A year can be a long time in aviation. At start of last year, South-East Asia's major airlines were for the most part reporting healthy growth as passenger traffic continued on its recovery after the two years of downturn that had followed the region's economic crisis of mid-1997.

Today is a vastly different story. Most of the region's major carriers are operating in the red and few airlines expect better times in the first half of the year. All the region's major carriers have different problems, both internal and external, but the global slump in air travel and the poor state of the US and Japanese economies are troubling factors common to all.

"It's not looking very good," sums up Lehman Brothers analyst Philip Tulk in Hong Kong. He does not see any substantial recovery in traffic or profitability for at least a few months: "In general, the key concern is Japan and what seems to be a deteriorating situation there. That has an impact on airlines all over Asia and it will affect airlines in South-East Asia as well; there's a lot of trade between those countries and Japan."

Singapore Airlines

Consistently profitable Singapore Airlines (SIA) is having a particularly hard time. Its traffic has been weakening for much of the past year, especially on the cargo side, as IT exports to the USA plummeted. Despite the drop in traffic, SIA managed to remain profitable for the first half of 2001, but 11 September changed that.

Most analysts now believe SIA is operating in the red, as its load factors have been below traditional break-even levels since around September. The carrier itself warned in November that it could post a loss for the current financial year to March 2002. That would be the first full-year loss in its history.

Analysts point to problems on several fronts. First there are the group's disastrous results from the expansion policy which saw SIAbuy stakes in foreign airlines. The group has lost more than S$500 million ($273 million) on its stake in Air New Zealand (ANZ). The share price of troubled ANZhas plummeted to around one-tenth of what SIA paid for its 25%stake last year. And that stake has been cut to just over 4% following New Zealand's bail-out of its flag carrier. SIA's underlying aim was to get a foothold in the important Australian market through ANZ's ownership of Ansett Australia. But that too was thrown into disarray after Ansett went bankrupt in September.

Meanwhile, SIA paid £551 million ($791 million) for a 49% stake in Virgin Atlantic, which has been heavily exposed to the 11 September crisis. SIA last year wrote its investment in Virgin down to under $50million.

SIA has reacted to its own drop in business by deferring aircraft deliveries, bringing forward heavy maintenance on Boeing 747-400s, freezing or reducing staff pay, dropping some investment plans and cutting services or reducing frequencies across its network.

Unlike its local competitors, SIAhas no domestic market to fall back on and must rely on weak long-haul services. Until those recover, SIA's difficulties seem likely to continue. And without a quick recovery in the US or Japanese economies, the airline's cargo operation is also expected to continue losing money. However, analysts detect some signs of recovery from the airline's recent December traffic figures. But most observers caution that it is still far too early to say that SIAis out of the woods.

Thai Airways International

Thai Airways is heavily in debt and suffered throughout much of 2001, as the Thai Government frequently reshuffled its top management and even lambasted the airline in the press. Prime Minister Thaksin Shinawatra referred to poor service standards and in-fighting in an interview in which he said the flag carrier "sucks."

In November 2001, Thai appointed its third new board of directors of the year. However, this time the reshuffle led to some hope that necessary internal change could finally take place. For the first time the board was dominated by business leaders rather than government officials and retired military officers. Those hopes, however, were dealt a blow when the new board failed even to agree on the selection of a new president.

There is also little sign that a long-delayed partial privatisation will proceed anytime soon. The Thai Government - which owns 93% of the airline - has been promising to sell 23% since 1997, but has repeatedly deferred action.

In November, after his appointment as board chairman, Virabongsa Ramangura warned that Thai would go under within three years unless it radically improved its financial position. He made the comments at a staff meeting where he said the carrier has too many employees and potentially crippling debts of around $2 billion. "If we continue managing the way we have, I can guarantee that in no more than three years, the company will collapse," he said.

Garuda Indonesia

Despite longstanding financial difficulties, state-owned Garuda Indonesia ended 2001 on a positive note, having finally closed a more than three-year effort to restructure its $1.6 billion debt. Late in the year it won approval from courts in Singapore and the UK for revised repayment schedules with creditors. Garuda had stopped making principal payments on its debts in mid-1998 as a result of severe financial difficulties.

Under the terms of the approved debt restructuring, $610 million owed to European export credit agencies for financing on Airbus A330-300 purchases is to be repaid over 16 years instead of 12 years, while more than $320 million owed to promissory note holders is to be paid out over the next seven years. Most of the rest of Garuda's debt is owed to the government, which has agreed to convert this into additional equity.

Garuda now says it is able to turn to expansion, and will consider launching new routes and adding more aircraft in the years ahead. In December, it resumed services to Taipei, Taiwan, and Guangzhou, China. This year it will look at replacing its McDonnell Douglas DC-10-30s and Boeing 747-200s with newer aircraft. It has also been looking to acquire Boeing 737-800s.

Garuda barely survived the Asia-Pacific economic crisis of 1997 which had hurt Indonesia harder than any other country in the region. Prior to the downturn, it operated 58 aircraft but reduced this to 42 as part of its sweeping restructuring effort which was aided by Lufthansa Consulting and Deutsche Bank. The carrier also scrapped 16 international routes and cut its employee base to 9,600 from 13,000. Garuda has since brought its fleet back to 44 aircraft.

As part of its restructuring, Garuda has said it aims to be partially privatised in 2003, either through the sale of shares directly to a strategic partner or through a stock exchange flotation.

The carrier said in November that it expected to post an operating profit for 2001, despite the industry downturn. Garuda says it has not been as badly affected by the downturn as many other international airlines, in part because domestic and intra-Asian traffic has been holding up relatively well. If it has indeed stayed in the black for 2001, it would have marked Garuda's third consecutive year of profits and a remarkable turnaround.

Malaysia Airlines

Malaysia Airlines (MAS) has been in financial difficulty for years and is struggling under a debt well in excess of $2 billion. The carrier began suffering badly after the Asian economic downturn began in mid-1997 and had to be renationalised early in 2001. Since then, losses have continued to grow and the government owner is now being forced to step up restructuring efforts.

Late last year the carrier announced plans to park at least eight aircraft and drop services to 12 international destinations. It also has been considering the sale of non-core assets and cuts to its bloated workforce of more than 20,000. This is a politically sensitive issue in Malaysia, however, and may prove too much for the government. Analysts therefore say that the outlook for MAS is not good - it is unlikely to return to profitability until at least 2004.

In January, MAS unveiled a cash-raising plan that will involve a sale/lease-back to the government of eight aircraft and properties valued at more than 6 billion ringgit ($1.6 billion). It also hopes to sell its catering unit to a consortium led by LSG Sky Chefs.

The carrier meanwhile suggests that there are signs of a recovery in business and, as a result, it is reinstating some of the services to the 12 destinations it said last year that it would drop. Services to Beirut, Cairo, Istanbul, Karachi, Manchester and Rome will be gradually reinstated, it says, while it will continue serving Auckland and Zurich, reversing earlier plans to drop those routes.

Vietnam Airlines

Vietnam Airlines is one carrier that is doing relatively well, giving it a solid base on which to boost its fleet and route network. In January, it launched services to Moscow and is planning to expand to more Asian destinations this year, following healthy 2001 growth.

Apart from Moscow, the carrier is aiming to augment its fast-growing China service by launching service to Shanghai this year. Prior to 2001, the carrier's only Chinese destinations were Hong Kong and Guangzhou. It now also serves Beijing and Kunming.

Vietnam Airlines is also moving forward with plans to launch services to Tokyo in Japan this year, as well as to open a direct link between Hanoi and Paris. In addition, it intends to boost services to Bangkok and on routes linking both Ho Chi Minh City and Hanoi with Vientiane in Laos and Phnom Penh in Cambodia.

The route expansion plans were unveiled early in January, as the airline reported strong 2001 growth. It said revenue increased 19% to 9.9 trillion dong ($656 million) during the year, while funds remitted back to the state amounted to 532 billion dong, 37% more than originally targeted.

Late last year, Vietnam Airlines signed an order for four Boeing 777-200ERs and signed a letter of intent for five Airbus A320-family aircraft. It aims to double its fleet by the end of the decade.

Business has fallen since the US terrorist attacks, but the carrier is insulated somewhat by the fact that it operates primarily within Asia, where business has held up fairly well.

Philippine Airlines

Philippine Airlines (PAL) - the only major South-East Asian carrier not controlled by its government - is having a difficult time following 11 September. Late in 2001, president and chief operating officer Avelino Zapanta said that he was still confident of a profit for the year ending 31 March, which would be PAL's third profit in as many years. Now, however, Zapanta concedes that is unlikely.

In mid-January, PAL scrapped wet-lease arrangements on three Boeing 747-200s and dismissed around 150 recently hired cabin crew.

The carrier has been suffering not only from the general drop in international travel following the terrorist attacks in the USA, but also from fears over travel to the Philippines, partly because of kidnapping incidents involving foreign nationals. "Things are not very good for us," Zapanta says. "We really hope that things will improve."

PAL has been in receivership since mid-1998, but was hoping to be out of it by the end of this year, although that is dependent on it having a third year of profitability.

"I don't think we're going to make that anymore," Zapanta conceded at the end of December. "It all depends on what happens after the holidays. But the last three months have been money-losing operations for us."

Not all of the news looking forward has been bad. As the year 2002 began, some of the region's airlines, as well as industry analysts, reported that holiday traffic was stronger than had been forecast. Some even went so far as to suggest that an up-turn was in the wings. Most, however, continue to warn that the period ahead will remain turbulent and cautioned that not until the second half will conditions genuinely improve. The slight traffic recovery has also come at some cost, as heavy ticket discounting is biting into already depressed yields.

As SIA's deputy chairman and chief executive Cheong Choong Kong said in the carrier's in-house newsletter in January: "Convincing signs of recovery have yet to emerge."

Cheong also summed up his New Year message to staff with a statement that many will be echoing: "May [2002] be a far better year then the one just ended."

Source: Airline Business