Mark Pilling: August 2006 Archives

Qantas Airways today became the first Airbus A380 customer to disclose how much compensation it will receive from Airbus for mounting delivery delays, writes Airline Business deputy editor Brendan Sobie. If A$104 million ($79 million) in payments to Qantas for delays to its 12 A380s are any indication of what Airbus will have to pony up for the 15 airlines and one leasing company which have ordered 168 A380s, the European manufacturer could be facing total penalties of over $1 billion.

The delivery of nearly every A380 on order has been delayed by at least a half year. However, not all of the customers may be entitled to the $6.6 million per aircraft in penalties Qantas has negotiated. Qantas' first A380 has been delayed by one year, from late 2006 to late 2007. Only Emirates and Singapore Airlines (SIA) also face delays of one year; the delays to the customers which follow them in the programme are not as severe. And generally manufacturers are not required to pay significant penalties if aircraft are delivered only six months late or less.

How much exactly Airbus will have to pay in penalties is unclear because negotiations with most customers continue and both sides have so far been tight-lipped about these sensitive discussions. Some customers including Emirates, which is by far the largest of the A380 customers with 43 aircraft on order, are also not publicly traded so may not reveal how much Airbus will pay them even after negotiations conclude.
Some customers may also opt for discounts on additional aircraft rather than cash payments. For example Singapore Airlines, which is still planning to place the first A380 into service by year-end, placed an order last month for nine additional aircraft.
Qantas disclosed the A$104 figure in releasing its financials for the fiscal year ending 30 June. It says the funds are being recognised as liquidated damages from Airbus and will be paid over time until the delivery of its last A380.

In announcing the second major delay to A380 delivery schedule earlier this year, Airbus said it expected to deliver only one A380 in 2006, followed by only nine aircraft in 2007. Airbus was originally committed to delivering the first A380 to Emirates, Qantas and SIA in 2006 and was planning to deliver 20 aircraft in 2007.

The frustration over the past few days at the delays and problems encountered at London Heathrow in particular as a result of the terror scare of 10^th August have boiled over.

British Airways chief Willie Walsh has expressed his anger at seeing some of his aircraft departing virtually empty because passengers cannot make it through the new exhaustive security checks in time. BAA has come under fire for not bringing in enough security staff to cope.

Ryanair boss Michael O'Leary is equally peeved by the new requirements, and his airline is criticizing BAA for not putting enough security lines into action at Stansted. He wants the UK government to step in, and even suggests bringing in the army to help.

This is uncharted territory for all. In the past, similar crisis points have been restricted to one airport or even one airline. They have been more manageable, with others able to help and measures to cope coming in relatively fast.

This time the crisis has been all encompassing, with unprecedented levels of security and requirements that have been changing day by day. It is also the busiest time of the year.

Airline calls for compensation, as some are asking for from BAA, will most likely wane. They know it is probably wasted energy. Better to refocus attention on encouraging governments to finally step up and help pay for the extra and onerous security measures.

However, once again, this crisis reveals the void in communication and proper co-ordination between BAA and its customers. That void is troubling, and over the past few years has shown little tendency to narrow.

The devil is in the detail it is said. A recent press release from IATA as it deepens co-operation with China's aviation authorities shows just how significant the country's air transport business has become: 17 Chinese carriers are IATA members; China's airlines flew 138 million passengers and three million tonnes of cargo in 2005.

Impressive and growing numbers for sure. But are carriers making money out of all this activity? IATA's press release noted in brackets: "Industry lost CNY 2.4 billion ($300 million) in the first half of 2006, so we would rather not mention this."

Clang, sorry you just did. The first half has been a tough period with rising fuel costs, new competition, price regulation in the domestic market and overcapacity all hampering the ability of carriers to make money. The recent Airline Business World Airline Ranking in the August issue showed the big three - Air China, China Eastern and China Southern - collectively did actually made a $11.4 million net profit in 2005. However, Air China's $294 million profit compensated for losses at the other two.

Encouraging China to adopt e-ticketing as part of its Simplifying the Business campaign is one of IATA's main motivations for signing the memorandum of understanding with the General Administration of China to "expand strategic co-operation to further the safe, efficient and sustainable development of China's air transportation system".

IATA has long been an admirer of China's aviation minister Yang Yuan Yuan, whose backing has helped the country increase e-ticketing penetration from 0.2% to 60% of transactions in just 19 months. By the end of this year IATA believes this will rise to 80% and that China will achieve IATA's 100% e-ticketing target by the end of 2007.

IATA adds that all Chinese carriers are committed to making the end of 2007 deadline for the IATA Operational Safety Audit (IOSA). Seven carriers have already been put on the IOSA registry.

This is all good work. However, a renewed focus on the bottom line must certainly be on the agenda in the boardrooms of Chinese carriers.

One of the industry's most highly respected and successful chief executives, Geoff Dixon of Qantas, will not be bowing out as expected next year. The carrier has confirmed that the 66-year-old, whose contract was due to expire on 1 July 2007, has signed an "ongoing" contract that will extend his service at least into 2008 and possibly beyond.

Qantas is clearly not ready to begin a succession process that had penciled either chief financial officer (CFO) Peter Gregg or executive general manager John Borghetti as potential candidates to take over from Dixon. The carrier announced that Gregg, whose contract was up later this year, has also agreed to remain with Qantas as CFO. He too will have an "ongoing" contract.

Chairman Margaret Jackson said that continuity of leadership in the current aviation environment was important in the airline's decision. She described Dixon as "an outstanding chief executive. His leadership and experience have been invaluable since he took the role in March 2001, with Qantas outperforming most of its peers in the global airline industry."

Perhaps Qantas is ready to take a leaf out of the book of arch-rival Emirates, where 77 year-old Maurice Flanagan continues to lead the Middle Eastern carrier and is encouraged to do so. Age, for the Arab leaders of Emirates, is immaterial. It is the capacity and ability to do the job that is important.

Jet Airways has launched its third service between the UK and India with a three times weekly Airbus A330 flight between London Heathrow and Amritsar.

The carrier was originally going to serve the northwestern Indian city, which is just 50km from the Pakistan Border, from late June with a Boeing 767 from fellow Indian carrier Air Sahara, which is was intending to buy. However, that deal fell through and Jet returned to its plan to serve the route with its own aircraft.

The arrival of a new A330 leased from ILFC gave it the opportunity to launch the route, says Emmanuel Menu, general manager UK & Ireland for Jet Airways. As further A330s are added to the fleet Jet will step up its Amritsar service to six times a week, he says.

At present the only direct service between Amritsar and the UK is an Air-India operation that operates from Amritsar via Birmingham to Toronto in Canada. Menu is confident that there is a strong demand for direct flights from Amritsar to London. It is mainly a VFR (visiting friends and relatives) market with some leisure element. Out of a total Indian community in the UK of around 1.3 million, an estimated 300,000 people have roots in the Punjab region.

Loads for the early flights look encouraging, says Menu. The service was launched on 4 July.

Jet now has four daily services from Heathrow to India. It has two flights to Mumbai, with the second added on 10 July, and one daily flight to Delhi.

The carrier has also expressed an interest in operating to some regional UK cities. However, before it enters regional markets, it will open its fourth route to Heathrow, says Menu. A service to another major Indian city, most likely Kolkata or Bangalore, will come in 2007.

Moscow's Domodedevo International Airport, which overtook the city's long-established Sheremetyevo as its major gateway last year, is sadly being forced to dismantle one of its landmarks as it grows.

A four-engined Tu-114 turboprop that has welcomed visitors to the airport for 30 years is being removed. This remarkable aircraft, which entered service with Aeroflot in 1961 and still holds world speed records, has to be moved as part of Domodedevo's reconstruction. But the aircraft is too dilapidated to be safely taken apart and rebuilt at the airport's planned new museum, says airport owners The East Line Group.

The full story with pictures of the aircraft being removed can be found on flightglobal.com.

Domodedevo goes from strength to strength. In 2005 it handled 13.9 million passengers, a 15.7% rise over 2004, while growth in the first six months of this year continued at a healthy pace with a 12.5% increase.

This year East Line will invest $180 million in the continuing development of the hub, and as the airport noted our Airport rankings placed it 14^th in terms of passenger growth among the world's top 100 airports.