Vol. 22 No. 3 April 2015 orientaviation.com

VISTARA’S VIBE CEO of the country’s newest airline, Phee Teik Yeoh, tunes into a resurgent India

Tempo slows Indonesia must improve its aviation Thailand faces North Asia for Asia’s LLCs management says IATA boss bans on new flights SPECIAL REPORT Global aerospace developmentin China: an update So quiet you might wonder is this thing on?

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COVER STORY

18 VISTARA’S

PUBLISHED BY VIBE ORIENT AVIATION MEDIA GROUP CEO of the country’s Mailing address: GPO Box 11435 Hong Kong newest airline, Office: Phee Teik Yeoh, 17/F Hang Wai Commercial Building, 231-233 Queen’s Road East, tunes into a Wanchai, Hong Kong resurgent India Tel: Editorial (852) 2865 1013 Fax: Editorial (852) 2865 3966 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]

Greater China Correspondent Dominic Lalk Tel: (852) 2865 1013 Fax: (852) 2865 3966 E-mail: [email protected]

North Asia Correspondent Geoffrey Tudor Tel: (813) 3373 8368 E-mail: [email protected]

India Correspondent COMMENT MAIN STORY R. Thomas 5 LCC ‘wunderkinds’ lose their sparkle 14 Tempo slows for Asia’s LCCs Tel: (852) 2865 1013 E-mail: [email protected] NEWSMAKERS Photographers Rob Finlayson, Colin Parker, 7 Thailand threatened with safety downgrade Graham Uden 7 Asia-Pacific carriers race to introduce compulsory Design & Production two person flightdeck Chan Ping Kwan

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ADMINISTRATION

General Manager Shirley Ho E-mail: [email protected]

ADVERTISING SPECIAL REPORT Global aerospace development in China: an South East Asia and Pacific Tan Kay Hui update Tel: (65) 9790 6090 7 ICAO announces China’s Fang Liu will be the first 23 China - land of plenty for global aerospace E-mail: [email protected] woman to lead ICAO industry The Americas / Canada Barnes Media Associates Ray Barnes NEWS BACKGROUNDERS Tel: (1 434) 770 4108 9 ASEAN backs off Fax: (1 434) 927 5101 E-mail: [email protected] open skies 12 Asia-Pacific trials Europe & the Middle East REM International improved tracking Stephane de Rémusat systems Tel: (33 5) 34 27 01 30 Fax: (33 5) 34 27 01 31 E-mail: [email protected] SAFETY 25 Profits for all

© All rights reserved 13 Not good enough, Wilson Press HK Ltd., IATA boss tells CARGO Hong Kong, 2014 Indonesia 26 Air Cargo breaks losing streak

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LCC wunderkinds lose their sparkle

Many of the Asia-Pacific’s low-cost carriers (LCCs) consequences have been falling yields and eroding have had a new experience in the last 12 months. They profits. have lost money. Among them are AirAsia, its long-haul Some carriers, such as China’s Spring Airlines subsidiary, AirAsia X, Tigerair, Nok Air and Jetstar. and Vietnam’s VietJet are making money, but generally The unpleasant experience is in stark contrast to Southeast Asian LCCs have been hardest hit by the the heady years that followed the global financial crisis. overcapacity trend. At last count, 22 of the region’s Back then, full service carriers were falling into the more than 50 LCCs were operating in this emerging red as passengers, including corporate travelers, were market zone, flying a combined fleet of 550 aircraft. forced to down-size their budgets and become LCC The situation will almost certainly deteriorate. As an customers. example, Malaysia-headquartered AirAsia, combined Today, it’s a different story. It is generally accepted with Lion Air, have orders in place for 800 airplanes. that in the Asia-Pacific there are too many LCCs bringing A dramatic drop in the oil price since last June has too many aircraft into service too quickly. A perfect brought some relief to LCCs. Fuel averages 50% of their example is Thailand, where there has been domestic operating costs, but no-one should take it for granted passenger growth of 10.1% in the past year, but an that the lower oil price will last. The recent escalation 18.6% increase in airline capacity. in the conflicts of the Middle East already has triggered Analysis of the region’s LCC expansion shows the increases. combined seat capacity of the sector in the 10-member LCC managements across the region, particularly Association of Southeast Asian Nations (ASEAN) has in Southeast Asia, need to seriously review their jumped to 57% in 2013, compared with 13.2% in expansion plans and work towards restoring equilibrium 2003. Ticket discounting has been the general knee in the market. The alternative must be a consolidation of jerk response to declining load factors and the evitable the sector across the region. ■

TOM BALLANTYNE Chief Correspondent Orient Aviation Media Group

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FLIGHTSAFETY INSTRUCTOR TRUST AD - ORIENT AVIATION - APRIL 2015 ISSUE - Trim: 202 mm w x 273 mm d Bleed: 212 mm x 283 mm Live: 182 mm w x 253 mm d PDF/X-1a VIA EMAIL NEWSMAKERS

Thailand “a significant safety concern” says ICAO

Japan and South Korea have announced it airline operations oversight, airworthiness compliance requirements within the will ban all new chartered and scheduled assessment and certification and personnel allocated 90-day grace period. If Thailand services into their countries that were to be licensing and training”. It is believed that does not reach compliance standards in the operated by airlines registered in Thailand. Thailand failed to meet 70 of the standard time required, the U.S.’s Federal Aviation The decision followed the news that the benchmarks required when ICAO conducts Administration could downgrade Thailand International Civil Aviation Association audits on a country’s aviation systems. to a category 2 safety rating, which would (ICAO) said its investigators were concerned Thailand-based media has said Thai aviation deliver a blow to the country’s expansion about “Thailand’s accident investigation and bodies “are struggling” to meet ICAO’s oriented budget carrier sector. ■

Airlines rush to implement two person cockpit rule

At press time, Australia had quickly followed the 27-year-old co-pilot, Andreas Lubitz, one accident for every 2.4 million flights a New Zealand and Canada in revising deliberately steered the plane into a French year earlier. standard operating procedures for Australian mountainside. The Asia-Pacific accident rate fell from registered commercial aircraft. With Ironically, the tragic accident happened 0.63 to 0.44 and North Asia from 0.06 to immediate effect, there must be two people a few weeks after the International Air zero. However, the number of fatalities did in the cockpit of a commercial aircraft increase in 2014 mainly because of at all times during a flight. If either the the heavy loss of life from the two captain or the co-pilot leave the flight Malaysia Airlines accidents and the deck, a flight attendant must stand in crash of an Indonesia AirAsia jet on for the absent cockpit crew member. December 28 last year. Several other airlines in the region, IATA said there were 12 fatal including Cathay Pacific Airways and accidents involving 641 fatalities last Dragonair, have had this requirement year, compared with an average of in place for a long period, as have 19 fatal accidents and the loss of 517 U.S. carriers. Transport Association (IATA) said that lives annually for the five years from 2009. Air New Zealand revised cockpit statistically 2014 was the safest year on The destruction of Malaysia Airlines procedures within 24 hours of the record for air transport, as measured in hull MH17 by anti-aircraft fire on July 8, 2014, is Germanwings 9525 accident, which killed all losses per one million flights. The industry not included as an accident in the globally 150 passengers and crew when it crashed had an accident rate of one hull loss for every recognized accident classification criteria. in the French Alps on March 24. It is alleged 4.4 million flights last year, compared with By Tom Ballantyne. ■

China legal expert to head ICAO

A veteran Chinese air-safety official has she played a key role in many bilateral air of some of its most important internal been confirmed as the next secretary consultations between China and foreign committees. “She has also represented general of the International Civil Aviation countries, developed the draft model of ICAO at the High-Level Committee Organization (ICAO), the first woman and China’s bilateral air services agreement, on Management under the UN Chief only the second Asian to hold the position. formulated international air transport policy Executives Board for Coordination, and Fang Liu, who will succeed Raymond and regulations of China, and dealt with separately served as Chairperson of Benjamin in August, has been director Hong Kong and Macao’s aviation affairs the Security Advisory Group and vice- of ICAO’s Bureau of Administration and related to international organizations and chairperson of the Security Management Services since 2007. Industry insiders third countries. She was also in charge Team for all UN Organizations in Canada,” said the appointment marks a significant of China’s multilateral relations with the association said. shift in ICAO’s culture and a recognition of international or regional organizations, Underscoring the rapid growth of the growing influence the Asia-Pacific will such as ICAO, the WTO, APEC, the EU commercial aviation in China and other have on the aviation world. Before joining and ASEAN. She has a Ph.D in law from Asian countries, Liu will take the reins of an ICAO Liu held various posts within the Civil Wuhan University of China and a degree agency in which the top position historically Aviation Administration of China (CAAC). from Leiden University of the Netherlands, has been held by men from Europe, North She joined the CAAC in 1987, working as majoring in air and space law. America or the Middle East. The only a counsel of its Legal Affairs Division for ICAO said she has led many previous secretary general from the Asia- two years before becoming director of improvement initiatives in ICAO in recent Pacific was India’s Shivinder Sing Sidhu, who the International Affairs Division, where years and served as the chairperson served in the post from 1988 to 1991. ■

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region and can fight the big guys from China, India and Europe. As ASEAN backs away a small region, we need to unite ourselves and our resources and pretend to be a country. There from open skies is economic logic behind it,” he said. “Even if an airline was not Is this the year Southeast Asia opens its skies? Maybe not. majority-owned by investors in the country where it is A senior Association of Southeast Asian Nations (ASEAN) established, that airline could official recently conceded full liberalization will not still be considered an airline where it is registered.” happen as planned. In his remarks to conference delegates, Dong Phuong said the road to ASEAN integration of the aviation sector would Tom Ballantyne reports not end with open skies, but would ultimately allow member leading ASEAN main reason for the policy Cambodia have similar concerns, states to expand and deepen official has told a procrastination is that less fearing, in particular, that budget integration in all aspects of high level gathering developed ASEAN members are carriers will dump capacity into the sector, including air service in Bangkok there is worried their markets will be their markets with rock bottom liberalization, aviation safety “over-expectation” completely swamped by larger pricing. and security and air traffic Aand “misunderstanding” about carriers if ASEAN skies are fully Another view is argued by management. achieving ASEAN open skies this liberalized. Professor Alan Tan, a National Some liberalization has year. Royal Brunei Airlines (RB) has University of Singapore academic taken place within ASEAN, Director of finance, industry repeated its view that while open who specializes in aviation law. but even with open skies there and infrastructure at the skies would ultimately benefit He has discussed the concept of will not be a total lifting of association’s secretariat, Tran Brunei as a whole, the tiny airline an “ASEAN community airline” restrictions as happened in Dong Phuong, told delegates at needed to prepare for challenges that he believes would facilitate Europe. Airlines will be able to the European Union-organized from competing airlines, funding for a capital-intensive fly from their own country to ASEAN Single Aviation Market particularly budget carriers. airline and would be a way to another member country and conference in March that ASEAN “One of our concerns is foster economic integration. then on to a third, but they open skies will only be “partially that if and when low-cost “The benefits are that will not be allowed to operate opened”, at best. carriers (LCC) come to Brunei you have a strong airline independent flights that do not “We are not there yet. It’s Darussalam, they will take a that has capital around the include their own country. a long process. But we have piece of the passenger pie, and For example, airlines created foundations,” he said. in Brunei Darussalam it is very from Singapore could fly All agreements and protocols hard to grow the size of the from Singapore to Brunei, required for the effective pie,” said Karam Chand, Royal on to Indonesia and back to operation of the ASEAN Open Brunei’s chief commercial and Singapore, but they could not Skies policy had been completed planning officer. “So, we could operate return flights solely and ratified by “almost all” be seriously impacted if there between Brunei and Indonesia member states, he said. are more flights here from unless they were linked with But he warned less low-cost carriers.” Singapore. Domestic markets developed member countries “While this open skies also will continue to be ring needed longer to meet policy undoubtedly provides commitments. “You know new markets for Royal Brunei Professor Alan Tan, aviation law specialist National University ASEAN’s way. It’s done on a to serve as it expands its fleet, of Singapore: advocating the voluntary basis and we keep it also opens the door for larger establishment of an “ASEAN convincing them,” he said. regional airlines, as well as community” airline The admission confirmed low-cost carriers, to access the the views of industry analysts, domestic market,” he said. who have said full open skies Airlines in other small are going to arrive later in the ASEAN nations such as region than announced. The Myanmar, Laos and

APRIL 2015 / ORIENT AVIATION / 9 NEWS BACKGROUNDER

Carriers Association (INACA) Fernandes pursues ASEAN regulatory integration and the recently appointed president director of Garuda Tony Fernandes, chief of the AirAsia Group, the restrictions on foreign ownership of airlines and to Indonesia, said open skies is a region’s biggest budget carrier company, is contin- allow citizens of fellow ASEAN countries to hold political goal of the government. uing his campaign for an ASEAN regulatory regime majority stakes in any ASEAN carrier. “We’ll face it head-on. We that would reform the rules of airline ownership in Currently, each airline in all ASEAN countries the 10-nation group. must be majority owned by their own citizens. are used to free competition He wants ASEAN members to allow majority Fernandes is arguing for full integration within after all,” he said. Arif added ownership of airlines in each country by citizens of the region, including a single ASEAN immigration some local airlines, including the region. Speaking at an EU conference in Bangkok lane, business travel cards, standardized bilingual Garuda’s low-cost unit, Citilink, last month, he said this would be one of the “key immigration/customs forms and visas, an ASEAN civil have been applying or preparing steps” required to ensure the success of single skies aviation regulator and air traffic regulator, common to apply for permits to operate and strengthen aviation in the region. ASEAN safety standards and pilot and engineer more flights to other Southeast He wants each member state to remove training qualifications and free movement of skills. Asian countries. “They’re conducting procedures for fenced for local carriers. Transportation Secretary, ready for open skies. They said that,” he said. The other major concern Joseph Emilio Abaya, said: Indonesia’s tax regime, airport Arif said the local industry’s is the perennial problem of “Policy-wise, we are already inefficiencies and high fuel major concern about open skies inadequate infrastructure in open, but essentially it is still costs make local airlines less was competitiveness issues. several ASEAN states. Some subject to slots. If you don’t competitive than their Southeast “Are local airlines competing on countries will not be able to have slots in Manila, you can’t Asian counterparts, especially a level playing field with other handle the projected increases operate there.” those from Singapore, Malaysia airlines in the region?” he asked. in traffic. At a joint Philippine- In Indonesia, ASEAN’s and Thailand. As in the Philippines, Indonesia’s Japanese Air Transport Seminar biggest airline market, carriers Arif Wibowo, chairman already heavily congested in February, the Philippines are concerned they are not of the Indonesia National Air airports are also an issue. ■

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Asia-Pacific trials improved tracking systems

By Tom Ballantyne

nitiatives to eliminate gaps Airways and Virgin Australia to Communications Addressing Statistics reveal that 11,000 in aviation’s global tracking trial improved flight tracking on and Reporting System (ACARS) commercial passenger aircraft are system are gathering pace commercial airline flights to and position reports. fitted with an Inmarsat satellite as regulators, equipment from Australia. The company said combining connection, which represented providers and airlines develop They will develop the multiple sources meant an more than 90% of the world’s Isolutions to ensure aircraft are operational concept for the trial aircraft’s position can be reported long-haul commercial fleet. pinpointed at more frequent using Automatic Dependent more frequently. The service can The Airservices Australia trial is intervals as they travel the skies. Surveillance - Contract (ADS-C) notify airlines when an aircraft valuable because it’s coverage of Global communications satellite technology in Australia’s unexpectedly stops reporting long-haul flights involves roughly and aviation electronic solutions oceanic regions. ADS-C provides positional data or has deviated 11% of the world’s surface, provider, Rockwell Collins, air traffic controllers with a from its expected path. including vast tracts of the Indian unveiled its new global flight constantly updated surveillance “In today’s global aviation Ocean where MH370 is believed tracking solution for the world’s picture of their airspace, designed environment, no single source of to be. airlines last month, one of several to allow safe and efficient oceanic data is sufficient to track aircraft Inmarsat chief executive, companies offering airlines operations. Communications globally,” said Jeff Standerski, Rupert Pearce, said the trial improved tracking systems that giant, SITA, also is marketing senior vice president, information is an important step towards should ensure the unexplained new products to improve aircraft management services for improving international airline disappearance of Malaysia tracking. Rockwell Collins. “By merging safety. “We are very pleased Airlines MH370 is not repeated. The advances follow an multiple data sources, many of to be working with Airservices Earlier in March, Australia’s International Civil Aviation which airlines receive, we can Australia and our industry deputy prime minister, Warren Organization (ICAO) resolution automatically select the right partners to implement this Truss, announced Australia, to adopt a 15-minute tracking combination of data feeds for enhanced flight tracking service. Indonesia and Malaysia had standard for commercial aircraft, airlines to pinpoint an aircraft’s We applaud ICAO’s decision launched a trial that would allow rather than the previous norm of location anywhere in the world, to introduce a new tracking air traffic controllers to more 30 to 40 minutes. The resolution in the most economical way.” standard,” Pearce said. ■ closely track aircraft flying across is expected to be ratified in Airlines support improved remote oceans. The new system November, with the industry tracking, but are wary about has adapted technology already being given twelve months to regulations that may force used by most long-haul jets and comply, by November 2016. them to install costly cockpit would greatly narrow search The Rockwell Collins ARINC equipment. Many airlines areas if aircraft are involved in MultiLink flight tracking service already have sophisticated accidents. is a significant improvement communications systems “This new approach enables on previous systems. It brings installed on their jet fleets, but immediate improvement in together multiple data sources they are not always utilised monitoring long-haul flights to reliably report the location because ground transmission and will give the public greater of an aircraft anywhere in the infrastructure is not available confidence in aviation, without world. The sources include to receive the airborne requiring any additional ADS-C, high-frequency data information. investment by airlines,” he said. link (HFDL) performance data, Truss’s statement coincided ADS-B (automatic dependent Rockwell Collins senior with the unveiling of a surveillance-broadcast), and vice president information management services, Jeff partnership been global mobile U.S. Aircraft Situation Display Standerski: no single source satellite communications and to Industry (ASDI) radar data, of data is sufficient to safety services provider, Inmarsat, EUROCONTROL position track aircraft Airservices Australia (AA), Qantas information and Aircraft globally

12 / ORIENT AVIATION / APRIL 2015 SAFETY

Not good enough IATA boss tells Indonesia

By Tom Ballantyne

nternational Air Transport will be the sixth largest market for and modernizing air traffic Association (IATA) director air travel in the world. By then, management, he said. general Tony Tyler pulled no some 270 million passengers He commended the punches when he opened an are expected to fly to, from government for its plans to aviation gathering in Jakarta and within the country. “That’s expand infrastructure: building Iin March. three times the size of today’s another 62 airports over the next An unusually plain speaking market. There is a big role for five years and approving terminal Tyler, regarded globally as the collective leadership among expansions at Jakarta’s Soekarno- industry’s ultimate diplomat, industry partners - including the Hatta International Airport. called on the Indonesian government - to make the aviation “But the capacity problem aviation industry to act as one in sector flourish,” said Tyler. in Jakarta is nowhere near being developing a national aviation He said IATA is investing in solved, even with the terminal master plan for improving safety, improving air safety in Indonesia, upgrades. Indonesia needs a resolving airport and airway but the country was not taking hub. The most efficient solution capacity issues and bringing the IATA director general and CEO, full advantage of its offered is to maximize the potential of Tony Tyler: “Indonesia has had nation’s regulatory framework up at least one hull loss every year support. “The IATA Operational one airport, Soekarno Hatta, to world standards. since 2010.” Safety Audit (IOSA) is a global where significant investment He told delegates safety is standard and is at the core of has been made. The terminal aviation’s top priority and the compensation limit for personal our efforts to improve safety,” areas will, however, need major biggest concern for the successful injury or death is set at around he said. re-development,” he said. development of aviation in $160,000. “But of all the Indonesian “The vision would be Indonesia. “Indonesia has had at “Indonesia AirAsia flight airlines operating scheduled or something like the super-terminals least one hull loss every year since QZ8501, which crashed into the chartered flights, only Garuda is we see in Beijing, Hong Kong 2010,” Tyler said. Java Sea on December 28, is an on the IOSA registry.” or Incheon. I am confident that “In the International Civil accident that provides a very sad Indonesia’s traffic growth we would achieve a world-class Aviation Organization’s (ICAO) example of the consequences of needs to be supported by facility designed around key new Universal Safety Oversight Audit Indonesia’s failure to implement aviation infrastructure, both on technological innovations such Program (USOAP), Indonesia MC99,” Tyler said. the ground and in the air. For as those in the IATA Fast Travel was assessed as below the “The families of passengers Indonesia this means building a program or the new risk-based global average. The U.S. Federal who had bought return tickets world-class hub, managing scarce process innovations that Smart Aviation Administration (FAA) from Singapore were covered capacity to global standards Security is developing.” ■ has downgraded Indonesia to under the MC99 limit. But the Category 2 in its International families of those who purchased Aviation Safety Assessment their tickets and started their Indonesia should review its slot program. And the European journeys in Indonesia have a Union continues to ban all but treaty cap of around $12,000. allocation system five Indonesian carriers.” I understand the Indonesian Unfortunately, said Tony Tyler, the director general and CEO Speaking at an IATA- government took special of IATA, there are a large number of instances where Indonesia is organized Aviation Day, Tyler measures to increase this amount, not playing by established international aviation rules. “There are highlighted Indonesia’s failure to but having a treaty in place would two slot management processes at Indonesian airports - one for domestic flights and another for international flights - even though implement some international have been a better solution.” both are managing the same runway capacity,” he said. conventions. An example was He urged the government “There is no independent slot coordinator at the airports. The the Montreal Convention 1999 to ratify MC99 as a priority, IATA team is ready to assist with the introduction of professional (MC99), a comprehensive especially as the potential of and independent slot coordination, which could bring the working instrument that governs liability Indonesian aviation is huge. By procedures into line with global standards.” in 110 states. Under MC99, the 2034, it is forecast the country

APRIL 2015 / ORIENT AVIATION / 13 MAIN STORY

TEMPO SLOWS FOR ASIA’S LCCs Asia-Pacific budget carriers are facing a new reality. Capacity growth and market penetration no longer translate into profits. Is this a temporary hiccup or a long-term flattening of regional LLC growth?

TOM BALLANTYNE reports

hen times were tough for full-service Meranun, commenced restructuring the carrier with the airlines after the global financial crisis, support of acting CEO, Benyamin Bin Ismail. money poured into the region’s budget As the reporting season continues, eight AirAsia carriers. Now, many Asia-Pacific LCCs branded airlines have announced losses. The most serious are reporting losses, a trend that is issues revolve around Indonesia AirAsia, which was thrust Wcontinuing in 2015. into the spotlight after the crash of flight QZ8501 on In February, Asia’s largest budget airline by passenger December 28. Formerly Awair, the AirAsia group bought numbers, Malaysia’s AirAsia, reported its first quarterly net 49% of the carrier in 2005, with 51% of its equity held by loss in two years, at $117.1 million, for the three months Indonesian investors. It has lost money ever since. Long-haul to December 31, 2014. It made a profit of $46 million for budget carrier, Indonesia AirAsia X, established last year, the same period last year. The result was recorded against a is expected to also suffer from the passenger fallout, by revenue increase of 15%, to $410 million. association. The group’s long-haul LCC subsidiary, AirAsia X, has Industry statistics reveal the budget carrier business had four consecutive quarterly losses. As a result, the CEO in Southeast Asia alone has grown to 200 million seats was disappeared and AirAsia co-founder, Kamarudin Bin in the last decade. But this growth slowed last year and

14 / ORIENT AVIATION / APRIL 2015 MAIN STORY

is predicated to continue to flatten in 2015 as LLCs delay “This is clearly a tough time and the operating numbers for aircraft deliveries to reduce overcapacity. the airlines reflect that.” The empire of the region’s budget king, AirAsia group The problem is most severe in Southeast Asia. At a boss, Tony Fernandes, is hardly alone when it comes to bad conference in Bangkok in March, senior Asean (Association news. In Thailand, Nok Air, part-owned by Thai Airways of Southeast Asian Nations) official, Tran Dong Phuong, International (THAI), was in the red in its last full financial head of the group’s Finance, Industry and Infrastructure year, ending December 31. It posted a net loss of $14.6 Directorate, told delegates budget airlines’ combined seat million, compared with profits of $15.6 million in 2012 and capacity in the 10-member ASEAN group jumped to 57% $32.7 million in 2013. last year from 13.2% in 2003, a major contributor to the Also among the region’s loss-makers are the budget arms double-digit growth in ASEAN’s air traffic in the four years of Australia’s Jetstar and Singapore Airlines’ (SIA) Tigerair. to 2013. Another SIA subsidiary, long-haul, low-cost Scoot, is losing At the same gathering, AirAsia’s Fernandes pointed money. In India, the fiscal bloodbath that has beset the out the three biggest ASEAN LCCs alone flew 110 million nation’s LCCs is well recorded. passengers last year and that six of the world’s 10 busiest In a poll conducted by Orient Aviation among analysts LCC routes are in ASEAN, including Singapore-Jakarta, and airline management, overcapacity tops the list of woes Singapore-Kuala Lumpur and Singapore-Bangkok. The for the region’s LCCs. The direct result of that, vicious and latest count by aviation research body, CAPA, showed that often unrealistic price-discounting, was a strong second. 22 of the Asia-Pacific’s more than 50 LCCs are operating Other factors eroding profitability included higher in Southeast Asia with around 550 aircraft. The problem is operating costs such as airport charges, difficulty in securing likely to worsen before it improves. Two carriers, AirAsia suitable slots as a result of infrastructure congestion, foreign and Lion Air, have more than 800 aircraft on order. Across exchange losses - as local currencies depreciate against the the region, the budget order book exceeds 1,000 new U.S. dollar - fuel hedging losses triggered by the dramatic single-aisle jets. drop in the oil price and rising financing costs. And it’s not simply the problem of the number of Mainland Chinese tourists, an important market for aircraft arriving in the region’s fleets, it’s the ability of the many LCCs, were turned off by the long period of political infrastructure to handle the increased capacity. Shukor upheaval in Thailand and the two Malaysia Airlines Yusof, principal of Kuala-Lumpur based aviation analysts, accidents in March and July last year. Endau Economics, believes overcapacity is a major issue. Nok is a prime example of several of the above problems. “In my opinion, with the number of aircraft due to come Its chief financial officer, Nuanwan Bhuprasert, attributed in this year alone, airports can’t cope with the numbers. If its losses to Thailand’s sluggish economy, a fall-off in you look at KLIA 2, Kuala Lumpur’s LCC airport, it can’t international visitors, a weakened currency, but most cope with adding one or two aircraft every month for the importantly, overcapacity and the intense price war seat next one or two years,” he said. oversupply generates. Yusof did point out that not everyone is having a bad He said there had been an 18.6% increase in LCC time. “I understand Lion Air is profitable. They are still capacity into Thailand, exceeding the country’s domestic making money. I spoke to someone from Lion recently and I passenger growth of 10.1%. In Thailand, airline executives have looked at the numbers and their loads and I think they have privately voiced concern about the particularly are doing OK,” he said. aggressive pricing of the Thai budget arm of Indonesia’s Lion He also said Vietnamese no-frills operator, VietJet, is Air group, which they argued has wreaked havoc in the LCC “doing well”, although it is another carrier with a big aircraft market. order, some 63 A320s worth $9 billion. “Airlines in Vietnam Fares of 300 baht ($9.26) for a one-way Bangkok- are generally doing very well, including Vietnam Airlines,” Chiang Mai flight, against the 1,500 baht ($46.30) charged he said. by other airlines, is “dumping” said its rivals. And Thai Lion “It is one of those countries in Southeast Asia that is Air is adding 10 new B737-900ERs to its fleet this year, bucking the trend. It has the right demographics, with a lot which is likely to make matters worse. of young people, and a big population of around 90 million. None of this comes as a surprise. Analysts and industry A prevalence of LCCs is perfect for a country of that size and observers have been warning for some time that trouble geography.” was brewing. Former Cathay Pacific Airways and British China’s most successful LCC, Spring Airlines, which Airways chief executive, Rod Eddington, who is now out of was listed in Shanghai in January, has reported a full year the airline business, recently pointed out Asian airlines have profit, to December 31, last year of 884.2 million yuan endured tough periods before, usually because of external (US$142.4 million) compared with a profit of 732 million events such as the 1997 Asian financial crisis or the outbreak yuan in 2013. However, it is important to keep in mind that of severe acute respiratory syndrome (SARS) in 2003. Spring benefits from a number of subsidies from provincial “But this is different because it appears a lot of carriers governments and other sources which could distort its are buying a lot of aircraft and putting them into the market results. at the same time, particularly no-frills carriers,” he said. Analysts, including Yusuf, question why carriers such as

APRIL 2015 / ORIENT AVIATION / 15 MAIN STORY

Tigerair and Scoot are not making money, given the current to flow through to the bottom line of LCCs in the coming level of fuel prices. In the case of Scoot, they believed it had year, lifting their income, according to analysts. a lot to do with the business model and the equipment at the Also, carriers have recognized their over-ordering and carriers. reduced or sold off part of their order book. For example, “Although Scoot has begun replacing its B777s with AirAsia has deferred 24 of 29 A320s airliners scheduled B787 Dreamliners, the improved economics of the new for delivery in 2015 and Tigerair has suspended capacity aircraft are going to take a while to have an effect,” Yusuf growth. “This year and for the next couple of years, the said. “I don’t see the load factor on Scoot to be anywhere group will not be taking in a larger number of aircraft every near the level that can make the carrier money in the next year like before, hence allowing the company to preserve three to six months at least.” cash,” AirAsia group boss Fernandes said. Scoot started operations in June 2012 and by the end Last year, Qantas froze expansion of its Singapore-based of last year had reported cumulative losses of $25.2 million. LCC, Jetstar Asia. It will limit deliveries to five aircraft in Yusuf also believed that AirAsia X “has always” had an issue Thailand, India and Japan. with its business model. “I have always felt it is not easy to Some rationalization is also occurring. A number of run a long-haul, low-cost carrier. It’s tricky. It’s do-able, but airlines have stopped flying, including Indonesia’s Mandala. you have to work within certain parameters that are going to Conversely, Thailand’s Nok and Singapore’s Scoot are be very tight. They have not got it quite right,” he said. launching a new joint venture carrier, NokScoot, in May. Several forecasters Yusof suggested NokScoot is two struggling airlines getting together in the hope they can achieve something as a joint venture they can’t do alone. An opposite view is that a partnership of a short haul LCC and a long haul LCC, with its headquarters in Southeast Asia’s largest international market and second biggest domestic market (CAPA figures), is a good way to go. In Indonesia, Garuda Indonesia’s budget subsidiary, Citilink, said it would be profitable for the first time this year. Its new chief executive, Albert Burhan, appointed in February, said the environment in 2015 is better. “In 2014, sometimes competitors disrupted us with a campaign of low fares,” he said, while also pointing out also argue it is difficult Citilink has benefitted from the exit to be optimistic about the profitability of budget of LCC Tigerair’s Indonesian affiliate operators across the region because of the slowdown in airline last year and the grounding of indebted State-owned China’s economy, a country which is a major target of LCCs Merpati Nusantara Airlines. and where many of them expect to make good profits. That Overall the outlook for Asia-Pacific LCCs is positive. market is becoming more competitive as Beijing strongly Buoyed by lower fuel prices, analysts said success in the LLC supports increasing the numbers of Mainland budget sector may be dictated by collaborations. Carriers needed startups. to rationalize their operations and forge partnerships to Eddington also cautioned that Asia isn’t always the provide them with a cross-feed of passengers and savings in source of riches many prospective airlines perceived it to be. base costs, such as joint maintenance agreements. “People are mesmerized by the size of the market and the Demographics and the increasing prosperity of the growing middle class, but that doesn’t mean airlines that get region also bode well for budget airlines as increasing started are going to be profitable,” he said. numbers of emerging market consumers have the “There are a lot of airlines that have launched and discretionary income to become first time flyers. Their most of them have lost a substantial amount of money. airline of choice is usually an LCC. And once they fly, they Your passengers can disappear quite quickly. The low-cost fly again when they can. carrier market basically targets people who are discretionary Nevertheless, there is a universal belief the sector will spenders. Those who follow the dominant players, thinking see more casualties in the coming years and that the high it’s an easy game, are often doomed for disappointment.” double digit growth of the past decade will not return. The It is not all doom and gloom, however. Hedging losses market has matured and, like elsewhere in the industry, only for some carriers aside, the lower price of fuel should begin the best will survive. ■

16 / ORIENT AVIATION / APRIL 2015 When something new arrives, we make sure it departs.

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189_LHT_A350_202x273_OrientAviation_ICv2_RZ01.indd 1 20.03.15 16:59 COVER STORY VISTARA’S VIBE Tuning into a resurgent India

Vistara has only been flying since January, but India’s newest full-service carrier already has its sights set on skies beyond the crowded domestic market.

TOM BALLANTYNE reports

orty-six-year old Phee Teik Yeoh, CEO of India’s newest airline, Vistara, is making no secret about his ambitions for the Tata/Singapore Airlines (SIA) carrier. After only four months of flying Fdomestically, he confirmed the full-service airline has plans in place to fly internationally, to destinations as far away as the U.S., Europe including London, with Africa also within Vistara’s long-term ken. Luckily, Yeoh is a patient man. As of now a barrier to a global presence for Vistara remains in place: the infamous 5:20 rule, which requires Indian airlines to have operated for five years and have a minimum fleet of 20 aircraft before it receives permission to launch international services. Civil Aviation Minister, Ashok Gajapathi Raju, has indicated publicly, on several occasions, that India’s new government favours abolition of the rule. “We are glad the government is reviewing this policy and is in favour of abolishing it,” Yeoh told Orient Aviation. “We definitely have international aspirations. However, to prepare for international flying, we need to

18 / ORIENT AVIATION / APRIL 2015 COVER STORY

do some preparation at our end as well. So, as and when the ministry officials told the newspaper: “He used to come 5:20 rule goes away, we will re-strategize and gear up for and sit with us, with a thick sheaf of application papers, international skies as soon as possible.” and ask us politely, but firmly, to point out the mistake that Yeoh said the U.S. is an exciting future market for the was holding up a particular approval. He used to do this carrier, but “many cities in Europe will also be interesting over and over again, whenever paperwork got stuck,” the for us”. “Almost 70% of India’s outbound traffic is ministry official said. westbound. But it is not only us who will benefit from 5:20 Nor should managing the transition from a solely going away,” he said. domestic carrier to an international airline present any “As you know, Indian carriers cannot fully utilize their problem for the CEO, who moved to Delhi to set up bilateral flying rights for overseas destinations. This is not Vistara, assisted by a small team, in late 2013. A first class good for the economy as well as the sector. “In fact, once honors chemistry graduate from the National University of the 5:20 issue is ironed out, India can be showcased globally Singapore, Yeoh joined SIA as a network planning analyst as an attractive tourism and investment destination that and worked his way up to senior positions with the airline also will provide employment opportunities to millions.” in the U.S., Britain and then Singapore, where he was a Another important element in Vistara’s strategy is divisional vice-president before he was appointed to run its ability, as an Indian carrier, to fly more frequently to Vistara. Singapore, a situation SIA would welcome after being The board and Yeoh’s executive team are balanced knocked back on establishing new routes into India in the between Tata and SIA staffers. Chairman Prasad Menon, last 18 months. board director Mukund Rajan, chief financial officer, At this stage, the Vistara team will require 12 to 18 Niyant Maru and chief human resources officer and head months to source the aircraft needed to start long-haul of corporate affairs, S. Varadarajan, are from Tata. Chief operations. Despite the government signaling its intentions commercial officer, Giam Ming Toh, is from SIA as is board to abandon the 5:20 rule, the change won’t come without director, Swee Wah Mak, SIA’s executive vice-president some strong opposition to liberalizing Indian aviation. commercial. The Federation of Indian Airlines, whose The board and the executive team reflect the airline’s members include Jet Airways, IndiGo Airlines 51:49 ownership structure, but it is being made clear and GoAir, are fighting the proposed changes. that SIA’s corporate philosophy will shape the airline’s They argue it would give Vistara and another development. new airline, AirAsia India, an unfair Yeoh told Orient Aviation: “SIA has grown over the advantage over longer established carriers years to a brand recognized internationally as one of such as themselves. the world’s leading airlines. SIA’s name and the famous Until now, long haul rivals Air India Singapore Girl are synonymous with warmth, quality and and Jet Airways, as well as other Indian efficient service. carriers flying internationally, including “It is this customer-centric focus, both on the ground SpiceJet and IndiGo, have limited and in the sky, that SIA brings to this great partnership. We their networks to regional destinations have tried to raise the bar for the industry by bringing in including Sri Lanka, Afghanistan, global best practices, out-of-the-box thinking and the best Singapore, Maldives, the United talent,” he said. Arab Emirates, Nepal, Thailand, and “For instance, our FFP (Frequent Flyer Program) cross Oman. participation is a unique offering for the customers of both Campaigning for the end of the airlines. We will give customers of our partner airlines easier 5:20 rule won’t be Yeoh’s first battle access to the sectors we service under the airline interline with the famously infernal workings agreement. We would like to fly international as soon as the of India’s Directorate General of regulator allows us. When we do, I am sure there will be Civil Aviation and its provincial more opportunities to integrate with the SIA network.” counterparts. India’s Economic Times Yeoh is acutely aware of the challenges of Indian summed up Yeoh’s persistence in aviation. “Aviation is a fiercely competitive sector, where winning over aviation officials in the cost of operation is very high. To achieve sustainable an article in January. Unnamed growth and financial viability, the right support, in terms of reformist policies and tax revisions is required,” he said. We are at a “To improve the viability of operating in a market like India, we need to tackle some ground realities that continue cusp in Indian aviation to hinder progress in Indian aviation. development “We look forward to the government setting actionable goals related to reducing operating costs, developing the Phee Teik Yeoh Hub concept, [realistic] fuel pricing, cutting state taxes, Vistara CEO developing MRO facilities and establishing an environment

APRIL 2015 / ORIENT AVIATION / 19 COVER STORY

where market forces can drive growth, he said. The birth of Vistara “An environment where the government allows the market forces to prevail would be the ideal condition both 2013 for the aviation sector and its passengers. If the industry April: Joint venture partners, the Tata Group (51%) and is to develop as an engine for socio-economic growth, we Singapore Airlines Ltd (49%) applied for a licence to need to get rid of archaic policies and treat this sector as an launch a new full service carrier with the Indian regulatory enabler for business and growth of the economy,” Yeoh said. authorities. The airline, which gained its AOP (Air Operator’s The application produced furious objections from Permit) last December and launched flights from Delhi to several airlines and politicians, based on their view that Mumbai and Ahmadabad in January, is initially focused on only established airlines should qualify for direct foreign investment. cementing its position domestically. It has now scaled up to 164 frequencies a week. 2014 “Vistara connects Delhi, Mumbai, Ahmedabad, Midway through the application procedure, the govern- Goa and Hyderabad. This month, we will begin flying to ment changed some of the rules and the airline, which had Guwahati, Bagdogra and Pune,” said Yeoh. “Our sixth yet to be named, had to re-start the application process. aircraft arrived in March. By the end of this year our fleet As a result, the launch of the carrier was put forward from will be nine aircraft. The aim is to have 20 aircraft by the October, 2014 to January 2015. fourth year of operations. August: The Tata Group and Singapore “We will soon announce more destinations and Airlines (TSAL) chris- some exciting enhancements to our product and services offerings, which our customers will definitely welcome and appreciate.” He refuted suggestions the airline’s launch in a market where most carriers are losing money was ill-timed. “I firmly believe Vistara has entered the market at the right time. More airlines mean a growth in infrastructure, better connectivity and a boost to tourism, thereby enabling businesses and growth of the economy. This means a win-win situation for all stakeholders,” Yeoh said. He said the establishment of Vistara followed extensive research “which helped us understand the needs and pain points” of Indian airline passengers. “We have designed our offerings with this research in mind,” he said. tens its airline Vistara, which “We are hopeful and convinced that was derived from the Sanskrit word, vistaar, meaning once customers experience us they will limitless space. September: Vistara accepts it first aircraft, an A320, and realise what they have been missing as airline passengers. unveils its livery three weeks later. India has yet to witness a real full-service airline. We are December: After months of bureaucratic delays, Vistara here to redefine the flying experience, both in terms of CEO, Phee Teik Yeoh, announces the carrier has received service and operational experience.” its Air Operator’s Permit (OAP). Bookings open for the With most of India’s market dominated by low-cost inaugural flights from Delhi to Mumbai and Ahmedabad. carriers, Vistara is only the third full-service airline, 2015 offering business, premium economy and economy cabins, after Air India and Jet Airways, that is operating on the January: Vistara’s inaugural flight takes off for Mumbai from its Delhi hub on January 9. sub-continent. Its arrival marked the return of the Tata February: Vistara’s fleet increases to five Airbus aircraft group, the founder of Air India in 1946, to aviation and and the Delhi-Goa route commences. two failed attempts, in the 1990s and 2001, to set up an March: Vistara launches Delhi-Hyderabad services. airline in India. April: India’s north eastern cities of Guwahati and Vistara has taken a different approach to its rivals in Bagdogra are added to Vistara’s network. its launch phase. It has refused to become embroiled in ruinous fare wars, although, like every carrier, it will use

20 / ORIENT AVIATION / APRIL 2015 ELIMINATE CREDIT CARD FEES NEW REVENUE STREAMS

COMPETITIVE MARKET INTELLIGENCE SELF-FUNDING PROGRAMS COVER STORY

discounting at various times. It also has tried to make fares simple for passengers Yeoh’s Journey to India to understand. Compared with Jet Airways, which has At 46, Phee Teik Yeoh’s appointment as CEO of Vistara 12 to 14 fare categories, Vistara has seven. According to is a perfect fit. Born in Malaysia, he was a gifted student industry insiders, Vistara’s early load factors have been who won a Singapore Airlines (SIA) scholarship to study well below the 75% to 80% airlines need to operate chemistry in Singapore in 1981, aged 13. He graduated profitably. During the first weeks of operations, the load from the National University of Singapore with a first factor was below 60%, albeit its launch took place at a class honors degree in chemistry, but still found time to bad time in the Indian weather cycle. Northern India was compete at university level in hockey and indulge his blanketed in thick fog and most travelers had booked their passion for Indian food. He was talent spotted by British holidays before Vistara tickets were available. pharmaceutical giant, GlaxoSmithKline, who offered to Yeoh is untroubled by any of this. He pointed to fund his MA studies at Oxford University. several positive developments in the industry, including Instead, a few months into his MA, he returned to Singapore to join SIA as a network analyst, where he recent fuel price reductions and the stabilization of India’s quickly made his mark. A few years later he was posted currency. “At the moment, we are concentrating on scaling to Frankfurt and then Berlin and also did a highly valued up our network and offering our customers the highest stint in the office of the SIA chairman, as an executive service standards,” he said. “We will be focusing on assistant. At the time of his appointment to head Vistara, exceeding customers’ expectations consistently, and when almost 23 years after he joined the airline, he had returned we do, breakeven will follow naturally.” to Singapore from Britain, where he was SIA’s UK general Its A320 148 seat three class cabin accommodates manager, to become an SIA vice-president and member 16 business class passengers, 36 premium economy of the carrier’s inner management circle. passengers and 96 economy passengers. It is the first To the delight of Indians, Yeoh is an Indophile, who is Indian domestic carrier to offer auto check in, designated inspirational when he talks about Vistara and the future of aviation in the country. Ten days before the carrier flew its queueing and premium economy. Its frequent flyer first flight, he said “Vistara is our new year’s gift to India”. programme rewards members based on the ticket price Separately, he told Indian media: “My experience in India rather than miles flown. has been very good. There is a pro-business government One early benefit for Vistara has been a three-month and many progressive steps have been taken. There cannot exemption from a government requirement to operate be a better time to launch an airline.” flights to financially unviable regions in the country, such as the North East. The exemption has ended and Vistara has had to include in its scheduled services a certain and resources of our parent brands to reduce overhead number of its flights on routes that will almost certainly costs,” he said. lose money. “We have a healthy mix of insourcing and outsourcing Vistara plans to start beaming in-flight entertainment models to keep our operations lean and effective. Being a (IFE) content directly to passengers’ personal electronic new organization, we could chose costs we wanted to incur devices (PED), the first airline in the country to do so. and what we could avoid. We believe that profitability will Unlike Air India and Jet, its A320s don’t have seat back follow naturally if we keep focusing on our services and screens. cost efficiency.” “We are introducing wireless IFE systems. India does Overall, Yeoh is optimistic about the pro-business not allow Wi-Fi on board aircraft in terms of two-way and growth-oriented approach of India’s newest connectivity, but one-way streaming of content like government. “It is focused on developing the industry movies and music is allowed. This will be Wi-Fi one-way as an engine for socio-economic growth. We share the connectivity,” explained Yeoh. government’s vision of creating world-class international Business class passengers will be given tablets to watch hubs in India,” he said. IFE, but premium economy and economy passengers will “The new government’s progressive outlook already have to stream their entertainment to their own tablets or aims at making India a success story, which is evident smartphones. from the Union budget 2015. Harnessing India’s The airline has stepped up marketing campaigns and potential in the global aviation market by opening up offers on its loyalty programme to attract more passengers. the skies would boost the growth of the aviation sector, It is looking at fly-and-stay tie-ups with Taj Hotels Resorts the Indian economy and immensely benefit the end and Palaces, owned by Tata, and partnerships with customer,” he said. international carriers. “We are confident the government will do away with Besides operational excellence and service excellence, restrictive practices and allow Indian airlines their role in Yeoh said cost leadership is one of his top strategic the global skies. International connectivity provided by imperatives. “We strive to keep costs low by disciplined Indian carriers will boost the economy through improved control of non-customer facing expenses and innovative tourism and help India earn the tag of a great investment use of technology. Additionally, we leverage the expertise destination.” ■

22 / ORIENT AVIATION / APRIL 2015 SPECIAL REPORT GLOBAL AEROSPACE DEVELOPMENT IN CHINA Land of plenty for global aerospace companies

International aviation companies are increasing their joint venture and partnership investments in China in a Mainland industry that returns 10% annual growth.

Tom Ballantyne reports

s the second largest on the ground. We learned that “Number one, you need to be domestic airline lesson after the first ten years patient because sometimes the market in the when we had not make much investment you put in may take world - and fast impact here.” a little bit longer to recoup than heading towards Barron cited a second planned. But for sure this market Athe number one spot – every lesson. “It can’t be a one way is very promising,” he said. aviation company that counts street. You have to give back “Number two, Oriental wants to be in China. something. We’ve done that by cultures respect long-term The economy of the Asian sub-contracting aerostructures, friendships and relationships giant may have slowed to 7%, both on aircraft and helicopters. instead of just contractual from 15% 18 months ago, but We’ve done that with our relationships. You have to form that’s still good enough for engineering centre here in a partnership here. If you’re only global aerospace companies Beijing, the A350 program doing it for one-way business intent on building their in Harbin, which led to the you probably won’t be here for businesses at the heart of the composite manufacturing long.” world’s fastest growing aviation centre. We have done it with For those who learn the region. the final assembly of A320s and lessons the rewards are forecast However, as the leaders of A319s in Tianjin and possibly, in More and more, to be massive. The country’s some of the most sophisticated the future, A330 outfitting and commercial airlines are projected international aviation companies delivery,” he said. we want to be to need more than 6,000 new in the world learn every day, you At competitor Boeing perceived as jets over the next two decades, can’t win China’s business or Commercial Airplanes, Ihssane part of the scene worth more than $700 billion. build businesses with Chinese Mounir, the U.S. manufacturer’s That’s one new jet partners unless you understand senior vice president sales for in China, not arriving in the country every – and live - the ways of the Northeast Asia (covering China, just foreigners 29 hours for 20 years. For world’s most populous country. Japan, Korea and Taiwan), aircraft manufacturers, engine Airbus Group China echoed the same message. He Laurence Barron makers, avionics and systems chairman, Laurence Barron, said acclimatizing to China’s Chairman Airbus Group China suppliers, maintenance, repair is quick to concede the big culture and learning how it and overhaul (MRO) businesses European manufacturer made worked was crucial for success. see there’s a lot of logic to the and every link of the supply early mistakes in its China “That is the one thing I madness, there’s a lot of logic to chain, China’s aviation business strategy. Back in the 1980s, would advise anybody to do. the order and it works,” he told appears to be an ongoing when sales representatives were You really can’t judge from Orient Aviation. bonanza. flying into the country, they were the outside. You have to go China managing director At the same time, Chinese struggling to sell aircraft. in and become part of the of big U.S. communications aerospace is on the brink of “It doesn’t really work fabric. Understand the people. and aviation electronics firm producing commercial aircraft, covering China from outside Understand where they’re Rockwell Collins, Robin Ho, backed by a government China,” he said. “You have to be coming from and then you has another piece of advice. that is bent on seeing the

APRIL 2015 / ORIENT AVIATION / 23 SPECIAL REPORT GLOBAL AEROSPACE DEVELOPMENT IN CHINA

nation become an aerospace are somewhere between $800 In the next decade it only Airbus achieved its targets two superpower. million and $1 billion in spending had about 20 aircraft in China. years early. China is now is well on with our suppliers in China. We Then there was a change in Rockwell Collins’ Ho said the way, with AVIC (Aviation are putting a lot of money into strategy. you can’t sell your product Industry Corporation of China,” Mounir said. Airbus opened a Beijing without any investment in the China, owner of the Xian Airbus, with more than 30 office and established a joint market place. “You have to find Aircraft Corporation) and years in China, also has built a venture training and support a good partner that can help COMAC (Commercial Aircraft strong presence in the country centre with China Aviation you to secure your business or Corporation of China) working with its main office, a training Supplies (CAS), which was expand your business in China. on home-built products, centre and a spare parts facility completed in 1997. As a result, On the other side, the Chinese including AVIC/XAC’s MA60 in Beijing, as well as the A320 Airbus’ share of the in-China government is encouraging that turboprop and COMAC’s final assembly line in Tianjin and fleet rose to about 25%, kind of co-operation between 90-seat ARJ21 regional jet and a composite facility in Harbin. albeit still well below Boeing’s the local company and an the 190-seat passenger jet, the It has an agreement with penetration of the market. international company like us,” C919. AviCopter, the helicopter division “Then, in 2004, we said to he said. It is little wonder that of AVIC, to co-develop a new the Chinese Government that Rockwell Collins’ advanced Western manufacturers such helicopter, known as the EC175 we wanted to catch up with avionics were selected for AVIC’s as Boeing, Airbus and Embraer, in Europe and the AC352 in Boeing and that we wanted new MA-700 regional airliner. engine-makers such as Rolls- China. Some 5% of the airframe to have half of the in-service Its joint ventures (JV) include an Royce, GE and Pratt & Whitney, for the new A350 is supplied by fleet, not a quarter. We wanted agreement with AVIC Bluesky MRO providers, and systems Chinese companies. to draw level. The answer was to establish a commercial suppliers like Rockwell Collins “We’re here for the long- pretty much ‘well if you want to simulation joint venture in China and Honeywell, are investing term,” said Barron. “As a result, be equal with Boeing in terms that will design, manufacture, billions of dollars in their China you build relationships with of in-service fleet you should be market and service flight operations. government, with airlines, with equal with Boeing in terms of simulators. And as Barron, Mounir and industry, with cities like Tianjin purchasing or sub-contracting to With the Xian Aviation Ho said, none of their efforts and Harbin. More and more, Chinese industry’,” Barron said. Science and Technology are one directional. They involve we want to be perceived as part “We discovered that while Company it jointly developed a deep commitment on the of the scene in China, not just we had been sub-contracting a full-motion engineering ground and development of foreigners.” since 1985, our volume was simulator for the C919 and long-term partnerships with It is interesting to examine pretty low and was only a also has a JV with China local Chinese. how Airbus achieved its current quarter of what Boeing was Electronics Technology Avionics Boeing has more than 8,000 strong position in the Chinese doing. It was pretty clear we had Company for developing planes flying around the world market, given that it trailed to improve procurement from and manufacturing the fitted with parts made in China. Boeing for years in aircraft China, which we proceeded to communication and navigation It has been involved in China orders. After the company sold do. systems for the aircraft. for more than 40 years. “When its first plane to China - an A310 “Management at the time AVIC Leihua Rockwell Collins you come to today’s landscape to China Eastern Airlines in set targets to match Boeing Avionics Company opened a it’s a lot more than just Boeing 1984 - it continued to lag behind and to double the actual dollar facility in Wuxi in June 2013 helping,” said Mounir. Boeing. amount of procurement. The to develop and manufacture “It’s a stronger partnership. original goal was to draw level integrated surveillance system They’re not just buying from us. with Boeing in 2007 and double products for the C919. Collins They’re helping us on the supply the amount by 2010. All that Aviation Maintenance Services side, the manufacturing side and was put in motion,” said Barron. Shanghai Ltd. is another JV, the research front.” between Rockwell Collins Boeing has partnerships and China Eastern Airlines, with AVIC and COMAC that They will be which provides aftermarket include a composite facility in competitors, services and support of avionics Tianjin, manufacturing of parts and in-flight entertainment for the 737, 747, 777 and 787, but they will be equipment for Chinese airline and a big MRO facility, Boeing collaborators customers. Shanghai Aviation Services. and partners Clearly, most of these “So we have come a long partnerships are working well. way in what we do in China, Ihssane Mournir In December, Airbus celebrated what we do for China and Senior vice president sales the 200th delivery of an A320 what China does for us. From Northeast Asia assembled at Tianjin. “It’s a dollar spent standpoint, we Boeing Commercial Airplanes public knowledge that we

24 / ORIENT AVIATION / APRIL 2015 SPECIAL REPORT GLOBAL AEROSPACE DEVELOPMENT IN CHINA

have talked about and signed Boeing and Airbus are not with Boeing, McDonnell Douglas, MoUs to potentially set up an daunted by this development. Lockheed, Fokker and a whole A330 completion and delivery “Yes, they will absolutely lot of manufacturers and we centre, which would also be in be a competitor and I think they succeeded. We’ve been very Tianjin next to the A320 facility, will be a formidable competitor,” good at it, so why should we provided we have a significant said Mounir. “They will have worry about it. number of orders,” Barron said. their airplanes flying in the jet “If one day the Chinese are Unlike Airbus and Embraer, category, the C919, and we will better at something than us it which had an E145 regional jet just have to compete. would be a kick in the butt for assembly line in Harbin (it was “Competition makes us all us. We will have to go back to converted to assembling the better. It will keep us on our the drawing board and try to Embraer Legacy business jet in toes. They will push us to be leapfrog them. That’s what’s 2012), Boeing has not opted better. But I think there will be been happening for years to build or assemble planes in areas of co-operation where we between Airbus and Boeing. China. can work with them to see how Instead of just sitting back and “You have to look at what we can both bring value to the saying let’s make what we makes sense for the country. Robin Ho, Rockwell Collins China table. They will be competitors, make and make money, we What makes sense for us. What but they will be collaborators have constantly tried to outdo makes sense for them at any land and we have more than and partners.” each other by launching better given time,” said Mounir. “It’s 6,000 people who are working Barron agreed. “It is a aircraft, better derivatives. It’s not that we are not looking at it. on various projects. We are perfectly legitimate desire on the a great fight and it’s good for It’s not that we will do it. I can’t constantly asking ourselves part of a country like China to everyone.” really say whether we will do what else could we do with the develop its own civil aerospace Mournir said: “You do have something like that or not. Chinese to add value for both industry. I think it will be a long an indigenous industry that is “All I can tell you is we look them and us.” time before they succeed, but I climbing the learning curve very at what adds value for both To many, the perceived believe one day they will,” said fast and it is adding value to the parties. We are doing some elephant in the Chinese room is Barron. global market of aerospace. It pretty advanced composite the possibility that the country’s “As far as we are is something we can tap into work in Tianjin. We have a very aviation industry will become a concerned, what’s wrong with because China is spending large joint venture facility doing major competitor for established competition? Airbus was born a lot of money on these that. Then, we look across the global aerospace manufacturers. into competition, to compete developments and projects. As

Profits for all

Airbus, Boeing and Rockwell Collins at all. Certainly, it is slower than we have worrying about how the GDP growth affects can very easily live with China’s “new seen, but put things in perspective. There traffic growth.” normal” annual growth of 7%, they said. are 1.3 billion people in China and a little “I think 7% growth is still a pretty But Airbus China Group chairman, over 2,000 planes installed. good number,” said Ho. “But on the air Laurence Barron, said air traffic growth is “In the U.S., we’ve have more than transport side, as well as the OEM (original actually around 10%. Historically, it has 300 million people and more than 5,000 equipment manufacturers) side, we actually been 15% or 16% annually. “But that was planes as an installed base. Then I look at have not seen too much decline. GDP off a much smaller base. We are now 10% of the propensity to travel in the U.S. There are growth is composed of a lot of elements. a much bigger base and that is, in absolute about 2.4 trips per capita. In China, it’s 0.24. But for aerospace and aviation the Chinese terms, still growth. I think myself that it’s It’s one tenth what it is in the U.S.” government, in its 12th five-year plan, is still more sustainable,” he said. “What really needs to be considered is promoting industry development. That is “If we had 15% traffic growth today, it the tremendous growth in China’s middle why they are pushing very hard to produce would be very difficult for everyone to keep class, he suggested, because this is where their own aircraft, such as the C919. up. There are the questions of availability the people who travel and who are going to “There is still a lot of opportunity for a of pilots, trained mechanics, airspace and purchase airplanes come from. “That tells supplier like us. On the other side, if you aircraft. Everything would be in short me China can absorb as many airplanes as look at the relaxation of airspace in China, supply. you can throw at it. More airplanes than all there is a huge opportunity in the general “For Airbus, it is probably our largest of us collectively can throw at it. aviation (GA) area, including helicopters. aircraft market. And for Airbus Helicopters, “The only thing that can stop us, all We are very focused on these areas now. the next 10 years it may become the largest, manufacturers, is the infrastructure itself. A lot of new aircraft are being delivered, and if not, the second largest helicopter Can the infrastructure take it in? But in terms low-cost carriers are being launched and a market in the world,” he said. of demand, it is there. It’s tremendous. It’s lot of leasing companies are being formed Mounir said 7% growth is tremendous going to stay there until the market reaches by formed by Chinese banks, which also is by any measure. “I’m not worried about it a mature level like the U.S. Then I’ll start driving demand.”

APRIL 2015 / ORIENT AVIATION / 25 SPECIAL REPORT GLOBAL AEROSPACE DEVELOPMENT IN CHINA

such they are spending a lot have a trustworthy partnership, “I come from a culture for success in the market for of money, time and effort on we can enjoy the benefit of where you’ve got to liberate the airlines, especially for the growing the industry.” the market together instead and liberalize to the maximum start-ups and the LCCs.” “So, it becomes very of ending up in a competitive possible. So you can imagine I Looking ahead, Mounir said: important and very interesting situation”. had a little bit of a struggle with “We are looking at what can we for us to look at what can we One other issue that the concept initially. Even if you do together, what can we do for bring to the value chain of concerns many firms entering look at the five-year planning one another because there is a aerospace for everybody. That’s China for the first time is how to and how the planning occurs strong appetite on the Chinese why we are paying very close deal with the tough regulatory it’s given us plenty of room to side to learn more and come up attention to it. Its an industry regime and a government navigate and plenty of room to that learning even faster. And that has been pegged as that rules with an iron fist. But address market requirements. we do have to accommodate strategic for China and therefore companies that have been in “The CAAC (Civil Aviation that desire curve because the they are developing it and I China for years said it is not Administration of China) has partnership needs to be both think there will be some value really a problem. been doing an incredible job ways. It can’t be just that of add beyond what we have seen “In fact, we’ve been having making sure the infrastructure a seller. So I am working very going forward.” a pretty harmonious working is there, the safety measures hard with my colleagues and At Rockwell Collins, Ho relationship with the authorities. are there, that the training is others trying to figure out what said it is better to be working There’s something to say about in place. From a regulatory you do next in China to keep together in the same market “so order and good planning,” said standpoint, they are doing going forward when it comes we can grow together instead Mounir. “I didn’t understand it their job. They are doing it well to industrial co-operation and of doing it on your own. If you at first. and they are paving the way collaboration.” ■

CARGO EXTRA Air cargo breaks losing streak

Tom Ballantyne reports Statistics released by the a downside risk that will need to needs. That’s what is driving International Air Transport be watched carefully as we move efforts such as cutting sia-Pacific air cargo Association (IATA) confirmed the through 2015,” he said. shipping times, ensuring business recorded upswing was from strong Lunar IATA’s reported that cargo high-quality handling of a increase in demand in the Asia-Pacific. transported by Asia-Pacific temperature-sensitive 20.8% of demand IATA said the air cargo carriers grew 5.9% in December, goods, or benchmarking in February that market expansion gathered compared with an average of quality to improve customer Apushed up the region’s air freight momentum as 2014 progressed, 5.4% for all of 2014. transparency. It’s all about load factor and continues the finishing the year on a positive Increased import demand delivering value as a supply positive results for the sector. note, at 4.9% in December, in addition to continuing chain with a strong vision of The Association of Asia compared with 12 months manufacturing strength across the future,” said Tyler. Pacific Airlines (AAPA) said 2014 earliers. the region, with a particular The focus on value in exports from manufacturing Most of the growth was focus on Japanese and Chinese delivering change and an hubs across the region led to generated in the Asia-Pacific, and markets, built growth. initiative to encourage more the rebound, a lift in business to a lesser degree, the Middle Tyler cautioned big industry innovation was assisted by the relatively modest East, with an expansion in FTKs, challenges remained for air center stage at IATA’s 9th pace of available freight capacity, at 46% and 29%, respectively. freight. “Yields declined for World Air Cargo Symposium, at 4.1% for the 12 months. IATA’s director general and the third straight year in 2014, which was held in Shanghai “Air cargo markets CEO, Tony Tyler, said the cargo with no immediate prospect of with more than 1,000 experienced a welcome upswing revival was largely being driven improvement. Cargo revenues delegates in attendance in in 2014, with the second half of by the uptick in world trade remained basically unchanged March. the year registering 6.0% growth in the second half of 2014. at $62 billion, some $5 billion At the gathering, the compared with the same months “Recent concerns about the below their 2011 peak,” he said. emphasis was on laying the in 2013, following several years health of the global economy “To move forward, the foundations to “energise the of stagnant demand,” said and a corresponding fall in industry is focusing on providing sector, recapture market share AAPA director general, Andrew business confidence have not a stronger value proposition and grow revenues”, said Herdman. yet impacted air cargo. But it is to meet evolving customer Tyler. ■

26 / ORIENT AVIATION / APRIL 2015 No.1 Asia-Pacific commercial aviation magazine

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