Vol. 24 No. 1 February 2017 orientaviation.com
UPPING AVIATION’S ANTE IATA director general and CEO, Alexandre de Juniac, targets heads of state in his lobbying campaign
Malaysia Airlines Rolls-Royce bribery HNA Group buys plans 2019 IPO scandal centres on Asia into “Trump Corp.”
IndustryIndia’s insight:growth airline explosion The fl exibility to fl y as many cycles as you want, to the destinations you want, as often as you want. LEAP. The architecture of reliability.
cfmaeroengines.com CFM International is a 50/50 joint company between GE and Safran Aircraft Engines
PERFORMANCE | EXECUTION | TECHNOLOGY MORE TO BELIEVE IN
C38261.002_CFM_UTLIZIATION_OrientAviation_Oct16_273x202_v1.indd 1 03/10/2016 12:23 CONTENTS Volume 24, Issue 1
COVER STORY
20 UPPING
PUBLISHED BY AVIATION’S
ORIENT AVIATION MEDIA GROUP Mailing address: ANTE GPO Box 11435 Hong Kong Office: IATA boss, Alexandre de Juniac, 17/F Hang Wai Commercial Building, wants to engage heads of state in 231-233 Queen’s Road East, Wanchai, Hong Kong building understanding of aviation’s Tel: Editorial (852) 2865 1013 value to the global economy 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 E-mail: [email protected] COMMENT AIR FREIGHT
North Asia Correspondent 5 Structural discipline works 24 Asia-Pacific air freight spike spurs hopes of Geoffrey Tudor industry recovery Tel: (813) 3373 8368 E-mail: [email protected] ADDENDUM 6 Etihad Aviation Group CEO, James Hogan, MRO TRAINING India Correspondent R. Thomas departs the group for the investment industry 25 IATA introduces virtual reality MRO training Tel: (852) 2865 1013 6 THAI boss, Charamporn Jotikasthira, acts fast on E-mail: [email protected] Rolls-Royce bribery information MAIN STORY Photographers 7 Turbo accidents impact region’s safety record 14 Ending the profit rollercoaster? Rob Finlayson, Graham Uden, Ryan Peters 7 Supplier issues easing says Airbus in its 2016 review Chief Designer Chan Ping Kwan
Printing LUNCH WITH ORIENT AVIATION Printing Station(2008) 8 Malaysia Airlines Berhad CEO and group managing director, Peter Bellew, forecast the ADMINISTRATION carrier’s IPO for 2019 General Manager Shirley Ho E-mail: [email protected] INDUSTRY ADDENDUM ADVERTISING 29 Airbus expands Silicon Valley data mining
Asia-Pacific, Europe & Middle East partnership Clive Richardson 29 Japan Air Commuter launches new era with ATR Tel: (971) 50 554 6608 E-mail: [email protected] 29 SITA focuses on region with leadership appointments The Americas / Canada Barnes Media Associates 29 China Airlines and Japan Airlines strengthen Ray Barnes formal co-operation Tel: (1 434) 770 4108 Fax: (1 434) 927 5101 NEWS BACKGROUNDERS 29 Booming parcel business boosts China’s Ameco E-mail: [email protected] 10 Asia-Pacific rocked by Rolls-Royce bribery scandal 30 France’s Safran buys troubled Zodiac Aerospace [email protected] 12 Chen Feng conglomerate romances “Trump 30 British solutions company, IFS, introduces IT corp.” as shopping spree accelerates airline operations tool Follow us on Twitter @orientaviation 13 Germany’s 24/7 Hahn airport close to deal with also - keep up with the news of the week with Orient Aviation’s Week in China’s HNA group INDUSTRY INSIGHT SPECIAL REPORT the Asia-Pacific 18 Governments avoiding responsibilities to airline INDIA’S AVIATION EXPLOSION © All rights reserved passengers reports IATA 26 India to be the third largest airline market in the Wilson Press HK Ltd., 19 TransAsia collapse resets aviation in turbulent world Hong Kong, 2017 Taiwan 28 Air India still “sick” says chairman Lohani
FEBRAUARY 2017 / ORIENT AVIATION / 3 B:212 mm T:202 mm S:182 mm
NOW’S THE PERFECT TIME TO EXTEND YOUR SUCCESS. B:283 mm S:253 mm T:273 mm
777-300ER. A BETTER WAY TO FLY. The Boeing 777-300ER’s unique combination of superior range, outstanding fuel effi ciency and passenger-preferred comfort has created long-range success for carriers around the world. And with recent upgrades that further reduce costs and boost revenue, now’s the perfect time to add to that success, in the air and on the bottom line. The 777-300ER makes every fl eet a more profi table fl eet. That’s a better way to fl y.
boeing.com/777
Job Number: 1054973 Version: B 777-300ER Client/Brand: Boeing/BCA Date: 5-19-2016 12:58 PM APPROVALS File Name: 10549738vB_BCA_777300_202x273.indd QC: Justin O’Brien Bleed: 8.3465” x 11.1417” Gutter: None Publications: Orient Aviation PA: Steve Hutchings PR: Pat Owens Trim: 7.9528” x 10.748” Folds: NoneNone Notes: None RET: Greg Olsen PP: Kim Nosalik Safety: 7.1654” x 9.9606” Media/Color Sp: PRINT/4/c AB: Kathleen Candelaria TM: Deanna Loperena/Alyssa Gabriele Scale: 1=1 Country: None Vendor: None Actual Size: 202x273 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/Katie Bunimovich 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: 10549738ct03_r1_sPOR_BCA_777300_208x275.tif (344 ppi; CMYK), Boeing_white_50mm.eps COMMENT
Structural discipline works
Historically, when the global economy collapsed, airline the industry and the improved financial health of airlines profitability followed suit. As a result, again historically, have not only been about low oil prices. airlines often have had to sell their product, the airline Last year, jet fuel prices averaged US$52.10 a barrel. seat, at a loss. IATA forecasts that will increase to $64.90 barrel in 2017. Now, for the first time in the history of formal With no hedging, higher jet kero costs will add almost $25 recorded airline statistics that has not happened. The billion to airline costs for the 12 months, yet carriers’ net shock of the oil spike of 2007, followed by the Global profits are expected to fall by only $5 billion for the year. Financial Crisis of 2008, forced airlines to put in place Severe restructuring at many airlines, and other the necessary structural reforms that rescued it from the measures such as the densification of seats on aircraft fluctuations of global economic performance. and increasing ancillary revenue, are positioning carriers Since 2010 the world’s economy has not performed to better handle the many and varied shocks that come well but the airline industry has improved its collective their way. numbers. In 2017 a record has been set. The industry These improvements will endure, said IATA, even will have achieved its the eighth consecutive year of if low oil prices disappear. This reassuring news also aggregate profitability. reinforces the fact that in this new, digitally dominated While some airlines never learn from their world, industry restructuring is the necessary path to mistakes – most commonly erroneous fleet planning and sustainable profits. consequent price wars - many do, including airlines in the In 2017 and beyond, restructuring is no longer a Asia-Pacific. three or five-year program. Change is now a constant in International Air Transport Association (IATA) chief any business, not just airlines. And at airlines, those that economist, Brian Pearce, said at a recent IATA media don’t adapt to the new world probably won’t be around briefing that the structural improvements taking place in for much longer. ■
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”
FEBRUARY 2017 / ORIENT AVIATION / 5 ADDENDUM
Etihad Aviation Group’s James Hogan moves on to finance
Etihad Aviation Group president and CEO, provided new opportunities for thousands of Priorities for the business, said H.E. James Hogan, has announced he will leave Emiratis and has been a critical element in the Mazrouei, were continuing a company-wide the Abu Dhabi-headquartered airline and remarkable progress of Abu Dhabi and the strategic review to ensure success in a travel group for the investment world, along UAE. We look forward to James’ continued challenging market. with the group’s CFO, James Rigney. association with Abu Dhabi in new ways.” “We must ensure the airline is the right A global search has commenced to size and the right shape. We must continue replace Hogan, who plans to leave the group to improve cost efficiency, productivity and in the second half of this year. Rigney also revenue. We must progress and adjust our plans to depart from the company at an airline equity partnerships even as we remain unspecified date this year. committed to the strategy.” The Etihad Aviation Group board of Speaking in Dublin a day earlier, Hogan directors announced the news on January 24 said five of the Etihad Aviation Group’s seven when they said Hogan “had first initiated the airline equity investments already were transition process last year with the formation delivering a return. “However, we faced in May of the Etihad Aviation Group, now greater challenges with airberlin and with a diversified global aviation and travel Alitalia,” he said. organization”. “Both are operating in very competitive Etihad Aviation Group chairman, H.E. environments and need to address Mohamed Mubarak Fadhel Al Mazrouei, longstanding issues facing their businesses. said: “we are very grateful to James. In just I believe airberlin’s strategy is now on track ten years, he has overseen the growth of the and Alitalia is finalizing a business plan to company from a 22 aircraft regional carrier address its issues. into a 120 aircraft global airline and aviation “We are committed to our equity partner group, with seven equity partnerships which strategy. It delivers a huge amount to our together serve more than 120 million guests business. Some of these airlines need to every year. react to the market pressures they face, and “Under his leadership, the company has we are supportive of that process.” ■
Airbus overcomes supplier obstacles?
At the time it seemed like a mountain The output numbers were lifted by a rush of aircraft. For both manufacturers, the too high to climb. With serious supplier deliveries – 111 – in December, planned deliveries are sufficient to keep their issues for both engines and cabin interiors Over in Seattle, rival Boeing delivered 748 production lines busy for the next decade. equipment delaying deliveries out of Airbus planes during the year. At an Airbus global web briefing last for its A320neo and A350, the European Airbus executives played down concerns month, Bregier said Airbus expected to deliver manufacturer looked more than unlikely to the industry is facing a downturn after a long- more planes this year than in 2016, but would reach its revised November 2016 target of 670 running buying spree by Asian and Middle East not be drawn on numbers. “We will continue aircraft delivered for the year. carriers. to ramp up. As of today, we will be above 700 Little wonder then that the president of Despite these concerns, both Boeing and deliveries,” he said. Airbus commercial aircraft, Fabrice Bregier, Airbus are not fazed by the prospect of fewer Added John Leahy, Airbus’ chief operating was happy to announce the company’s 2016 orders in 2017. officer – customers: “Next year, we will performance to the media last month. Airbus booked 731 net orders in 2016. increase production again. We are essentially The first half of the last year was “unusually It beat rival Boeing, but the order book for sold out at this point, but that does not mean difficult from a production perspective”, the year was nearly a third lower than in 2015 Bregier said, but the manufacturer managed to when clients ordered 1,036 aircraft. In Seattle, speed up its output by the end of the year after Boeing confirmed orders for 668 planes in suppliers fixed some of their problems. “Last 2016, a decline of 13% over 2015’s net orders year was one in which we managed not only to of 768 aircraft. achieve our objectives but to surpass them,” Airbus has a backlog of 6,874 planes, he said. valued at $1,018 billion at list prices, to be Airbus delivered a record 688 aircraft in delivered. 2016 compared with 635 in 2015; a result Boeing ended 2016 with orders to be that exceeded the company’s expectations. delivered of more than 5,700 commercial
6 / ORIENT AVIATION / FEBRUARY 2017 ADDENDUM
Turbo accidents drag down safety record Rolls-Royce bribery probe at THAI progressing Last year was a banner year for Asia-Pacific commercial airlines with no major accidents or fatalities. But the record was not exemplary At press time, Thai Airways International (THAI) president, for the region’s turboprop fleet, which had three major accidents in Charamporn Jotikasthira, said the airline’s investigation into 2016 that took 74 lives. reported bribes paid by Rolls-Royce to THAI staff between Worldwide in 2016, there seven major accidents and 207 lives 1999 and 2005 was progressing. In the meantime, THAI is lost at jet carriers – a loss rate of one major accident for every four preparing to sign a governance agreement to ensure that million flights – and a reduction in accidents of almost 60%. any party conducting business with THAI will not engage in However, western built commercial airline turboprop planes any bribery with the airline’s employees. See Rolls-Royce had five major accidents worldwide that took 80 lives in the same 12 Asian bribery scandal page 10. ■ months – a loss rate of one major accident per million flights. The director general of the Association of Asia-Pacific Airlines, Andrew Herdman, said the safety record of turboprops in Asia had markedly improved following a heightened focus on specific risk factors and common operational challenges. “The projected expansion of airlines in the Asia Pacific brings with it considerable challenges, including effective regulatory oversight that keeps pace with growth, recruitment and the training of skilled industry professionals,” he said. The International Civil Aviation Organisation (ICAO) has identified disparities in the implementation of safety standards and regulatory oversight worldwide, including Asia. “Governments have a responsibility to make the necessary commitments and investment in resources to ensure effective oversight in full compliance with agreed ICAO standards, or face the very real threat of international sanctions, which some countries have already experienced,” said Herdman. ■
we can’t increase our production, and we will Airbus delivered its first plane to Iran, an Bregier said Emirates continued to next year and the year after,” he said. A320, last month. Boeing does not expect to challenge it for an A380 upgrade. “We have “We have to build what we already have begin deliveries until 2018. studied the possible evolution of the A380neo orders for and not worry about getting new Among other contracts Airbus signed in aircraft and we came to the conclusion that the orders. I’m confident that we’ll have a new December was a $7.8 billion order from Indian time was not yet there to launch it. To do that record in deliveries in 2017. That doesn’t mean LCC, GoAir, for 72 A320neo passenger jets. we would need to inject some development that orders are going to be strong.” Another Indian LCC, SpiceJet announced the cost and we would need to have a better Nevertheless, both plane makers were purchase of 100 B737-8 Max aircraft in one of environment from the market perspective, and buoyed by sales to Iran late last year after Boeing’s biggest orders from India. also a clear return on investment,” he said. sanctions against the country were lifted. As for the eternal question of the future of “Regarding Emirates, I am very grateful Boeing and Airbus each received orders for the A380, Airbus continues to stand by its very they are such a strong supporter of the A380 100 planes from Tehran, each deal estimated large aircraft. With sales almost non-existent and that they are challenging us to say ‘we to be worth at least US$11 billion. – Boeing’s B747-8 Intercontinental is suffering want to buy more, we want the new version, a similar fate – there is no sign of a new engine we will be your big customer’. I believe this is version, the A380neo. a key to the future success of the A380 and In the meantime, Emirates Airline, which future versions of this aircraft.” has 89 A380s in its fleet and another 53 of “We decided to keep what really made the type on order, is deferring delivery of six sense, which is to increase the seat count while A380s from 2017 to 2018 and postponing keeping the big advantage of the A380, which acceptance of another six from 2018 to 2019. is the quality as perceived by the passengers Last July, Airbus announced a cut in the A380 - the bars, the restrooms, the showers and all production rate to one a month from 2018 to that. And this is what we are doing right now,” reflect reduced demand. Brégier said. By Tom Ballantyne ■
FEBRUARY 2017 / ORIENT AVIATION / 7 LUNCH WITH ORIENT AVIATION
Malaysia Airlines Berhad CEO and group managing director, Peter Bellew, told the 130 guests at the third Lunch with Orient Aviation in Hong Kong that the airline’s path to profit was on track and that it planned to launch an initial public offering in early 2019. In 2016, Bellew said, the airline often flew its A380s from Kuala Lumpur to London with only 50-60 passengers onboard. But in the September-December quarter, London loads improved to 82% and hit 90% in December. “We made a profit last month (December) and we expect the last quarter of this year to break even or make a profit. Currently, I am projecting to make a profit across next year,” he said. ■
Photos: Graham Uden
Sponsored by
8 / ORIENT AVIATION / FEBRUARY 2017 FEBRUARY 2017 / ORIENT AVIATION / 9 NEWS BACKGROUNDER
Asia-Pacific rocked by Rolls-Royce bribery scandal
By Tom Ballantyne
he news last month that global engine manufacturer, Rolls- Royce had admitted to bribing clients Tto secure orders, allegedly in Thailand, India, Indonesia, Malaysia and China among other countries worldwide, has sent shock waves through the region’s airline industry. In Bangkok, Thai Airways International (THAI) immediately set up two task forces to investigate the allegations. In Indonesia, the country’s anti- corruption agency, the Corruption Eradication Commission (KPK) announced it was investigating the matter and named former PT Garuda Indonesia, I had never prevent bribery in seven countries. allegations the firm had hired Garuda Indonesia president-CEO, done corrupt activities and I did Among them were five Asian middlemen to pay bribes to win Emirsyah Satar, as a suspect in a not receive anything that was countries: Thailand, Indonesia, contracts. bribery case. The KPK said in a related to my position,” he said. India, China and Malaysia. Russia Rolls-Royce chief executive, statement he was suspected of THAI quickly launched and Nigeria also were named in Warren East, said the behaviour accepting bribes related to the full scale investigations into the final findings. uncovered in the course of the purchase of planes and engines past jet engine purchases. The Rolls-Royce apologized after SFO investigations and other from Airbus and Rolls-Royce. airline’s president, Charamporn it was found to have paid bribes, authorities “is completely Former banker Satar, who is Jotikasthira, who took over in including a luxury car and millions unacceptable and we apologize highly regarded in the industry, December 2014, said one task of dollars in cash, to middlemen unreservedly for it. This was headed Garuda from 2005 to force would examine engine to secure orders. The Derby-based unworthy of everything which 2014. He resigned from Garuda and maintenance procurement company made the admissions Rolls-Royce stands for, and that because heads of government between 1991 and 2005 and in the High Court in London last our people, customers, investors controlled companies only are would take appropriate action on month after it was revealed the and partners rightly expect from allowed to serve two five-year the findings. company had agreed to pay $828 us”. terms in any one position. He A second task force is million in penalties to settle the The British court heard that: is now chairman of Indonesian investigating current procedures long-running investigation. • In Thailand, the firm paid conglomerate Lippo Group’s for engine procurement and In a statement read out more than $36 million between e-commerce platform, maintenance to ensure they are in court, Rolls-Royce said it 1991 and 2005 to agents to help MatahariMall.com. sound and without any loopholes. “apologized unreservedly for it secure three separate contracts Satar has vehemently denied In a bombshell disclosure the conduct which has been to supply Trent aero engines to any wrongdoing, but said the KPK in January, Britain’s Serious uncovered”. The settlement Thai Airways International. had the authority to name him Fraud Office (SFO) settled with was reached with investigators • In Indonesia, Rolls-Royce gave as a suspect and that he would Rolls-Royce after the company from three countries - the UK, $2.25 million and a Rolls-Royce respect the legal process. “As far admitted to engaging in 12 U.S. and Brazil - who launched Silver Spirit car to an individual as I know, when I was the CEO of counts of corruption or failure to investigations five years ago into in exchange for a “favour to
10 / ORIENT AVIATION / FEBRUARY 2017 NEWS BACKGROUNDER
Rolls-Royce on a contract” for “The management of Garuda Trent aero engines to be provided Indonesia will fully leave the to Garuda Indonesia. Separately, complete investigation of Rolls-Royce paid a representative the case to the KPK and will from a rival bidder to deliberately cooperate with the commission’s submit an uncompetitive bid on a investigators,” he added. contract Rolls-Royce successfully A settlement between secured. Rolls-Royce and the SFO on the • In India, where the use allegations – called a deferred of agents to secure defence prosecution agreement – allowed contracts is prohibited, the engine manufacturer to avoid Rolls-Royce disguised its use of prosecution in the U.S., the UK middlemen as “general consulting and Brazil although individual services”. The company also executives may be charged. admitted paying to retrieve a The SFO settlement required leaked list of intermediaries after Rolls-Royce to admit wrongdoing, they were obtained by the Indian pay the fine and submit to other tax authorities. measures to monitor its conduct • In China, Rolls-Royce failed for a specific period. If it adheres to prevent bribery in relation to the terms of the agreement, it to the extension of a £5 million will not be prosecuted at the end ($6.2 million) cash credit to China of the agreed period. Eastern Airlines in exchange Rolls-Royce said it would pay for the purchase of engines for $613 million to the SFO, $169 aircraft. Some of the funds paid million in penalties to the U.S. were intended to be used for The behaviour uncovered in the course Department of Justice and $25 employees of CEA to attend of the Serious Fraud Office investigations million to the Brazilian authorities. a two-week MBA course at During the long-running Columbia University, including and other authorities is completely investigation, more than 30 what the court described as unacceptable and we apologize million documents relating to “four-star accommodation and unreservedly for it. This was unworthy of middlemen were examined by lavish extracurricular activities”. 70 investigators and more than In Bangkok. THAI everything which Rolls-Royce stands for, 200 interviews of present and announced one investigation and that our people, customers, investors former Rolls-Royce employees would be headed by Pichait and partners rightly expect from us were carried out. Arrests and Riengvattanasuk, who is vice searches were made in the UK president of the carrier’s Risk Warren East and overseas. Management Department. There Rolls-Royce chief executive Joint head of bribery and also would be a Corruption corruption at the SFO, Ben Investigation by a Special Task 30 days to wrap up the bribery KPK’s announcement which said Morgan, told the Financial Force headed by an advisor probe, which meant it would have the case was disconnected from Times that a network of corrupt in the Office of the President, to come up with results before the airline. “The management of middlemen that operated on Niruj Maneepun, to investigate the end of this month. national airline Garuda Indonesia behalf of Rolls-Royce and other Rolls-Royce allegations about He said the panel must wants to convey that the (alleged companies was put together THAI engine and maintenance determine if THAI’s acquisition corruption) case has no relations “not just in aerospace or energy procurement that would “take process is transparent, how with corporate activities, but sectors, but in other cases”. appropriate company or legal the current acquisition process is more an individual action,” “You start to look at how actions on the findings”. differed from the previous process said the carrier’s corporate the web reaches out into other A Fraud Prevention Integrity and who was involved the bribery communication vice president, companies. We don’t think we Pact between THAI and engine that Rolls-Royce has admitted in Benny S. Butarbutar. have caught the one bad apple procurement and maintenance the courts. He said that as a public here at all. Other companies companies is to be developed to If the inquiry implicates any company, Garuda had should be concerned. Boards ensure there is no bribery among THAI executives or staff they mechanisms in all of its business have a decision to make – do they THAI staff. must be prosecuted without activities, from the tight continue to hide bad conduct Thailand’s Transport Minister, exceptions, he said. implementation of a good or, like Rolls-Royce did, do they Arkhom Termpittayapaisith, said Garuda Indonesia issued corporate governance system have the integrity to confront it,” the inquiries had been given a statement in response to the to transparency of information. Morgan said. ■
FEBRUARY 2017 / ORIENT AVIATION / 11 NEWS BACKGROUNDER
HNA romances “Trump Corp” as shopping spree accelerates
By Dominic Lalk
here is no end to HNA Worldwide Holdings Inc. Late last Group’s desire for year, HNA acquired Carlson Hotels global assets despite (Radisson, Radisson Blu, Park Inn, reported gearing of etc.) and paid for 51% of Rezidor close to 150% and Hotels. Tborrowing costs estimated at an Also in 2016, HNA became annual eight per cent a year. the sole owner of lessor, Avolon One of the group’s latest Holdings, for $7.6 billion, which targets is a majority holding in made Avolon the fourth largest SkyBridge Capital, the investment lessor in the world. With the firm founded by Donald Trump agreement to acquire CIT Group’s adviser, Don Anthony Scaramucci. aircraft portfolio in October SkyBridge’s offerings include of course we have to do M&A,” asset finance firm UDC. It said for $10 billion, HNA is now the various hedge fund products, said Chen. “Otherwise it’s a lost the purchase promised significant world’s number three aircraft customized separate account opportunity.” growth opportunities in Australia lessor. Chen Feng said he aimed portfolios and “sophisticated A Lufthansa air transport and New Zealand and would to overtake GE Capital Aviation alternative” hedge fund advisory management graduate and create synergies in its leasing Services and AerCap Holdings to services. It managed or advised an MBA in air transport from business. become the biggest lessor on the approximately $12 billion in assets Maastricht university in the At the same time, HNA planet. as of November 2016. Netherlands, Chen told the tripled the size of its Hong Kong Earlier last year, in May, the While the deal could provide Financial Times: “The more money headquarters not long after it had group bought part of Virgin a useful link to the new White the Chinese have, the more agreed to pay an above the market Australia Holdings Ltd and four House, HNA Capital’s equity in they go all around the world. price of $1.84 billion for two months later took equity in Azul SkyBridge also will help HNA Any country that does not have residential sites at Hong Kong’s Linhas Aéreas Brasileiras SA, expand its nascent financial Chinese tourists has a problem.” former Kai Tak Airport. At press Brazil’s third-largest airline. In empire of asset management, life He added aviation development time, the group secured a third Kai between times it swept up ground insurance, peer-to-peer lending was the only realistic means to Tak site, for US$713.5 million. handler, Swissport International, and, importantly, aircraft leasing. achieve it. The group has bought Ingram and Swiss airline caterer, “Our investment in SkyBridge HNA Group and its numerous Micro Inc., the world’s biggest Gategroup Holding AG. is an important step in HNA subsidies kicked off 2017 with the computer and software distributor Former Civil Aviation Capital’s strategy to build a global $460 million purchase of New for $6 billion and spent another Administration of China and asset management business,” said Zealand’s largest non-bank lender, $6.5 billion for 25% of Hilton World Bank official Feng launched Guang Yang, CEO of HNA Capital Hainan Airlines in 1993 with two U.S. aircraft and registered capital of In an interview with the Orient Aviation understands 10 million yuan ($1.45 million). Financial Times in January, HNA’s The airline, named after its island chairman, Feng Cheng, who Hainan Airlines is in advanced negotiations home base off southern China, founded the empire 24 years ago, to acquire slots at London’s Heathrow found friends in the right places said the group’s shopping spree Airport after applying for traffic rights and quickly developed the airline would “of course” continue in and its related businesses. 2017. for three times a week Chengdu-London Its big breakthrough- “With such a good and also three times a week accompanied by global headlines opportunity now in M&A, if Shenzhen-London flights flying either – came in 1995 when legendary we’re provided with the chance U.S. investor, George Soros, used of global good-quality assets A330 or B787 aircraft his hedge fund, American Aviation that benefit our core business, LLC, to invest $25 million in the
12 / ORIENT AVIATION / FEBRUARY 2017 NEWS BACKGROUNDER
young airline. It was unheard of at within the next decade. In late December, HNA signed translated as “sacred bird airlines”. the time for a foreigner to risk an Orient Aviation understands its first deal with Sabre, when it Lucky Air will hold 35% of the investment on the Mainland, let Hainan Airlines is in advanced bought the technology solutions carrier, with Yunnan Xiangpeng alone with such a young business negotiations to acquire slots at provider’s AirVision Planning & Investment Co. and Chengdu as Hainan Airlines. London’s Heathrow Airport after Scheduling and AirCentre demand Communications Investment The carrier added Bombardier applying for traffic rights for three forecast and scheduling tools. Group Co. holding 45% and Learjet 55 private jet operations times a week Chengdu-London Separately, HNA is rumoured to 20%, respectively. With a start-up to its portfolio and by 1998 had and also three times a week be interested in German logistics capital of $436 million, Shenniao become the first Mainland airline Shenzhen-London flights, flying giant, DHL, and railway colossus, will be the ninth airline to set up in to acquire equity in an airport either A330 or B787 aircraft. Deutsche Bahn. Chengdu. when it purchased 25% of Haikou Its airlines already operate to As of January 2017, HNA In 2017, HNA’s airlines plan to Meilan International Airport. Berlin, Brussels, Budapest, Group carriers had a fleet of more play a bigger role in advancing Xi Twenty two years on, Hainan Prague, Manchester, Moscow, St. than 1,300 aircraft, serving more Jinping’s Belt and Road Initiative, Airlines and its parent, the 17-year- Petersburg, Paris, Rome, Zagreb, than 1,000 routes and nearly 280 according to Huang Qijun, deputy old HNA Group, are hell-bent on Copenhagen and Madrid. All cities. It operates and manages CEO, president of investments and becoming the largest aviation it needs is a good grip on the Hainan Airlines, Tianjin Airlines, board director. “We will launch group in the world. With more Star Alliance hubs in Frankfurt, Beijing Capital Airlines, Deer more routes connecting China than $100 billion in assets, the Munich, Vienna, Zurich and Jet, Lucky Air, West Air, Fuzhou with the Belt and Road countries, group exceeds Boeing’s market Stockholm. Airlines, Urumqi Air, Air Chang’an, help our counterparts build and valuation. Industry insiders also Beibu Gulf Airlines, Yangtze manage airports to improve In 2014, HNA was number speculate that HNA might add a River Express, Guilin Airlines, GX local transportation services, and 464 on the Fortune 500 list of global distribution system (GDS) Airlines, Grand China Air, HK introduce high-end tourism routes the world’s largest companies by to its portfolio this year, even if it Express and Hong Kong Airlines. with distinguished Silk Road revenue. It has more assets than means going head-to-head with Kunming-headquartered features,” Huang said. any U.S. carrier and is bigger than China’s state-owned monopoly Lucky Air, a domestic and Both full-service and low-cost Europe’s market leaders Deutsche GDS, TravelSky Technology Ltd. international low-cost carrier, HNA carriers have announced Lufthansa AG and International At $19.2 billion, Amadeus announced in December that it significant schedule additions for Airlines Group (IAG) combined. might prove too big even for HNA, was in the final stages of setting 2017, notably with links from the Last year, it leapt to number 353 but Dallas-headquartered Sabre up a new budget airline out of Mainland to Europe, Central and on the Fortune 500 List and has Corp. at $7.1 billion might be Chengdu. The new carrier will Western Asia, the Indian Ocean its sights set on a top ten ranking persuaded to sell for a premium. be called Shenniao Airlines, and South and Southeast Asia. ■
HNA Group close to sealing German airport purchase At press time, Mainland Palatinate decided to enter into Wizz Air as clients, for US$14 reached its high water mark in China’s HNA Group was finale negotiations with ADC/ million. The deal collapsed operations and income in 2007 reported by Hong Kong media HNA Group, said Reuters. when the Mainland aviation when it handled four million to be in the final stages of The negotiations are the and logistics group failed to passengers. In its latest set of negotiations for the acquisition second attempt by the airport’s make any payments to the reported figures, for 2015, Hahn of 24-hour loss-making Hahn owners to sell the airport. Last Rhineland-Palantinate and Hesse airport processed 2.7 million Airport, a former western year, Shanghai Yiqian Trading government owners. passengers for the year, but it Germany military airport that is Company agreed to buy the Hahn airport opened for made a loss of almost $18 million now a secondary cargo and LCC airport, which has Ryanair and civilian operations in 1993. It for the 12-month period. facility. News agency Reuters said ADC, a German company, is HNA Group’s partner in the negotiations. The two provincial states that own the airport, Rhineland- Palatinate (82.5%) and Hesse (17.5%), have been involved in the disposal of the airport sale, which had attracted two other bids apart from ADC/HNA Group. After auditors reviewed the three offers, Rhineland-
FEBRUARY 2017 / ORIENT AVIATION / 13 MAIN STORY
ENDING THE PROFIT ROLLER COASTER? Airlines have benefitted from billions of dollars in unexpected bottom line relief since the oil price collapsed in 2015. Has the impact of bargain basement oil overshadowed another significant industry development – sustainable annual profits?
Tom Ballantyne reports
irlines worldwide reached a cyclical peak in “Typically, this cycle seemed to worsen as we moved into 2016 when they collectively reported profits of the early 2000s. But the trend seems to have altered since the $35.6 billion for the 12-month period, the Global Financial Crisis (GFC) in 2008, which had followed a International Air Transport Association big spike in the oil price. These two events delivered a shock (IATA) said in December. to the industry,” Pearce said. AThe results will not be as impressive this year, but they “We have seen an improving trend in financial health will remain in profitable territory. Airlines will have “a soft from that time. Since 2010 the global economy has not landing” in 2017, with forecast global airline profits to performed very well yet the airline industry has improved its decline to $29.8 billion, the association said. financial performance. Structural improvements are taking Global carriers have now reported eight successive years place. It’s not just about the fall in fuel prices in the last 18 of aggregate profitability in an industry notorious for its rapid months.” swings between profits and losses. In an industry that has hundreds of carriers operating What has changed? IATA chief economist, Brian Pearce, world-wide, clearly some carriers will be more profitable than said fuel is obviously an important factor in the formula, but others, including in the Asia-Pacific, but this sequence of added that until recently, every time the global economy sustained profitability appeared to be one of the most collapsed airline profitability also collapsed. significant industry trends to emerge in decades, said IATA.
14 / ORIENT AVIATION / FEBRUARY 2017 MAIN STORY
At present, airlines are receiving better returns on their been the amount of revenue airlines can generate per dollar of investments in their businesses and are identifying capital invested since 2009,” said Pearce. sustainable defences against volatile economic conditions, “Since the GFC, it is evident from the densification of said IATA. North American carriers dominate the positive seats on aircraft, but more importantly from the addition of industry totals with the majority of them generating above ancillary revenues. IATA’s work on the NDC (New cost of capital returns. Some airlines in the Asia-Pacific and Distribution Capability) has been a key enabling standard in Europe also are reporting high returns, but the profits that has allowed airlines to expand this revenue stream. It’s a picture is more mixed in both regions. Forecasts for 2017 trend improvement that will be around even if low oil prices predict Asia-Pacific airline profits would decline 13.7% this go away.” year, to $6.3 billion. Oil averaged $44.6 per barrel of Brent crude last year and Analysts said there was broad evidence that carriers were IATA forecasts it will increase to $55 in 2017. This will push ironing out the financial highs and lows of their fiscal jet fuel prices from $52.1 per barrel in 2016 to $64.9 per performance. Thai Airways International, Garuda Indonesia, barrel in 2017. In mid-January, the price per barrel of jet fuel Japan Airlines, Malaysia Airlines, Qantas Airways and most was $66.30. recently Cathay Pacific Airways, are making great leaps Fuel is calculated to be 18.7% of the industry’s costs this forward in aircraft technology and responses to changing year, which is significantly below the recent peak of 33.2% in passenger demands. 2012-2013. With no hedging, an increased fuel price would Pearce said the strongest evidence of airline structural add almost $25 billion to airline costs, yet IATA predicted change was the gap between load factors achieved and break net airline profits will fall by only $5 billion in 2017. even load factors that drive ROIC (Return On Invested “Of course fuel prices have been important,” said Pearce. Capital). In 2008, the gap between break even and achieved “We’ve recently seen quite a sharp oil price rise after the load factor was marginal at only 1%-2%, he said. OPEC (Organization of the Petroleum Exporting Countries) Today, the break even load factor is around 62% and the agreed to cut production. load factor achieved by airlines is approximately 67%. “You can see OPEC producers’ spare capacity is at an “Clearly, the 2015 fall in jet fuel prices pushed break even all-time low. The market was developing to a point where loads down sharply and that boosted ROIC, said Pearce. there was under investment in oil that was building up to a “Equally, the gap emerged several years earlier than the potential future supply crunch. Why not higher? Essentially, fall off in the cost of oil. So the improving trend in airline the market is still over-supplied. The amount of oil floating profitability is not just low fuel prices. The industry changed around is still at record highs.” after the 2008 oil price spike and the GFC, with a steep rise The Economy Forecast Agency (EFA), which specializes in asset utilization or load factors, which was a combination in long-range financial market forecasts for corporate clients, of consolidation, fleet retirement and behavioral change. believed crude oil prices will range from $59 to $62 a barrel “We saw that gap widen as airlines focused on more by year end and from $65 to $75 a barrel in 2018. efficient utilization of their capacity and assets,” he said. For airlines, this means their fuel bills will rise and that A second indicator of structural change driving the fuel hedging arrangements carriers have in place will profitability and ROIC, he said, was evident from operating decide how successfully individual carriers manage the cost margins and revenue/investment capital (capital productivity). increase. “Operating margins in the last three years have climbed Last month, European and Chinese traders shipped a and are expected to fall largely because of fuel prices. But an record 22 million barrels of crude oil from the North Sea and important component of the trend in improved ROIC has Azerbaijan to Asia to plug any gaps in the supply chain
FEBRUARY 2017 / ORIENT AVIATION / 15 MAIN STORY
Oil and structural changes apart, in the next 12 months capacity expansion is expected to slow to 5.6%, from 6.2% in 2016. Capacity growth will continue to outstrip demand, which will lower the global passenger load factor to 79.8%, from 80.2% last year. Nevertheless, industry revenues are expected to rise slightly, to $49.4 billion, although this figure is well below annual revenue reported from 2010-2014. Trading conditions remained challenging, IATA said, but connectivity continued to set new records. The global association forecasts that this year almost four billion travelers, up from 3.77 billion passengers in 2016, and 55.7 million tonnes of cargo (53.9 million tonnes in 2016) will be transported by the world’s airlines. Almost one per cent of global GDP, of $769 billion, is spent on air transport. The outlook for 2017 is one of more creation of value, not just for investors, but also for consumers with much of that growth coming from the connections that air transport makes between cities, Pearce said. In 2016, airlines made about 700 new unique city pair connections, which took the total above 18,000 for the first time. These structural changes are making a significant difference to airline profitability, but airlines can’t become complacent and lose their appetite for continuing change, said IATA. In real terms, airfares fell 12% in 2016 and are We have seen an improving expected to decline further this year. Adding to airlines’ trend in airline financial health collective cost base in 2017 will be more than $120 billion in from 2008. Since 2010 the global various taxes imposed by governments. ■ economy has not performed very well yet the airline industry has Nervous oil market persists improved its financial performance. Iraqi oil minister Jabar Ali al-Luaibi, speaking at the Structural improvements are taking Atlantic Council Global Energy Forum in Abu Dhabi last month, said Iraq wanted prices at around $65 a barrel. At place in the industry. It’s not just the same gathering, Saudi Arabia energy minister, Khalid about the fall in fuel prices al-Falih, said his country had reduced its oil production to its lowest level in two years. in the last 18 months Saudi Arabia is the world’s largest oil exporter and is leading OPEC’s drive to eradicate a global glut and to prop Brian Pearce up oil prices. Its output has fallen below 10 million barrels International Air Transport Association chief economist per day, which is a deeper cut than promised in a recent deal between OPEC and non-OPEC producers. Such following the OPEC production cuts. production levels were last seen in February 2015, when More than 11 million barrels of North Sea Forties crude Riyadh steeply increased production to cripple U.S. shale either have been offloaded or are on their way to Asia where oil producers. In the process it orchestrated a prolonged oil price crash. they will join a record 11 million barrels of Azeri crude oil Falih said: “We have been moving towards rebalanc- from Azerbaijan that is already being stored in the region, ing the markets for some time. Even better, the pace of Reuters oil trade flows data reveals. rebalancing will be accelerated by recent production Seeing an opportunity to sell North Sea oil profitably in agreements within OPEC and outside. I have confidence arbitrage deals to Asia, seven supertankers were chartered by in these agreements to bring stability to the global mar- commodity traders Vitol and Mercuria, Europe’s Royal kets.” Dutch Shell and China’s refiner Unipec to offload the He added: “We are not in the business of managing European crude to China and South Korea. “Asia needs the prices. We will leave it to the market to determine the price. oil, Europe has it. The OPEC cut has raised prices and that We wish for the market to be less volatile, but the reality makes it profitable to send European oil to Asia,” said one today is it is a nervous market.” senior trader.
16 / ORIENT AVIATION / FEBRUARY 2017 FLIGHTSAFETY FIXED-WING PILOT COURSES
Advanced Upset ADVANCED TRAINING Prevention and Recovery Training NEW MASTER-LEVEL COURSES INCREASE SAFETY AND PROFICIENCY Focuses on preventing in-flight loss of control, and recovery from upset if prevention is not possible.
FlightSafety proudly offers a new series of advanced pilot courses designed to enable Advanced Energy Management Teaches the physics flight crews to respond to challenging situations and achieve the highest level of of operating aircraft during descent. safety. Enhance your skills with master-level, aircraft-specific training in a controlled Advanced Rejected Takeoff Go/No-Go learning environment. Our progressive curriculum expands aviation education beyond Promotes best practices using 18 scenarios that require a decision to the fundamentals covered by initial and recurrent training. Compelling scenarios, continue the takeoff or abort.
Advanced Crew coupled with breakthroughs in simulator technology, deliver deeper knowledge of the Resource Management/ Human Factors Line aircraft and help ensure a safe and correct response to demanding flight situations. Oriented Flight Training Bolsters proficiency in crew coordination Trust us to deliver the highest level of professional aviation training available. and communication.
Aviation professionals from around the world trust us to provide the highest quality training and outstanding service. More than 1,800 highly experienced professional instructors deliver aircraft- and mission-specific courses, using our comprehensive training systems and advanced-technology flight simulators designed to enhance safety. Trust your training to FlightSafety. You’ll see why so many aviation professionals make the same choice. And have since 1951.
For more information, please contact Steve Gross, Senior Vice President, Commercial 314.785.7815 • [email protected] • flightsafety.com • A Berkshire Hathaway company
FLIGHTSAFETY ADVANCED TRAINING AD - ORIENT AVIATION - Trim: 202 mm w x 273 mm d Bleed: 212 mm w x 283 mm d Live: 182 mm w x 253 mm d NEWS BACKGROUNDER
charge them for their alleged offences. New Zealand has a Governments neglecting much better approach. Airport police can issue on-the-spot fines to unruly passengers. “Having a responsibilities to airline deterrent like that will reduce the number of cases,’’ Steele said. “We want penalties available to passengers governments, law enforcement agencies and airlines to deter this Unruly passenger incidents, a serious problem for airlines, kind of behavior.” IATA has been campaigning are rising sharply, accelerating industry demands for for all countries to ratify the governments to adopt global standards to punish inflight Montreal Protocol 2014 (MP14). It would close the jurisdictional gaps offenders. that exist between nations when dealing with unruly passengers. Twenty two countries must Tom Ballantyne reports ratify the treaty to bring it into force, but only eight have done he world’s airlines But in 2015 unruly onboard Usually cabin crew can so. Thirty others have signed up want nations to adopt incidents ballooned to one in de-escalate these situations. but they have not ratified the a tougher global every 1,205 flights with 11,000 Another 11% of cases are treaty. Many other countries, punishment protocol reports made for the 12 months. Level 2, where passengers are including China, India and to curtail a rise in IATA’s senior vice president physically aggressive with crew or Singapore, are undertaking the Tunruly passenger incidents. for members and external passengers and/or are damaging legislative process required for The International Air relations, Paul Steele, said none the aircraft. Twenty three per cent signing up. Transport Association (IATA) said of the incidents should be of reported cases are passengers “Our members have told from 2007 to 2015 there was considered trivial “because any who are drunk or affected by us that in 60% of cases, the one reported air rage incident incident that could potentially drugs. Most of these passengers reason unruly passengers are not for every 1,683 flights, or 49,084 endanger the safety of an aircraft either are intoxicated before they prosecuted is because of lack of incidents over the seven-year is something you have to take board their flights or they drink jurisdiction. It happens when an period. seriously”. onboard from their own supply aircraft is flying from one country Steele said 53% of IATA without the knowledge of the to another, but the unruly incident members surveyed said unruly crew. occurred in airspace above a third passengers had increased in “There is a trend in society country,” said Steele. the last five years. In the last where people think ‘I need “MP14 will clarify what 12 months, 40% of airlines to satisfy my own needs constitutes an offence and will had to divert a flight because immediately and do what I reinforce the right of airlines to a passenger was disruptive. want to do now’,” said Steele. seek recovery of the significant Unruly passengers are one of “But this is happening in a costs they incur from unruly the top three safety issues of safety-controlled environment. passengers under international concern for cabin crew, IATA Maybe, as airlines, we need to law.” said. do a better job in explaining IATA also wants to educate A majority of the incidents why these rules exist. They are airport operators and restaurant, are classified as Level 1, which there to protect passengers. bar and duty free operators typically involved passengers Passengers need to observe about preventing unlawful either being verbally aggressive or these rules otherwise they passenger behavior in flight. “In failing to follow crew instructions. endanger themselves and the UK we’ve seen excellent local others.” programs that have reduced In the last 12 months, 40% of Worldwide, nations vary unruly passenger incidents. airlines had to divert a flight widely in their approach to They include Monarch Airlines’ because a passenger was disruptive passengers. In some targeting of pre-flight binge disruptive, said IATA’s Paul Steele countries, legal jurisdiction drinking at London Gatwick needs to clarified so police can airport in 2014. It reduced remove offending passengers disruptive incidents on flights to after an aircraft lands and Ibiza by 50%,” Steele said. ■
18 / ORIENT AVIATION / FEBRUARY 2017 NEWS BACKGROUNDER
TransAsia collapse resets aviation in turbulent Taiwan
By Dominic Lalk
n the week leading to the Chinese Lunar New Year last month, Taiwan’s Civil Aeronautics Administration (CAA) reassigned routes Ioperated by defunct TransAsia Airways to its former rivals. Fierce competition among China Airlines (CAL), EVA Airways and their respective subsidiaries prompted the CAA to include shareholders voted to officially be able to take over TransAsia”, outstanding orders “remain in a caveat to the reassignment: dissolve Taiwan’s oldest private following advanced discussions the order book” for now. airlines awarded lucrative cross- airline, which was founded in with lenders and other relevant Airbus won’t need to look strait routes must add largely 1951, because of heavy debts parties, but when asked about far for airlines willing to take over unprofitable links to Taiwan’s and widening losses. TransAsia a mooted Far Eastern bid, the delivery slots for six A321neos outlying Kinmen and Penghu and its approximately 1,800 TransAsia’s largest creditor bank, starting this year, but the search Islands as part of their deals. unionized workers have not been Mega International Commercial for suitors for four A330-800neos EVA Air and CAL’s Mandarin able to reach an agreement for Bank, said the banks wanted to from 2018 might prove more Airlines were handed TransAsia’s compensation since the airline’s secure a buyer for the airline’s difficult as A330neo sales have bread-and-butter Songshan- unexpected closure on November aircraft to offload debt. been slower than expected. Shanghai Pudong flights, while 22. Mega International said Airbus has received 214 EVA’s UNI Air was assigned Former TransAsia chairman, TransAsia owed it more than A330neo orders to February, Taoyuan-Pudong. Songshan Vincent Lin, has proposed NT$11 billion ($345 million), with 84 of them from Asia-Pacific is Taipei’s capacity-restricted employee compensation, money most easily recovered carriers: AirAsia X (66), Garuda downtown airport. Taoyuan is immediately rejected by staff, of by TransAsia aircraft. TransAsia Indonesia (14) and the four its national hub airport, some two months’ salary and a US$317 operated a fleet of eight A320s, planes confirmed by TransAsia 40kms west of the capital. one-off bonus. The union’s 11 A321s, four A330s and 13 and reported to be ordered for CAL also was given the demands for a better deal have ATRs, although it only owns 11 “not more” than $480 million Taichung-Pudong trunk route, not been met. planes, including two A330-300s in 2014. which Far Eastern Air Transport Despite TransAsia’s and five A320ceos. Four months ago CAL, will operate between Songshan shutdown, Far Eastern Air Lin said 30 to 40 potential EVA, their Mandarin Airlines and Fuzhou. CAL’s low-cost Transport, which holds more buyers have shown interest in and UNI Air offshoots, Far offshoot, Tigerair Taiwan, will fly than 10% in the airline, has the aircraft, with some wanting Eastern, Tigerair Taiwan, V Air between Taoyuan and Wuxi. re-affirmed its interest in a all 11 planes, while others are and TransAsia served Taiwan The CAA said routes takeover of the failed carrier. Far seeking to purchase one aircraft and its population of 24 million between the two capital city Eastern chairman, ‘turnaround each. The sales agreements are people. The latter two are now airports, Kaohsiung and the king’ Fenno Chang, said his expected to be signed following history and Tigerair’s Taiwan Kinmen and Penghu Islands will company could still take over the Lunar New Year with the unit has been fully folded into be jointly serviced by Far Eastern, TransAsia if it received approval aircraft delivered in March or the CAL Group. This effectively Mandarin Airlines and UNI Air. from the airline’s creditor banks April, he said. leaves Taiwan in the hands of its Unprofitable Taichung-Hualien and the courts, in which case TransAsia’s Airbus orders two heavyweight carriers, CAL and Songshan-Hualien flights the shareholders vote would be will most likely be cancelled, and EVA. Even if TransAsia is were reassigned to Mandarin disregarded. attracting penalties and adding revived by Far Eastern, it will be Airlines and UNI Air, respectively. In December, Chang said to its debt pile, although Airbus a significantly smaller operation On January 12, TransAsia’s he was “80% certain we will Singapore said the carrier’s focused on cross-strait traffic. ■
FEBRUARY 2017 / ORIENT AVIATION / 19 COVER STORY UPPING AVIATION’S ANTE
Blooded in political and aerospace battles, International Air Transport Association director general,
Tom Ballantyne reports from Geneva
nternational Air Transport Association (IATA) boss, Alexandre de Juniac, belies appearances. Chatting with Orient Aviation in his office Ioverlooking Geneva International Airport’s runway in December he appeared to be the epitome of patrician authority. But appearances, as is so often the case, can be misleading. The newest and seventh director general and CEO of IATA may be the product of a privileged upbringing and education, but when it comes to aviation the 54-year-old former chairman
20 / ORIENT AVIATION / FEBRUARY 2017 COVER STORY UPPING AVIATION’S ANTE
Alexandre de Juniac, the global economy to intends to take the case heads of state as global for understanding travel and trade become aviation’s contribution to ever more entwined.
Tom Ballantyne reports from Geneva
of Air France KLM has fire in his belly about the industry and upgrading of security will include a benefit to passengers as its importance to the global economy. a result of the vast amount of information that is available to ‘IATA has to be fast, fast, fast. IATA should pave the way, border control in advance of a passenger arriving at the border lead the race, be at the forefront of all the evolutions if we want checkpoint.” to represent and serve the industry. Otherwise we will lag “The last point, pulling back on trade, is the most behind and we will bring no value,” he said. worrying. Where the skies have been opened, we have seen “Promoting the business of freedom could be an approach demand grow with social and economic benefits to all parties. that talks to politicians at a high level by telling them I hope that the Trump administration will recognize this in its freedom is an important issue, especially when we are facing approach. But it is too early to make any predictions on how protectionist rhetoric,” he said. that might play out in the context of specific agreements.” De Juniac is talking about the industry’s concern that Since de Juniac took over in September, he has visited some countries are backing away from Open Skies and every continent except Australia and Antarctica. He said returning to heightened protection of home carriers. Like his governments such as Singapore and the Gulf states understand predecessorm Tony Tyler, de Juniac would not identify specific aviation is vitally important to their economies, others do not. spats, including the widely reported rift between U.S. and Gulf “They don’t see the consequences of the decisions they make. airlines as the carriers involved are IATA members. But he We have to repeat and probably say it differently to explain to holds strong views on the subject. governments the value of aviation,” he said. “We think protectionist measures intended to raise the “We must extend the scope of our lobbying beyond the number of barriers to goods being exchanged or for people to move across borders are a big mistake. It’s a big mistake for our industry, obviously. But it’s a big mistake for the global De Juniac opposes privatization economy. It is something that will erode freedom. If we think of airport infrastructure that we fight for a cause, which is the business of freedom, and I am strongly convinced that we are fighting for this cause, any “After twenty years of privatization in many parts of the world – Australia being one of them by the way – very measure that restricts the movement of goods or aviation is a frequently privatization has led to uncontrolled local threat to freedom.” monopolies and very often they are not sufficiently He said it is still early days, he told Orient Aviation in regulated. As a result, the costs the airlines pay and January, for the Trump administration. “We have not seen the therefore the passengers pay have significantly increased specifics of his policies and their impact on aviation, but he after airports have been privatized,” he said. has identified three areas we are monitoring closely – building De Juniac pointed to Singapore, where the govern- infrastructure, securing borders and pulling back on trade,” he ment had considered placing the biggest expansion of said. Changi Airport, including the multi-billion dollar new “I don’t think anybody will disagree with the need Terminal 5, into private hands. to improve U.S. air transport infrastructure. The air “It changed its mind and the cost will be shared between the government, the Changi Airport Group traffic management system is in desperate need of and other private stakeholders. “The Singaporean modernization. And some key airports – such as New government was looking ahead at its long-term plan or York – need major overhauls. vision. It was explained to me that because of the cost of “As well, there has been a huge effort to have the project, they could not put it on the shoulders of the more effective border security in the U.S. and private sector. They had to share it.” globally with new technologies. We hope any
FEBRUARY 2017 / ORIENT AVIATION / 21 COVER STORY
Equipped for the job With a noble lineage stretching back generations – an ancestor fought in the Napoleonic Wars – and an elite education at France’s Ecole Polytechnique de Paris and Ecole Nationale de l’Administration under his belt, it is hardly surprising that Alexandre de Juniac has been chosen as the seventh director general and CEO of the International Air Transport Association. He has three decades of broad aviation experience and public service experience that have range from senior roles in the French government and the aerospace group, Thales, to chairman and CEO of Air France and then chairman and CEO of Air France-KLM. De Juniac began his career in the French civil service in 1988, at the Conseil d’Etat (State Council). He progressed to the Department of Budget in 1993 but two years later he moved to the private sector where he took a management job with the French aerospace conglomerate, Thompson-CSF, later renamed Thales. After 14 years with Thales, which took in painful periods of restructuring, de Juniac returned to French government service as chief of staff to the then minister of economy, employment, industry and employment, Christine Lagarde. In June last year, Lagarde was confirmed for a second five year term as head of the International Monetary Fund. In 2011, de Juniac was appointed CEO and chairman of Air France, an airline that was collapsing in on itself following the 2008 Global Financial Crisis. At the time, French newspaper Le Parisien, wrote that de Juniac was “parachuted to the top of a company on the verge of a nervous breakdown” and he faced “a perilous mission”. Air France was in a tail spin, haemorrhaging cash and passengers. It had reported four years of increasingly heavy losses, was overstaffed and had a crippling cost base that made it vulnerable to low-cost competitors. In the 2009-2010 fiscal year, the airline posted an unprecedented loss of $1.65 billion.Tragically, that news was followed by the loss of an Air France plane and all 228 passengers and crew on a flight from Rio de Janeiro to Paris. De Juniac, who had never worked at an airline, was tasked with saving the business at a carrier where staff was hostile to structural change and the jobless figures were escalating. By the time he left Air France-KLM for IATA, de Juniac had been credited with returning the airline to profitability and had moved up to CEO and chairman of Air France-KLM. It was not the first time he had led an aerospace restructuring. Before he returned to government in 2009, he had restructured Thales, a flagship French company that manufactures electrical systems for the aerospace and transportation industries. Thales was a mirror image of the job de Juniac took on at Air France. The company suffered from bloated overheads, excess staff, uncompetitive products and consequently heavy losses. Within a couple of years he had fixed all four. Little wonder then that he has settled into the top job at IATA so quickly. He said the prospect of thousands of hours in the air, pushing the causes of airlines around the world does not faze him. “I am not very sensitive to jetlag and I sleep quite well in planes,” he said. “I prefer short trips with a full agenda to over long trips without a full agenda. It’s also interesting to go from one place to another and meet the key people.” As for leisure time, he intends to enjoy all that Geneva offers. “You can go to the mountains to ski. I do sailing and music and read novels.I was in a band for 10 years, rock and roll, jazz and pop music, playing piano and vocals,” he said. Musicianship is becoming something of a tradition among IATA bosses. His predecessor, Tony Tyler, plays guitar and the harmonica. In fact, Tyler brought his harmonica to dinner before he left Geneva and “and we improvised something”, said de Juniac.
22 / ORIENT AVIATION / FEBRUARY 2017 COVER STORY
limit of the various transportation ministries or departments. Passenger Duty (Air Passenger Duty) in line with inflation, We should speak to finance and probably industry ministers despite evidence that it costs the UK economy $19.8 billion. and to the prime minister or head of state. We have the Combined increases in passenger fees in the UAE and Qatar authority and we have the legitimacy. We are viewed as an are putting at risk the Gulf’s amazing success story by adding important body so we shouldn’t be shy,” he said. $700 million in new costs to the industry. “Perhaps our contribution, our documents, are not clear “In December, IATA announced airlines globally were or precise enough to convince the top levels of government expected to earn $35.6 billion in 2016, a record profit, even if of the importance of aviation. We have to keep repeating slightly less than originally forecast. “This strong performance the message, but also its about changing the formula and on profitability will extend into 2017. Even though we expect explaining the negative influence of economic measures on conditions to be more difficult, we see a soft landing safely in aviation, economic growth and prosperity. profitable territory. “We should show examples that lower charges and taxes “A net profit of $29.8 billion in 2017 will mean eight years and have increased dramatically the number of passengers. Or in the black for the industry. And it will be the third year in we have increased charges that have led to a drop in passenger row where the return on invested capital (7.9%) will exceed the numbers.” cost of capital (6.9%). At least we make a margin now, but we De Juniac is acutely aware of the challenges ahead for should do better. We are only making 5% of our revenue as the industry. One that never goes away is infrastructure, profit.” particularly airports. “My view is we are heading for an With 18,000 direct routes and average fares cheaper by infrastructure crisis because of a lack of political will, a lack of about 60% (in real terms) compared with 1995 levels, travel is long-term planning and probably a fragile assessment about a better deal than ever, he said. what has to be handled,” he said. “But performance across the industry is not uniform. The “It is a constant battle to persuade governments to benefits of an improved industry structure are keeping airlines understand the industry’s infrastructure requirements. We in North America at the top of the profitability league. But expect nearly four billion travelers in 2017. In 2035, we expect with a net profit margin in that region projected to be 8.5%, it 7.2 billion. It is growth that will bring net economic benefits to is only a ‘normal’ return to investors. the world’s economies but only if infrastructure development “For a truly healthy industry we should be seeing similar can keep pace. In the Asia-Pacific by 2035, we estimate that the levels across the industry. So there is a lot of work still to region could see 72 million jobs and US$1.3 trillion in GDP do,” he said. Are there too many airlines fighting for too few from the air transport sector.” passengers, asked Orient Aviation. de Juniac replied: “There are De Juniac holds the same views on air traffic management too many seats.” (ATM). “We have problems in the Gulf and in China. We have Cargo, said the IATA boss, is recovering, but not fast. We a U.S. Nextgen system that is not working as well. They have to are not at the level of 2008 but we are approaching that level. plan in advance for the increase in traffic. The industry has shifted from non-specialized transportation Cross-border ATM issues in Asia are “terrible” and are of goods to a more specialized focus on high level products preventing the system from operating properly. There also such as pharmaceuticals. It also is an industry that is moving are social constraints because governments are terrified about from full freighters to bellies. losing control. “We should better use e-commerce to address that but “Having said that, there are some interesting developments it’s a different logistic model. It is stupid to demand that an in Asia, including co-operation between Hong Kong and item carried from Taiwan to Hong Kong needs 33 pages Singapore. It’s a start. We have to advocate to governments and of documents. In the end, cargo spends more time being push, push, push. We also have to be transparent by putting processed than being moved.” the data on the table and explaining the problems, taking Another priority, in tandem with the cornerstone of public opinion as a witness. We must point to bottlenecks and improving safety, is security. “Flying is secure. I fly with explain the reasons for them.” confidence and you should too. But there are risks and Preventing increased taxes and charges are major challenges -insider threats, landside exposure at airports, battlefields for IATA. De Juniac did not hesitate to reel off overflight of conflict zones and cyber security. a string of raised charges by what he calls “short-sighted” He said a recent UN Security Council Resolution governments: reminded governments that keeping aviation secure is integral Australia plans to increase its passenger movement to a state’s responsibility for national security. “Governments charge to US$43.60. The Maldives, totally dependent on can and must do more - upping their game on intelligence tourism, are planning to add $25 to its “airport development gathering and sharing vital information among themselves and fee”’ even though none of the money would be spent on the with industry. It’s the only way terrorists can be kept away from airport. Germany is adding up to 52 cents per passenger to its airports and aircraft. departure tax. It already collects more than $1 billion a year. “Industry has a role. My previous employer, Air France, Norway introduced a new passenger tax with another was specifically mentioned on ISIS websites. So I have thought increase planned for 2017 and Sweden is considering a tax of long and hard about security. And you will see IATA becoming up to $47 per passenger. The UK continues to increase its Air more active in this space.” ■
FEBRUARY 2017 / ORIENT AVIATION / 23 NEWS BACKGROUNDER
Asia-Pacific air freight spike spurs hopes of recovery
Air freight demand is picking up in the Asia-Pacific, but while the recovery is encouraging, airlines are concerned governments and the air cargo industry are impeding the recovery because of a collective failure to embrace e-freight technology.
Tom Ballantyne reports
fter years of depressed demand, cargo volumes at Asia-Pacific airlines have returned to Alevels last achieved in the post- global financial crisis bounce- back of 2010, the International Air Transport Association reported last month. Its latest air freight statistics, for November 2016, revealed air cargo business grew more than 6% for the month compared with 4% in the same period in 2015. The data, said global freight tonne kilometers (FTKs), rose 6.8% in November compared to the year-earlier period. It was a slight slowdown from annual expansion of 8.4% in October 2016 - the fastest pace of air improve its value offering by countries like China and India.” in November, underpinned cargo growth in 18 months - and implementing modern customer- MarketLine analyst, Paul by broad based expansion in was more than 2.5 times the centric processes.” Todd, said the world’s air cargo export orders. Combined with average annual monthly growth Underpinning optimism business is forecast to increase a 3.2% increase in offered rate of 2.6% for the decade. about recovering regional air by 3.2% in the five years to freight capacity, the average “Air cargo enjoyed a strong freight demand was research 2021, to reach a value of $118.7 international freight load factor peak season in November and published in December by global billion. The expansion would for Asia-Pacific airlines grew there are encouraging signs this consultancy, MarketLine, which be supported by increased 1.4 percentage points to a 2016 growth will continue into 2017; emphasized the importance of infrastructure in the Asia-Pacific monthly high of 66.9%, it said. particularly with the shipment of the Asia-Pacific and the Gulf to a and the advantages and cross- AAPA director general, high value consumer electronics healthy air freight sector. relations between freight modes. Andrew Herdman, said: “the and their component parts,” said Global air freight would New technology in the industry region’s carriers have seen a IATA director general and CEO, expand to 2021, primarily driven will increase volumes at a steady modest but progressive recovery Alexandre de Juniac. by the Asia-Pacific and the rate, he said. in international air cargo demand “But the trend in world Middle East, it said. “With an In January, the Association this year, with growth of 1.2% trade remains stagnant. It is under developed internal market, of Asia Pacific Airlines (AAPA) for the first eleven months of critically important for the air opportunity for growth also is said Asia-Pacific international 2016. Air cargo markets picked cargo industry to continue to possible, particularly in larger air cargo demand climbed 5.3% up modestly during the course of
24 / ORIENT AVIATION / FEBRUARY 2017 NEWS BACKGROUNDER
the year, but rates remain highly It’s in the economic interest competitive,which reflected soft Industry must shift to e-freight of governments to promote global trade conditions. to expand and implement policies for the The upturn in air freight efficient facilitation of air cargo,” coincided with increased silicon The practical industry modernization priorities include: he said. materials shipments used in • Facilitation of electronic processing, through electronic Air Pearce said countries can high value consumer electronics Waybills (e-AWB) and e-freight improve air cargo connectivity • Implementation by governments of “single window” and an apparent turnaround in by ratifying and implementing processing - ultimately enabling submission of all regulatory new export orders. A shift to air the 1999 Montreal Convention documents for trade via one channel cargo after the August collapse • Coordinated border agency procedures to reduce duplicative that enables nations to adopt of South Korea’s Hanjin Shipping controls e-freight. They also should apply Company may have contributed • Implementation of risk management controls at borders to the World Trade Organization to the upturn, said IATA. combat illicit activities and facilitate compliant traders (WTO) Trade Facilitation De Juniac said structural • The implementation of processes to approve release of Agreement and World Customs market shifts, particularly shipments in advance of their actual arrival Organization’s (WCO) revised strong growth in cross-border Kyoto Convention to introduce e-commerce and pharmaceutical processes can support. The shift supporting the global trading smart border solutions. business, are contributing to to e-freight is more critical than system. In 2015, airlines Governments have the the stronger performance. ever,” he said. transported 52.2 million important role of implementing Preparation for the increasing IATA has released a study metric tons of goods, which global standards and agreements popularity of sales such as that identified a quantitative link represented about 35% of global to facilitate trade and make it Black Friday and Cyber Monday between a country’s air cargo trade by value. It is equivalent to possible for airlines to modernize contributed to improved connectivity and its participation US$5.6 trillion of goods annually processes, said IATA. demand, he said. in global trade. Conducted by or $15.3 billion worth of goods Said Glyn Hughes, IATA’s “The drivers of stronger Developing Trade Consultants on every day,” said IATA chief global head of cargo: “In turn, growth are sending a major behalf of the airline association, economist, Brian Pearce, at a the industry needs to embrace signal for change to the air it found a 1% increase in December briefing in Geneva. these opportunities to improve cargo industry. Whether it is air cargo connectivity was “Now we have quantitative competitiveness and provide e-commerce or the trade in associated with a 6.3% increase evidence of the important link customers with enhanced pharmaceuticals, shippers are in a country’s total trade. between air cargo connectivity shipping quality, service and demanding more than paper “Air cargo is critical in and trade competitiveness. better predictability.” ■
TRAINING
and software specifically for an damage on various aircraft IATA introduces virtual enhanced training experience, types that a student, on a trainees are immersed in their walk round of the plane, reality to MRO training working environment. Sanos said can identify. It also simulates the virtual reality program also various conditions such as day, To tackle the limitations of operational training reduced the need for extensive night and fog. for ground staff, the International Air Transport training on the airport apron. The system offers airlines Association (IATA) has developed a virtual reality IATA’s system accurately and other users selected training program. replicates the airport ramp to modules pre-loaded to a level that is indistinguishable perform training. Instructors t is a major breakthrough damage taxiing aircraft. from the real world. It can and IATA can provide on-site in ground staff training and IATA’s product manager generate random errors or support and training for new Orient Aviation experienced it airport and ground operations, RampVR users. first hand in Geneva recently. Dimitrios Sanos, said because RampVR eliminates Wearing a virtual reality practical training is complex and the need for security pass Iheadset, a user of RampVR is costly, ground staff operational clearances for trainees, removes transported to an airport tarmac training is theoretical and the risk of injury during where he or she can walk around typically conducted in the training, allows responses to an aircraft, inspect it for damage, classroom. abnormal ramp incidents to be view the position of ground But by using the plug and incorporated in introductory equipment and identify foreign play RampVR program, which training and provides more objects on the tarmac that could combined virtual reality hardware flexible training schedules. ■
FEBRUARY 2017 / ORIENT AVIATION / 25 INDUSTRY INSIGHT INDIA’S AVIATION POTENTIAL ASSESSED India’s airline explosion Indian airlines are hopeful India’s new civil aviation policy will eliminate some of the inequalities the industry has end used for several decades.
Tom Ballantyne reports
ndia’s airlines, shackled for Last year, India’s domestic now a customer for 530 of the the country’s potential for air years by high charges, double air traffic rose by more than type. travel growth - both for leisure taxes at both national and 20%. The latest IATA figures, In January, another Indian and business - continued to be provincial levels and high for November 2017, reported LCC, SpiceJet, ordered 100 B737 strong. We remain confident in domestic fuel duties finally that domestic air traffic grew MAX aircraft, with options on the Indian commercial aerospace Icould be cut free from India’s past 22.3% for the month compared another 50, in a deal estimated at market.” punitive civil aviation policies. with China’s monthly expansion $22 billion at list prices. SpiceJet The key to the forecast The Indian government late of 14.9%. India’s international has a fleet of 40 airplanes. success of Indian aerospace is last year approved a long awaited traffic rose by close to 10%. Also in January, budget prime minister, Narendra Modi’s National Civil Aviation Policy, The CAPA consultancy said airline, GoAir, firmed up an new aviation policy. Announced which it said would lower the Indian domestic air traffic will order for 72 A320neo as it last year, the Civil Aviation Policy cost of flying and operating costs exceed 100 million passengers prepared to expand its network overhauled rules dating back to at the nation’s airlines. this year compared with 81 on international routes. Owned the 1930s. It contains measures But critics believed the million passengers in 2015. Indian by the Wadia group, it has that should lower the cost of government has been less courageous in formulating the country’s first formal civil aviation strategy in a country that is forecast to become the third largest airline market in the world. Estimated to be worth US$16 billion this year, the Federation of Indian Chambers of Commerce and Industry (FICCI) and consultancy, KPMG has said that by 2020 only the U.S. and China will have more passengers flying every year than India. airlines recorded a collective committed to 144 A320neos. flying in India and boost the The forecast brings forward operating profit of $1.29 billion in It accepted the first of the type country’s air connectivity. the International Air Transport the 2016 fiscal year, a far cry from last June and now has 23 of the The long-awaited reforms Association’s (IATA) prediction for the rivers of red ink in their past aircraft in its fleet. will bring down airfares on many India aviation expansion. It said annual reports. At Air India, the Indian under-served regional routes, India would become the world’s Last August, the country’s government announced that the particularly those located far from third largest aviation market in largest domestic carrier, IndiGo, flag carrier would almost double India’s major metropolises, the 2026. celebrated its ninth birthday its fleet in the next four years with government said. “This is possible due to a host by confirming an order for 205 the purchase of more than 100 In a boost for domestic of factors, including increased A320neo aircraft. The carrier’s new jets. carriers, amendments to the 5/20 competition, low-cost carriers, president, Aditya Ghosh, said “Over the next 20 years, rule were included in the aviation modern and expanding airports, the purchase “further reaffirms Boeing forecasts India will need policy overhaul. The now defunct improved technology at both IndiGo’s commitment to the 1,740 new airplanes worth $240 rule required airlines to operate air side and city side operations, long-term development of billion,” said the U.S. planemaker’s for five years and have a 20 foreign direct investment (FDI) and affordable air transportation in senior vice president, Asia plane fleet before they could fly increased emphasis on regional India and overseas”. In 2005, Pacific and India sales, Dinesh internationally. connectivity,” said the report. IndiGo ordered 100 A320s. It is Keskar. “India’s economy and The revised policy requires
26 / ORIENT AVIATION / FEBRUARY 2017 INDUSTRY INSIGHT INDIA’S AVIATION POTENTIAL ASSESSED
airlines to have 20 aircraft in their India head of aerospace and fleets to launch international defence at global consultancy services but they no longer need KPMG, Amber Dubey, said to operate for five years before recently that most of the large can fly abroad. cost overheads in Indian aviation - The new rule benefits fuel, leases, maintenance, airport younger airlines such as AirAsia charges and interest rates - are India and Air Vistara. More among the highest in the world. established carriers, such as “There are shortages IndiGo and Jet Airways, who of commanders. Bringing in have had to fester for five years expat pilots is costly and time- before they could expand their consuming. Overall, the Indian networks beyond domestic market is one of the world’s services, complained in vain that costliest and toughest for airline the revised rule had introduced operators.” an uneven playing field to the India’s airlines are banking industry. on rapid growth and higher The major domestic airlines passenger numbers to alleviate also are unhappy about the the industry’s endemic high costs. fact that they will be taxed India’s expanding middle class to subsidize flights by smaller increasingly is opting for air travel airlines to unprofitable regional over the traditional train. destinations. Until now in India, air travel Narendra Modi insisted growth rate of 20% or better for include developments on open is mostly confined to the urban in a tweet that the new 20 successive months. skies, code-sharing, self-handling third of the population and is aviation policy gave impetus “The quality of domestic and foreign direct investment still out of reach for hundreds to affordability, regional connectivity is clearly improving. (FDI). On the latter, India has of millions of travelers in India. connectivity, safety and Compared with last year, flight actually jumped the queue Experts believed the country’s infrastructure, which was vital frequency is nine per cent higher to become one of the most aviation sector has vast untapped for ‘Transforming India’. “It will and airport pairs—or routes progressive nations in the world potential, with only 100 million transform the sector and greatly served—have grown by seven by allowing 100% FDI in airlines. of India’s 1.2 billion people taking benefit passengers,” he said. per cent. In real numbers, the 120 “The policy also contains an airline flight last year. India’s International Air Transport million passengers travelling on areas where we have concerns rickety aviation infrastructure also Association director general and routes to, from and within India such as the mandating of hybrid could hold back forecast growth CEO, Alexandre de Juniac, said will more than double to 278 till for regulation of airports and as only 90 of the country’s more in Delhi last October that the million.” the plans for a levy to cross- than 460 airports are operational, country’s air transport sector De Juniac added this subsidize regional flights.” they said. is contributing to the country’s “potential will not be realized Many analysts argue that But it is not all bad news. social and economic development without a supportive policy despite some improvement, Airbus is investing $40 million through eight million jobs and framework. So I congratulate operating costs still represent a in a pilot and maintenance $72 billion in GDP. Minister Raju, Secretary Choubey major threat to Indian aviation. training center in Delhi that is “I know the air transport and all who helped in framing High fuel import taxes meant that scheduled to open by year end. industry here has been through India’s first civil aviation policy,” about 50% of an Indian airline’s It also has signed an agreement particularly tough times. It is he said. costs go towards fuel while a with Karnataka-based Aequs good to see many Indian airlines “It contains some very pilot shortage has pushed cockpit Aerospace, an aircraft component posting profits. But the sector is encouraging elements. These salaries to global levels. manufacturer, to supply more still in loss territory in terms of net than 100,000 titanium machined profits and has many challenges,” parts for its A320 new engine he said. Critical issues for Indian airlines option (NEO) aircraft. “The debt burden is massive. Tata Advanced Systems Regulations are onerous. Taxes * Pilot shortages, especially experienced captains (TASL) and Boeing have * Airlines required to subsidize unprofitable routes and charges are high. There committed to a joint venture * Government insistence on operating airports without sufficient is uncertainty in the business centre of excellence for passenger demand environment. The good news * Updating airports nation-wide to cope with domestic air traffic manufacturing aerostructures, is that demand is strong. The expansion initially for Apache helicopters, domestic market has been * Ongoing reductions in fuel taxes paid by airlines but intended for collaboration on expanding at an annualized integrated systems development
FEBRUARY 2017 / ORIENT AVIATION / 27 INDUSTRY INSIGHT INDIA’S AVIATION POTENTIAL ASSESSED
opportunities in the long term. The government has taken agreement with the United States potential and that growth will Other aerospace projects a number of initiatives to help Technical Development Agency continue at a high rate for many include an MRO joint venture reduce airline costs including the (USTDA) for India Aviation Safety years. But also it is agreed that where Rolls-Royce and auto removal of customs and excise Technical Assistance Phase II, to properly capture the potential components maker, Bharat Forge duty exemptions for tools and aimed at bringing in systemic of this market, the government Ltd (BFL), that will supply critical tool-kits used in MRO processes. improvements to operation, must reduce industry taxes. and high integrity forged and The Directorate General of airworthiness and licensing. Airlines must do their bit too by machined components for a Civil Aviation (DGCA), India’s Overall, there is little doubt pulling back from the vicious range of aero engines. aviation regulator, signed an that India’s airline sector has huge price wars of recent years. ■
Air India still “sick” says chairman Lohani When Ashwani Lohani, the chairman and managing director of state-owned Air India, spoke to the media in Delhi last month, he was asked if he still would call the carrier a sick company. “Yes I would,” he said. “I will call it sick as long as we don’t meet our total expenditure from our revenue. “I have said that on a year- to-year basis we will make it profitable. This is in my hands. What is not in my hands is the 50,000 crore (USA$7.5 billion) national airline’s woes on the 12 B777-300ERs and 21 B787-8 buy back some B787s it did debt we have. If we don’t find a merger of Air India and domestic Dreamliners. Three more sale and leaseback deals on. solution to that, then God only carrier, Indian Airlines. “A merger B777-300ERs will be delivered Lohani doesn’t think sale and knows.” that really never happened, between January and March lease back has worked well At the same briefing he said which in the process resulted in 2018 and six B787s will begin for the carrier. He argues that neither Jet Airways or the Gulf a chaotic situation, is at the back arriving at the airline from leasing of planes is a very costly carriers were the biggest threats of all ills we are witness to,” he August. proposition, although it does to Air India. “My biggest threat posted in a hard-hitting blog One criticism that has long have the advantage of not having is debt, not Jet. Remove that and last year. been aimed at Air India is it to pay upfront. “But the amount we will beat everyone hollow,” Lohani also believes there is overstaffing, a claim Lohani which a company pays regularly he said. too much competition in India dismisses.He pointed out that (the lease rental) is much higher There are signs India’s flag and that this situation has resulted a freeze on recruitment was than what it would have to pay carrier is reducing its massive in higher costs and declining imposed 18 years ago when staff had it purchased the aircraft by debt. It ended 2016 with an yields. “You can’t do much numbers were extremely high. taking a loan. operating profit of $15.3 million about it. You can fly the aircraft “The problem of a huge staff The premium on selling after several years of poor per- more and fill seats as much as count isn’t there anymore. That planes to lessors is not much, formance. However, it has had possible,” he said. “Our yields is an incorrect perception. We just a couple of million dollars. help along the way. In 2012, have fallen by 7%, and domestic banned recruitments 18 years The lease cost of one Boeing India’s government said it would yields are down by 15%-16%. ago. At that time the staff count Dreamliner 787 plane is $1 spend $4.3 billion to bail out the “But our revenues have risen was higher. The perception million a month. For a year, for 21 carrier, financial support that is by 3%. So, we have made a 10% has remained but today we are Dreamliners, it’s Rs 1,800 crore being meted out to the airline impact on revenue through effi- short of staff. We have started ($251 million). If I had purchased, in stages. To date, bailout funds ciency. We increased utilization recruiting pilots and cabin crew, my outgoing in terms of interest of $3 billion have been injected of our fleet. For example, we but haven’t started hiring in other costs on loans would have been into the carrier. Subsidies aside, introduced four international categories such as commercial Rs 1,000 crore ($139.4 million). Lohani said a lower fuel price flights last year.” staff, personnel and finance. Going forward, I would definitely was the number one contributor Air India operates 107 We would like to recruit 200 do outright purchase of planes.” to Air India’s improved operating aircraft including 22 A319-100s, people immediately in the As for the debt, a debt performance. 24 A320-200s and 20 A321-200. non-operational departments. restructuring proposal is “still Lohani has never been shy The first of 14 A320neos will The overall requirement number in the works” and Air India is about the airline’s past poor arrive at the carrier this month. is much larger.” also looking at the possibility of performance. He has publicly Its fleet also includes five Another possibility on the LIC (listed investment company) laid much of the blame for the B747-400s, three B777-200LRs, horizon is that Air India may involvement.
28 / ORIENT AVIATION / FEBRUARY 2017 INDUSTRY ADDENDUM
French engine maker buys troubled Zodiac
In January, Philippe Petitcolin, the initial customers of the new A350 aircraft. of last year. Zodiac has developed new seat 64-year-old CEO of French aircraft engine Airbus and Boeing are pressing shells at its U.S. manufacturing plant and manufacturer, Safran SA, signed off on a suppliers for discounts for aircraft cabin has re-designed its lavatory suites. Euros 8.5 billion (US$9.125 billion) deal for equipment in response to airline customer Safran’s acquisition of Zodiac follows French aircraft cabin manufacturer, Zodiac pressure for deeper discounts on aircraft the decision three months ago by Aerospace SA, creating in the process purchases. Rockwell Collins Inc. to buy Zodiac rival, Europe’s largest aerospace supplier. Earlier this month, Airbus COO and B/E Aerospace, for US$6.4 billion plus Seven years ago it was not so president Airbus Commercial Aircraft, $1.9 billion in debt. North American B/E successful. In 2010, it made overtures to Fabrice Bregier, said the problems at Aerospace is the largest aircraft cabin purchase the company but backed away Zodiac had eased in the final three months interiors manufacturer in the world. ■ from a bid in the face of a hostile reaction to the offer from Zodiac’s board. Safran, formed from the merger of Snecma Engines and security group, Sagem, in 2005 is one of Europe’s most successful manufacturing companies. It produces, in a joint venture with the U.S.’s GE, the CFM engine, the biggest selling aircraft engine in the world. At press time, it is calculated the merger will produce Euros 200 million in near-term savings. It also will facilitate Zodiac’s recovery from a three-year period of missed deadlines and production of below standard aircraft cabin equipment, particularly the lavatories ordered by
IFS promises better disruption management at airlines
Airlines are in constant search of more a route by using technology to manage these processes are lengthy because they efficient fleet utilization, maintenance and the scores of constraints that must be are performed manually and not with IT fuel applications. British company, IFS, has considered. management systems. a new operations solution it says will take Examples of constraints would be an Just how expensive is the solution? IFS the guess work out of airline fleet disruption airfield that is not physically capable of would only say it would “be attractive for the management. accepting an A380. Another would be an customer”. “Big airlines obviously extract When an aircraft has to be withdrawn airplane with a broken Auxiliary Power more benefit from it,” said Stimpson. “We from service for any number of different Unit (APU) that would need an airport with would say around 40 aircraft is probably the reasons, the process of finding the ground support. A legal constraint could be point where doing this job manually is not appropriate replacement has to be completed a regulator’s demand that every aircraft must really feasible.” manually by an airline’s operation’s planning be certified and approved before it can fly to The IFS scheduling engine “works on team. Issues to be taken into account the designated destination. a dynamic scheduling basis which means include available aircraft and their locations, “The difficulty is the sheer volume it can sit there constantly occupied when maintenance schedules, efficient fuel of constraints to be processed to put the problems are occurring, accepting changes utilization and the suitability of available appropriate and most fuel efficient aircraft on to constraint data and only changing that aircraft for the route. a route,” said Stimpson. part of the schedule which is impacted. Global enterprise applications company, IFS said its tail planning solution can be That’s really powerful for two reasons: if IFS, said it can make life easier in these a key decision-making support system for you have had grounding for 20 hours and it circumstances with its new 24/7 tail planning airlines by delivering a recovery plan when will impact a certain sub-fleet type, the IFS and maintenance allocation program, airlines experience a flight disruption. Its system does not start from scratch so we Optimisation and Assignment Solution. data system provides operations staff with come up with a solution much more quickly. IFS’s Dubai-based solutions manager, essential flight readiness information, MRO Secondly, the IFS solution can minimize Andrew Stimpson, said the new IFS product, schedules, line maintenance, suitability of schedule changes, which in turn reduces which has several competitors in the market, aircraft for airport landings and take-off and schedule disruptions, both immediately and decides the aircraft best suited to fly on maximum fuel utilization . At many carriers, further down the line.” ■
FEBRUARY 2017 / ORIENT AVIATION / 29 INDUSTRY ADDENDUM
Airbus expands Silicon Valley data mining partnership IN BRIEF Silicon Valley data mining company, Palantir, established two decades ago Palantir, and Airbus, have agreed to a as a security company, is reported to have AIRLINES multi-billion dollar partnership intended been working with Airbus for 18 months. to accelerate production of A350 aircraft The partnership recently has expanded China Airlines and Japan and also save the aircraft manufacturer to eight projects across four countries Airlines strengthen hundreds of millions of dollars, the including final assembly of the A350, the Financial Times reported last month. newspaper said. co-operation Airbus CEO Tom Enders said the manufacturer used Palantir’s technology Taiwan’s China Airlines and Japan Airlines to enable its engineers to respond more signed a Memorandum of Understanding rapidly to production problems and also to last month to expand their passenger improve output processes. and cargo strategic co-operation. The Keeping the A350 program, which has two airlines will expand their code-share suffered delays because of missed delivery agreement to include all routes they deadlines and the failed performance of operate between Taiwan and Japan. The furnished cabin equipment, “largely on partnership, which will commence mid track” would save Airbus a significant this month, will expand from 28 flights a amount of money, he said. week between Songshan and Haneda to “In these ramp ups, you can easily as much as 240 flights a week depending overspend by hundreds of millions on seasonal demand. of dollars. Our airline customers are benefitting because they get aeroplanes MRO faster, without delays and with better quality and operational availability,” Booming parcel business Enders said. ■ boosts Ameco New contracts for the Rolls-Royce Japan Air Commuter launches new era with ATR RBG211s that the power Chinese parcel freight carriers, SF Express and Japan Air Commuter (JAC) became an All Japanese airlines are expanding China Postal Airlines, have increased new ATR airline with the delivery of the and/or renewing their fleets as tourists Ameco’s revenue from the engine’s first of nine ATR 42-600s to the Japan to Japan are forecast to reach 40 million type by 50%, the joint venture MRO Airlines (JAL) subsidiary last month. a year by 2020, the year of the Olympic reported last month. Also SF Airlines JAC, 60% owned by JAL, signed its first Games in Tokyo. has signed to 10-year agreement to commitment for ATR aircraft in mid-2015 Based in Kagoshima, Kyushu, JAC maintain the airline’s fleet of RB211s. after the airline determined its fleet was established in 1983 by JAL and the The Rolls-Royce engines power SF modernization strategy. The aircraft will 12 municipalities of the Amami islands Airlines’ B757 aircraft. fly on trunk routes and also to island in western Japan. It has 19 aircraft and small community destinations in its and operates 97 flights a day to 23 network. destinations. ■ New Lufthansa Logistik boss SITA appoints global leaders in Singapore On January 1, industrial engineer Andreas Tielmann (47), succeeded Dr. Air transport provider, SITA, has before he joined SITA as a financial Christian Langer as CEO of Lufthansa promoted Sumesh Patel to SITA president controller. He graduated in commerce Technik Logistik Services. The new Asia-Pacific. Patel, who will remain based from Canada’s McGill University and CEO of the Lufthansa Technik subsidiary in Singapore, was formerly SITA’s vice has completed an INSEAD executive has been with the group for 19 years, president business management Asia leadership program. working as a project manager, business Pacific. He holds an MBA from the National SITA CEO, Barbara Dalibard, said in a development leader and product University of Singapore. statement: “The Asia Pacific has a strong development. Since 2012, he led the His predecessor, Canadian Ilya Gutlin, role in the development of the air transport Aircraft Systems Product Division, where who also will remain in Singapore, is SITA’s industry as airlines and airports look to he was responsible for landing gear and new global president air travel solutions. technology to support the region’s fast engine casings. He began his career at Ernst and Young growth.” ■
30 / ORIENT AVIATION / FEBRUARY 2017 No.1 Asia-Pacific commercial aviation magazine
ORIENT AVIATION SPECIAL REPORTS 2017 MARCH AIRLINE NETWORK EXPANSION IN THE ASIA-PACIFIC: A ROUTE EXPLOSION BONUS DISTRIBUTIONS: MRO East Asia Conference, Seoul, South Korea; IATA World Cargo Symposium, Dubai, UAE; Routes Asia 2017, Okinawa, Japan; Airline Distribution 2017, Hong Kong
APRIL SEPTEMBER ON BOARD WIFI: THE ONLY WAY AIRCRAFT LEASING IN THE ASIA-PACIFIC TO GO FOR ASIA-PACIFIC AIRLINES BONUS DISTRIBUTIONS: BONUS DISTRIBUTIONS: IATA World Financial Symposium; China Air Finance Development Summit, Aircraft Interiors Expo, Hamburg, Germany Tianjin, China; Aviation Expo China, Beijing, China
MAY OCTOBER AIR TRAFFIC MANAGEMENT IN THE ASIA-PACIFIC: AN UPDATE KEEPING YOUR AIRLINE SAFE IN THE CYBER ERA BONUS DISTRIBUTIONS: CANSO Asia-Pacific conference, Hanoi, Vietnam; ISTAT Asia, BONUS DISTRIBUTIONS: Grand Hyatt Hong Kong, Hong Kong; IATA Ground Handling Conference, MRO Asia-Pacific Singapore; IATA World AVSEC conference Bangkok, Thailand; Passenger Check-in Summit, Shanghai, China JUNE NOVEMBER IMPACT OF BIG DATA ON AVIATION KEY ISSUES THAT KEEP ASIA-PACIFIC AIRLINE IN THE ASIA-PACIFIC CEOS AWAKE AT NIGHT BONUS DISTRIBUTIONS: BONUS DISTRIBUTIONS: 73rd IATA AGM and World Air Transport Summit, Cancun, Mexico AAPA Assembly of Presidents, Taipei, Taiwan Paris Air Show, Le Bourget, France Asia-Pacific Air Finance Conference, Hong Kong, China JULY/AUGUST DECEMBER/JANUARY PILOT AND TECHNICAL TRAINING IN THE ASIA-PACIFIC LOW-COST CARRIER REPORT: THE WINNERS BONUS DISTRIBUTIONS: AND THE LOSERS IN THE ASIA-PACIFIC APATS, Marina Bay Sands, Singapore; 6th China International Aviation BONUS DISTRIBUTIONS: Services Trade Fair, Shanghai, China 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]
ORIENT AVIATION MEDIA GROUP: ORIENT AVIATION • E-ORIENT AVIATION • ORIENT AVIATION CHINA • ORIENT AVIATION‘S WEEK IN THE ASIA-PACIFIC • WWW.ORIENTAVIATION.COM ELIMINATE CREDIT CARD FEES NEW REVENUE STREAMS
COMPETITIVE MARKET INTELLIGENCE SELF-FUNDING PROGRAMS
CONNECT TO ALTERNATIVE FORMS OF PAYMENT THROUGH UATP
Hosted by:
For more information, please contact [email protected] UATP.COM