August 2009 Archives

Manchester United manager Alex Ferguson once called the tail end of the season, when the real title contenders step up their game amid the pressure and peel away from their rivals, the squeaky bum time.

That is probably an apt description for the six contenders in India's medium multi-role combat aircraft competition. The flight evaluation trials are moving into full gear as each company attempts to prove that its offer is the best option for India.

The Boeing F/A-18E/F has completed the first leg at the humid conditions at Bangalore, and is moving to the hot weather trials at Jaisalmer and then the cold weather trials at Leh and Ladakh. Lockheed Martin has brought two United Arab Emirates F-16s, which are similar to the proposed Indian configuration, to Bangalore.

The remaining contenders, the Dassault Rafale, Eurofighter Typhoon, Saab Gripen IN and RSK MiG MiG-35, will be closely following news of the competition.

None of the companies are saying much, given that the Indian air force has issued strict instructions not to reveal any details about the trials. That is not unexpected, given how much is at stake. The IAF will want to complete the trials as fairly as possible and in one go. The last thing that it wants is allegations of unfair competition or, even worse, holding fresh trials.

I am not a betting man, it is anyone's guess as to how this will run, and all guesses are welcome in the comments section.

But to those who claim to know that one aircraft is the front-runner or it is a sealed deal for another, it would probably be best to remember another of the great man's quotes. After his team lost a match, Ferguson memorably said: "We controlled the game without finishing them off." The MMRCA contenders and their fans will do well to remember that.

Chinese and Taiwanese airlines today began operating scheduled direct flights for the first time in 60 years. For several years, they have been operating regular chartered flights. But this has been formalised into a scheduled structure after an agreement earlier this year.

Yet, the good news has been tempered by the fact that the Dalai Lama, who is persona non grata in China, is in Taiwan this week. Unsurprisingly, China has objected and analysts say that the visit could test bilateral relations that have been warming ever since Ma Ying Jeou became Taiwan's premier last year. It shows that the relationship remains tenuous.

On my recent visit to Taiwan, several people in the aerospace industry spoke about a new dimension in the China-Taiwan relationship - one that emphasises economic development rather than politics as a way to warmer ties. They point to the Chinese invitation to Taiwan's AIDC to participate in the Comac 919 programme as one example of that.

Both AIDC, and airlines on both sides of the straits, will be hoping that pragmatism rather than ideology continues to be the driving force in Sino-Taiwanese relations.

Just how frustrating must it be for All Nippon Airways? They have been waiting for their Boeing 787 for a long while, and they must hold on even longer.

The ANA public relations team released these photos yesterday of aircraft No 2, which is used for flight tests, during taxi tests at Boeing facilities.

"We understand the need to make the best and safest aircraft possible and appreciate that delays due to engineering issues of the current nature must be solved in order to move forward and achieve this. However, as launch customer and future operator of the 787, the length of this further delay is a source of great dismay, not to say frustration," said ANA.

Dismay and frustration? You don't say. Those sentiments probably extend to everyone in the industry, except maybe their competitors. There will be a lot of cold sake flowing in Tokyo when the aircraft finally flies. Heck, I'll have some as well. Not that I need the excuse.

It will be an interesting ride over the next few months for Azmil Zahruddin (above), who has been named as Malaysia Airlines' new CEO after Idris Jala left to join the Malaysian government.

Idris came on board in 2005 and has brought the airline on an even keel after years of losses. The Malaysian government did step in to ensure MAS' survival, but the carrier also had to make major changes to its operations and cut costs. It was only just appearing to be reaping the benefits when it was hit by the twin effects of high fuel prices and the economic crisis.

There are still many challenges ahead for the carrier - coping with competition from the likes of AirAsia, increasing loads and yields, building up a profitable and sustainable route network, and ensuring that it is better suited to cope with recovery after the economic crisis.

The attention will be on Azmil, who was chief financial officer at MAS, as the carrier copes with all of these. He will need all the luck and and help he can get.

India's navy has only 11 BAE Sea Harriers left in its fleet. The service inducted close to 30 of the fighters in the 1980s, but more than half have been lost in accidents.

The latest crash took place last week, resulting in the temporary grounding of the aircraft.

The navy was due to take delivery of its first of 16 RSK MiG-29K/KUBs in 2004, but that is now likely to take place at the end of the year. The country's Aeronautical Development Agency is also working on a naval version of the indigenous Tejas light combat aircraft, but a prototype has yet to fly.

All of that has left India without a proper naval fighter fleet and the country's sole aircraft carrier without a viable squadron. That, really, exemplifies the sorry state of affairs in the country's military.

In recent years, the country has been accelerating a modernisation programme for its military. Much of the attention has been on the air force - and rightly so. It is time, however, for the bureaucrats to turn their eyes to the navy's requirements.

Air China reported a net profit of 2.82 billion yuan ($412.8 million) in the six months to 30 June, but that is not an accurate reflection of the real situation at the carrier.

Chinese airlines depend mainly on domestic passenger traffic and Air China's domestic RPKs, which account for just over 60% of its total RPKs, increased by 8.22% during the six months. Capacity, as measured by ASKs, increased by 6.4%. Yet, air passenger revenues fell by 1.48 billion yuan to 19.24 billion yuan and turnover fell by 10% to 23.11 billon yuan.

That means the airline is making less money from its operations than it really should. Its profits came from lower expenditure, with fuel costs falling 42.51% 6.1 billion yuan and fuel hedging gains coming up to 1.45 billion yuan.

Air China appears to be better at saving fuel costs than running an airline. Yes, it is unfair to single out Air China. But the reality is that the carrier - and the other Chinese airlines - have dire operations.

They need to do a heck of a lot more to improve the way they run their business and the real situation is likely to unfold in the coming months.

As if things are not bad enough for Indian airlines, they are facing strike threats now.

Jet Airways pilots are threatening to go on strike to protest the sacking of two colleagues, while Air India staff are going on a hunger striker to protest against the non-payment of wages.

These are really the last thing that the two carriers need, especially at a time when they are struggling to make money and trying to keep passengers.

And all of this goes to show that there is a long way to go before the Indian airlines get their house in order.

China appears to have done a back-flip when it comes to its policy towards airline start-ups.

The Civil Aviation Administration of China (CAAC) last December announced it would refrain from granting air operator's certificates (AOC) to start-ups planning to launch in 2009.

Abu Dhabi will be AirAsia X's new destination and most likely its next base. That is a plus for the city, which is keen for AirAsia X to help it compete with Dubai as a regional hub.

It will be interesting to see how Etihad Airways, Abu Dhabi's home carrier, responds. AirAsia X could be in direct competition, especially when it starts ti carry passengers from the city on to other parts of the Middle East, Africa or Europe.

The AirAsia brand has shaken up the markets wherever it has taken root - Malaysia, Thailand, Indonesia and Singapore are examples - and that could happen in the Middle East as well.

Moving to the Middle East and beyond is part of AirAsia X's expansion plan, especially as the Malaysian government dithers on permission to fly to Sydney, Seoul and New York.

In true AirAsia style, the long-haul carrier is not waiting for things to happen and just moving on to the next opportunity. That will lead to interesting times for AirAsia X and the Middle East airline industry in the coming months.

 

China Eastern's monthly increases in passenger traffic seem extraordinary considering most other carriers around the world are still experiencing falls in monthly traffic.

The Shanghai-based carrier has just posted an 18% rise in RPKs in July. It is all thanks to China's strong domestic market.

International RPKs that month fell 2% year-on-year and domestic RPKs increased 29%.

The 2% fall for international is a good effort relative to larger carriers such as Cathay Pacific Airways and Singapore Airlines which posted 8% and 13% falls respectively in July passenger traffic.

But the real numbers also paint a different story. China Eastern's international passenger business is relatively small. It only had 345,000 international passengers in July. Compare that to the likes of SIA which had 1.44 million international passengers in July.

SIA must be relieved that they didn't buy into China Eastern in light of the Shanghai carrier's financial woes and need for government bail-outs. The traffic figures also show China Eastern has a big task ahead to make its international service offering of an international standard.

While it may be tempting for China Eastern to just focus on the domestic market, that is low margin business.

Chinese carriers cannot continue to simply leave the international passenger business to foreign carriers.

Yes, Qantas reported a full year profit of A$181 million ($150 million) for the year ended 30 June 2009, down 87% from a year before. But that is not the full story.

For the first half of its fiscal year, the six months to 31 December 2008, the carrier made a profit before tax of A$288 million. In the second half, however, it lost A$107 million.

Both are a dramatic drop from a year, but the airline will be very worried about its business at a time when demand has fallen dramatically and there is little sign of recovery.

Little wonder, than, that Qantas is trying to keep costs down. It expects to save A$1.5 billion over the next three years as part of a new plan, and that may be key to whether it manages to be profitable in this and the next quarter - and the full year.

It will continue to be a challenging year for Australia's flag carrier.

Jetstar Asia has been a relatively smallish low-cost player out of Singapore so far, but it is looking to dramatically change that in the coming weeks.

The airline is set to announce an expansion of its services, including flights to mainland China, and will add three more aircraft in the next year.

In addition, we could probably expect Jetstar Asia to open up services to India in the coming months and increase existing services to Southeast Asian countries like Indonesia and Thailand.

It needs that to compete against the likes of Tiger Airways and especially AirAsia, which has made Singapore a virtual hub despite not basing aircraft in the island.

It will be interesting to see how Tiger and AirAsia react to Jetstar Asia's latest plans, especially since Singapore is a big part of all of their plans. Expect to see some action on that front!

I met up recently with the president of Garuda Indonesia to discuss the airline's future plans.

The impression I got was that Garuda appears to have transformed itself. A few year ago Garuda was struggling but now it has new aircraft and is expanding.

I remember at the end of 2005 and early 2006 Garuda received its very first Boeing 737-800s. These were on lease from GATX and it was a significant deal at the time because until then Garuda was only able to source older 737s and aircraft leasing companies were generally reluctant to lease new equipment to the Indonesian carrier. At that time, Garuda was losing money and it was unclear what level of support Indonesia's government was willing to give to the national carrier.

But in 2006 the airline received a cash injection from the government. The carrier in recent times has cut its workforce to 5,200 from 5,800 and last year it made a net profit. Since the global economic downturn aircraft leasing companies appear to be falling over themselves to lease Garuda the 737s and A330s it wants. AerCap, for example, leased Garuda some A330s. Pretty good achievement considering Garuda has had a long-running dispute with the European credit agencies (ECAs) over the financing of some A330s the carrier bought in the 1990s. Garuda's president Emirsyah Satar told me the airline has reached an agreement with the ECAs, that is likely to be signed in mid-October, whereby Garuda will pay some money and extend the loan period. We also discussed the IPO that Garuda plans to have in mid-2010. He says the reason it is doing the IPO is so it no longer has to rely in future on government financial assistance.

 

Singapore's Changi Airport is having a runway race on 5 September in which a Porsche Carrera race car will be up against a Boeing 747.

The airport is touting it as "the first-ever jetliner versus car race in Asia" and says it ties in with the lead-up to the Singapore Grand Prix in late September.

Singapore cargo airline Jett8 is providing the 747.

Air China is likely to emerge as the biggest winner in CITIC Pacific's sale of its stake in Cathay Pacific, with the Beijing-based carrier getting a bigger share of the Hong Kong market and help against competition in the mainland.

The Chinese state-owned carrier took a 17.5% stake in Cathay in 2007 and increased this to 29.9% yesterday - just below the line where a mandatory offer is necessary.

Increasing its exposure to the Hong Kong market makes sense after it failed to buy China Eastern Airlines. That would have allowed it access into Shanghai, which is now even more difficult for Air China after China Eastern and Shanghai Airlines announced their merger earlier this year. Hong Kong, however, is also a major financial centre and another lucrative market.

Air China will not have a significant say in Cathay's management, and it is unlikely to try to launch a takeover bid. However, given that the airlines are likely to cooperate even further, it could use Cathay and its subsidiary Dragonair to fend off growing competition in the mainland market against China Eastern and China Southern.

Cathay could also get greater access to the mainland markets out of the deal. That will be important as its key long-haul and premium markets continue to be badly affected by the economic crisis, and there is still no indication of when those will recover.

It may not be immediately apparent, but the Chinese and Hong Kong aviation markets likely became even more aligned, and competitive, with yesterday's deal.

Back in town after a short (and badly needed) holiday and a working trip late last week to Taiwan, where I had an interesting talk with several people involved in the defence market.

The island is still being stymied by the USA in its attempts to buy new Lockheed Martin F-16C/Ds. However, defence contractors believe that plans to upgrade its older F-16A/Bs could go ahead this year instead, and they suggest that Washington could also help Taipei with upgrades for the indigenous F-CK-1 fighters (above).

That would be one way for the USA to avoid a nasty spat with China and continue to do business with the mainland - especially in this economic situation.

It may not be everything that Taiwan wants, but it really does not have much of a choice in the matter and it will take the offer if it comes. Some upgrades are better than nothing at all.

Japan Airlines retired its last Boeing 747 classic last week. Here are some pictures of the aircraft, a 747-300, before its last flight from Honolulu (hence the Hawaii garland!).

Below are some others from JAL showing the -100, -200 and -300 in operation. I've never flown on any of the classics, and I guess my chances of doing so are fast diminishing.

Today's crash involving a Bangkok Airways ATR 72-500 does not appear to be as serious as bad as it could have been, but the incident once again puts the spotlight on the Thai airline industry.

The civil aviation authorities have been trying their best to get the safety standards up in recent years, and this will only bring that into question once again. It will be interesting to see what the investigation brings up.

India's privately owned carriers miscalculated when they threatened to go on strike on 18 August.

After announcing bravely on Friday that they would stop operations in protest against the lack of aid from the government, several of their members got cold feet and started to break ranks over the weekend. The civil aviation ministry also took a firm stand and the Indian public was clearly against the move. That left Kingfisher Airlines and Jet Airways the only ones standing, and they unsurprisingly decided to call it off the plan.

The man who probably gave the best perspective on the issue was G.R. Gopinath, founder of low-cost carrier Deccan, which was sold to Kingfisher last year. Yes, his airline was bleeding money and possibly did not have the best model either. But he sure makes a lot of sense.

"Airlines are doing this as a gimmick or as a tactic to attract the Government's attention but they are to be blamed for a large extent," he told India's CNN-IBN station (see video below). "They know the reality: airport infrastructure is costly, oil prices are high. But they started a business and took a risk."

He also had hard words for the state, saying: "The Government, in the interest of a vibrant airline industry and in the interest of passengers, must come up with a long-term strategic vision for the industry. The airports have been privatised and become a monopoly. Airport infrastructure is insufficient, aviation fuel price is highest in the world."

At the end of the day, the Indian airlines have to realise that they have to come up with a sustainable business model. The reality is that few of them have one. Yes, the government can help. But until the airlines help themselves, very little can be done to save them.