Jonathan Ornstein: Launching China’s first joint venture passenger carrier

Source:
This story is sourced from Airline Business
Subscribe today »

Jonathan Ornstein is not afraid to experiment. The outspoken chief executive of Mesa Air Group has been doing bold things since he rejoined the Arizona-based regional carrier in 1998 after a stint in Belgium, where he was chief executive of Virgin Express. Last year Mesa launched an independent operation in Hawaii, go!, and last month it launched a joint venture carrier in China, Kunpeng Airlines. While European carriers have not been afraid to experiment with joint ventures in Asia, including by establishing joint venture cargo airlines in China, it is unheard for a US carrier to invest overseas. But Ornstein is not your normal US executive.

“We’ve been looking at other opportunities,” says Orntein, adding Mesa’s next daring venture could be in Central America or the Middle East.

Ornstein says his time in Europe opened his eyes up to opportunities abroad and “there are other carriers in China looking to do a deal” besides Mesa’s joint venture partner, Shenzhen Airlines. But so far only Mesa has been bold enough to establish a joint venture passenger carrier in China, where in recent years most passenger carriers and in particular regional carriers have been unprofitable. “There are a lot of opportunities but a lot of challenges,” Ornstein says.

Mesa and Shenzhen inked their joint venture last December and Kunpeng launched on 28 September with an initial fleet of two Bombardier CRJ200s based in the western Chinese city of Xian. “We went to signing a document to an AOC in nine months, which is incredible,” Ornstein says.

Mesa plans to send another six of its CRJ200s to Kunpeng by year-end and have 20 in China by the next summer’s Olympics. But he adds expansion in China is “metered” by the Civil Aviation Administration of China (CAAC), which is “very careful about growth”.

The CAAC this year has announced several new measures in attempt to slow down the rapid growth of the airline sector in China, including a freeze on new airline applications until 2010. But Ornstein says the CAAC “has been very supporting” of Kunpeng and points out that China has been trying to promote regional aviation as a means to improving its economy in rural areas.

In October the CAAC announced a new subsidy scheme for certain flights under 600km. Ornstein says Kunpeng’s initial operation does not qualify because it is initially flying to larger cities but it plans to later serve several rural airports that currently have little or no service. “That’s our game plan. We plan to develop services where we can get some assistance.


He adds: “We plan to put services in places that have no service. It fits into the government plan to develop those areas.”

Ornstein says Mesa has left Kunpeng route development and marketing to its partners at Shenzhen. Kunpeng is also relying on Shenzhen for ground handling and reservation services although as it gets bigger it will assume most of these types of responsibilities itself. Kunpeng is currently operating point-to-point routes but Ornstein says in future it may also feed Shenzhen at major hubs.

Mesa has been helping Kunpeng with operations, including maintenance, training and in-flight services. Over the last few months Mesa has had up to 20 of its employees in China, including some of its pilots. The Mesa team at Kunpeng is led by Mesa senior vice-president flight operations Michael Ferverda, who is serving as Kunpeng’s chief operating officer and will stay in China indefinitely.

Ornstein says while Kunpeng is hiring Chinese first officers, it has had to recruit captains from overseas because there is not enough pilots in China with sufficient CRJ experience to meet CAAC requirements. But to ensure a future flow of pilots at Kunpeng, Mesa is enrolling a group of Chinese students at its ab initio programme in Arizona.  “The environment on the pilot side is challenging,” Ornstein says.

Mesa is also leasing Kunpeng its initial fleet of two 50-seat CRJs and Ornstein says about another 10 CRJ200s from Mesa’s fleet have already been earmarked for Kunpeng. He says the next several aircraft are coming from Mesa’s United Express fleet as United switches to larger CRJ700s. He says Mesa may also acquire a few CRJ200s from the open market to meet Kunpeng’s growth requirement. “We think we’ll be able to find the aircraft, although it won’t be easy. Despite talk of the world awash of 50-seaters there is demand around the world.”

Mesa is also now leading an evaluation of large regional jets on behalf of Kunpeng. It has put out a request for proposals for 50 aircraft plus 50 options and is evaluating the CRJ900/1000, the Embraer E-190, the AVIC I Commercial Aircraft Company (ACAC) ARJ21-900 and Sukhoi Superjet 100. “We’ve been asked to do the work behind the aircraft order,” Ornstein says. “They [Kunpeng] understand we know the regional market and the technical aspects of an aircraft order.”

While Mesa is doing the evaluation, any decision will made jointly with Shenzhen. Kunpeng’s Chinese executives have indicated an order will be placed by year-end but Ornstein say it will likely take six months to evaluate all the aircraft. “It will take a while because we want to explore all the opportunities that exist,” he says.

Ornstein adds in particular it will take time before Mesa knows if Embraer will offer a Chinese or Brazilian-assembled E-190. Currently Embraer’s joint venture in China, Harbin Embraer, only assembles the smaller ERJ-145.