Vol. 26 No. 8 October 2019 orientaviation.com

FAMILY BENEFITS Offspring of Singapore , LCC Scoot, is battling to match demand with supply, said its CEO, Lee Lik Hsin

Asia’s fresh Opportunities beckon for outbreak of Asian carriers in Central expands China ties start-up fever and Eastern Europe despite losses

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FLIGHTSAFETY PWC/HONEYWELL MX 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 CONTENTS Volume 26, Issue 8

COVER STORY 8 Airbus updates global market demand with Asia 14 leading future growth FAMILY BENEFITS 10 Asia’s fresh outbreak of start-up fever One plus one equals one at LCC 18 Opportunities beckon for Asia’s carriers in Scoot after its successful integration Central and Eastern Europe

ORIENT AVIATION MEDIA GROUP with Tigerair 17/F Hang Wai Commercial Building, 231-233 Queen’s Road East, Wanchai, Hong Kong Editorial (852) 2865 1013 E-mail: [email protected] Website: www.orientaviation.com Mailing address: GPO Box 11435 Hong Kong

Publisher & Editor-in-Chief AIRPORTS Christine McGee 21 ’s airports overwhelmed by explosion in E-mail: [email protected] demand for air travel Associate Editor & 21 Hong Kong International Airport on track for Chief Correspondent third runway opening in 2022 Tom Ballantyne Tel: (612) 9638 6895 Fax: (612) 9684 2776 INDUSTRY ADDENDUM E-mail: [email protected] MRO: ASIA-PACIFIC UPDATE 25 Boeing’s regional services joint venture, BAPAS, Asia Editor seals deal with Myanmar Will Horton Tel: (852) 2865 1013 25 Airbus and Alibaba Cloud to build data centre in E-mail: [email protected] China

North Asia Correspondent COMMENT Geoffrey Tudor 5 Old bogey of CDR raised in dramatic ICAO Tel: (813) 3373 8368 Assembly debate E-mail: [email protected]

Photographers ADDENDUM Rob Finlayson, Graham Uden, 6 Losses not deterring Qatar Airways expansion Ryan Peters says group CEO

Chief Designer Chan Ping Kwan 25 AFI KLM E&M adds to business with Indonesian Printing MRO GMF Printing Station(2008) 25 Magnetic MRO spreads its wings to Kuala Lumpur 25 International Air Transport Association ADMINISTRATION SmartHub bringing transparency to parts pricing

General Manager 26 Tokyo Century takes full control of Aviation Shirley Ho Capital Group E-mail: [email protected] MAIN STORY 26 AerCap strikes second lucrative deal with Saudi 12 Debate drama at ICAO as China, India and Russia bank subsidiary

ADVERTISING beat different drums on emissions reduction 26 Travelport teams with ’ strategy KrisConnect to fully implement its NDC solution Asia-Pacific, Europe & Middle East 26 SITAONAIR and Singapore to develop superior Christine McGee communication systems for aircraft flying over Tel: (852) 6438 3379 E-mail: [email protected] remote regions

The Americas / Canada INDUSTRY INSIGHT REPORT: Barnes Media Associates Ray Barnes ASIA-PACIFIC AIRCRAFT Tel: (1 434) 770 4108 LEASING UPDATE Fax: (1 434) 927 5101 Impact of trade wars and MAX grounding on E-mail: [email protected] leasing sector [email protected] 22 Lessors predict new MAX aircraft will lose value NEWS BACKGROUNDERS after such a long grounding Follow us on Twitter @orientaviation 7 Boeing adds heft to its long-term China fleet 24 TrueNoord believes Asia-Pacific brimming with forecast opportunities for regional aircraft lessors

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14043_AIR_Single Aisle_273x202_Orient_Aviation_1.0.indd 1 10/09/2019 17:09 COMMENT

China should stand with the industry in supporting its global emissions strategy

It was not surprising there was dissension among some If it is to achieve these goals, the entire aviation industry delegates of the 193 states attending the International Civil spectrum and all governments must cooperate fully to reach their Aviation Organization’s (ICAO) 40th Assembly in Montreal at the targets of drastically reduced emissions from flying. turn of the month. It was, therefore, disappointing to witness three of the most Three years ago, after negotiations that often were touch and influential countries in the world - China, India and Russia – issue go affairs, delegates to the 39th ICAO Triennial Assembly voted in a joint statement that said the “emphasis should be on those the world’s first industry carbon offsetting scheme, the Carbon policy options that will reduce aircraft engine emissions without Offset and Reduction Scheme for International Aviation (CORSIA). negatively impacting the growth of air transport, especially in It was the single global economic measure that aimed for developing economies”. carbon neutral growth by 2020 and a 50% reduction in emissions, In fact, these priorities already have been accepted by the from 2005, by 2050. The scheme was calculated to generate industry and ICAO member States. Clearly, the decision of these US$40 billion in climate funding and offset around 2.5 billion three countries to issue a separate statement was political. China,

tonnes of CO2 from airlines between 2021 and 2035. in particular, clings to its “developing nation” status, even though it Today CORSIA is a reality, but long standing differences is now the world’s second biggest economy and home to some of among some member states about the application of the the world’s biggest airlines. is the largest principle of Common but Differentiated Responsibilities (CDR) in Asia and among the top five carriers in the world in in the industry have never been laid to rest. And CDR has always passenger numbers. been the bug in the bed when developing any industry climate Public declarations of divisions among ICAO’s member airlines mitigation strategy. will harm CORSIA’s progress and provide the protest movement Putting aside China’s disingenuous claim to be an emerging with misinformed ammunition to attack the industry. economy that would suffer economic drag from CORSIA We all know airline passenger demand is growing faster compared with first world economies, it was a relief that one of than any emissions scheme now in operation. We should be the final acts of the ICAO Assembly was to prioritize the industry’s concentrating on resolving this serious threat to climate damage goal of a 50% cut in emissions and to advocate backing for the rather than taking to the world’s stage with debatable claims about ‘No country left behind’ initiative, which will support emissions CORSIA’s damage to the world’s second largest economy, China, reduction management for less developed countries. and the world’s fastest growing economy, India. ■

TOM BALLANTYNE Associate editor and chief correspondent Orient Aviation Media Group

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OCTOBER 2019 / ORIENT AVIATION / 5 ADDENDUM

Undaunted Qatar expands China ties despite losses

A two-year airspace blockade billion. Passenger numbers are imposed on Qatar by several up, capacity as measured by neighbouring countries available seat kilometres (ASKs) continues to weigh heavily has risen and our cargo business on Qatar Airways financial is the largest in the world,” he performance, but it has failed to said. dent the Doha-based carrier’s The state-owned airline expansion. blamed the latest loss on higher In its latest financial results, fuel costs, currency fluctuations to March 31, the group reported and the loss of routes. Saudi an annual net loss of US$639 Arabia, the United Arab lost business. New destinations around the world.” million, despite a 14% increase (UAE), Bahrain and Egypt to West and Central Africa The airline, which flies to 160 in revenue. The airline group’s imposed the “illegal blockade” on and South America have been cities, launched 11 destinations outspoken CEO, Akbar Al Baker, the Qatari airline in the belief the suspended. in 2018-2019, bringing new Qatar’s ASK increased routes to 31 since the blockade by 13.5% for the reported was imposed. 12 months. Cargo revenue The airline’s fleet grew by improved 16.8% and available 25 aircraft during the reported tonne kilometres (ATK) expanded year. It took delivery of its 250th 11.8% for the year. Executive aircraft in March. Al Baker said jet revenue reported substantial with more than $85 billion of growth of 18.4% compared with airplanes on order, including the previous 12 months. options and Letters of Intent, “Nonetheless, 2018-2019 the group had the capacity was a challenging year. While to continue its ambitious but it was disappointing, the sustainable network expansion. underlying fundamentals of During the financial year, our business remain extremely the airline group acquired 5% robust,” said Al Baker. of the issued share capital described the results as a “year emirate supported terrorism. “Our success is due to an of Guangzhou-based China of achievement in the face of In the year after the unwavering belief in our strategy Southern Airlines, adding to adversity”. blockade was put in place and to give our passengers the very its holdings in Air Italy, Cathay “Despite facing challenges in 2018-2019, Qatar has opened best, backed by the perseverance Pacific Airways, IAG, JetSuite unparalleled in the airline 24 routes into Europe, Asia and hard work of our staff. I and LATAM. Air Italy recorded a industry, I am very proud we and Africa to compensate for look forward to 2019-2020 with $148.8 million loss for the year. have grown our fleet, expanded reduced traffic in its regional optimism and confidence that Recent events in Hong Kong are our network and seen overall markets. The network expansion our growth will continue and we expected to impact returns from revenue increase to $13.2 has only partly compensated for will serve even more countries its investment. ■

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6 / ORIENT AVIATION / OCTOBER 2019 NEWS BACKGROUNDER

Boeing predicts surge in China passenger tide

By associate editor and chief correspondent, Tom Ballantyne

hatever its By 2023, eight more problems on airports will have opened across Mainland’s COMAC bullish on the home China, including Beijing Daxing front, Boeing International this month. In the home market despite trade tensions has not next five years, the compounded The Commercial Aircraft Corporation of China (COMAC) Wretreated from its bullish forecasts annual growth rate of flights has predicted its home market airlines will have a 10,344 aircraft for aircraft sales in the long- that connect second-tier cities fleet by 2038. term China market, although in China will be 11.3%, a much Released at the Aviation China Expo in Beijing last month, the Mainland fleet expansion will be higher figure than the number Civil Aircraft Market Forecast Report 2019-2038 said in the next slower than the manufacturer of flights that connect major two decades China’s airlines will add 6,119 new narrow-bodies of more than 120 seats, 2,128 new wide-bodies with more than forecast in 2018. Mainland hubs and the nation’s 250 seats and 958 new regional jets of 50 plus seats to its national Last month in Beijing, Boeing smaller cities, Boeing said. fleet. The estimated cost of the fleet expansion is US$1.4 trillion, Commercial Airplanes (BCA) For long-haul international based on 2018 list prices. vice president marketing, Randy flights, the annual growth in By 2038, China’s revenue passenger kilometres (RPK) will Tinseth, said Chinese carriers the last five years was 35% for reach 4.08 trillion kilometres, which will be 21% of global RPKs. would need 8,090 new planes, second-tier cities, said Tinseth. Annual global fleet growth for the next two decades is forecast worth nearly US$1.3 trillion at This year, China’s carriers are at 4.3%. list prices, to meet booming operating 132 direct international passenger demand, particularly flights, accounting for 65% of to and from China’s second tier the global market. cities. The revised forecast was In the next two decades, 5.2% higher than a year ago. Boeing predicted China would In the next 20 years, China’s need 5,960 new single-aisle air passenger traffic is expected aircraft. Demand for wide-body to grow 6% a year, rather than airplanes will triple the nation’s the previous prediction of 6.2%. current fleet by 2038. In addition, Its expansion rate is higher than Southeast Asia, Europe and North America, Tinseth said. “China became our largest market last year. An expanding middle-income group, significant investment in infrastructure and China will need a significant need to collectively recruit a advanced technologies that number of regional aircraft and minimum of 12,000 new pilots, make airplanes more capable cargo aircraft, the forecast said. 12,450 new technicians and and efficient, continue to drive Asia- would 16,150 new flight attendants, the tremendous demand for air require 17,390 aircraft, valued at manufacturer said. travel,” he said. US$2.83 billion, for the period, BCA forecast the global BCA said. The region’s fleet of airline fleet would need 44,000 new airplanes would be divided new airplanes, valued at US$6.8 into narrow-bodies (75%), trillion, in the next two decades. wide-bodies (22%), regional Single aisle aircraft would make jets (1%) and freighters at up 74% of the order book 2%. (32,420), wide-bodies 19% Each year to 2038, (8,340), regional jets 5% (2,240) Asia-Pacific airlines will and freighters 2% (1,040). ■

OCTOBER 2019 / ORIENT AVIATION / 7 NEWS BACKGROUNDER

Asian demand bumps up revised Airbus forecast

sia’s long-term Scherer said. real GDP growth of +4.1% a year passenger market The Asia-Pacific’s share of for the next 20 years.” will need 16,325 global added GDP has grown by The importance of the traffic new aircraft in the 21% from 1970 to 1980 to 54% within the region has grown, next two decades between 2010 and 2018, Airbus particularly domestic traffic Awith 4,205 of the aircraft said. “Today, although India is within individual countries, planned for fleet replacement, outpacing China in economic Airbus said. “Since 1998, this Airbus said in its latest global growth, the region remains traffic has grown from 22% to forecast, released in London last linked to China and its transition 33%. Together with other traffic have been very strong compared month. The region also will need to a consumption based in the region, it accounts for with global growth trends, the 223,210 pilots and 259,690 new economy,” it forecast. nearly 60% of all Asia-Pacific forecast said. technicians, Airbus forecast. “Concerns about slowing traffic,” Scherer said. “For intra-regional traffic Global air traffic will grow economic growth have eased Dominant markets for between Asia-Pacific countries, 4% a year to 2038, which recently but trade tensions with domestic traffic are China (57%) it is a much more fragmented will result in a doubling of the U.S. are a downside risk, at and India (11%). The two markets market. For example, without the world’s airline fleet in the least in the short-term,” Scherer have recorded annual growth of looking at the data, it would have forecast decades, Airbus chief said. “The Asia-Pacific will 12.4% and 11.1%, respectively. been hard to guess the largest commercial officer and head of continue to lead world economic The growth rates of Japan, traffic flow is between China and Airbus International, Christian growth with expected average Indonesia and Australia also Thailand,” Scherer said. ■

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271 has on its 787-9. Observers credit Asia’s fresh outbreak with changing airline financing by holding investment rounds and going to venture capitalists of start-up fever as tech start-ups do. Air Premia’s first office was in co-working space, WeWork, in downtown , a change from the By Will Horton far-flung offices of most airlines and part of Air Premia’s attempt to attract talented management. Air Premia’s independence means it is on its own and has to seek markets and passengers. ZIP’s JAL shareholding means it will be automatically included in JAL’s joint ventures in the same way that LEVEL does with IAG and with the Group. Joint ventures could deliver an unexpected boost for Air Premia if the onsolidation remains Airways and Taiwan’s Starlux plan eyes off the core ball.” Korean Air (KAL)- the keyword in to have wide-bodies flying early ZIP is launching with 787-8s partnership constrains supply. the mature Europe in their operating histories. formerly flown by its 100% From full-service Hong Kong and North America While Cebu Pacific and shareholder, Airlines to low-cost AirAsia X, markets. But Asia Jetstar have demonstrated new (JAL), giving it financial and new entrants pursuing long-haul Cis experiencing start-up fever entrants into the region’s markets management backing. Air Premia flying have learned the necessity after a few steady years. Most can successfully operate wide- is leasing new 787-9s, although of short-haul feed to help fill their Asian airline launches in the past bodies, inevitably there will be terms may be favourable for the planes. Hybrid Air Premia and decade were in China or were comparisons with Europe, where transactions given the excess of low-cost/hybrid ZIP do not plan low-cost subsidiaries established Norwegian is being restructured the wide-body’s supply in the feeder flights. Their respective by existing airline groups. The and WOW Air has gone out of market. homes, Seoul Incheon and Tokyo new carriers span a range of business. WOW board member Air Premia was founded by Narita, may be large enough to business models, geography and and a former CEO of U.S. ultra a former CEO who has rely on local demand. ownership. LCC, , Ben Baldanza, since left the airline. It is 100% Each of the start-ups has a The previous wave of wrote last March that WOW’s privately held and does not have population of 10 million in its start-ups depended on low costs collapse was guaranteed after it an airline backer or majority immediate region to draw on. or government incentives. Most added A330s to its narrow-body investment from a major Korean The greater Tokyo metropolis has of the latest start-ups are seeking fleet. company or even a chaebol. more than 35 million residents a yield premium. This strategy “The A330 is a great airplane ZIP’s indication of a seat and Seoul Incheon is easily raises a central question: how when used efficiently,” Baldanza count of around 300 – less than accessible to most of peninsular many markets in Asia can sustain wrote in an article posted on Scoot or Jetstar – may reflect Korea. sizeable premium demand? The LinkedIn. “It allowed WOW to needing less weight to fly further. Some Korea-Japan return forecast weakened economic serve markets the A321 could Air Premia will have 309 seats, trips cost less than US$100. Even environment in coming years not such as and not significantly more than the if long-haul new entrants have makes the launch phase of . But filling such a the new start-ups all the more large plane from those markets challenging. to highly seasonal Iceland and The prominence of connecting points in Europe wide-bodies in the fleets of the proved disastrous.” new start-ups adds risk to their Baldanza added: “For such planned operations. Two of a small airline with a small total the carriers, Korea’s Air Premia fleet count, the A330 created and Japan’s ZIP, will only fly enormous operating challenges wide-bodies. Vietnam’s Bamboo and distraction, taking WOW’s

10 / ORIENT AVIATION / OCTOBER 2019 NEWS BACKGROUNDER

fares proportional in cost to short-haul flights, the net fare will still be multiples higher and journey time longer, reducing demand. The AirAsia X and Scoot franchises mostly target Asia as their destination markets. ZIP’s initial cities will be Bangkok and Seoul while it awaits ETOPS certification for long-haul flights to North America and Europe. Air Premia will launch within Asia, but plans Europe and North America flying where in-country costs are higher than trips within Asia. ZIP is commonly described as a competitive response to punishing and most aircraft only look at under-served secondary private competition. LCCs such as Scoot and AirAsia can fly non-stop with payload Asian cities that are good for One of the liveliest markets is X, which is using fifth freedom restrictions. local traffic. But the large hubs Korea. Besides Air Premia, Seoul rights to fly to Honolulu and is While a voluminous market, it for North American feed, such gave licenses to two short-haul targeting the U.S. West Coast is largely price-sensitive with most as Singapore, Ho Chi Minh and LCCs. Fly Gangwon is due to early next decade. passengers travelling in economy. Jakarta, are harder to penetrate. launch in October and Aero K is ZIP is arguably JAL’s response It will be challenging for Bamboo Supporting a long-haul expected to fly in 2020. Both will to (ANA), to attain a yield premium as well network with regional initially have secondary city bases. which has far outgrown JAL as passengers. connections proved too A fourth Korean start-up is in Europe, North America and The Vietnam-U.S. market has challenging for Hong Kong , which will base ATRs at Southeast Asia. While JAL is competitive one-stop fares from Airlines, which has pared back by year-end. Its regional no longer under government- most intermediary Northeast its relatively new North America business model allowed a imposed growth restrictions, Asian airlines and sometimes Gulf network. Bamboo will not separate and faster regulatory lingering effects from its carriers. One of the sixth freedom necessarily require international process. Thailand is again seeing bankruptcy make it complicated heavyweights is EVA Air, whose feed, but it could help. Bamboo start-ups after the country passed to hire pilots. As a new airline, ZIP former chairman, Chang Kuo- has strong financial backing an International Civil Aviation does not face these constraints. wei, is launching a competitor: from Vietnamese real estate to Organisation’s (ICAO) audit and With strong premium Starlux Airlines. Starlux expects to leisure travel conglomerate, FLC received subsequent approval focuses, ANA and JAL have left start flights in January 2020 with Group, whose strategy includes to operate new flights. The some markets unserved that A321s and later operate A350s to synergies between Bamboo and most advanced start-up is Thai were judged not be sufficiently North America. the group’s resorts. EastarJet, although details about profitable to operate, creating Unlike Bamboo in Vietnam, Korea’s SK Group recently the project are scarce. Cambodia opportunities for ZIP. In Korea, Starlux will have almost no invested US$1 billion in Vietnam’s continues to receive start-up incumbents Korean Air and domestic market. Starlux’s initial Vingroup which is launching interest, mostly from Chinese Asiana are more prolific, years of operations will pit it its own airline, Vinpearl Air. backers who want to cash in on especially in Europe, which will against a variety of local and Vietnam’s start-up scene is the Cambodia-China market. reduce opportunities for Air foreign airlines. Adding to the more crowded with two more Start-ups could return to Premia. Additionally, Russian challenge, it will have to find planned start-ups: Vietravel and China. is overflight rights are constrained destinations suitable for local KiteAir. Some observers thought converting its private jet operator in Korea but not in Japan. traffic as well as markets that will Vietnam’s market was too to a commercial carrier, renamed is feed North America flights. crowded with Bamboo’s entry. Air 123. It will operate China’s targeting one of the world’s Taiwan’s local demand is too VietJet’s growth prompted ARJ21 and C919 aircraft. Media largest unserved markets, small for the plethora of capacity. questions about how the reports said other Chinese direct Vietnam-U.S. flights. An When Chang was at EVA, about Vietnamese government saw airlines could have dedicated advantage of this strategy is that 50% of passengers on EVA’s private companies taking market airlines flying these aircraft types. traffic is largely concentrated North America flights connected share from Elsewhere in the region, there are between Ho Chi Minh and beyond Taipei, mostly to and its LCC, Jetstar Pacific. But ample opportunities to change Los Angeles. But challenges Southeast Asia. Taiwanese media perhaps Vietnam will be similar markets if high barriers are are aplenty. The distance is has reported Starlux initially will to Thailand with a wide range of overcome. ■

OCTOBER 2019 / ORIENT AVIATION / 11 MAIN STORY

GLOBAL EMISSIONS SCHEME ON TRACK DESPITE CHINA SAYING IT IS UNFAIR

Aviation’s perceived inadequate confined to anti-flying protestors. response to reducing emissions Inside the Assembly, several influential from flying was the target of huge delegates became hot under the collar demonstrations in the lead up when the subject of the industry’s the International Civil Aviation Carbon Offset and Reduction Scheme Organization’s (ICAO) 40th for International Aviation (CORSIA) triennial Assembly, held in came up for debate. Associate editor Montreal at the turn of the month. and chief correspondent, But heated debates were not Tom Ballantyne, reports.

t press time, delegates from 193 member states India and Russia called for a secret ballot on the structure of and more than 2,000 high-ranking CORSIA. government officials, aviation lobbyists and The delegates, whose main spokesman was first secretary climate change NGOs who had attended the for China, Guo Xiaofeng, repeated an historic objection to International Civil Aviation Organisation’s CORSIA. Guo said first world economies benefitted from A(ICAO) Assembly were absorbing the impact of a focused the scheme to the detriment of emerging economies, attack on the Carbon Offset and Reduction Scheme for including China. International Aviation (CORSIA) from a China led faction. The vote was 92-25 in favour of the pursuance of On the final day of the Assembly, following an earlier CORSIA, with 10 abstentions. China, India and Russia, suspension of the program after an estimated 400,000 with the backing of some other states, informed ICAO of protestors, led by teenage activist, Greta Thunberg, their CORSIA concerns and called for a High Level meeting descended on the gathering to demand greater climate to discuss a revised agreement at the next Assembly, in 2021. mitigation from flying, a trio of delegates Not all states, including the U.S., supported the request, from China, reported GreenAir Online earlier this month. Russia and Brazil backed China and also advocated a High Level meeting in 2021. “As the largest developing country, China supports efforts to address international aviation’s impact on the environment and climate change,” Guo said. “China is taking pro-active action to effectively control the growth of its aviation emissions.” But [nation] States should be able to choose their own mid-term and long-term goals and the implementation path that is best for the circumstances of these States, the dissenting countries said. “We maintain the goal of carbon neutral growth from 2020 only focuses on controlling the growth of emissions while neglecting the historic responsibilities of developed countries for emissions and the legitimate rights to expansion

12 / ORIENT AVIATION / OCTOBER 2019 MAIN STORY

Dr. Fang Liu,

Secretary General,ICAO China advocates for the establishment of an international aviation emissions reduction scheme that allows each country to make contributions to the best of its ability … and that is fair and just as well as conducive to mutual learning

Guo Xiaofeng China’s first secretary to ICAO, at the 40th International Civil Aviation Organisation’s triennial Assembly October 2019

of developing countries and emerging economies. European Federation of Transport “This goes against the notion of justice and fairness and Environment, told Reuters the ICAO meeting advocated by the international community and undermines had failed to take any significant steps to rein in the sector’s mutual trust and cooperation among Member States,” said emissions after 11 days of talks and debate. Guo. Eighty one countries have agreed to join CORSIA’s pilot To complicate the situation, several European States are phase by the 2021 deadline. Mandatory status will apply maintaining the right to apply their own Emissions Trading from 2027. Scheme on airlines, creating a dual system of market-based Before the Montreal assembly, IATA’s de Juniac said the measures once CORSIA takes effect in 2021. success of CORSIA was in danger “because several states are At the conclusion of the Montreal gathering, the implementing so-called green taxes, measures and levies on International Air Transport Association (IATA) said the travelers”. 40th Assembly produced two critical outcomes for aviation He pointed out ICAO member states had agreed to and the environment. implement CORSIA three years ago. “The whole aviation • The ICAO council will report to the next Assembly on industry welcomed this significant commitment as part of options for the adoption of a long-term aspirational goal for the overall approach to meaningfully mitigate the industry’s reducing emissions from international aviation. climate change impact. Today, CORSIA is a reality with • The Assembly passed a resolution that reaffirmed and airlines tracking their emissions,” he said. strengthened its support for the successful implementation of “Unfortunately, there is a real risk CORSIA will be CORSIA, the world’s first carbon offsetting scheme. undermined by governments piling on additional carbon IATA said for people witnessing the discussions at the pricing instruments. They are branded ‘green taxes’, but we Assembly “it could be construed ICAO had taken a back step have yet to see any funds allocated to actually reducing in the world at a moment when the pressures on airlines to carbon. move forward in resolving the climate change issue as quickly “CORSIA was agreed as the single global economic as possible are intense,’’ it said. measure to achieve carbon neutral growth by generating $40 “We will continue to support ICAO, but sadly we are billion in climate funding and offsetting around 2.5 billion going to have to move faster than ICAO is able to take tonnes of CO₂ between 2021 and 2035. Governments need whatever steps we can in finding ways to continue to reduce to focus on making that commitment a success.” our environment footprint,” said IATA director general and In his opening remarks at the Assembly, ICAO Council CEO, Alexandre de Juniac. president, Dr Olumuyiwa Benard Aliu, said it was important The International Council for Clean Transportation to remember CORSIA was adopted after very difficult (ICCT) has reported emissions from commercial aviation are negotiations and also to avoid a cumbersome patchwork of rising 70% faster than ICAO predicted in its latest long-term national measures for operators such as taxes that can impede forecast. ICCT’s survey indicated a tripling of emissions by global connectivity. 2050, in a study the group said was the first of its kind for 15 “Therefore, it would be counterproductive to aviation years. and climate change progress if we fail at this Assembly to CORSIA requires airlines worldwide, under a voluntary assure CORSIA’s continuing launch as a truly global structure, to buy carbon credits from approved environment offsetting scheme for international flight emissions,” he said. businesses if their emissions exceed specific targets. Global Consolidating CORSIA is a critical goal for aviation. aviation has committed to carbon neutral growth from next The industry is forecast to be flying 8.2 billion passengers a year and a 50% reduction in airline CO₂ products against year in 2037. The industry’s lobby groups have pressed 2005 by mid-century. nations to join the greenhouse gas reduction scheme in the A critic of aviation’s response to its emissions output, the hope of weakening calls to curb flying. ■

OCTOBER 2019 / ORIENT AVIATION / 13 COVER STORY

FAMILY BENEFITS One plus one equals one is the recent story at long-haul LCC, Scoot, after it successfully completed its integration with Tigerair. But market conditions are tough, with the budget carrier falling into loss this year. Associate editor and chief correspondent, Tom Ballantyne, reports from Singapore.

14 / ORIENT AVIATION / OCTOBER 2019 COVER STORY

hese are exciting times for Scoot, said the LCC’s had more growth in the wide-body fleet,” said Lee. “We went CEO, Lee Lik Hsin. “Since the merger of Scoot from 12 to 20. and Tigerair in 2016 we have chalked up double “On the narrow-body side of the house we grew from 23 digit growth. We have gone from a fleet of 35 to to 29. For the next phase, the narrow-bodies will probably be 49. We have announced another 10 new planes a bit bigger, but we do intend to increase wide-bodies.” onT lease and are upsizing the A320s to A321s.” This strategy is reflected in the order Scoot placed last Four Chinese destinations have been transferred to Scoot July for 16 A321neos, which are scheduled to arrive at the from regional full-service carrier, SilkAir, which is being airline progressively from the last quarter of 2020. To merged with Singapore Airlines (SIA). Next year, six support growth, Scoot will convert six A320neo orders to the Indonesian destinations will be added to the Scoot network. larger A321neo and lease another 10 A321neo by the end of “So, the pace continues unabated,” said Lee. the 2020-2021 year. There also are two more 787s at the But none of these impressive numbers can disguise the carrier. fact that market conditions are tough. In fiscal year 2019, Asked if an order for long-range single-aisle jets was reported the financial statements of parent SIA, Scoot sank being considered, Lee laughed. “I think you are referring into the red with an operating loss of US$10.8 million, down specifically to the A321XLR. For now, we have not from an operating profit of $56.4 million a year earlier. confirmed any orders. The A321neo is more about upsizing Costs of Scoot’s expansion, as it took over routes because of the capacity and the slot constraint situation in previously served by SilkAir and/or SIA, as well as the Asia. We can grow just by putting a slightly larger single-aisle launching of long-haul routes, outpaced revenue growth. on the route,” he said. Performance also was substantially affected by a slowdown in “When you talk about the XLR, trying to get to about Mainland tourists and operational disruptions caused by eight hours or so, yes, it gives you a little bit more range and Rolls-Royce engine maintenance issues on the destinations you can cover. the carrier’s 787 fleet. We have done well. Ultimately, you have to measure that In spite of a disappointing fiscal 2019, against the unit costs in comparison SIA said Scoot had “continued to lay the Our load factor for China with a wide-body. For us, we have not foundations to benefit over the medium routes is very good. come to a clear conclusion. For now, we and long term from growth in the budget In fact, we are carrying will rely on the wide-body.” travel segment”, Lee said. Scoot’s lack of action on the “It’s a crowded market. It’s a tough more than SilkAir did A321XLR front speaks for itself. “The market. In the end, we, as do all of our because we have manufacturers continue to be in competitors, believe in the underlying conversation with us. Never say never. growth of the demand. We are lucky in a higher seat counts But at this time we have not seen the way. Singapore is a very heavily utilized Lee Lik Hsin need,” said Lee. airport. Origin destination pairs involving Scoot CEO Essentially launched as a medium to Singapore are among the most heavily long-haul LCC, Scoot’s longer haul travelled in this region. We are able to tap into that,” he said. routes now include Australia, Athens and Berlin. It flies to 68 “It is very difficult in this industry for demand and destinations across 17 countries and territories, with nine supply to be in sync. But there are times when airlines cannot more destinations in India, Malaysia and Indonesia planned grow fast enough and all airlines do quite well, as we did in for the network by the second half of 2020. 2015-2016. We registered record profits. At the time, we were When asked about Berlin and Athens, Lee said they “are growing upwards of 15% a year. clearly not amongst our top performing routes but we think “Normally, when you grow that kind of capacity you they are a tool to offer niche opportunities”. It launched don’t expect to have good profits but we did. Obviously, the Singapore to Honolulu via Japan in late 2017, but has last year and a half has not been that great. It is a cycle.” terminated the route. With a bachelor degree in economics from the University “We continue to explore other points, but we will be very of Pennsylvania and a long career with SIA, Lee is well used measured. Not excluding the possibility of a new destination to the volatility of the airline business. At SIA, he has been in the next one to two years, we won’t have a European the airline’s regional vice president for West Asia and Africa network,” he said. “We will serve a small number of points in and the North Asia sales regions, head of SIA’s company Europe. That is very different to saying we have a European planning and fuel department, senior vice president network. We always knew long-haul was a niche market for corporate planning and president of Singapore Airlines budget airlines and that it would be a challenging market,” Cargo. He was appointed CEO of both Scoot and Tigerair in he said. May 2016 and led the two carriers through their merger. “We have seen failures or pull-backs by other airlines The combined airline resulted in immediate fleet growth, trying to operate long-haul, so we will continue to grow but transforming Scoot from an all-wide body 787 operator to a very cautiously. It is one destination at a time but long-haul is dual twin-aisle and single-aisle airline with 12 787s and 23 part of our overall network proposition.” A320 variants. “The first couple of years after the merger, we Lee has not hesitated to withdraw from

OCTOBER 2019 / ORIENT AVIATION / 15 COVER STORY

Elsewhere in Asia, competition has never been tougher Digitalisation a shared and Lee considers there is overcapacity in the market. “Our landscape for Scoot and current financial performance sort of reflects that,” he said. Singapore Airlines “We are at less pricing power compared with a year or two ago. It is a reflection of demand not catching up with For Scoot, as with parent, Singapore Airlines (SIA), supply. If you talk just about Southeast Asia, every country digitalisation and social media are crucial to growth. has multiple budget airlines these days, whether it is “We benefit from what SIA is doing because we don’t Malaysia, Indonesia, Vietnam, Thailand or elsewhere. have to re-invent the wheel,” said Lee. “Many of the things they are doing can apply to the “Even when you go to North Asia, Korea and Japan, the budget side of the business. When you are in the digital competition is keen. No doubt about that. At the same time, sphere, the legacy burden no longer exists. Many times we have confidence in our underlying business model and what prevents [new technology] transfer are legacy sys- underlying demand growth. tems. “It is a matter of riding it out. Making sure we have the “For example, anything that happens in the GDS world best possible cost structure, are the most efficient operator becomes difficult to cut across to the low-cost world. and have a product proposition that offers value to our Digital completely transcends all that. Of course, we have customers. Choice is very important to our customers, both to figure out initiatives we want to do on our own. As a for network and the ability to select what they want. Finally, separate business, we might operate different infrastructure we try to be as engaging as possible and have character.” and frameworks from the parent. “At the same time, we have that channel of commu- Scoot has character aplenty. It was voted Best Low-Cost nication where we can benefit from whatever achievement Airline in Asia in 2019 by Skytrax and consistently polls as the parent has made in the digital space. Sometimes it is one of the top LCCs in both the long and short-haul budget the reverse. They can benefit from what we have learnt.” categories. It also has a respected parent in SIA. “Clearly, we benefit tremendously from having a strong parent which can provide financial support. It makes it much under-performing routes. In June, Lucknow and Kalibo were easier for us to secure very favourable deals with key partners dropped. Quanzhou in China followed in August. This like aircraft manufacturers and other suppliers,” Lee said. month, Male will disappear from the Scoot schedule due to “Commercially, that is what the customer sees. We have weak demand and a shortage of aircraft, Lee said. created programs where passengers can benefit from both China is probably Scoot’s most important market. products at the group office and also the group provides some “Today we stand with the largest Asian carriers flying to synergy that benefits the customer. China, either full-service or budget,” Lee said. “If you look at “An example is the frequent flyer program (FFP). the top tier in volume of operations and capacity into China, Normally, a budget airline would not have much to offer the we are all hovering around/over 20 points each, which is what passenger but we can rely on SIA’s FFP. Similarly, SIA we have. passengers can use their FFP membership to claim flights on “Our competitors have it too, but clearly we are big in Scoot. It helps drive a lot of Scoot revenue.” China. It takes up a significant portion of our overall network At its Singapore home base, the network connectivity it and we continue to be confident as we have done with the receives from code-sharing with SIA is critical to its recent takeover of points this year [from SilkAir].” operations. “This is about connectivity and our connectivity

16 / ORIENT AVIATION / OCTOBER 2019 COVER STORY

Around 11%-12% of our passengers are connecting and this will only continue to grow. Our own network reach is wide. We serve 68 points. It is not that much smaller than the number of SIA destinations. We are able to do a lot on our own, but there is a case for feed and de-feed into the SIA network. We will pursue these opportunities as well

Lee Lik Hsin Scoot CEO

proposition has improved significantly,” Lee said. Hong Kong International Airport. Lee said: “We do fly to In Europe, Scoot has codeshare arrangements with local Hong Kong. In general, I would say we tend to say specific carrier, , in Athens and in Berlin is in the incidents will always have specific impacts. Our general process of “working out the mechanics” with SIA Star principle of planning and operations is we will have to adapt,” Alliance partner, Lufthansa. he said. It also is a founding member of the low-cost Value “Confidence and belief in the growth of travel, Alliance, launched in 2016, which uses proprietary specifically the growth of budget travel in the region, is still technology to allow flyers to view, select and book online the there. You know there will be kinks along the way and best available airfares on the flights of any of the member whether that will be about trade or whatever impacting airlines. Collectively, the seven member airlines - Cebu travel. Fundamentally, as a budget airline we are more about Pacific (including wholly owned subsidiary Cebgo), Jeju Air, leisure travel and less about corporate travel. Nok Air, NokScoot, Scoot, Tigerair Australia and Vanilla Air “Whenever there is some sort of situation in any specific - fly to more than 160 destinations. location, and it happens with most airlines, you usually try to Scoot is no different from LCC rivals who are developing ride it out. It could be a really bad year economically or it better value fares and packages for customers. Its 787s have a could be a big weather event and inbound travellers hesitate recently re-named business cabin, ScootPlus, to go there. Scoot-in-Silence, a child free zone, BoardMeFirst for priority “But with scheduled airlines there are considerations like check-in and boarding privileges and comprehensive travel slot retention. You have to maintain a certain level of insurance, Scootinsurance. consistency in your operations.” Like all carriers in the region, Scoot has to cope with Maintaining that consistency while expanding under challenges, such as continuing protests in the precincts of tight costs constraints is exactly what Lee has in mind. ■

OCTOBER 2019 / ORIENT AVIATION / 17 NEWS BACKGROUNDER

Opportunities beckoning for Asia’s carriers in Central and Eastern Europe?

Full-service airline appetite for routes into Central and Eastern Europe is curbed by low yield, leisure heavy passenger traffic, presenting an opportunity for Asia’s LCCs to enter the market, reports Tomasz Sniedziewski.

ost inflight maps do not slow information about the area they are over Mflying between Europe and Asia. Partly it is because the majority of passengers have limited knowledge of the nations of Central and Eastern Europe (CEE) they are overflying. Secondly, the vast zone from Scandinavia to the Black Sea, between Western Europe and the borders of Asia, is still the “flyover states of Europe”. But the ambitions and wealth of these CEE countries could change that. Even the names of the CEE: Estonia, Latvia, Lithuania, Poland, Czech Republic, Slovakia, Ukraine, Austria, Hungary, Romania and Moldavia depart from the label of Eastern Europe, a nomenclature that offends many of the 150 million citizens living in the former Soviet bloc. Latest available figures report the CEE’s share of the year, 50% less frequently than Asia and Europe is prospering in mushroomed after LOT launched European airline passenger Western Europeans. general, CEE is below the market a direct flight. However, it is market is 14.3% or 1.9 million The biggest of the 66 CEE average in demand, yields and still substantially smaller than seats a week. Total CEE traffic airports, Vienna, has yet to make capacity. The biggest challenge demand from East Asia, driven represents 8.5% of European it into the top 20 Europe airports, is low outbound demand from both by leisure passengers and demand. reports the Aviation Market in the CEE. It grows as routes are business traffic,” he said. In 2017, there were 149 Central and Eastern Europe, added. “Yields are substantially million passenger journeys. On published by Rynek Lotniczy. “For example, traffic higher on itineraries originating average, CEE citizens fly once a “While the market between to Singapore from Warsaw from East Asia than from the

18 / ORIENT AVIATION / OCTOBER 2019 NEWS BACKGROUNDER

capital. The gigantic intermodal hub will be called the Central Communication Hub. It plans initial annual capacity of 45 million passengers when it begins operations in 2027. The International Air Transport Association (IATA) has established an Airport Consultative Committee to support the hub’s construction and operations. “It is not just an airport. We are talking about the hub for intermodality. It is a unique CEE. With South and Southeast Local CEE airlines are September, Beijing Daxing in opportunity to do something Asian traffic, with the partial benefitting from their October, in addition to existing I don’t think we have done in exception of Singapore, demand geography. Apart from the flights to Beijing Capital, and Europe for the last 50 years,” from CEE is very price-sensitive.” Lufthansa Group, owner of seasonal flights to Colombo IATA’s VP Europe, Rafael “Competition from the , the region is from November. It recently Schwartzman, told media. Gulf carriers, free from the big airline groups. inaugurated direct Seoul- So far, Poland is the only and is strong so yields A shining success story is Budapest services. greenfield project of such scale are even more depressed,” said the Hungarian LCC, Wizz Air, LOT is not the only carrier in CEE, but most of the region’s ch-aviation and Polityka Insight owned by private equity group, to bet heavily on the growth major hubs, including Vienna, analyst, Dominik Sipinski. Indigo Partners. Since it started of CEE aviation. In 2018, the Prague and Budapest, have “The present numbers operations 15 years ago, the Polish government approved completed or are planning major mean any Asia-Pacific carrier airline has grown into one of the construction of an airport expansion. contemplating opening routes biggest carriers in the CEE. outside Warsaw, Poland’s Better infrastructure means to CEE needed to accept Wizz has a fleet of close to the market’s asymmetric 120 A320 family aircraft and demand - higher in their home double that number of airplanes Mainland airlines testing markets and lower in Central on order. Another contender of traveler interest in Central Europe. Needless to say, most significance in Europe, airBaltic, airlines have gone elsewhere for has carved out a dominant and Eastern Europe network expansion.” position in Latvia, Lithuania and In recent years, the presence of Chinese carriers flying into CEE But the gap is narrowing. Estonia, nations of the Baltic destinations has increased. Airlines from the Middle Kingdom are According to many analysts, CEE States. present in many hubs in the region, although analysts said they is becoming an attractive market Three CEE airlines offer are not much competition to their rivals from Asia. opportunity. direct flights to Asia. Austrian “The expansion of mainland Chinese carriers to Europe certainly changes the market dynamic, although they remain Statistics reveal the Airlines flies from its Vienna largely focused on Western Europe,” said analyst Sipinski. increasing wealth of the CEE hub to Beijing Capital, Shanghai “Traffic to Prague and Budapest is heavily geared towards region and the popularity of Pudong, Tokyo Narita and Chinese group travel and is sold in China by package operators. international travel is translating Bangkok Suvarnabhumi. Going east, demand from Europe is much lower. As capacity into steady upward growth for Ukraine International from Mainland carriers grows, they will expand their connecting CEE airlines and the region’s Airlines, operating in a politically offers, creating competition for airlines from Hong Kong, Taiwan, airports. unstable market where residents Japan and Korea. In the first six months of this travel an average of 0.4 times a “Southeast Asia is predominantly served by the Gulf’s Big year, Vienna Airport processed year, successfully connects Kiev Three, Turkish Airlines and Aeroflot on connecting itineraries. 14.7 million passengers, 24% with Bangkok, Beijing, Colombo The expansion of Chinese airlines is less disruptive to this market.” Market share evolution on routes between China and the U.S., higher than in the same six and Delhi. planned airport infrastructure projects in China and the recent months a year ago. LOT Polish Airlines, a Star declarations by Chinese carriers that they will participate in the Other CEE airports, including Alliance member that aims to be Belt and Road Initiative, emphasize the fact Chinese airlines could Kiev (+20 %), Bucharest (+ 8%), the “the favorite carrier of the play an important role in CEE. “In the longer term, when Chinese Budapest (+7.5 %), Warsaw (+7.4 CEE”, has scheduled flights from airlines broaden their customer bases beyond predominantly %) and Prague (+4.7 %), are Warsaw to Beijing Capital, Tokyo leisure traffic, they can disrupt the East Asia-CEE market more,” reporting increases in passenger Narita, Seoul and Singapore. Sipiński said. demand, said Pasazer.com. LOT has added Delhi in

OCTOBER 2019 / ORIENT AVIATION / 19 NEWS BACKGROUNDER

greater opportunities for local “The Gulf carriers have carriers to build markets. “The invested in marketing in the Taking a risk in underserved CEE is the eastern outpost of CEE and have very good brand the EU. It has the geographic recognition in the region. Central and Eastern Europe advantage of being the gateway Combined with generally lower For the carriers from Asia, the CEE market is a challenge. to Europe. Located largely within fares, it gives them a strong Although growing, it is still below par compared with Western the Schengen Area, it could be incumbent position,” Sipiński Europe. The yields are marginal, but the region is closer to Asia seen as having better intra-EU said. and the airline environment is less competitive. “CEE is a greatly underserved and challenging market. Demand connections than Moscow or “The quick off the mark for both inbound and outbound travel will grow, but the market is Istanbul,” said Sipinski. Middle Eastern carriers, now relatively low-yield, leisure-heavy for now,” said analyst Sipinski. “Given the substantially established as brands in the “Asian point-of-sales bodes better for carriers than traffic from stronger Lufthansa Group CEE, are tough competition for Europe. It is probably less risky for Asian carriers to add routes to presence in CEE, compared Southeast Asian airlines eyeing CEE than for CEE to significantly expand to Asia, particularly to with -KLM or IAG, expansion to the CEE. secondary markets, Star Alliance carriers on the “In particular, Emirates, “In particular, given the growth prospects for Poland and Asia-Pacific side have a slight and Qatar Airways have its geographic location of the country, a stronger presence of a advantage over their rivals a very strong position in the CEE- North Asian airline could bring benefits in a few years, although from other alliances. , Southeast Asia and CEE-Australia I would not expect the routes to be immediate and substantial money-makers”. which focusses on the North connecting markets. Connections For some Asia Pacific carriers, this may be enough to have Asian market, also is strong via the Gulf are, by the virtue of CEE on their maps. competition.” geography, less appealing for Some carriers from Asia are passengers flying to northern present in the CEE, especially China, Japan and Korea. the market for cheap flights to Vietnam’s Bamboo Airways has in Austria, the richest economy “The Gulf carriers cover all Southeast Asia from the CEE. confirmed it will introduce of the region. Austrians take bases. Cheap Some carriers declare to Prague. an average of 3.2 flights a year. tickets, sizeable and high-quality they are happy to fill the gap, The strategy, with some Vienna services Asian airlines, business and first class capacity including AirAsia Group CEO, adjustments, might work, including , EVA and large cargo capacity. They Tony Fernandes. The flights, if Sipiński believed. “Long-haul Air, International, are very substantial competition they go ahead, will be operated low-cost flying is a market Korean Air, All Nippon Airways, to carriers from Southeast Asia by LCC Thai AirAsia X using new niche nobody has quite figured , , China and to a lesser degree from Hong A330neo fitted with business out. Southeast Asia seems like Southern Airlines and Hainan Kong and Taiwan.” class and a high density economy a no-brainer for these kind of Airlines. Recently, the Middle seat configuration. routes given the dominance of For passengers from other East carriers have been going Flying time between leisure traffic, low yields and the countries in the region, the first through a transition with many Bangkok and CEE is around 10 general reluctance of full-service and often dazzling experience price-sensitive CEE passengers hours, which means round trips carriers to expand to CEE,” he of the standard Asian airline complaining the fares offered can be accomplished in 24-hour said. flight was being marketed by the big three Gulf carriers are blocks. “At the same time, a in competition with the Gulf not as attractive - read cheap - as The AirAsia Group joint classic low-cost point-to-point carriers’ expanding presence in they were a few years ago. The venture may not be the only product would most likely have the CEE. discontent has created space in carrier planning to fly to Prague. to overcome low demand at both points. “Scoot’s product is an interesting proposition for secondary European markets because it feeds passengers from the regional Singapore Airlines/Scoot network [onto its European flights]. “Other long-haul LCCs would be wise to learn from it and seek to add feeder services on the Asian side. For Thai AirAsia X and Bamboo it could be relatively easy serve their respective home markets with connecting itineraries.” ■

20 / ORIENT AVIATION / OCTOBER 2019 NEWS BACKGROUNDER

Vietnam’s airports overwhelmed by explosive growth

ith eight in October 2020 with three Vietnamese aircraft and expand to a fleet of airlines holding eight by 2025. KiteAir, a turbo air operator prop operator that has said it will certificates and launch services with six ATR72s Wthree more hopefuls applying to in the first quarter of next year fly, the country’s air travel boom is aims to operate 15 ATR72 and exerting unprecedented pressure 12 A320/A321 family planes by on the country’s aviation system. December 2024. Applications from the Pressure in domestic skies has newcomers – Vinpearl Air, Vietravel prompted existing airlines to look Airlines and KiteAir – also are Complicating matters is a the delivery of new aircraft to overseas for expansion. In Vietjet’s pending. shortage of trained staff, including the country’s airlines, including interim half, its international The Civil Aviation Authority of air traffic controllers. placing short-term curbs on new passengers increased by 35%, to Vietnam (CAAV) said overcrowded Adding to operational strains entrants’ fleet plans because four million a year. Income from Tan Son Nhat International Airport, is the poaching of MRO engineers there are not enough air traffic international routes outweighed which serves and pilots between competitors, controllers to safely monitor domestic income for the first time, (HCMC), and Hanoi’s Noi Bai, Da a widespread practice that has the country’s expanding airline at 54% of revenue. Nang and Nha Trang airports are forced government intervention. network. By 2030, the CAAV forecast, facing capacity crunches. In a recent meeting about aviation The registered airlines flying in there will be 600 aircraft The major domestic route, issues, deputy prime minister, Vietnam are state-owned Vietnam operating in Vietnam, three Hanoi to HCMC, served by Trương Hòa Bình, was reported Airlines, joint venture Jetstar times as many as now. At June Vietnam Airlines, Jetstar Pacific and to have requested airlines to Pacific, , VASCO, this year, the Vietnamese airline Vietjet Air, accounts for 22.7% of maintain a fair playing field to , VietJet, Viet fleet was 197, an increase of 30% air ticket sales. Ninety per cent of all ensure their employees, including Star Airlines and Bamboo Airlines. over 2018. Flag carrier, Vietnam flights are full, the CAAV said. pilots, were not overworked Vinpearl Air plans to operate Airlines, operated 95 aircraft and As a result, terminals and because of understaffing. six aircraft from next July and employed 1,135 pilots, of which runways at Hanoi’s Noi Bai and Vietnam state media has bring in 30 more by mid next 860 were Vietnamese, last year. HCMC have been operating said the staffing situation is so decade. is It has a policy of Vietnamese first above capacity for some time. serious that the CAAV is curbing hoping to commence operations when recruiting staff. ■

Hong Kong Airport upbeat on future despite city’s civil unrest At press time, Hong Kong International summer holiday season. jump in HKIA air movements because Airport (HKIA) was suffering from a slow- But Yuen said HKIA’s $18 billion expan- the airport’s two existing runways will be down in traffic as civil unrest continued into sion plans are on track for a soft opening closed for renovation. All three runways are its fourth month in the Special Administrative of the airport’s third runway early in the scheduled for full operation in 2024. Region (SAR) of China. next decade as well as revamped terminals, From then, available slots will jump from But the protests were not putting the construction of a vast shopping complex 68 per hour to 102. Yuen said the airport will brakes HKIA’s expansion or its long-term adjacent to the airport and other facilities be able to take full advantage of the seven growth forecast, the company’s general scheduled for completion by 2024. million people living in Hong Kong and tap manager for airport and industry collabora- Traffic at the airport slumped by 12.5% into the 70 million population of the Greater tion, Michael Y.K.Yuen, told delegates at a year-on-year in August, the largest decline in Pearl River Delta. September global airports conference. nine years. Yuen said the September figures Mainland China passengers can check in, In August, protestors’ intemperate will record another drop in traffic although including their luggage, for their Hong Kong occupation of airport check-in and arrival “it will not be as severe as in August”, he said. flights at numerous points on the Mainland halls forced cancellation of close to 1,000 The third runway is due to open in 2022, before travelling by ferry or the new Hong flights in one long weekend during the peak but there will not be a significant immediate Kong-Zhuhai-Macau bridge to HKIA.

OCTOBER 2019 / ORIENT AVIATION / 21 INDUSTRY INSIGHT REPORT ASIA-PACIFIC AIRCRAFT LEASING: AN UPDATE Grounding erodes leasing value of new MAX aircraft

Global lessors predict new MAX aircraft will lose value after such a long grounding. Associate editor and chief correspondent, Tom Ballantyne, reports.

hen the 737 an aircraft is based on the history MAX jet of aircraft transactions, but there recommences are no MAXs being transacted at flying, it will the moment. not simply be International Airfinance Wa matter of instantly returning Corporation head of asset hundreds of the aircraft type to management, Marian Pistik, said airlines worldwide. from an investor’s perspective the Maintenance will be essential MAX is “permanently impaired” for planes that might end up from the value it would have if spending close to a year on the it was a new aircraft that went ground and pilots must be trained into service. Grounded MAXs to operate the MAX’s upgraded can suffer from component systems. Importantly, lessors will deterioration. As the aircraft be negotiating revised lease rates return to service the quality of with their customers for the single their storage or the weather aisle aircraft. conditions in which they were At the AIR Convention parked would influence their Europe 2019 in Lithuania last Looking at the forward placement of value. In addition to a year of the month, the 737 MAX crisis was aircraft lessors have purchased aircraft’s life being wasted, there a dominant subject of discussion would be “significant expense” among attending airline, MRO, and looking only at 2019 new placements, in bringing the airplane to clients’ airport, aircraft and engine the two-thirds of aircraft placed have been expected condition. “It is not manufacturers, finance and in Asia-Pacific, including China. It’s a really clear who will face this significant leasing delegates. Speakers said expense,” Pistik said. the un-grounding could introduce large number that shows China is still These issues are a major more confusion for aircraft strong and so is the Asia-Pacific challenge for lessors, who are lessors, investors and financiers significant MAX customers. invested in the type. Isabelle Floret About one third of the 400 plus The list price of the MAX Airbus senior vice president leasing delivered MAXs are leased and series ranges from US$99.7 hundreds of orders for the type million to $134.9 million and the that has no flying hours, no Even if this was so, some are earmarked for lessors. market has to establish the value cycles, but is one year old?” checks on the aircraft will be For example, Chinese-owned of the type when it is authorized Aerotask CEO, Rob Watts, needed and value will be reduced BOC Aviation Limited has 87 to fly. “For instance, take a plane said estimating the MAX value by the required maintenance. MAX jets on order. It was built in March 2019, which has after the worldwide grounding Before the MAX can return to the scheduled to accept its seventh never flown,” said Deutsche Bank is lifted would be related to skies, some refresher check-ups plane when the grounding was head of aviation debt origination/ the age of the plane. From an on the aircraft will be essential. ordered in March. China Aircraft EMEA, Michael Rurik Halaby. MRO perspective post lifting of An even bigger issue, Watts Leasing Group Holdings (CALC), “Supposing the aircraft is cleared restrictions, the majority of work said, was related to estimating controlled by the state-owned to fly in March 2020. At that would be hourly or cyclically the pricing of the MAX post- China Everbright Group, was due point, would you have an aircraft driven, he said. grounding. The current price of to receive the first of 100 MAXs

22 / ORIENT AVIATION / OCTOBER 2019 INDUSTRY INSIGHT REPORT ASIA-PACIFIC AIRCRAFT LEASING: AN UPDATE

by September. It had ordered 50 that have been built. We have a of the planes, at the list price of lot of work ahead of us. First and Regional aircraft lessors increase US$5.8 billion. The Hong Kong- foremost, we are focused on the based lessor added 50 more airplane safely being returned to market share in Asia-Pacific MAXs to its order book, with 50 service. We are working with the TrueNoord CEO, Anne-Bart options, last December. regulatory agencies on that,” he Tieleman told Orient Aviation: “We SMBC Aviation Capital, said. have added some well-known and successful airlines to our leased formerly RBS Aviation Capital None of the above has aircraft portfolio like Wings Air in and now owned by a Japanese been of great benefit to Airbus. Indonesia and Mandarin Airways.” consortium, including Sumitomo, Airbus senior vice president Earlier this year, the lessor established has 30 MAXs on order. leasing, Isabelle Floret, told Orient an office in Singapore. Dublin-headquartered lessor, Aviation last month that “as “We are closely watching the Avolon, controlled by China’s far as Airbus is concerned the China-U.S. trade war and the unstable Bohai Leasing, has firm orders unfortunate situation does not situation in Hong Kong. In the Asia- for 55 MAXs with options for 20. really serve us because we don’t Pacific, several markets stand out with the focus recently shifting Goshawk Aviation, an affiliate have any short-term capacity”. to regional aircraft manufactured in China,” he said. of Hong Kong’s New World “I don’t think there has been “In India there have been large turboprop orders on the back of the government’s incentive scheme. Collectively, the ASEAN conglomerate has 26 MAXs in a single transaction for the MAX countries are developing their regional fleets to connect remote its portfolio of 221 airplanes. It is since the grounding. If you need internal destinations and dramatically improve travel opportunities scheduled to commence deliveries capacity the options are to ask for island populations. of 20 more from 2023. lessors what they have available, “There are large numbers of ATRs and Q400s operating in After the grounding, airlines try to renew or extend your lease India, Japan, Indonesia, Malaysia and Philippines. South Asia, in began asking for one year or attempt to secure some of the particular, appears perfectly suited to turboprop operations with extensions on lease agreements capacity the lessor has,” she said. its remote destinations and short runways. for aircraft due to be replaced On the broader leasing “Japan, China, , Australia and the Pacific islands by the MAX. As the grounding front, Tinseth is more than bullish have proved to be ideal areas for regional jet operations. The dragged on, they sought to about the future of the business, introduction of the Embraer E2 and the A220 have encouraged many airlines to look at these modern, low seat and trip cost planes extend the agreements for particularly for single-aisle planes. as alternatives to narrow-bodies. another six months, a strategy “When you look at the single- “If we add the Spacejet, to be introduced next year, the largely resisted by lessors. aisle market, which has become Q400 program under the de Havilland Canada brand and the In a telephone interview the backbone of the world’s development of ATR aircraft, TrueNoord can look forward to a from Beijing with Orient Aviation fleet - 75% of deliveries in the dynamic future meeting the demands for leased regional aircraft last month, Boeing Commercial next 20 years are for single-aisle right across this flourishing aviation sector.” Airplanes vice president airplanes – it is a good place to marketing, Randy Tinseth, said be,” he said. the bread and butter of leasing “Leasing customers will tell a major role in the aircraft sale movement, they are easy to customers is single-aisle A320s you they are a little disappointed and leaseback market. “The reconfigure and not a huge and 737s. there are so many leasing airline buys the airplane and then cost like wide-bodies. They “Clearly, there has been an companies today. Having said a leasing company buys that are ubiquitous. They can go impact. Without question. We are that, the returns have been strong airplane and leases it back to anywhere. going to have to work through it and the assets are worth the them. We have seen that practice “If you are having a with customers and the leasing investment. That’s a good thing.” in many of the low-cost carriers challenge, such as India right arms, but we will. When the In the Asia-Pacific, especially that have been expanding in past now, you can reconfigure those aircraft returns to service, we will in some emerging economies, years. It has been an important airplanes and, if necessary, move have a big backlog of airplanes leasing companies have played mechanism for expansion,” said them. I find India interesting Tinseth. [following the collapse of Jet ‘Another benefit of the Asia-Pacific – and Hong Kong – is access “Malaysia, Indonesia and Airways] because most of Jet’s to a vibrant debt and capital market. Our strategy is to continue India are the big sale and lease aircraft are staying right there in to diversify our funding base. Proximity to new lenders such as back markets. When you look at the Indian market. They are just financial institutions from China and Singapore are critical to what is happening in the lease moving across the runway. That’s developing these relationships and enhancing market knowledge. back market and the speculative important. It is why lessors like Similarly, we are now closer to local investors leasing market, leasing customers those single-aisle airplanes.” interested in aircraft as a new asset class’ are coming close to controlling Leasing rates appear to SMBC Aviation Capital senior vice president and almost half of the world’s single- be relatively stable. “I was at a regional manager airline marketing Asia-Pacific, aisle airplane fleet. finance conference in New York Nicolas Clouet “They love the single-aisle recently that was all about leasing airplanes. When you talk about customers and companies and

OCTOBER 2019 / ORIENT AVIATION / 23 INDUSTRY INSIGHT REPORT ASIA-PACIFIC AIRCRAFT LEASING: AN UPDATE

It’s difficult with the MAX grounded, but in general the single-aisle market is under supplied. For the next few years we are oversold and Airbus is oversold. The only way for customers to acquire airplanes is through the leasing channel. To some extent, this is a very good opportunity for our leasing customers

Randy Tinseth Boeing Commercial Airplanes vice president marketing

I guess when we take a look at “It is still a very good a Hong Kong operation,” he with Henan Civil Aviation and the blue books single-aisles have investment. In terms of said. “The new tax regime for Development Company in 2016, been relatively constant. We have speculative orders, we are trying aircraft leasing in Hong Kong also told Orient Aviation its goal seen some downward pressure to be disciplined in regard to the created a greater interest in the was to add 10 aircraft a year on wide-body rates. That was number of aircraft we sell to the leasing community to develop a to its leasing portfolio until its fairly consistently reported and it lessor because you don’t want to presence in Hong Kong. This may fleet reached at least 50 planes is something we are seeing in the oversupply the lessor channel. You lead to more competition in the available for lease in China and market as well,” said Tinseth. don’t want to create too much Asia-Pacific.” across the Asia-Pacific. Floret said the leasing market competition that will eventually Clouet told Orient Aviation “Because of the competitive is a brilliant market and has been drive down the asset value. the regional long-term market environment of Mainland aircraft for a couple of years. “We can “But the sale and leaseback is “certainly positive” but there leasing, we are diversifying see the trend continuing. As market is an open market. We are concerns beyond the cyclical into other assets, including rail you know, the two-way true can’t control that. As long as the nature of the industry including cars, flight simulators, valuable indication of the lessor is either aircraft are perceived as a good the economic unease caused by equipment leasing and a through a specific order or investment, we expect there will the U.S. driven trade wars. partnership with the biggest bus through sale and lease back,” be a lot of people willing to invest “China will remain a regional company in China, Yutong Bus.” she said. and bid for airline business.” driver, supported by domestic the company said. “There is a lot of cheap SMBC Asia-Pacific senior vice demand, and regional tensions “We constantly try to identify money and our product is a good president and regional manager should not affect our positive niche players or promising asset, a good liquid asset and airline marketing, Asia-Pacific, perspective on South Korea, airlines. For Okay Airlines, the investment and that is why there Nicolas Clouet, said the Asia- Taiwan and Japan. India presents partnership developed because is good competition to finance Pacific was the lessor’s largest challenges, but we expect the the airline needed new aircraft as our product. At the end of the market with 44% of its portfolio business environment to improve soon as possible. We were able day, it’s good for the airline leased to airlines in the region. as we continue to work with local to deliver in a short time because because they have access to a “We have had a presence legacy customers,” he said. we are a young company and competition between the sources in the region for more than a A spokeswoman for novice more flexible than the big leasing of finance.” decade but we made a strategic lessor, AviaAM Financial Leasing companies that are dominant in Said Floret: “Sale and decision last year to establish China, a joint venture established China.” ■ leaseback is a good market. There are a lot of players and we can say the lessors are providing the major source of aircraft financing these days. If you want some numbers, last year 62% of all our deliveries were financed by lessors, either through direct order or through sale and leaseback. It’s a good market and a competitive market.” Nevertheless, Floret said Airbus was disciplined in its approach. “A lot of investors like the return of investing in aircraft,” she said.

24 / ORIENT AVIATION / OCTOBER 2019 INDUSTRY ADDENDUM

AIRLINE MRO & COMPONENTS Myanmar National Airlines costs at airlines. To date in 2019, Skywise has provided IATA launches platform opts for Boeing aviation advanced analytics services to Chinese to encourage fairer services carriers Spring Airlines, Yunnan Hongtu Airlines and Zheijiang Airlines. The data MRO parts pricing Boeing Asia-Pacific Aviation Services Pte company has 90 airline customers. ■ Ltd (BAPAS), a joint venture between Boeing The International Air Transport and the SIA Engineering Company, has Association (IATA) has unveiled won the contract to supply parts and logistic AFI KLM E&M collaborate its MRO SmartHub, an online tool support for Myanmar National Airlines with Indonesia’s GMF intended to bring transparency to the next generation 737 fleet. The fleet materials airline component and parts sector. solution deal is BAPAS’s first with a customer European-headquartered global MRO, AFI The association said the MRO outside Singapore, the company said. KLM E&M, has formed a partnership with market has an annual estimated BAPAS offers the Boeing global fleet care Indonesian MRO, Garuda Maintenance Facility value of US$81.9 billion. SmartHub suite of engineering, parts and maintenance (GMF), for component support on Garuda is expected to reduce airline solutions for the manufacturer’s 737s, 747s Indonesia’s 24 A330s. The collaboration, expenditure on parts by 10%-15%. and 787s. At August 31, it supported 100 announced last month, will require AFI KLM “SmartHub will allow subscribing Boeing aircraft. E&M to provide repair and parts pooling airlines and MRO providers to services and training enhancement solutions transparently list items to buy or for GMF’s expanding operations. sell on the new platform and will The executive vice president of the reduce over-payments by making the European-headquartered MRO, Anne Brachet, assessment of fair market value more said at the signing agreement the company accurate”, IATA said. was committed to assisting the flag carrier with The solution also will: developing GMF’s in-house capabilities. ■ • enable the accurate evaluation of parts inventories at any point in time • increase confidence in planning, Magnetic MRO opens in procuring or selling of aircraft BAPAS CEO, Michael Doellefeld, said Kuala Lumpur components the projected growth of the Asia-Pacific • Facilitate better decisions about outpaced the rest of the globe. BAPAS “was Magnetic MRO, a global provider of Total the choice and procurement of parts ready to support the region’s airlines offering Technical Care for aircraft operators and and components unprecedented lifecycle solutions that make lessors, has established a representative office • enhance trust between buyers us a trusted partner for airline services in the in Kuala Lumpur. and vendors region”. “The Asia-Pacific is the world’s fastest IATA senior vice president flight CEO of the Myanmar flag carrier, Than growing market for aircraft fleets and MRO. and safety operations, Gilberto Tun, is confident the carrier, with its 70-year With well-established European operations Lopez Meyer, said: “This is a major heritage, “could maximize the value we receive and being present in the Chinese MRO modernisation that will lead to from our 737 fleet as we continue to expand”.■ market, it was a natural decision to develop significant and much needed cost in yet another direction, to Southeast Asia,” savings for airlines. Magnetic MRO chief commercial officer, “The market really needs this. Airbus and Alibaba develop Inga Douglas, said. It will rebalance the aviation value China Skywise data centre Focused on Total Technical Care, chain.” Magnetic MRO plans to expand services Until now, there has been no In Hangzhou last month, Airbus Skywise and offered to its regional customers to include single central reference for the value Alibaba Cloud agreed to jointly establish a line maintenance, engine and asset of surplus parts or upfront visibility Skywise Data Centre to provide tailored data management, aircraft teardown, aircraft of a part’s cost or timely availability, solutions for Chinese domestic airlines. It also transition management, PBH programs and IATA said. will offer carriers the data compliance features other products. “This leads to higher costs by and tools necessary for Mainland airline “We also might consider launching heavy making it challenging to accurately customers to join the Skywise platform. maintenance or aircraft painting facilities in valuate inventories, resell surplus Alibaba Cloud is the data intelligence the region, either on our own or with local materials and calculate the costs and backbone of the Alibaba Group. Skywise is the partners,” the CCO said. Magnetic MRO timing of repairs,” the association Airbus-owned open data integration platform operates worldwide, including Dubai and said. ■ that uses digital content to reduce operating Guangzhou in China. ■

OCTOBER 2019 / ORIENT AVIATION / 25 INDUSTRY ADDENDUM

LEASING community is crucial to the smooth delivery of a complex process like NDC. We will Tokyo Century takes control continue to partner with SIA and the wider travel industry to deliver travellers an elevated, of Aviation Capital Group personalised booking experience.” ■

Pacific Life Insurance Company has agreed Tokyo Century Corporation will acquire SITAONAIR and Singapore to all of the insurance group’s outstanding explore space-based VHF holdings in U.S. lessor, Aviation Capital Group (ACG). The transaction is expected The Civil Aviation Authority of Singapore to be finalised by December. The Japanese (CAAS) and communications company, company bought 20% of ACG from Pacific SITAONAIR, signed a Memorandum of Life in 2017 and has since increased its Understanding last month to determine the holding to 24.5%. potential of the world’s first space-based Very ACG president and CEO, Khanh T. first aircraft portfolio from AerCap, a fleet of High Frequency (VHF) solution. Tran, said: “Tokyo Century has been a 21 planes that AerCap also is servicing for The voice service would be VHF valuable partner since 2017. This acquisition the Saudi company. At mid-year, AerCap had radio relayed installed onboard satellites of the remainder of ACG demonstrates a a portfolio 1, 373 owned, managed or on that would offer direct controller to pilot commitment to the growth and success order aircraft, valued at $43.1 billion. ■ communications in geographically remote of the platform and the aircraft leasing areas such as Oceania, where it is too industry.” costly to install terrestrial high frequency ACG was established in 1989 and had ASIA-PACIFIC AIR and VHF services. been majority-owned by the Pacific Life TRAFFIC MANAGEMENT Insurance Company until Tokyo Century’s investment in the lessor. At June 30, the full service aircraft asset manager had Travelport works with SIA to approximately 500 owned, managed and deliver KrisConnect committed aircraft in its portfolio leased to 90 airlines worldwide. Travel technology company, Travelport, has Tokyo Century is listed on the Tokyo unveiled its NDC implementation road map Stock Exchange. Its core business lines for the next stage of Singapore Airlines’ (SIA) are equipment leasing, mobility and fleet KrisConnect program. The MoU adds to the work being done by management and speciality financing.■ Travelport has been working with the CAAS and the Singapore Flight Information carrier to introduce NDC enabled content to Region, which is focused on medium and KrisConnect, the airline’s booking and sales low earth orbit satellites used for voice, and AerCap sells more aircraft solution, by April next year. The solution for where possible, data communications, said to Saudi bank subsidiary airlines and passengers will be tested with CAAS. agency pilot groups in coming months. “These are key steps in our efforts to Dublin-based lessor, AerCap, is selling a Travelport global vice president and improve air traffic management with cutting 19-aircraft portfolio to an Irish company, global head of air travel partners, Damian edge technologies. We were excited to Dara Aviation, which is owned by NCB Hickey, said: “As one of the first Asian launch this within the Singapore FIR,” CAAS Capital. NCB Capital has US$40 million airlines to begin exploring New Distribution director general, Kevin Shum, said. in assets under management and is the Capabilities (NDC), we are very pleased to be “The addition of SITAONAIR industry brokerage arm of Saudi Arabia’s largest bank, working hand-in-hand with SIA since the start and air traffic communications expertise the National Commercial Bank. of its journey. allows CAAS to strengthen our research and AerCap said the 19 airplanes would “Close collaboration with the agency continue to innovate.” ■ be a mix of narrow and wide body aircraft. Dara has appointed AerCap to provide lease management services for the portfolio that will include aircraft technical management, lease administration and marketing. AerCap CEO, Aengus Kelly, said: “with this sale, AerCap will have sold or contracted to sell approximately US$1.4 billion in mid-life assets to NCB since 2017.” Two years ago, NCB Capital acquired its

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