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Aviation History
1997
1997 - 0621.PDF
BUSINESS Fuel charges and dollar rate push Korean Air into the red PAUL LEWIS/SINGAPORE KOREAN AIR (KAL) dived into the red in 1996 because of rising fuel charges and the impact of a strong US dollar on its debt burden. Despite die losses, die air line is pressing ahead with plans for a further fleet expansion. The South Korean flag carrier ended the year showing a loss to the tune of 210 billion won ($242.7 million), reversing losses of 106 bil lion won profit in 1995. The loss, however, was not as bad as many financial analysts had first expected and, despite an initial fall, KAL's share price quickly recovered. "It was no big surprise. They have a lot of US dollar denomi nated debt and it's a problem across Asia. They have also been hit by other negatives, with oil prices sig nificantly higher than in 1995," says Keith Nam of HG Asia Seoul. The appreciation of the US dol lar resulted in a net loss in foreign exchange of nearly 88 billion won, compared to a 62.2 billion won gain in 1995. KAL was also forced to absorb a 30% rise in fuel charges, which accounts for some 16% of its operating costs. The loss came despite an 8% rise in sales, to nearly 3.7 trillion won, backed by an 11 % growth in pas senger traffic and 13 % for cargo. Despite the losses, KAL aims to continue its fleet expansion. The South Korean Government has Aircraft type 747-400/400F 777-200/300 777 converted options- A330-300/200* TOTAL 1997 3 2 2 7 1998 4 3 4 11 1999 4 3 1 2 10 2000 4 1 1 6 Total 11 12 2 9 34 * Four A330 options are understood to have been converted to orders for delivery in 1998/9, but no offi cial announcement has been made given the airline approval to take delivery of 41 new passenger and freighter aircraft over the next five years, consisting mainly of previ ously announced orders and op tions placed with Airbus Industrie and Boeing. Boeing orders consist of 11 747-400/400Fs, including three for delivery this year, and 12 777-200/300s, two of which will arrive in 1997. KAL has approved two of its eight 777 options for delivery in 1999 and 2000 Korean Air took delivery of its first Pratt & Whitney PW4000- powered Airbus A330-300 on 6 March, and has finalised a follow- on contract for four additional A330s. This takes its total firm orders for the type to 13, plus options on six. The four aircraft, due for delivery in 1998 and 1999, can be eidier -200s or -300s. The new aircraft will replace eight Airbus A300B4s, which the airline is now trying to lease or sell, as well as four 747-2 00s and two 747SPs. • Doganis re-opens subsidies argument THE CONTROVERSIAL debate about whether gov ernment subsidies to European state airlines should be allowed under European Com mission regulations has been re-opened by Professor Rigas Do ganis, a former Olym pic Airways chairman who is now head of the Air Transport Group at the UK's Cranfield University. Speaking during a lecture at London's Royal Aeronautical So ciety in London at the end of February, Doganis claimed that state aid should be con sidered as compensa tion for costs and penalties which have been imposed on state Doganis: state-aid ''appears justifiable " airlines by their governments. Doganis headed Olympic in 1994-5, starting a major effort to turn around losses at the airline, backed by a massive write-down of debts by the Greek Govern ment. He argues that losses had been built up in part by "Govern ment controls and interference". This includes insis tence that Olympic op erated unprofitable year-round services to the Greek islands and maintains certain un economic internation al routes, while being prohibited from rais ing domestic fares. He also claims that unpaid invoices by Greek Government depart ments left a backlog of "many mil lions of dollars" in uncollected fares. Doganis eventually had to resign, despite steering Olympic back towards profits, and sparked a European Commission investiga tion over whether the state airline was meeting the terms of its state- aid approval. Doganis says that, in the face of such interference, alongwith a lack of access to capital from other sources, state aid ".. .appears justi fiable" even under the Treaty of Rome. Doganis also warns that, if Europe provides no clear mecha nism to allow state aid, then gov ernments might well find other, less controllable, ways to support ailing airlines. Meanwhile, Olympic has em barked on another restructuring programme, being managed by consultancy McKinsey. A report is due in May. • IAI steers course for return to profit ISRAEL AIRCRAFT Industries (IAI) president Moshe Keret says that the heavily restructured group is on course to return to profit this year on the back of booming sales and a growing orderbook. Sales reached $1.4 billion in 1996 and are expected to climb to a record $1.6 billion this year. Keret adds that 90% of the sales are already covered by signed con tracts. Israel's largest defence and aerospace manufacturer also expects to win new orders worth more than $2 billion over the com ing year, bringing the backlog to a high of over $3 billion. Losses continued in 1996, with the deficit being put at around $80 million, although that includes the cost of redundancies under the restructuring. • Renewed US ticket tax sparks hostility US PRESIDENT Clinton has renewed the 10% airline tic ket tax to the end of the fiscal year, pending a longer-term review of new proposals for funding the Federal Aviation Administration. The ticket tax lapsed again at the end of 1996 without agreement in Congress on a replacement fund ing method, coming down to a choice between a levy on fuel or fees based on usage of air services. The seven big network carriers broadly support user charges, but smaller carriers are lobbying against them. Nine airlines, includ ing low-cost carriers and charter operators, have set up the Air Carriers Association of America to lobby on the issue, arguing that they would suffer unduly from a domestic user-fee. • NEWS IN BRIEF • SAUDI EYES FOKKER Saudi prince, Al-Waleed bin Talal has emerged as the lat est potential buyer for Fokker. His representatives met the bankrupt Dutch air craft maker at the end of February. FLIGHT INTERNATIONAL 12 - 18 March 1997 17
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