January 2009 Archives

Thai Airways International is calling on the govt for a 20-30 billion baht ($572-858 million) bail-out in the form of a bridging loan.

It needs the cash because it has been losing money and needs to shore up its balance sheet.

Some of the losses are due to events beyond its control - such as the global economic crisis and the temporary closure last year of Bangkok's two major airports.

But Thai Airways should be a lot stronger than it is.

Bangkok is still a major international hub and Thailand is a popular leisure destination.

If there is a global credit crunch, someone forgot to tell India's defence ministry. Other countries may be tightening their belts due to the ongoing global economic slowdown, but New Delhi continues with its procurements and tenders. And that is good news for the defence contractors.

Washington appears to be the prime beneficiary for now, with India providing further evidence of its increasingly closer ties with the USA after confirming a $2.1 billion order for eight Boeing P8-I maritime patrol aircraft. This comes a year after a $1 billion contract for six Lockheed Martin C-130J tactical transports, the first time that New Delhi had bought US military aircraft.

Several long-standing Indian requirements for fighters, military helicopters, aerial refuelling aircraft, and airborne early warning and control systems should be resolved in the coming years, and these will be worth several billon dollars for the contenders.

The big kahuna is a $10-12 billion contract for 126 multi-role combat aircraft, with the Boeing F/A-18E/F, Dassault Rafale, Eurofighter Typhoon, Lockheed Martin F-16, Saab Gripen and Sukhoi Su-35 in contention. Expect it to get dirty in the coming months as New Delhi completes technical evaluations and conducts flight tests.

Western European firms are making a strong fight in all of these tenders, but many observers are especially watching Russia's moves very closely. The decades-old close defence relationship between Moscow and New Delhi has strained in recent months, but Russia has slowly been trying to mend the ties through its long-standing connections with India's civil servants. It has no choice.

With all Western defence contractors facing tightening defence budgets at home, securing export orders has taken on even more importance. And this is especially true when the customer is a country like India, which appears to have a bottomless pit when it comes to funding its armed forces' modernisation programme.

It's happening. After months of speculation that more consolidation is set to come to the Chinese airline market, Air China has confirmed that its parent company is in talks to acquire some or all of much smaller East Star Airlines. (For more see the story below from our on-line news service Air Transport Intelligence).

East Star has been in financial difficulty and its privately owned parent company probably needs a deal more than Air China's parent does. But the very fact that Air China has confirmed that talks are taking place is telling as it is another sign that the government wants to see more consolidation. It had already been widely known that China Eastern Airlines' parent is in talks to merge the carrier with Shanghai Airlines, for example.

An initial wave of consolidation took place in China early this decade, when the government merged many of its smaller carriers into Air China, China Eastern and China Southern Airlines to create three main airline groups. But several years ago it decided to allow new airlines to launch and a number of privately owned carriers took flight. Nearly all of them have struggled, however, and ownership changes have already taken place among several of them.

Pushing for more consolidation now is Civil Aviation Administration of China (CAAC) chief Li Jiaxiang. Li took over as head of the industry regulator a year ago and has made no secret of his desire to see the country's major airlines - in particular Air China, which he used to head up - enlarged. This was in contrast to the views expressed by his predecessor, former CAAC chief Yang Yuanyuan.

One airline CEO who has met Li told me the CAAC chief considers China's smaller airlines a "nuisance" and he would prefer to see many of them disappear. If Air China's parent does end up buying East Star it may spark a wave of similar deals - and Li may just get his wish.

Malaysian budget carrier AirAsia is fighting back. The airline has been embroiled in controversy since last month when it was revealed that the government had quietly given it and local conglomerate Sime Darby approval to build an all-new airport outside Kuala Lumpur. Many, including Malaysia's former prime minister, have questioned whether it is necessary, as you can read about in my last blog entry last week.

After initially maintaining uncharacteristic silence over the project, AirAsia group CEO Tony Fernandes is now vigorously defending his airline's plans, blaming the need for the new airport on national airports operator Malaysia Airports Holdings' indecision over when a new budget terminal may be built at Kuala Lumpur International Airport.

You can read Fernandes' full defence of the project in an interview he gave to the New Straits Times newspaper, in which he holds back little in his criticism of Malaysia Airports Holdings. If the link goes dead you can find the report that I wrote for our premium on-line news service Air Transport Intelligence by reading on below.

Controversy is brewing in Malaysia over a new airport that looks set to be built for the capital Kuala Lumpur by budget carrier AirAsia and government-linked conglomerate Sime Darby. It is already a political hot potato and things are likely to get hotter.

It all began last month, when it was quietly revealed that the government had given approval for AirAsia and Sime Darby to build a new "low-cost carrier terminal" at an area called Labu, not far from the existing flagship Kuala Lumpur International Airport (KLIA). It will be built on land owned by Sime Darby and the passenger terminal will be owned and managed by AirAsia.

Few other details were revealed, by either the government or by the would-be partners AirAsia and Sime Darby. And there are still almost no details available, the most important being an answer to the question of why it is needed. Some have asked why not convert the more conveniently located old Subang airport for use by low-cost carriers instead.

State-owned Malaysia Airports, which runs KLIA, is privately lobbying to stop the new Labu facility from being built. It built a terminal specifically for use by low-cost carriers at KLIA in 2006 and is now proposing to build a much bigger new budget terminal at KLIA.

Interestingly (to me at least), AirAsia and Sime Darby have avoided calling the planned new Labu facility an airport, instead calling it a "terminal" in their brief stock exchange announcements in which they have said only that they are still in talks over it. Call it what you like - the government says it will be known as KLIA East @ Labu - but since it will have its own runway I for one will continue referring to it as an airport.

Former prime minister Mahathir Mohamad has now entered the debate, complaining about the new airport in a blog entry which can be found here. Mahathir is a vocal critic of the current government and many people discount much of what he says these days. But on this issue he makes several valid points.

There is much that is going on behind the scenes and there is much more to come on this issue. Is it one of AirAsia taking on Malaysia Airports? Is there a power play going on between Malaysia Airports and Sime Darby? Watch this space.