasing] by Singapore aircraft financing and leasing business in Hong Kong, and Hong Kong into China, particularly which signals a promising future for aircraft financing after Singapore announced an extension and leasing in the SAR. to its existing aircraft leasing regime * PwC Asset Finance and Leasing Tax partner, to 2022 and Hong Kong’s legislation Clarence KF Leung was passed into law. “While significant growth in Asian markets presents massive are the cornerstone of the aircraft leasing opportunities for Ireland, we cannot industry. Recent “hints” from Ireland’s new ignore the threats posed by those Taoiseach about tax cuts may be very welcome jurisdictions which are competing for in the leasing space. a bigger share of the aircraft leasing Avolon’s Hanson said: “Asia is a fast market,” she said. growing market. It has good future potential. “The aircraft leasing industry is There is the growth of the middle class. Sixty of such significant value to Ireland that per cent of the world’s population is here. When we cannot allow ourselves to become you look at the penetration of aircraft compared complacent.” with the more established markets of Europe She urged Irish authorities to and North America, there is significant look for ways to attract and growth in this region. It still excites retain the pool of me today as much as it did highly skilled when I arrived here 16 professionals that years ago”. ■

SEPTEMBER 2017 / ORIENT AVIATION / 17 NEWS BACKGROUNDER

New Harbin carrier strikes out for the world

It has only one plane and is owned by a local Chinese jeweler but that is not holding back Harbin’s Longjiang Airlines. It plans to be flying 40 aircraft by 2021, including seven A330s on routes to Sydney, London Heathrow and Los Angeles.

Dominic Lalk reports from Harbin

ongjiang Airlines’ At domestic Mainland (LJ Airlines) sole carriers, aircraft cabins are airline route is a daily only fitted with domestic 2,900 kms Harbin- first – generally equivalent to Hefei-Zhuhai A321 business class elsewhere in the Ltriangular service commenced world – and economy seats. LJ after receiving its air operator’s serves meals in both domestic certificate (AOC) from the Civil first class as well as economy Aviation Administration of class. Catering is provided China (CAAC) in February. by China Southern Airlines, The new carrier is 98% the largest carrier at Harbin’s owned by Harbin Xiangyu Co., a Taiping International Airport. gold and jewellery company and Zhuhai was picked as the has registered initial capital of inaugural destination, CEO Liang 800 million yuan ($130 million). explained, because the airline It is headed by chairwoman was “bullish on the growth and CEO, Liang Fuhua, a 2% potential of the route as the shareholder. LJ told Orient Hong Kong-Zhuhai-Macau Aviation it has “the support Bridge is about to open and it of all levels of government”. will take only 40 minutes to drive

The airline’s president and Longjiang Airlines president Zhang Yuming from Zhuhai to Hong Kong”. legal representative is Zhang LJ’s goal is to be Yuming, whose jewelry company Leasing Group (CALC) served confirmed to Orient Aviation Heilongjiang Province’s flag owns 98% of LJ Airlines. But LJ with a termination notice that following issues with the carrier. It plans to increase its the carrier’s day-to-day business in June that alleged the very first lease it had cancelled fleet by six aircraft this year after is run by LJ’s board director, Li young airline had failed to fulfil LJ’s second lease contract. taking delivery of an additional Xiang, and vice-president, Jia certain terms and conditions of LJ’s Harbin-Hefei-Zhuhai A321 and four A320s. In 2018, Tiesheng. Both Liang and Jia contracts signed last year for route is outperforming forecasts. it intends to acquire another were formerly members of Air the second A321. LJ bought From February to September, it seven A320s, followed by China’s senior management. Jia the A321 flying Harbin-Zhuhai carried approximately 100,000 seven more A320s in 2019 and, was in charge of alliances and from bankrupt airberlin. passengers and achieved an more interestingly, two A330s, international partner relations LJ confirmed to Orient average load factor of 80%. The one each in November and and was one of the signatories Aviation there was a aircraft arrived in a single-class December, in the same year. to the Air China-Lufthansa “controversy with CALC” configuration in Harbin after its In 2020, seven additional Sino-Europe joint venture. because of an unspecified short stint with airberlin, but it A320s and two extra A330s When Orient Aviation visited “deposit issue” and that it is has been reconfigured to include will arrive at the fleet. In 2021, Jia, Li and Liang in Harbin in considering legal action against eight lie-flat first class seats that there will be six A320 and three August, the airline’s planned CALC for misrepresentation. At sell for 8,000 yuan (US$1,200) A330 deliveries to the airline. second aircraft remained press time, the two parties had per round trip. Uptake is good, LJ will only install first class grounded after China Aircraft not settled their dispute. CALC LJ vice-president Jia said. on the A321s operating to

18 / ORIENT AVIATION / SEPTEMBER 2017 NEWS BACKGROUNDER

southern China, while the A320s after building secondary hubs in HNA Group is preparing to in 1979. The airfield is located will be fitted with a single-class Nanning and Xian and launching launch Heilongjiang Airlines, approximately 37 kilometres layout for 180 passengers. The a frequent flyer programme. also to be based at Harbin southwest of downtown A330s will have 260 seats, LJ needs to improve its Taiping International Airport, Harbin. It is the largest airport including 18-24 flat beds. distribution. At the time of but like elsewhere on the in north-eastern China. The first A330 is due at our visit, most sales were Mainland the growth of new In 2015, Harbin implemented LJ in November 2019. For made through the indirect carriers is being hampered by a 72-hour visa-free transit now, it planned to launch a channel. The airline is rolling acute pilot and slot shortages. scheme, allowing visitors from two to three times a week out a mobile app and WeChat Taiping International Airport 51 countries to enter Harbin for Harbin-Sydney route with the booking and it is opening is undergoing major expansion up to three days without a visa. long-haul jet, followed by an more ticket offices. In 2018, it that will include a new runway, a Yet Harbin remains A330 service to Singapore a forecasts 80% of sales will go 163,000 square metre terminal relatively isolated on the month later. Li and Jia told your through its direct channels. and 43 new aprons. By 2020, airline route map. While it correspondent that Australia The carrier is expected to the airport will accommodate boasts an extensive domestic was the favourite vacation spot face stiff competition in the 22 million passengers, up network, the airport is lacking for people from Heilongjiang. first years of operation given from 16 million last year. international connectivity. In 2020, LJ has the goal the number of airlines opening The Airport, formerly known The only scheduled of inaugurating A330 services in China and across the region. as Yanjiagang Airport, opened international services are Seoul first to San Francisco, followed (Asiana Airlines), Taipei (EVA by Melbourne, and then We expect Harbin will be one of Airways), Vladivostok (Aurora London-Heathrow, Paris and Los Airlines, China Southern and Angeles in 2021. Tokyo, Seoul the ten major gateways for international Sichuan Airlines, as well as and Ho Chi Minh City routes travel from China going forward. Bangkok, Macau and Nagoya will commence next year. (Spring Airlines). Lion Air Domestically, LJ will have At the moment, we don’t have any operates charter flights to 36 routes by 2021, including long-haul flights from Harbin, Denpasar and South Korea’s multiple daily flights to Beijing, but that will change in the future Eastar Jet offers charters to Shanghai and Guangzhou. Cheongju. Singapore’s Scoot has It has ambitions to carry Jia Tiesheng announced Singapore-Harbin four million passengers that year Longjiang Airlines vice president from December 1. ■

SEPTEMBER 2017 / ORIENT AVIATION / 19 B:216 mm T:202 mm S:182 mm

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Job Number: 10549738 Version: G CAS Exterior Client/Brand: Boeing/BCA Date: 8-17-2017 11:01 AM APPROVALS File Name: 10549738vG_BCA_CAS_EXT_202x273.indd QC: Steve Jablonoski Bleed: 216 mm x 286 mm Gutter: None Publications: Orient Aviation PA: Steve Hutchings PR: Pat Owens Trim: 202 mm x 273 mm Folds: NoneNone Notes: Bill to: 10677135 RET: Greg Olsen PP: Marybeth Oskin Safety: 182 mm x 253 mm Media/Color Sp: PRINT/4 COLOR AB: Kathleen Candelaria TM: Deanna Loperena/Kate Vilt Scale: 1=1 Country: None Vendor: None Actual Size: 202x273 mm Language: English Output%: None GCD: Eugene Varnado Colors: Cyan, Magenta, Yellow, Black AD: Sarah Frazer Fonts: Helvetica Neue (65 Medium, 75 Bold; Type 1) CW: Chloe Lebamoff AE: Megan O’Malley/Cara Hays ALL CONTENT WITHIN THIS FILE IS FOR OUTPUT ONLY BY END PRINTER/VENDOR. CHANGES, SHARING AND/OR DISTRIBUTING CONTENT IN WHOLE OR IN PART ARE STRICTLY PROHIBITED. LICENSING RIGHTS AND APPROVALS MUST BE REQUESTED AND APPROVED TO/BY FCB CHICAGO. Images: 10549738ct12_R1_BCA_CAS_EXT_203x280.tif (321 ppi; CMYK), Boeing_white_50mm.eps NEWS BACKGROUNDER

primarily because major Chinese gateways are already congested Mainland airline and there are insufficient slots to meet demand. Analysts calculate that in 2019, Beijing and Washington juggernaut powers could finally sign a new Open Skies agreement. The reason? The first phase of Beijing’s second across the globe airport, at Daxing, will open in 2019 followed soon afterwards by a new satellite terminal at Increasingly affluent Mainlanders are driving the monumental Shanghai’s Pudong Airport. The availability of more slots growth of China’s passenger traffic. Chinese carriers are at China’s two busiest airports looking beyond the Open Skies agreements of old as their will help solve a longstanding global market share explodes. belief in the industry that Chinese airlines receive preferential treatment in slot allocations in their home territory. By Tom Ballantyne The CAPA consultancy said it was an “open secret” that ecent equity links offered at US$722 by Hainan $830 with China Southern and slot allocation in China was between U.S. and Airlines and $880 by China $1,216.50 on British Airways. protectionist, was not transparent Chinese airlines may Southern Airlines. Delta’s lowest Earlier this year, China and did not follow International speed up moves to price for the route is $920. finalized a landmark Open Air Transport Association seal a long-awaited China’s biggest carrier, China Skies agreement with Australia (IATA) slot guide lines. “There Rnew Open Skies agreement Southern Airlines, is offering and late last year agreed to a are well cited examples of U.S. between the two nations. Sydney to London return, via new bilateral with the UK. The airlines being unable to secure If a breakthrough agreement Guangzhou, for $1,420 and China-UK agreement allowed Chinese slots, most recently is achieved, it would allow China Eastern Airlines is charging China to increase its flights to American Airlines trying for a the partnerships formed to $1,539. In contrast, Qantas Britain from 40 to 100 a week. new Los Angeles-Beijing route apply for anti-trust immunity Airways’s cheapest fare is $1,717, Chinese regulators are and United Airlines for a second to coordinate networks and Emirates Airline’s is $1,807 and allocating 28 of the 60 additional daily San Francisco-Shanghai pricing across the Pacific. Cathay Pacific Airways $2,147 flights to second-tier airlines, Pudong service,” it said. Chinese carriers have been from Australia to the UK capital. including Hainan Airlines and “The problems are not on an unprecedented global China Southern also has Tianjin Airlines, which already new. American Airlines had a expansion drive, offering low been selling flights from Sydney own traffic rights for service into well-publicized incident when fares on long-haul routes that to Seoul, via Guangzhou, for the UK. Other carriers who want attempting to secure slots for its is putting severe pressure on $588.30, more than one third to launch flights between the two Chicago-Beijing service. It had competing western carriers. cheaper than flying direct with countries will also be approved. to cancel the launch at the last At press time, return economy Qantas to South Korea. However, in the case of the minute and only received slots flights between Los Angeles Flying from London to U.S., Open Skies discussions much later. At the same time as and Shanghai were being Hanoi, also via Guangzhou, costs have stalled for months, these incidents, Chinese airlines

SEPTEMBER 2017 / ORIENT AVIATION / 21 NEWS BACKGROUNDER

have secured new slots.” flights. In 2015, Chinese airlines The situation is changing. In general, the European carriers overtook their U.S. rivals. This American Airlines has spent charged more and Chinese airlines year Mainland carriers account for $200 million for 2.76% of 61% of seats and 57% of flights China Southern and Delta has charged less, with Hainan Airlines between China and the U.S. paid $450 million for 3.55% of appearing to be one of the most competitive. In the meantime, the fare China Eastern. While no equity dumping by Chinese carriers is involved, United Airlines this Russia’s Aeroflot, which can connect in international markets year signed a deal with Air traffic over its Russian hubs, is continuing to hurt their China to improve connections also has low average fares. competitors. OAG airline data has and enhance frequent flyer reported the average one way benefits between the airlines. Emirates has maintained one of fare on flights between China This new eagerness on the highest yields in the market, with average and four of the largest Western the part of Chinese carriers to fares that are 50% higher than the average European countries - France, seek closer ties with western Germany, the Netherlands airlines is not confined to U.S. fare in the market as a whole. and the UK - was $538 in carriers. Hainan Airlines has In the last 12 months, scheduled March this year, although bought 13% of Virgin Australia capacity between China and Europe there were wide variations for $114 million and China in price between airlines. Eastern recently announced it grew by 11.4%, which was close to But it’s not all up, up and would acquire 10% of the Air the 11.6% expansion for the year to July away. Two months ago, United France-KLM Group for about Airlines announced it would $440 million. China Eastern, 2016. In July 2017, typically the month with close its three times a week San Delta and Air France-KLM are the second highest level of capacity being Francisco-Hangzhou service in members of the SkyTeam alliance. operated by airlines, seats offered grew October because of weakness China Eastern believed these in the China market. “In every investments would speed up its by 12.8%, to almost 72 million, market we serve, we continuously global expansion. Having partner between the Mainland and Europe review and measure demand carriers in three continents and performance,” said a would build closer commercial OAG DATA 2017 United Airlines spokesman. ties, through equity deals and “After careful analysis, we have market cooperation agreements, that enjoys a close relationship recognition that the future determined this route is not between the three airlines. with the regulator,” CAPA China-U.S. market is huge meeting our expectations and is “The three of us are all wrote in a recent analysis. and the strategies of 10 years not economically sustainable.” renowned international airlines A decade ago, U.S.-China ago no longer apply. A U.S.-China Open Skies with a history of cooperation, Open Skies was regarded as Historically, U.S. airlines deal would certainly turn around which lays a solid foundation standalone market liberalization, have dominated routes between such decisions. With anti-trust for this strategic investment,” irrespective of partnerships. But China and North America. In immunity and a more extensive said the chairman of China now U.S.-China Open Skies is 2011, the Chinese airline seat joint venture with Air China, Eastern, Liu Shaoyang. intertwined with the prospect of share of the market, excluding United could return to Hangzhou “We will also start establishing joint ventures with Hawaii and Pacific Islands, at low cost and at low risk. cooperation in resource-sharing antitrust immunity, CAPA said. reached a decade low when Whatever the outcome, and e-commerce. The goal is to Chinese airlines are Mainland carriers accounted there is no sign Chinese enhance our internationalization increasingly forming joint for only 37% of U.S.-China expansion will slow. International in terms of competitiveness and ventures, informed by the seats and 36% of U.S.-China air routes into China jumped brand,” said the carrier’s chief 35%, to 660, last year, the marketing officer, Dong Bo. Civil Aviation Administration Air China, said analysts, does of China has reported. not feel close to United Airlines, With manufacturers which has the highest presence forecasting Chinese airlines of its own metal in the Chinese will need up to 6,810 new market. “Air China questions planes in the next two decades whether United actually wants to meet Mainland passenger Open Skies. There is unlikely to demand, there is no doubt be any government deal without a large proportion of those the support of Air China, the aircraft will be plying routes flag carrier, and a major airline that cross China’s borders. ■

22 / ORIENT AVIATION / SEPTEMBER 2017 HOST CLOSER TO PREMIUM GUESTS Norbert Kettner, Managing Director, Vienna Tourist Board

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Orientaviation_host_202x273.indd 1 18.08.17 08:54 COVER STORY

ATTUNED TO THE MARKET

Launched from the ashes of a failing full service carrier four years ago, HK Express has ridden the upward curve in a market hungry for quality low-cost carriers. Slot availability has curbed expansion, but the carrier is circumventing the constraint and expanding, CEO Andrew Cowen, told chief correspondent, Tom Ballantyne, in Hong Kong.

Photos: Graham Uden

24 / ORIENT AVIATION / SEPTEMBER 2017 COVER STORY

SEPTEMBER 2017 / ORIENT AVIATION / 25 COVER STORY

ou would think that an airline boss trying to destinations in Mainland China that it would like to serve grow his business at an airport and in a region for quite a while yet. clogged by congestion and slot shortages would Yet Cowen stressed: “Hong Kong airport is working be pulling his hair out, but Andrew Cowen, with the Civil Aviation Department. They are very alert to the CEO of Hong Kong-headquartered budget the difficulties airlines have in securing slots. Naturally, they Ycarrier, HK Express, is far from fazed by the situation. want to support growth at the airport. They are working very He is bent on expanding the budget carrier regardless of hard. There’s no question about that. There is a program of the region’s operational limitations. And his intentions are not action underway to increase capacity at the airport’s existing all talk, a situation made clear by the airline’s latest statistics. two runways. Close to 345,000 passengers flew on the carrier in July, which “That said, there is certainly a great desire on our side for was a 38.8% increase over the same month in 2016. In the that third runway to be built and for the full three-runway past 12 months, HK Express has grown by 22.6%, and system to be operational.” carried nearly 3.4 million customers. The operating circumstances in Hong Kong make HK The results were achieved despite slot constraints Express’s ever improving results impressive. Ultimately at its home base and severe air traffic congestion along majority owned by China’s HNA Group, the airline that was China’s coastal air ways into Hong Kong. Hong Kong transformed from full service carrier, Hong Kong Express, to International Airport’s (HKIA) $18 billion third runway, an LCC punches above its weight. approved last year, will not be fully operational until 2024, It started flying with three A320-200s and now operates which meant that HK Express could not fly to 30 or 40 an all Airbus fleet of 12 A320-200s, four A321-200s and

26 / ORIENT AVIATION / SEPTEMBER 2017 COVER STORY

three A320neo. It has nine A320neo and eight A321-200s Hong Kong and China the key competition is the Mainland in its order book. It flies to 26 destinations in nine countries, Chinese carriers coming the other way and bringing many including nine airports in Japan, making it the airline with Mainland China visitors to Hong Kong,” he said. the largest number of flights between the two countries. “This means you are competing with Mainland carriers Also in its network are South Korea, Taiwan, Thailand, for sales on the ground in China. That’s very hard to do when Vietnam, Cambodia, the Philippines and the Western Pacific you have a limited number of frequencies and you are only island of Saipan, Kunming and Ningbo and charter flights to flying to Hong Kong and so on. Baotou and Lanzhou. “This was one of the rationales for establishing U-Fly. Cowen rejected any suggestions that HK Express’s By partnering with Yunnan’s Lucky Air, Urumqi Air and growth in China has been curtailed by the fact its HNA- Chongqing’s West Air as well as Eastar Jet - and hopefully owned sister airline, full service Hong Kong Airlines, has a more airlines in the future - effectively we are partnering with large network on the Mainland. airlines that have very strong positions in their local markets. Destinations across China are available to the airline’s “They have very high brand awareness and extensive passengers through its partners in the world’s first budget networks. So the U-Fly Alliance is a relatively low risk way for Alliance, U-Fly Alliance, he said. U-Fly Alliance members us to access the quite complex and certainly very competitive are Lucky Air, Urumqi Air and West Air in China and South China market. Korean budget carrier, Eastar Jet. “We can offer those destinations via interlining with “I should highlight what the U-Fly Alliance is all about. our partners. Its early days, but we truly think: ‘let’s lay the We all understand that when it comes to air services between foundations now and we’ll get the benefits in time’.” As for overlapping with Hong Kong Airlines, he said: “Obviously, there is some overlap, but I prefer to say it is not so much overlap but more about offering a broader choice of brand and products in that particular market. “For example, both carriers fly to Tokyo Narita. In our mind it’s a simple execution of a twin brand strategy, so generally our approach is: ‘let’s work to spread our footprint more broadly because there is half the world’s population within five hours flying time of Hong Kong’.” Tying together the U-Fly Alliance arrangements has taken longer than anticipated, Cowen said, with delays mostly about the technical challenges. “In the case of Lucky, we are interlining across HK Express’ Navitaire reservation system and TravelSky,” he said. “As you might expect, there was a lot of complexity. We had hoped to move faster, but we are solving technological

Infrastructure – both airports and air traffic control – remained HK Express’s biggest challenge “by some way”, but Cowen is not complaining. Full marks and three gold stars to the planners in this part of the world who are able to move forward faster than elsewhere. Unfortunately, it is still not as fast as travel is growing. It’s a constraint that makes forward planning difficult

Andrew Cowen Director and CEO HK Express

SEPTEMBER 2017 / ORIENT AVIATION / 27 COVER STORY

issues we think will return a lot of dividends. “You have to start somewhere. That is why, when we for market expansion. “This circles back to slots. It’s a bit of a stand back, we can see we have gained access to a very juggling act between [scheduling] our aircraft deliveries and complicated China market in a low-risk, pretty inexpensive making exit plans for aircraft to enable that standardization. way. We have partnered with some very strong LCCs. We We have to be in a good position to grab slots when they come are solving technological challenges and then, as growth up.” However the fleet management plan is resolved Cowen continues, hopefully we will reap the dividends of that.” HK said the carrier should have 24 to 26 aircraft by year-end. Express was preparing to go live on Lucky Air’s network at Future aircraft orders remain an open question. Cowen press time. said: “We are reasonably happy with the commitments we Another recent development Cowen is keenly have. To go beyond them is premature. It is still a few years anticipating is the value of the partnership between Virgin to the third runway and there is not enough clarity about slot Australia, which is now flying to Hong Kong, to HNA Group availability [once the third runway opens]," he said. carriers including Hainan Airlines, Hong Kong Airlines and “It does not make sense to order three aircraft or 13. HK Express. If you’re going to do an order, do it properly: 30, 40 or “We have had a number of preliminary discussions with 50. We are comfortable the demand is there, but until the Virgin Australia,” said Cowen. “It is one of the critical steps infrastructure has caught up with that demand, it’s a bit risky in allowing us to complete all our interline arrangements, [to acquire more aircraft]. which are fairly well advanced. We think there is a great “Then, you have to overlay the general competitive opportunity.” environment, the economic situation and the political He sees Australians and their families flying to Hong situation when making the decision. Putting all this together, Kong with full service Virgin Australia and then taking we are very happy with the commitments we have made and advantage of his LCC to make side trips to China, Japan, think ‘let’s be a little bit cautious’.” Vietnam or other destinations. Further ahead, HK Express may order wide body aircraft. He also sees travelers from the carrier’s secondary “It’s an open question for us,” said Cowen. “In no way are we Japanese destinations, rather than backtracking to catch saying no to that, but only that it is a little early for us. flights to Australia from Tokyo, travelling on HK Express to “The A321 has given us an extra 50 seats per slot pair, Hong Kong to connect with Virgin flights. “That’s where we or around 27% more seats, which is nice growth without think there is a really great opportunity,” he said. consuming slots. In the A321 (230 seats), we have an In the meantime, there have been some challenges economy cabin that is not much smaller than most full in building the HK Express fleet. It is flying three highly service A330 operations. They have something like 240 to efficient, fuel-saving A320neos and had planned to have 260 or maybe 280 seats. another two of the type in its fleet in 2017. “To have a very cheap aircraft at more or less the same Cowen refused to take the aircraft because of well capacity, while being taught how to grow in aircraft size, publicized reliability issues with their Pratt & Whitney hopefully puts us in a position in a few years to be confident engines. “We have been in negotiations with Pratt &Whitney we can comfortably fill wide bodies.” about that and I am happy to say we are receiving very good Network-wise, the next major event for the carrier support from them. They are making a very significant effort will be the planned launch of flights to Guam, via Japan’s to address the engine’s issues,” he said. Nagoya, in October. The LCC used to operate a direct Hong The delivery delays have meant plans to remove two Kong-Guam service, but cancelled it last year because of soft non-standard A320s, equipped with CFM engines, from the demand and high costs. fleet, have changed. “In the early years of an LCC, it is quite “Coming off Hong Kong – Guam was not to come off normal to have a mix of aircraft that is not as standardized as forever. We decided to suspend the service because we are you would like. We have been taking advantage of those neo always under pressure to optimize the use of our slots. I don’t and A321 deliveries to simplify our fleet.” want to say we go in, out, shake it all about. We don’t operate While the airline wanted to standardize its fleet, he said, like that. We are very serious about any market we enter. We it also had to make sure enough aircraft were kept on hand want to stay there for the long term,” he said.

28 / ORIENT AVIATION / SEPTEMBER 2017 COVER STORY

number of outbound travelers from Hong Kong, the airline is working hard to attract more inbound passengers. “The fact we fly so much to Japan means we are establishing a reasonable degree of awareness of HK Express in Japan,” he said. “This allows us to grow our proportion of sales at that end of the route. It’s a means of spreading our net wider and not having all our eggs in one basket.” The carrier has been building a series of associated “But sometimes various variables businesses and offerings that have enhanced the overall come together, for example demand, product. They include reward-U, a frequent flyer program the general yield pressure and so on. It that offers an efficient “any seat redemption” process to makes sense to redeploy the assets until certain aspects of members with no blackout dates. market conditions change. In our return to Guam, being Started a year ago, it has more than one million members. granted Fifth Freedom rights through Japan, aligned with U-FLY Holidays, still small but growing, sells holiday the fact there is a strong history of travel between Japan and packages. The carrier also has a free corporate membership Guam, made it a far better prospect.” club; a program to attract small business travelers. It offers Asked if he was nervous about the the U.S. / North increased flexibility, convenience and value for money for Korea war of words and North Korea’s threat to target Guam, their HK Express tickets. Cowen said: “I don’t know if nervous is the right word, but “Most of these things are orientated to the leisure traveler, certainly we are very alert to the ongoing situation and, as you the family traveler, the price-sensitive traveler. I want to would expect, we have contingency planning for reasonably highlight the fact that we have invested a lot in our small foreseeable scenarios. business product, U-Biz. People tend to think of Hong Kong “None of us can look into the future. Who knows? It as a place of big corporates, but some 95% of businesses are could all be sabre rattling and die down, which we very much actually SMEs (small to medium enterprises),” he said. hope it does. Or it could clearly deteriorate, but certainly we “Small businesses are price sensitive. We are seeing great want to ensure our passengers safety. We continue to track growth in passengers taking advantage of that offering. We the situation very carefully. The safety of our guests is the top remain very determinedly to be low fare, low cost and very priority. That said, the bookings on Nagoya-Guam, our first technology enabled - but not too fancy about technology. Fifth freedom route, are going very well.” We want passengers to be able to do business with us easily. Cowen won’t be specific about cities on his planning Travelling on an LCC does not mean you are not going to get radar, but admitted the carrier had a “Top 20” list. “Our good service.” ■ data base runs into hundreds of destinations. But we have an ongoing analytical and evaluation process that is always running with a top ten or a top twenty destinations,” he said. A practised LCC hand “We are keen to fly to more Japanese destinations. We’d South Africa-born Cowen has a wealth of experience like to do more Chinese and more Southeast Asian routes to in aviation. He started his career at British Airways in develop our network into a fairly broad base.” 1989, eventually managing the airline’s financial affairs Despite the airline’s high load factor and its best on-time at its American business unit in New York before he was departure performance (OTP) in Hong Kong, Cowen wants promoted to Head of Strategy for BA’s low-cost carrier, more of the market. The carrier’s logic is that if a passenger is Go. He was a member of the group that negotiated a on board a HK Express aircraft he or she is not on someone management buy-out of the LCC that the participants else’s aircraft. later sold at a profit to EasyJet. “You are able to upsell all the ancillary revenue to the A graduate of City University, London, Cowen is passenger. And, if you do a good job with that passenger or a qualified chartered management accountant whose experience includes management roles at low-cost car- that guest, hopefully you have an ambassador who will tell riers in Britain, the Middle East, Vietnam, the Philippines friends about the fabulous price and experience they’ve had,” and Japan. Before he took on HK Express, he guided he said. the establishment of Japanese LCC, Peach Aviation, an “That’s our basic strategy, somewhat reinforced by very Osaka-based joint venture initially owned by Japanese competitive market conditions that are putting pressure on and Hong Kong interests, to launch. yields. It does not make sense in such a market to try to drive From 2005 and 2009, he was CEO of Saudi Arabia’s up yields. You are left high and dry. Sama Airlines where he was the leader of the start-up “It does not mean you are trying to drive yields down, but team that put the carrier into operation. In 2009, he we want to ensure we remain price competitive at all times moved to Kuwait’s Jazeera Airlines as acting CEO before and fill the aircraft.” turning his attention to the Asia-Pacific. As well as becoming a preferred carrier for an increasing

SEPTEMBER 2017 / ORIENT AVIATION / 29 NEWS BACKGROUNDER

Going nowhere on the capacity treadmill

Srilankan Airlines CEO, Suren Ratwatte, has taken on the job of rebuilding SriLankan Airlines, but his efforts could be in vain as Gulf carriers saturate his home market with capacity and cheap fares he can never match.

By Tom Ballantyne

riLankan Airlines passengers on flights to the passengers on Sydney -Singapore the notionally representative CEO, Captain Suren UAE actually disembark in the flights are going to Singapore, carriers onto their airlines, said Ratwatte says UAE. The remaining 68% go whereas only 4% of passengers Ratwatte. “The whole idea of there is only one everywhere else. Given the fare on Sydney-Doha flights are a bilateral agreement is a joke. word to describe structure of airlines today you going to Doha. The remaining It does not apply anymore. Sthe Gulf carriers’ collective know he who has the deeper 96% are going elsewhere.” These guys come in with deep capacity attack on his home pockets is going to win. Essentially, Middle Eastern pockets – and great service I market - “ridiculous”. “Here is an interesting airlines and some other carriers must add – and they dilute yields Since Sri Lanka’s 25-year civil statistic. Approximately 44% of are draining the traffic from to the point where the business war ended in 2009, Ratwatte told Orient Aviation at a Sydney CAPA conference, the number of seats into the country’s international airport had jumped by 86% as the economy recovered from the domestic conflict and tourists to the island country increased. “That is good,” he said. “It means more people flying in. But who added that capacity? It’s pretty obvious. It’s the Gulf carriers. If you take the increase in seats by the Gulf carriers alone it’s 155%. This is twice the additional capacity of all other carriers flying into the country, including Sri Lanka’s national carrier. “Today, Emirates Airline and Etihad Airways serve Colombo with 73 flights a week. SriLankan operates 14 flights on the same routes. Qatar Airways flies 21 times weekly to my country. My If I had no financial constraints I would be happy airline operates seven flights between Doha and Colombo. to take five narrow bodies annually for the next couple of years “They have six times as much because the Indian market is huge and I need to cash capacity as we do in the same in on it before anybody else does market. You can see where this is going. Where do all these Captain Suren Ratwatte passengers go? Only 32% of Srilankan Airlines CEO

30 / ORIENT AVIATION / SEPTEMBER 2017 NEWS BACKGROUNDER

becomes non-viable,” he said. and the Maldives. They are in “The Europe to Sri Lanka our natural market with 300 average fare more than halved million people. The South Asian between 2013 and 2016, which market still offers plenty of is not a sustainable yield. You room for growth,” he said. cannot continue to operate as a The carrier recently normal airline unless someone announced it would start Sri else is making up the difference.” Lanka-Melbourne in October. What happens in the China is an obvious growth end? “In 2012, we went to market. SriLankan flies daily a whole bunch of countries: to Guangzhou and five times Heathrow, two destinations in a week each to Shanghai and Italy, Paris, Frankfurt, Zurich and “I would like to see us as a “a little bit of downsizing” of Beijing. “I’d like to go daily Moscow. The numbers were 100% private airline. I do not staff and includes a network [to Shanghai and Beijing], but reasonably healthy. Today, my think governments should run rationalization and a debt there are no slots,” he said. European route network is one airlines in this day and age. It does resolution plan. “Debt is “We also fly to Kunming. We destination - London. I could not not make any sense at all. But it our biggest problem. It’s are struggling a little with it so operate [anywhere else] without is a big mental shift on the part all government debt so the we are looking at that one very bleeding to death,” he said. of the government to disinvest government has undertaken closely. It’s almost all leisure traffic Ratwatte is a pilot of 30 completely so let’s see how it to sort it out. There will be and therefore very seasonal.” years experience with more goes. But certainly, we need the tinkering around the edges Ratwatte holds both Bachelor than 18,000 flight hours on capital and it doesn’t make sense and I will have a much better and post graduate degrees aircraft including the B777 and for a country like Sri Lanka to bottom line,” he said. from Embry Riddle Aeronautical the A380. He took charge at invest state capital in an airline.” The airline flies to 40 University and is a Fellow of SriLankan in late 2015 and has Ratwatte is waiting for international destinations, but the Royal Aeronautical Society. the mammoth task of turning the Sri Lankan government to the network substantially favours He is well known in the field of around the flag carrier. approve his restructuring plan. the subcontinent. “We are the aviation human factors and has The news is not all bad he The primary barrier to the carrier’s dominant carrier into India. We published several research papers told Orient Aviation. He foresaw growth is available capital and have more destinations in India on the subject. Before he took profits for Srilankan in the fiscal he believed the government than any other foreign airline. on SriLankan he was Human year to March 2018 despite the had to “act quickly” to advance We intend to build on that.” Factors Manager at Emirates. carrier’s net loss of $15.1 million in restructuring process. It operates an all Airbus But his past employment at the 12 months to March this year. “We have had the inability fleet of eight A320s, four A321s the Gulf carrier does not stop “We have beaten our to cash in on our captive market and 13 A330s, including two him bemoaning the “vicious revenue forecast for each month in South Asia. If we don’t act recently delivered A320neo cycle” his former employee of the current financial year. quickly, we will be left behind and one A321neo. Three and other Gulf carriers have Our big problem is our cost as ever increasing capacity more A321neo are due to sparked in his market. base. If we can reduce that we from the Gulf and India is arrive by March next year. “It never ends and airlines will be profitable by the end of added to the market. We will “If we a draw a 1,000 mile like mine, with limited access the financial year,” he said. lose market share,” he said. circle around Colombo, key to capital and limited financial An added challenge for Ratwatte’s strategy has destinations include Hyderabad support from government, are the SriLankan CEO is the going to find that it is almost government’s intention to I would like to see us as a 100% impossible to compete,” he said. privatize the carrier. Emirates, “Historically we have been a which sold a 43.6% holding private airline. I do not think governments capacity-driven business model. in the airline in 2008, has should run airlines in this day and age. If others add capacity and you denied it is an interested don’t, you are left behind so buyer second time around. It does not make any sense at all. you add capacity. Then your “Emirates have other But it is a big mental shift on the part of the seat factors drop and you add challenges at the moment,” government to disinvest completely more capacity. You are running said Ratwatte. “There are other around just to fill these flights. carriers interested, but probably so let’s see how it goes. But certainly, Irrespective of how good your an outside investment group is a we need the capital and it doesn’t service is, it does not matter. It’s more likely buyer. To be honest, make sense for a country like Sri Lanka a purely price driven market. As I don’t have a lot of say, but I try you keep adding capacity you to guide the government in the to invest state capital in an airline keep driving down the price. I right direction on the issue. don’t know where it ends.” ■

SEPTEMBER 2017 / ORIENT AVIATION / 31 NEWS BACKGROUNDER

MAB boss forecasts a golden decade for airlines Malaysia Airlines group managing director, Peter Bellew, may only be midway through his transformation of the carrier, but he has absolutely no doubt about the profits ahead for Asia-Pacific airlines.

By Tom Ballantyne

“Golden Decade” things happen so fast. As an is ahead for industry, we need to keep up airlines, the group with technological change. If we managing director don’t, we are going to have our of Malaysia bread and butter stolen by the AAirlines, Peter Bellew, predicted technology companies,” he said. at Sydney conference last month “The market is going to and added the cost of fuel will play into our hands. Even if we be even lower than it is today. do nothing there are a billion “The massive investment in people in the world today with renewable energy by banking passports. In a short number giants such as Goldman Sachs of years there will be 1.7 billion and Morgan Stanley, other people with passports. investment banks and sovereign “That’s 700 million more governments will result in a sea people who want to travel change in the price of oil,” he said. compared with today. It is “Around late 2019 or in breathtaking to me to see the 2020 we will reach an inflection growth in the number of people point with the usage of oil. from China that travel and to Renewables will be coming on see where they travel, how stream in big, big, big numbers often they travel and what they and that will lead us in the to do when they get there.” next decade to oil stabilizing at He believed airlines outside around $30 to $35 a barrel.” China have been very poor about The low fuel price would have developing websites and skilled an impact on the construction staff to address this market. “The costs of aircraft. Lower fuel At a time when everybody else small number of airlines getting costs and lower fuel by-product their acts together about China’s costs would make it cheaper is starting to skim people for potential will make a lot of money. to manufacture composites these things – luggage, My personal experience has and therefore cheaper to food, entertainment and been that the Chinese are very produce aircraft, he said. open to carriers from around the Bellew, a self-confessed credit card use - we’re not going world operating in their market technology geek who spoke to do that. We want to regain our as long as you show them some at CAPA’s Sydney conference proper respect,” he said. last month said the first mobile position in the next couple of years “Among many of my enabled phone, the Nokia 7110, as a quality five-star carrier dealing colleagues we don’t. A lot of was revealed to the world in 2000. with business people these new people who are “By 2010 European carrier, travelling, these new market Vueling, was the first airline to Peter Bellew people, they’ve never heard of have full mobile check-in. These Malaysia Airlines Berhad group managing director global distribution systems or

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APEX tickets. They don’t have the legacy thinking we have. “They want to buy a seat on their mobile phone in a minute and not be caught up in the complexity we generally have in the transaction.” Bellew also believed the artificial intelligence that is being applied to the development of autonomous cars would progress to aircraft in the next decade. “I don’t think we will see one pilot airlines he has visited in recent anymore. It will be something wrong with your brand,” he said. aircraft, but I do think the manning months have their customer else. Maybe IATA should have set “In the month of last of aircraft with four pilots on service run by Chat Box. “It’s up its own blockchain payment December, we hit a network some long-haul aircraft will go very, very effective. Chat Box system by now so we don’t pay wide load factor of 90%. That down to three or two,” he said. can process a customer’s any costs for processing payments. was the highest load factor of “Over flight costs will query seven times faster than That’s going to happen.” any full service carrier in the be reduced because of rapid a human and there’s a lot less In the meantime, MAB’s five world last December so there advances in performance based attitude,” he said. Chatbox is a year transformation program is nothing wrong with the navigation. There will be much digital messaging platform that is well underway, with Bellew brand. The brand is strong.’’ shorter routes into and out of enables collaboration between expecting the carrier, which Bellew is committed to airports and on final approach. businesses and their customers. already is in the black on a preserving the airline’s status There will be more airspace “I’ve been a geek and a quarterly basis, to return to full as a full service carrier and because there will be more hacker since I was very young year profitability in 2018. The has reversed decisions by his efficient use of airspace. and I am already seeing, because brand has recovered from the predecessors to increase business “In maintenance, we are I’m plugged into so many new battering it took from the loss of through the internet and away starting to see the earliest, earliest technologies, airlines sending me two aircraft and 537 passengers from travel agents. He also has benefits of technology. The predictive messages and booking and crew in 2014 and is seeing axed plans to unbundle fares two principal manufacturers are engines telling me you are going load factors above 80%. He and said the airline would not be much, much better at using the here on this date, this is the flight said the tragic accidents are still charging extra for bags, food, data streams coming off aircraft you should be taking. That’s going having a massive impact on staff. entertainment or credit card use. to carry out predictive analysis to happen. Voice services are “I’ve no doubt there are Last month, he revealed of maintenance requirements. going to become very common.” many people who have a negative he is working with Northern Modern aircraft, generally, are “Somebody will come up perception of us because of Ireland’s Thompson Aero more reliable. All these factors with a new GDS that will cost what happened. But the brand, Seating on a customized flat-bed will lead to a golden decade much less than the rest. We all I believe, has recovered very well configuration, with direct aisle of opportunity for airlines to pay mostly 1.5% to 3% in credit in pretty much all marketplaces. access from every seat, for the start making some money.” card processing costs and charges. You don’t get load factors of premium cabins of his incoming He said that some of the Bitcoin probably won’t be here over 80% if there’s something fleet of 10 B737 MAX 10s. ■

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Airbus names China innovation centre boss Boeing and GAMECO sign

Airbus has appointed Luo Gang as define the future of flight by identifying agreements with Hong CEO of its planned innovation centre in the next big transformation in aerospace, Kong research centre China, but said it would not announce the said Airbus in a statement that location of its research and development announced Gang’s appointment. ■ The Aviation Services Research Centre facility until later in the year. (ASRC) at Hong Kong Polytechnic A Tianjin University electrical engineering University has signed a Letter of Intent graduate with an MBA from London Business with Guangzhou Aircraft Maintenance School, Gang spent three years developing Engineering Company Ltd (GAMECO) to Uber China until it was sold to Chinese join the ASRC. The Hong Kong university entrepreneur, Didi Chuxing last year. He also agreed to continue a joint program of also worked for UK retail forecasting firm, collaboration with Boeing. The ASRC enters Rangespan, which was bought by Google. a new phase in its development this month Gang, who will report to Airbus CTO with the opening of a research centre that Paul Eremenko, will establish the China will address, among its projects, automated innovation centre by year end. “China is a damage inspection and assessment, aircraft powerhouse of innovation now and has a surface preparation and inspection and new strong and complete ecosystem, including smart operating solutions for the aircraft hardware, software and artificial intelligence. MRO industry. ■ Extending this know how to aerospace will advance manufacturing” he said. The goal of the new centre is to Spairliners joint venture appoints new sales boss Honeywell joins with ARI to advance aircraft solutions Spairliners, which provides aircraft Honeywell Aerospace’s wholly owned Honeywell Aerospace Asia Pacific component care packages for the A380 subsidiary, China Aircraft Disassembly president, Steven Lien, said: “There are big and Embraer E-Jet family, recently Centre (Hong Kong) Ltd and Aircraft opportunities in the region’s MRO market, named Cornelius Dalm to succeed Recycling International (ARI) have which is expected to grow at six per cent a Fabrice Dumas as head of sales and signed a Memorandum of Understanding year. In the Asia-Pacific, Honeywell has seven marketing at the AFI KLM E&M/Lufthansa to investigate co-expansion of aircraft aftermarket service sites. By partnering with Technik joint venture. Headquartered maintenance and dismantling at ARI’s ARI, Honeywell is improving our operating in Hamburg, the company’s customers China Aircraft Disassembly Centre and repair capabilities to provide local include Qantas Airways and Malaysia (CADC) in Harbin, northern China. ARI customers with better support. Airlines Berhad. Dalm spent five years deputy chief executive officer and chief There is surging demand for fleet MRO in at Lufthansa Technik where he was most operating officer, Christina Ng, said: “ARI China and the trend is expected to continue, recently head of contract management has accumulated a wealth of experience in said ARI. Combined with UAM, a leading in the corporate sales division. ■ used aircraft solutions, including aircraft U.S. global aviation service provider that ARI dismantling technology, aircraft asset acquired in March, CADC in Harbin will soon management and business operations. ARI’s commence operations as a global platform for aircraft recycling platforms, UAM in the U.S. mid-to-old life aircraft solutions. and CADC in Harbin, can service global Honeywell is a Fortune 100 company demand for mid-to-late life aircraft asset that provides products and services for management.” commercial, defence and space aircraft. ■

Boeing to establish in-house avionics division

Boeing will build and operate its own and Honeywell International Inc. Boeing Avionics Unit that will expand Boeing said last month the new the company’s portfolio into the business, which will employ 600 staff by equipping of commercial and military 2019, has been established in consultation jets. The decision will provide greater with suppliers. It will be headed by a senior competition for two giants of aerospace Boeing defence leader, Allan Brown, who electronic systems, Rockwell Collins will report to Boeing CTO, Greg Hyslop. ■

SEPTEMBER 2017 / ORIENT AVIATION / 37 INDUSTRY ADDENDUM

TRAINING BRIEFLY… Singapore Airlines and CAE set up Singapore training joint venture AAR, a global aftermarket engines, the C919 used Mobil solutions company that Jet Oil II synthetic gas lubricant Singapore Airlines (SIA) and to the new centre, which will employs 5,000 people for the 79 minute test flight out flight training specialist, CAE, be housed in the Singapore worldwide, has opened a of Shanghai Pudong airport signed a Memorandum of Airlines Training Centre supply chain hub in Shanghai. earlier this year. Exxon jet oil is Understanding (MoU) in August adjacent to Changi Airport. The new warehouse will stock used in more than 50 per cent to establish a joint venture pilot The courses will include a full new airframe and engine of all aircraft in operation. training facility in Singapore. range of initial type rating and components from OEMs The partners initially will focus recurrent training programs including Eaton, Unison, UTAS, Aviation consultancy, IBA, has on simulator training for Boeing for Boeing’s 737 MAX, 747, Meggit and Lord, “which will set up a new freighter advisory airplanes, supporting SIA Group 777 and 787 aircraft. fulfill the needs of just about division within the parent airlines and third party training SIA already operates a every type of aircraft operating group that will be led by head for other airlines in the region. training joint venture with in China today”, said AAR of freighter advisory, Moshe SIA will shift four of its Airbus in Singapore, the Airbus senior vice president OEM Haimovich. IBA CEO, Phil full flight Boeing simulators Asia Training Centre. ■ aftermarket solutions, Eric Seymour, said freight business Young. AAR recently opened had surged this year with a similar warehouse facility in airlines based in the Asia-Pacific Dubai. and Europe accounting or two- thirds of the annual increase Air Lease Corporation (ALC) in freight volumes in 2017. The has finalized an order for remainder was equally divided more than 250 CFM Leap-1B between North American and engines, to power its new five Gulf carriers. B737 MAX 7s and seven –MAX FlightSafety International announces 8s. Deliveries are scheduled Munich Airport’s operating introductory course for aspiring pilots to begin from 2022. ALC company, FMG, has specializes in buying new established a 100%-owned International aviation training instructors, cockpit technology commercial aircraft to lease subsidiary, Munich Airport company and supplier of full and health and wellness. to airline customers. The International GmbH, for the flight simulators, New York “Our goal is to provide the LEAP engine family has 18 handling of the consulting, headquartered FlightSafety knowledge and skills needed to airline customers operating 85 airport management and International, last month become excellent first officers airliners worldwide. training divisions of the parent announced its new Integrated and captains. This pre-study company. Past customers of Growth and Achievement program clearly demonstrates Boeing Shanghai Aviation FMG have included Bangkok Preparation Program that is our commitment to provide Services Co. Ltd recently and New Delhi airports. FMG open to all students, both training of the highest quality signed its first contract with consultancies in progress domestically and internationally, and reinforces our position China’s SF Airlines Co. Ltd include a partnership with who entering the company’s as a world leader in ab initio for maintenance, including C Singapore’s Changi Airport academy in Florida. training,” Ritter said. Checks, of the air freight and and projects at airports in Manager of the FlightSafety The Florida academy at parcel express group of classic Muscat, Riyadh and Taif in the Academy, Nancy Ritter, said Vero Beach has a fleet of close B737 and B767-300 freighters. Middle East. the program is designed to to 90 training aircraft and a staff Launched in 2009, SF Airlines be undertaken by students of 70 flight instructors based operates a 39 aircraft fleet Sabre Corporation has before they start their formal on a 30-acre campus that can of B767s, B757s and B737s. announced a global distribution pilot training. “This unique accommodate 300 residents. Boeing Shanghai is a joint partnership with Himalaya new initiative will help prepare It provides 1.4 million hours of venture between Boeing, Airlines, a Nepalese carrier that those entering the academy for training each year and operates Shanghai Airport Authorities intends to add 15 aircraft to its the rigours of training and the the world’[s largest fleet of and China Eastern Airlines. fleet. The company distribution disciplines required for a career advanced full flight simulators at will put the Kathamandu as a professional pilot,” she said. centres in Australia, China, Japan, China’s COMAC selected Mobil headquartered carrier before Among the program’s South Africa, Brazil, Canada, Jet Oil to support the maiden 425,00 travel agents globally modules are: ground school pre- Britain, France, The Netherlands flight of its C919 mid size jet. via Sabre’s global distribution study, STEM review, managing and Norway as well as several Powered by CFM Leap 1-C system. ■ training deadlines, interacting with campuses in the U.S. ■

38 / ORIENT AVIATION / SEPTEMBER 2017 No.1 Asia-Pacific commercial aviation magazine

ORIENT AVIATION SPECIAL REPORTS 2017

OCTOBER MRO ASIA-PACIFIC: 2017 UPDATE KEEPING YOUR AIRLINE SAFE IN THE CYBER ERA BONUS DISTRIBUTIONS: MRO Asia-Pacific Singapore IATA World AVSEC conference

NOVEMBER KEY ISSUES THAT KEEP ASIA-PACIFIC AIRLINE CEOS AWAKE AT NIGHT BONUS DISTRIBUTIONS: AAPA Assembly of Presidents, Taipei, Taiwan Asia-Pacific Air Finance Conference, Hong Kong, China

DECEMBER/JANUARY LOW-COST CARRIER REPORT: THE WINNERS AND THE LOSERS IN THE ASIA-PACIFIC BONUS DISTRIBUTIONS: Orient Aviation Person of the Year Awards Dinner, Hong Kong, SAR

ADVERTISING ENQUIRIES TO ORIENT AVIATION MEDIA GROUP SALES DIRECTORS: The Americas / Canada Europe, the Middle East & the Asia-Pacific RAY BARNES CLIVE RICHARDSON E-mail: [email protected] / [email protected] E-mail: [email protected]

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