AFM Issue 83 by AFM Magazine

The business and financing of airline operations

Interview: ALTA Interview: Aeromexico How to monetise IFE Keeping your aircraft records Lessors guide to repossession

New world, new hope: Aviation in the Americas

Published by

March-April 2013 Issue 83 www.afm.aero

Foreword Editor Mary-Anne Baldwin Mary-Anne@afm.aero +44 (0)208 831 7511 Contributors Oliver Clark, Steven Thompson, Bernard Fitzsimons. Advertising Manager Ellis Owen Ellis@afm.aero +44 (0)208 831 7519 Editorial Director Joe Bates joe@aviationmedia.aero Design Andrew Montgomery andy@afm.aero Elaine Harris elaine@aviationmedia.aero Website Jose Cuenca jose@aviationmedia.aero Published on behalf of UBM Aviation by Aviation Media Sovereign House 26-30 London Road Twickenham, TW1 3RW, UK Managing Director & Publisher Jonathan Lee Jonathan@aviationmedia.aero AFM IS A FULLY AUDITED MAGAZINE Website: www.afm.aero AIRLINE FLEET MANAGEMENT AFM does its best to use recycled products or those from renewable sources. (ISSN 1757-8833) Online: 1757-8841 (USPS 022-324) is published bi-monthly by UBM Aviation Publications Ltd and distributed in the USA by SPP, 95 Aberdeen Road, Emigsville PA. Periodicals postage paid at Emigsville, PA. POSTMASTER: send address changes to AIRLINE FLEET MANAGEMENT, c/o PO Box 437, Emigsville PA 17318.

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atin America and the Caribbean have significant potential. According to Alex de Gunten, executive director of ALTA, who we interview in this ‘Americas special’, the regions are projected to grow at a rate of 6.5 per cent over the next 20 years. This compares to an average of five per cent for global aviation as a whole. According to Boeing, US air traffic will grow at 2.2 per cent within the next 20 years and Europe at 3.5 per cent, whereas Latin America will almost quadruple in volume during this time. So it seems only fitting that we dedicate this issue to the growth, opportunities and issues in the regions. In particular, de Gunten highlights a need for airport development. He notes (page 20) that China, the largest market in Asia, is forecast to grow at a rate of 6.7 per cent within the next 20 years, and will match it with 94 airports. Yet, Latin America has just 16 airports under construction. The need for infrastructure is no more felt than in Brazil, which will have an influx of travellers when it hosts the World Cup and Olympic Games in 2014 and 2016, respectively. So, AFM also talks to GOL, Brazil’s tourism agency, Embratur, and its state airport authority, Infraero, about the developments in the region (page 54). Also in this Americas special, we chart the growth of passenger traffic and MRO in North America (pages 30 and 50) and speak to Aeromexico about its fleet and route development following the recent sale of its shares (page 16). But we don’t stop there. We know your business needs and interests develop beyond

the growth markets so this issue also includes a guide to monetising inflight connectivity (page 24) and we re-examine the growth of the PMA parts industry (page 44). With the recent liquidation of Bahrain Air and German carrier, OLT, and with the bankruptcy of American Airlines (which will now merge with US Airways, more on that in our news section), now also seems a good time to examine the minefield of aircraft repossession and the importance of aircraft records (pages 34 and 40). We’ve brought in IBA and Charles Taylor Aviation to give you the very best advice on the issues. If you’re reading this at ISTAT Americas, we hope you enjoy the conference, and don’t forget to visit us online and on Twitter for updates during the event!

Editor Mary-Anne Baldwin

Airline Fleet Management™ is a licensed trademark of UBM Aviation Publications Limited. All trademarks used under license from UBM Aviation Publications Limited.

This publication may not be reproduced or copied in whole or in part by any means without the express permission of UBM Aviation Publications limited.

The views expressed in each edition of Airline Fleet Management (AFM) are not necessarily the views of UBM Aviation Publications Limited, but of individual authors and contributors and UBM Aviation Publications Limited shall therefore not be liable for the contents of any articles included in this publication. AFM, part of UBM Aviation, has used its best efforts in collecting and preparing material for inclusion in AFM but can not and does not warrant that the information contained in this product is complete or accurate and does not assume and hereby disclaims, liability to any person for any loss or damage caused by errors or omissions in AFM whether such errors or omissions result from negligence, accident or any other cause.

afm • Issue 83 – March–April • www.afm.aero

The business and financing of airline operations

Interview: ALTA

AIRLINE FLEET MANAGEMENT

Interview: Aeromexico How to monetise IFE Keeping your aircraft records Lessors guide to repossession

New world, new hope: Aviation in the Americas

ISSUE 83 March–April 2013

Published by

March-April 2013 Issue 83 www.afm.aero

Issue 83 March - April

In this issue

03 08 16 20

Foreword

News round up

The latest on deals, mergers, appointments and more.

Focus:

One to one: Alex de Gunten,executive director, ALTA

24 30

AFM speaks to the executive director of the Latin American and Caribbean Air Transport Association (ALTA) about the regions’ aviation industry.

Fleet Operations:

Stay connected: Developments in IFE Inflight connectivity is now crucial to airline operations. Mary-Anne Baldwin examines what the market currently offers and how airlines can monetise this.

Travel growth in the Americas Bernard Fitzsimons examines forecasted air traffic growth within the Americas and the means by which it can be achieved.

afm • Issue 83 – March–April • www.afm.aero

CONTENTS

34 40 44 50

Trading, legal and finance

Repossession: A lessor’s guide All repossessions are different and are affected by numerous variables. To lower risk, lessors should be both well prepared and aware of all the considerations. Owen Geach, commercial director at IBA guides us through the process.

Aircraft technical records

Chris Brennan, operations director at Charles Taylor Aviation Asset Management (CTAAM), discusses the importance of maintaining aircraft records.

Maintenance operations

PMA parts: A rose by another name? Locatory.com and its CEO, Zilvinas Sadauskas, offer insight into the development of the global PMA market.

MROs in North America

44 50

54 59

While Latin America’s airlines and MROs are focused on growth, the re-alignment of North America’s aviation industry is creating new opportunities for independent MROs and spares support operations. Bernard Fitzsimons reports.

AIRPORTS AND ROUTES The sporting life: Brazil’s need for infrastructure Brazil’s hosting of the 2014 World Cup and Olympic Games in 2016 offers both plenty of opportunities and challenges for airlines.

DATA

Industry data Data including: market, list and lease rates for engines and aircraft; firm orders and deliveries; and reposession costs.

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NEWS

AA and US Airways confirm merger American Airlines (AA) and US Airways have confirmed an $11bn merger that comes just 14 months after AA filed for bankruptcy. The combined carrier will retain AA’s name and will be headquartered in Dallas but will be headed by US Airway’s CEO, Doug Parker. Once merged, AA – which will be part of the oneworld alliance – will operate over 6,700 flights to 300 destinations each day, making it the world’s largest airline.

ALC orders 25 A350

The Los Angeles-based aircraft lessor, Air Lease Corp (ALC), has committed to buy 25 A350 XWBs and has taken options for an additional 14 A321 Neos. The firm orders consists of 20 A350-900s and five A350-1000s. ALC has also signed for 14 A321 Neos following a deal for 36 of the aircraft that was announced at the 2012 Farnborough Air Show. The lessors’ total orders for the A320 Neo have now reached 50. In a separate deal with Rolls-Royce, ALC has ordered the Trent XWB engines for its 25 A350 XWBs, worth $1.1bn at list prices. Rolls-Royce will fix the A350-900 to 20 of the A350 XWBs and the A350-1000 to the remaining five. It is ALC’s first order for the Trent XWB to power these aircraft.

“With the largest global network, strong hubs, the best alliance partners and an even stronger oneworld [alliance], the most modern fleet, a solid financial foundation and the finest team of people in the industry, we will once again be an industry leader worthy of the name American Airlines, America’s flag carrier,” Tom Horton, AA’s CEO, said. Parker has said that the newly formed airline will retain the eight hubs collectively used by AA and US Airways.

ST Aerospace takes stake in EADS EFW ST Aerospace has finalised its purchase of a 35 per cent equity stake in Elbe Flugzeugerke GmbH (EADS EFW), first announced in May 2012. EADS EFW will serve as ST Aerospace’s European MRO centre. Its capabilities include passenger-to-freighter (P2F) conversions, aircraft maintenance and repair, and engineering services. ST Aerospace will now start its A330 P2F conversions programme at its facilities in Dresden, Germany. It will lead engineering development, and EADS EFW and Airbus will be responsible for the marketing and industrial phase. The A330 P2F programme includes two versions – the A330-200P2F, which will be optimised for higher-density freight and longer-range performance, and the larger A330-300P2, which has a high volumetric payload capability with lower-density cargo.

NEWS IN BRIEF Air Arabia takes 55 per cent profit increase Air Arabia has recorded “steady growth and solid financial performance”, posting a 2012 net profit of AED425m ($116m). The figure is up 55 per cent from 2011’s AED274m ($75m). The airline took a six per cent profit increase during the 4Q 2012, recording a profit of AED83m ($23m), with sales of AED755m ($206m). The carrier took six new A320s during 2012 and introduced nine new destinations from its primary hub in Sharjah, UAE. It also continued to expand from its hubs in Morocco and Egypt, reaching a network of 82 destinations.

Icelandair finalises MAX order Icelandair has announced a firm order for 16 737 MAX aircraft, valued at more than $1.6bn at list prices. The order, originally announced as a commitment for 12 aircraft in December 2012, has been increased to 16 and includes 737 MAX 8s and 9s, as well as purchase rights for eight additional 737 MAXs. Bjorgolfur Johannsson, Icelandair CEO, said: “The 737 MAX will complement our Boeing 757 operations seamlessly and allow us to continue our route expansion in the most fuel-efficient manner.”

Republic orders up to 94 E-Jets Republic Airways has announced a $4bn deal for up to 94 E175 jets. The US carrier will purchase 47 of the aircraft and has taken options for a further 47, which together are worth $4bn at list prices. First delivery is due in mid-2013. Republic will be the first to receive the enhanced E175, which is being updated to include wingtips, systems optimisation and better aerodynamics that will lower fuel burn by up to five per cent. The new aircraft will be operated by Republic Airlines, a subsidiary of Republic, under the American Eagle brand in the American Airlines’ regional network.

afm • Issue 83 – March–April • www.afm.aero

NEWS

Beechcraft emerges from bankruptcy Beechcraft, formerly Hawker Beechcraft, has come out of Chapter 11 bankruptcy protection, having secured long-term financing. Beechcraft secured $600m in permanent financing, including a $425m term loan facility and a $175m revolving facility. A portion of the term loan facility was used to repay the company’s debt. The remainder, together with the revolving facility, will fund on-going operations. “Today marks the rebirth of an 80-year-old American aircraft manufacturing business with a globally recognised brand. Beechcraft has emerged from this process a stronger company with both financial and operational strength and stability,” Bill Boisture, CEO of Beechcraft, commented. Robert (Bob) Johnson is the chairman of the company’s new board. Its other members are: General Donald ‘Don’ Cook; Gene Davis; Ralph Heath; David Tolley; Gideon Argov; Mark Ronald; Paul Fulchino; and Bill Boisture. The company’s leadership team remains the same.

Avolon and Wells Fargo to form new aircraft leasing business Avolon and Wells Fargo & Company are to form a new aircraft leasing business, called Avolon Capital Partners (ACP), under a joint venture. The business is subject to a number of regulatory approvals. Since its inception in 2010, Avolon has raised a total of $3.7bn of debt capital from sources including Wells Fargo, which has been a significant lender to Avolon since January 2011. “ACP will build an aircraft fleet primarily through sale and leaseback transactions with airlines on new aircraft. ACP will focus on young, fuel-efficient single-aisle and twin-aisle aircraft with an initial target portfolio size of $500m. Wells Fargo will be the majority shareholder and provide banking and debt financing facilities for the business,” the pair said in a statement. ACP will be headquartered in Dublin and headed by Avolon and Wells Fargo team members. Avolon’s CFO, Andy Cronin, will serve as a director; Daire O’Criodain, an executive at Avolon, will serve as ACP’s MD.

Net profit climbs 200 per cent at Etihad Etihad is celebrating a 200 per cent jump in net profit in 2012 to $42m. Revenue rose from $4.1m to $4.8m, with partner airlines contributing 19 per cent of passenger revenue. The carrier also recorded a 23 per cent rise in revenue passenger kilometres (RPK). James Hogan, CEO of Etihad Airways, said: “This has been a game-changing year for Etihad Airways. We have delivered improved net profit, the second consecutive year we have been in the black, a remarkable achievement given the youth, ambitious growth and on-going investment made by this airline.”

Lufthansa announces plans to buy 108 aircraft Lufthansa is considering a fleet expansion and renewal plan that includes purchasing 108 aircraft at a value of €9bn ($12bn). The airline said the order would comprise both Boeing and Airbus aircraft, including eight long-range and 100 short and medium-range aircraft, and that it has already been in discussions with both manufacturers. However, it added that the deal is still subject to approval by Lufthansa’s supervisory board. Deliveries are scheduled to begin in 2015 and to continue until 2025. By the end of 2025, the group expects to take delivery of 239 aircraft with an order volume of €23bn ($31bn), based on list prices. The airline said the orders will be funded from the group’s own assets or from external financial resources, although did not disclose a financier.

MAS orders up to 36 ATRs Malaysia Airlines (MAS) has signed a purchase agreement for 20 ATR 72-600 aircraft, and has taken options for a further 16 in a deal worth $840m, including options. The agreement brings MAS’ total firm orders for the ATR 72-500s to 42 since the initial agreement in 2007. Deliveries will start by mid 2013. “The arrival of these new ATR72-600s will enable Malaysia Airlines to further expand its regional offer, adding new routes and frequencies to its global network,” the company said. MAS also operates over 100 medium and long-haul aircraft through Firefly and MASwings.

Socomore and PT Technologies to merge Socomore and PT Technologies have announced their merger after Socomore took a majority stake in the other company. “The integration of Socomore and PT Technologies Europe is an exciting chance to extend the activities of both companies in aerospace and other niche markets such as energy,” commented James O’Brien, CEO of PT Technologies Europe. Aerospace investment fund, Aerofund II, managed by ACE Management, recently invested in Socomore; it becomes an equity partner alongside CM-CIC Capital Finance and Audacia of Frédéric Leisure.

afm • Issue 83 – March–April • www.afm.aero

News

Boeing offers temporary 787 solution At the time of going to press, Boeing was to meet with the Federal Aviation Administration (FAA) to discuss temporary methods to fix the 787 Dreamliner batteries. Such solutions include adding more ceramic spacers between battery cells, which Boeing believes will contain any potential fire caused by short-circuiting, and encasing the cells in a titanium or steel box equipped with a high-pressure vent to contain and expel any fire. However, yet more confusion was shed on the cause of the fire when, on 20 February, Japan’s Transport Ministry disclosed that the auxiliary power unit it examined was improperly wired. Investigators at the National Transportation Safety Board (NTSB) had already found a different issue. It discovered multiple shortcircuiting of eight cells, which caused progressively hotter temperatures, known as a ‘thermal runway’. Without complete understanding of the cause, a long-term solution may still be far from sight. Meanwhile, Boeing is incurring significant costs and 787s are reportedly piling up at its production plant. Direct costs could reach $25m a month, Ken Herbert, analyst at Imperial Capital, predicted. All Nippon Airways (ANA) has said it will pursue Boeing for its losses due to the 787 groundings, which during January alone amounted to $15.4m and around 850 flights. Air India will also seek compensation for the delayed delivery of its 787s and United Airlines has announced that it has scheduled for its 787s to be out of action until at least the beginning of April. The New York Times reported that Boeing had been aware of battery faults before any of the aircraft were grounded. According to the paper, ANA replaced 10 of its batteries in the month before the fire. The carrier informed Boeing of the problems, although did not notify safety officials. The batteries had shown “an unexpectedly low charge”, the paper reported. “In three instances, the main battery failed to start normally... In other cases, one battery showed an error reading and another, used to start the auxiliary power unit, failed.” According to Suba Arunkumar, industry manager for energy & environment group, at Frost & Sullivan, the “key element in discussion is the flammable electrolyte used in lithium-ion batteries. It vapourises when heated up, causing a flammable gas in the air. In a battery with a capacity of nearly 1.6MW, the quantity of flammable electrolyte is high; that could potentially cause an explosion.” According to the Seattle Times, a 2006 lab test showed the potential danger of the lithium-ion battery when one exploded and caused the

entire building to burn down. Boeing’s solution was a contain-and-vent system, which holds any fire or toxic gases until any such explosion burns out. In 2007, the FAA approved this method, with conditions. It “enabled Boeing to swap the heavy hydraulic systems with light-weight battery operated electric and electronic equipment. This led to better fuel efficiency, consuming up to 20 per cent less fuel than the other aircraft,” notes Arunkumar. Of course, the FAA’s decision is now under scrutiny. Since entering service, Boeing 787 lithium-ion batteries, each with eight cells, have logged more than 2.2 million cell-hours on the ground and in the air during more than 50,000 flight-hours. The batteries offer improved power, have shorter recharge times, are smaller and weigh 30 per cent less than similar NiCd batteries. In Boeing’s extensive online report on the 787 and its batteries, Mike Sinnett, VP of engineering and the chief project engineer for the 787 programme, said: “A lot of testing went into these batteries,” including 5,000 hours in the lab, 25,000 hours of other integration testing that included the batteries and more than 10,000 hours of flight test and ground test. “We never move forward until we’re convinced ourselves that the fleet going forward is as safe as we intend it to be.” Boeing conducted a restricted 787 test flight in order to discover more about the cause of the battery fires and found no issues with the aircraft. Airbus has said it will now use nickel-cadmium batteries on its A530 to avoid any customer concerns or production delays.

NEWS IN BRIEF OLT ceases operations German express carrier, OLT, has reportedly ceased operations after reorganisation talks with its parent company, Panta Holdings, failed. OLT had already announced a number of cuts to its route and fleet in December last year. It is thought the airline and it parent company could not agree on a plan to restore the carrier to financial health. Founded in 1958, OLT operated 15 aircraft on routes within Germany, Austria, Switzerland, Denmark and France, according to the German news source, Die Welt.

Edinburgh invests £15m in routes Edinburgh Airport has announced a £15m ($24m) development fund to bring new routes to the city. Scotland’s largest airport has already brokered deals with easyJet and Ryanair, Turkish Airlines has introduced a route to Istanbul and Brussels Airlines, and Air Canada and Virgin Atlantic have each announced new services. “We’re going to be the place where Scotland meets the world so come here and we will work harder than anybody else to deliver you long-term success,” Gordon Dewar, CEO of Edinburgh Airport, said.

Bahrain Air ends its operations Bahrain Air has ended its operations and gone into liquidation, citing debt and political unrest as the major causes of its demise. The airline has claimed a lack of support from Bahrain’s minister of transport, Kamal bin Ahmed Mohammed, who also serves on the board of the rival state-owned carrier, Gulf Air. “His decisions to restrict route approvals have cost the airline BD4.5m ($11.9m) in lost revenues over the last three months,” the airline said.

afm • Issue 83 – March–April • www.afm.aero

Routes News The world air service development magazine and website

Oliver Clark Routes News magazine oliver.clark@routes-news.com www.routes-news.com

NEWS: Routes News

AirAsia India expected to launch in 4Q

irAsia’s Indian joint venture will begin operations in the 4Q 2013 with three to four A320 aircraft if regulatory approval is forthcoming, AirAsia CEO Tony Fernandes has said. AirAsia India will differentiate itself on brand, price and network and will operate from secondary airports, avoiding the higher fees of

the likes of Mumbai and Delhi, Fernandes told journalists on a conference call. “Let’s not kid ourselves, it will be price that delivers traffic to us,” Fernandes said, adding that the model would be similar to those AirAsia has pursued in Japan and Indonesia. The initial investment in AirAsia India will be between $30-$50m.

Other Routes News

Aer Lingus and JetBlue to codeshare

Qatar launches flights to Cambodia

Sichuan Airlines to continue Saipan flights

Aer Lingus and JetBlue are to codeshare across 40 US destinations as Aer Lingus ramps up transatlantic flights and moves to JFK’s Terminal 5. This agreement, announced on 21 February, follows an interline partnership set up in 2008 between the carriers’ two networks at New York’s John F Kennedy International Airport and Boston’s Logan International Airport. The deal comes as Aer Lingus ramps up its transatlantic services, which the airline expects to deliver ‘a significant boost to inbound tourism from the United States’. Over summer 2013, the Irish airline will run 90 additional round-trips between Dublin and Boston and 120 additional round-trips between Dublin and Chicago.

Qatar Airways has launched daily flights to Phnom Penh in Cambodia via Ho Chi Minh City from its Doha base. The new air link will connect Cambodia with destinations across Europe, Middle East, Africa, North America and South America. The Doha–Phnom Penh route is being operated with an A330. With the launch of daily scheduled services, Qatar Airways becomes the only Middle Eastern airline flying to the South-East Asian nation. Qatar Airways CEO, Akbar Al Baker, said: “Though Cambodia is one of the fastest growing economies in South-East Asia, it has an air travel market that is highly underserved.” The tourism industry, Cambodia’s second largest income source, welcomed 3.6 million international tourists in 2012, a 24 per cent increase on the year before.

Sichuan Airlines (SCAL) has won an extension of its flights from Guam and the Commonwealth of Northern Mariana Islands (CNMI) to China. As a foreign airline, SCAL needs permission from the US Department of Transportation (DOT) to run charter and scheduled flights from US territory to China. The Chengdu-based airline, which began its CNMI service in May 2011, flies four weekly Chengdu–Shanghai– Saipan round-trip flights and two weekly Chengdu–Guangzhou–Saipan flights using an A330-243. CNMI consists of 15 islands in the western Pacific Ocean and is – along with Puerto Rico – one of two Commonwealths of the US.

afm • Issue 83 – March–April • www.afm.aero

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NEWS: People

On the

move IATA appoints Shane as general counsel

The International Air Transport Association (IATA) has appointed Jeffrey Shane as its general counsel, effective 2 April. He succeeds Gary Doernhoefer, who will leave IATA. Shane joins IATA from law firm, Hogan Lovells, where he has been a partner since 2008. Prior to that, Shane served as the US Under Secretary of Transportation for Policy, US Department of Transportation (DOT) from 2003 to 2008. In this role, Shane supervised all economic regulation of aviation as well as US international aviation relations. His tenure at DOT encompassed the signing of the landmark European Union-US Open Skies agreement. “Jeff has had a long and distinguished career in public service and in his law practice. He brings to IATA a deep understanding of the complex aero-political and commercial issues that affect our business as well as a genuine affection for aviation,” Tony Tyler, IATA’s director general and CEO, commented.

Klaus to lease Swiss International Air Lines CFO of Swiss International Air Lines, Marcel Klaus, is to leave his role after serving 12 years at the airline. Klaus began his career 20 years ago with Basel-based Crossair. Since joining Swiss he has played a vital role in its corporate turnaround, and was appointed

CFO in 2006 following the company’s acquisition by the Lufthansa Group. “I will miss the Swiss culture, the team spirit and our dynamic industry environment,” Klaus says. “But after spending such a good part of my working life with the company, including seven years as CFO, I feel it’s time to take a new path and seek new perspectives. And I’m greatly looking forward to whatever challenges the future may hold.” Klaus, who is 51, intends to take a sabbatical before pursuing new professional goals. He will leave Swiss in July and the board of directors will appoint his successor in the next few months.

ACI appoints Kelemen as SVP of political affairs George Kelemen has been named SVP of government and political affairs at the Airports Council International - North America (ACI-NA). He commenced his role on 4 February. Kelemen was formerly senior director of external affairs for the American Cancer Society in Washington, US. “We look forward to George’s leadership on our government affairs team,” said Greg Principato, ACI-NA’s president. “His strengths in grassroots advocacy coupled with his lobbying experience on legislative and regulatory issues at the state and federal level will be a major contributor to the strategic success of ACI-NA going forward.”

afm • Issue 83 – March–April • www.afm.aero

Hawaiian Airlines appoints new alliances director Hawaiian Airlines has appointed Michael Chock as director of alliances and airline partnerships. Chock will be responsible for developing business relationships with codeshare and interline partners that will help enable Hawaiian to expand its reach to a broader base of customers in domestic and international markets. Chock brings to Hawaiian 22 years of domestic and international management experience, with significant focus in Asia at Northwest Airlines and then Delta Air Lines following their merger. He has held senior airline positions focusing on alliance operations since 1996. Most recently, he served for three years as director of alliances and partnership development for SkyTeam in Amsterdam.

Tiger Airways announces two appointments Tiger Airways Holdings has announced appointments for two senior executive roles, effective 26 February. Chin Sak, currently Group CFO, will become group chief operations officer. He has been with Tiger Airways since June 2008. Khushi Ram will take over his current role. Ram was previously group CFO of Unisteel Technology. Koay Peng Yen, group CEO of Tiger Airways Holdings, said: “I am heartened to have Sak Hin step up to a different but strategically crucial role in the organisation, and to welcome Khushi to the Tiger team.”

FOCUS: Aeromexico

One to one: Rocío Blázquez Reyes, Aeromexico AFM talks to Rocío Blázquez Reyes, VP of sales for Europe and Mexico at Mexico’s flag carrier, Aeromexico, about growth at the airline and within the region. How is Aeromexico’s passenger traffic and what are your predictions for it during the year ahead? Grupo Aeromexico transported 1.2 million passengers in January 2013; a one per cent year-on-year increase, and international passenger traffic grew 6.2 per cent during the same period of time. Grupo Aeromexico transported 14.8 million passengers in 2012; a 3.3 per cent year-on-year increase, driven by a 5.3 per cent increase in international passenger traffic and a 2.6 per cent increase in domestic passenger traffic. In the short-term, Aeromexico’s biggest challenge is to position the company as the first choice for passengers. To do this, we will focus on branding, products and services, and national and international connectivity from our main hub in Mexico City. What are your growth forecasts for Mexico’s aviation industry as a whole? We are positive about Mexico’s overall growth predictions for 2013. In 2012, overall growth for Latin America aviation increased 8.4 per cent, this being the second strongest performance (after the Middle East), which was supported by rising incomes and falling unemployment in the region, particularly in Brazil.

What issues might Mexico’s aviation industry face in reaching this growth? Reaching growth after a worldwide economic crisis is a predicament, especially when an international affair has affected fuel prices, the development of new infrastructure and competition. Despite these barriers, Aeromexico has a positive perspective on 2013’s growth plans, even though the index of growth seems to be challenging. Mexico’s government is dedicated to positioning the country as one of the best places worldwide for investment and to visit, whether for leisure or business purposes. Moreover, the challenges faced by all members of the aviation industry have involved adjusting expansion plans, sales and demand, and focusing on satisfying passengers’ needs. Aeromexico has designed a fuel price plan, with the main purpose of reducing the volatility of fuel prices and operational costs, and decreasing the impact on ticket fares. The key to succeeding in this challenging industry is to get to know it and to respond to all the changes it presents.

afm • Issue 83 – March–April • www.afm.aero

FOCUS: Aeromexico

What route development plans do you have for 2013? In the last three years, we have been supporting a very important expansion plan. We have added 22 new destinations in the last three years and eight in the past 12 months. This has been very important for the company. We’re operating now in South America to Brazil, Colombia, Chile, Peru and Venezuela; in Central America and the Caribbean to Honduras, Guatemala, Costa Rica and Cuba; and we have a lot of frequencies to the US, too. We have 19 destinations in the US and one in Canada. In 2013, we really want to consolidate this big expansion plan and shore up our brand recognition. At this moment, the development plans are focused on Aeromexico’s new services from Toluca International Airport, from where the airline is expanding its connectivity to and from Acapulco, Cancun, Guadalajara, Monterrey and Atlanta, Georgia. With this new hub located one hour from Mexico City, passengers will fly to leisure and business destinations in Mexico and the US.

We will also incorporate Loreto as our third destination in Baja, California, from where passengers from Culiacan and Los Angeles will be able to connect. Since December 2012, Aeromexico has offered direct flights between London Heathrow and Mexico City, with the new route operating three flights per week. We had been fighting to obtain this slot for seven to eight years. The airline was formed in 1934 and we have been flying to Madrid for the last 54 years. We have also served Paris for many years, so, in Europe, London was the city we were looking at, and it had to be at Heathrow. We are very excited about the new service. The launch and maintenance of this route represents a big achievement and responsibility for all Aeromexico employees, but also for the authorities, as proof of an important commitment on the Mexican economic growth. The market between Mexico and London is very big – according to the Mexican Department of Transportation,

afm • Issue 83 – March–April • www.afm.aero

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FOCUS: Aeromexico

Santa Domingo church in Oaxaca, Mexico.

the market of this route represented in the first 11 months of 2012 had more than 215,000 passengers, this number shows an increase of more than 60,000 passengers and a 38.9 per cent increase year-on-year compared with 2011. These frequencies will allow European passengers to connect with the extensive network that Aeromexico offers in more than 40 destinations in Mexico, as well as the 11 destinations in Latin America. We want to compete with BA [British Airways] on the route, and are targeting business traffic. What impact is competition from foreign carriers having? Aeromexico is a renowned and well-positioned brand in Mexico and worldwide and is considered a strong, stable and competitive company. This has permitted the airline to compete with the biggest world-class carriers. In terms of market share, Aeromexico has 38 per cent of the Mexican market and 14 per cent of the international segment. We appreciate and welcome national and international competition with other airlines and key players in the aviation industry. Are you concerned about the 787’s faults and is there any chance you will change your order? We maintain our decision to incorporate the 19 Boeing 787 Dreamliners aircraft, as we have total confidence in Boeing and all its products.

Until now, the delivery plan for the first Boeing 787 aircraft to enter Aeromexico’s fleet has been set for summer of this year; all departments at the airline are working towards the arrival as originally planned. You have also announced plans to introduce 100 aircraft in the coming years. Will you stick to Boeing aircraft and which models? Regarding Aeromexico’s ongoing plans, the airline announced the largest fleet investment in the history of Mexican aviation with the purchase of 100 new aircraft worth approximately $11bn. The aircraft order includes 90 Boeing 737 MAX and 10 widebody Boeing 787-9 Dreamliners, which will make Aeromexico the first Latin American airline to operate this equipment. The Boeing 737 MAX will be incorporated into the fleet in 2018. The Boeing 787 Dreamliner order includes six firm orders and four to be confirmed. The 737 includes 60 firm orders and another 30 to be confirmed. Can you tell us about Aeromexico‘s investment announcement? It’s important to mention that, recently, a group of Mexican investors (who participated in the 2007 initial purchase of the airline and have since remained invested in the company) acquired an additional 20.19 per cent stake in Aeromexico from Banco Nacional de México SA (Banamex). Banamex will continue to maintain a 17.91 per cent stake in the company. The group of businessmen is led by Eduardo Tricio Haro, chairman of Aeromexico’s board of directors, and Valentín Diez Morodo, who was named vice chairman. Andrés Conesa remains as the company’s CEO.

afm • Issue 83 – March–April • www.afm.aero

FOCUS: ALTA

One to one: Alex de Gunten, executive director, ALTA AFM speaks to the executive director of the Latin American and Caribbean Air Transport Association (ALTA) about the regions’ aviation industry. Latin America and the Caribbean have celebrated considerable growth. Perhaps you can outline some of the major changes and significant growth statistics? Though the aviation industry is known for its volatility, the Latin America and Caribbean region is currently experiencing a positive cycle. Projections are optimistic as indicated by Boeing and Airbus forecasts, which point to long-term growth of 6.5 per cent and 5.9 per cent respectively. According to Boeing, global air traffic will grow at a rate of five per cent, the US at 2.2 per cent and Europe at 3.5 per cent, whereas Latin America will almost quadruple in volume within the next 20 years. Latin American economies are reaching levels of continued stability not seen before; this is evidenced by high growth and low inflation rates. Brazil´s middle class best exemplifies the forces at play. In the past seven years, 31 million people became members of this country´s middle class. In 2011, 10.7 million passengers boarded a plane for the very first time in their lives and, of these, 8.7 million belonged to the middle class. ALTA member airlines carried over 140 million passengers in 2011, six per cent of the global traffic. They are clearly in touch with the trends stemming from current growth indicators and those of future prospects, footing considerable investments in their fleets. Between 2006 and 2012, airlines in the region invested over $60bn. Newer fleets translate into greater efficiency, benefiting the airlines and the environment. Is this growth sustainable and what might be the major blocks to future success? The major obstacles to the sustainability of the growth we are seeing are the lack of investment in infrastructure, the lack of integration in government regulations and last, but not least, uncompetitive costs due to high airport and ATC [air traffic control] fees and the rising cost of fuel due to taxes and lack of transparency.

Latin America and the Caribbean have significant potential, projected to grow at the rate of 6.5 per cent over the next 20 years in comparison with five per cent expected for global aviation. In order to meet the needs of travellers and the airlines that fly them, governments around the region need to reinvest the high fees that the industry ultimately pays into infrastructure. That will allow aviation to develop as demand requires. States also need to heed the call by international organisations – such as the International Civil Aviation Organization (ICAO) – to harmonise regulations and standards across the region, thus ensuring the highest standards of safety and efficiency. How many new airports will Latin America and the Caribbean need to accommodate predicted demand? How will this be funded? As a point of reference, China – which is the largest market in Asia and is expected to grow at a rate of 6.7 per cent within the next 20 years – has 94 airports under construction or expansion. Latin America, with its growth rate of 6.5 per cent in the same time period, has 16 airports under construction or expansion. We are commissioning a study that will help us answer that question in detail. For now, we know that over 30 per cent of the flights in the region either depart from, or land, in an over-saturated airport. Regarding funding, although it is the government’s responsibility to provide infrastructure, the costs are eventually passed on to the users (passengers and airlines). What industry skills and expertise are most sought after in the region? When it comes to manpower, the key areas of concern are pilots, air traffic controllers and maintenance experts. Not only are we not producing enough of them in certain markets, but also we have all kinds of artificial barriers to the flow of people, which creates further inefficiencies. As an example, it is often simpler for a pilot to get a job in India than to get it in another country within Latin

afm • Issue 83 – March–April • www.afm.aero

FOCUS: ALTA

America, as many countries in the region do not allow the hiring of foreign pilots. What targets have been set within Brazil for the 2014 World Cup and 2016 Olympics, and is Brazil on track? Although Brazil has taken steps to meet the expected travel demand for the 2014 World Cup and the 2016 Olympics, there are still many concerns that these will only serve as a band-aid to what is a major infrastructure bottleneck. Brazil should be planning for its future growth and not only for the temporary peaks of the sports events.

Can you outline some of the concerns surrounding aviation taxes and airport charges, and, in which regions are they most an issue? The aviation industry is an engine of growth for our economies. According to the latest report published at the Aviation and Environment Summit, Geneva, by the Air Transport Action Group and Oxford Economics, aviation supports over five million jobs and contributes $125bn to the Latin America and Caribbean´s GDP. Aviation directly employs over 524,000 people in the region and the catalytic impact results in 5.4 million jobs, including those generated by the industry´s supply chain, related goods, services and tourism jobs.

afm • Issue 83 – March–April • www.afm.aero

FOCUS: ALTA It is in the interest of the authorities to understand the impact of aligning with this reality and taking measures to prevent the undermining of the economic benefits aviation brings to the table for local economies. For example, an $8 tax per passenger in Mexico would result in a reduction of 362,000 passengers per year, which in turn would result in the loss of more than 2,000 jobs. Taxes and airport charges represent a significant additional cost burden to airlines and passengers visiting a destination – and when the airlines do not perceive a return on quality or efficiency as a result of increases in taxes, the issue is compounded. As an association that looks out for the best interests of the industry, ALTA was recently part of a coalition formed to urge the Government of Curacao to work with the aviation sector to find solutions that will reduce the overall cost of enplanement for operations in Curacao, make necessary improvements to the infrastructure and introduce truly independent oversight of charges and infrastructure.

In the year 2000, the average age of our planes was 14.8 years older than in the US or Europe and we only had 922 aircraft. Today we have almost 1,350 planes that are 9.7 years old on average, which is lower than the average in the US (11.7 years old) and Europe (9.8). In fact, ALTA airlines’ fleet is 7.5 years old on average, one of the youngest in the world. How is competition affecting the region’s airlines? Competition among airlines ultimately benefits the consumer. Competition stimulates the search for efficiency. Within our airlines, this has resulted in a 43 per cent decrease in unitary costs (cost per seat kilometre) between 1980 and 2010. Lower costs translate into better rates for passengers. For instance, in Brazil the average airfare for domestic flights is now 45 per cent less expensive compared to 2002 (adjusted for inflation). Flying is no longer a luxury and airlines are in fact competing with other modes of transport by offering more accessible rates.

We´ve invested more than $60bn in new aircraft and 70 per cent of ALTA´s airlines have new generation fleet Air transport and tourism go hand in hand. We need to be aware of the ramifications of any initiative that involves greater expense for tourists to prevent a backlash that may be detrimental for the industry and the local economy. To what extent are fuel costs of concern to carriers in Latin America and the Caribbean? As an industry we work hard every day to survive in spite of the forever climbing fuel prices. To complicate matters, we see that in many oil-producing countries in the Latin America region, the price of fuel is higher than in those that are not oil-producing. Fuel represents the bulk of a carrier’s cost, in an industry where margins are significantly lower than most other sectors. Lower fuel costs frequently sway an airline’s decision regarding its traffic to a specific airport or country. This was recently evidenced in the decision made by Uruguay´s ANCAP and the Ministry of Economy and Finance. Traffic in turn supports employment, revenues and overall taxes collected by the Government. Are fuel prices affecting aircraft fleet planning and what is the region’s current fleet? We´ve invested more than $60bn in new aircraft and 70 per cent of ALTA´s airlines have new generation fleet.

There has been some notable airline consolidation in the region. Which alliances have been most successful? Ten years ago, there were 101 airlines in the region, out of which only three were involved in alliances, whereas today we have 79 airlines as a result of consolidations. All of this has benefited passengers. Today, two-thirds of the region´s ASKs [available seat kilometres] are flown by airlines that participate in global alliances. The industry is still consolidating and it is expected that the number of airlines operating will continue to shrink, as is the global tendency. This is again one of those scenarios where the consumer ends up benefiting as a result of more efficiencies and seamless connections often resulting in lower fares. How greatly do regulations affect the region’s aviation industry and how can it work towards liberalisation and more bilateral agreements?    Latin America and the Caribbean is comprised of over 40 countries and territories. We still have a long way to go towards their integration into a single regulation and market (as in Europe, for example). This has created many inefficiencies and costs for the carriers and passengers. In spite of this, the airlines have done a great job of integrating the region and themselves.

afm • Issue 83 – March–April • www.afm.aero

FOCUS: ALTA

Please tell us a bit about the region’s MRO growth and demand. In the past, many airlines in Latin America and around the world developed their own maintenance facilities to support their own fleet and would sell the unused space to third-parties. Over time, some leading MROs started buying maintenance facilities and workshops for repair of components, engines, landing gears, etc. We think this trend will continue for the near future and the big workshops will have to offer integral solutions, such as airframes and their components. This will include specialised workshops with composed materials. These have gained popularity given the technology now used for newer aircraft.

What are the main safety concerns and what is being done to bring resolution? The Latin American and Caribbean industry has made significant improvements as evidenced by four consecutive years without a fatal accident for ALTA carriers. But we can do better. The areas that most require our attention are unstabilised approaches and runway excursions, as well as the adoption of greater safety standards in the region [IOSA]. Last year we signed the ALTA-IATA Trend Sharing Programme [AITSP], a project between ALTA and IATA that involves the exchange of information related to regional flights, and identifies and mitigates risk situations. We are currently gathering the information generated by 83 per cent of the ASKs in the region.

The market is there and there are many airlines, especially small and medium-size ones, that can´t afford to have their own maintenance facilities, especially for heavy maintenance or component repair. We also think there will be a major trend for PBH [power by the hour] for components, engines and APUs [auxiliary power units] that exclude line maintenance services, which the carriers will continue taking care of in their own facilities. This also applies to airframe heavy maintenance, resorting to a form of subcontracting.

ALTA and its members also actively participate in the Regional Aviation Safety Group – Pan America [RASG-PA], co-ordinating and leading safety projects with the involvement of the major stakeholders in the region. ALTA and the RASG-PA have been recognised for their efforts to advance safety projects and integrate the major players in the region through the Flight Safety Foundation and Boeing´s Aviation Safety Lifetime Achievement Award.

Although some airlines have developed their own maintenance facilities to support their fleet, the trend is to create separate business units for this purpose while selling their existing facilities to major MROs – particularly in Europe, Asia and the US – and remaining as partners with minor participation. This is logical as an MRO that is only dedicated to the Latin America market can´t have a sufficient or continued source of revenue.

The accident rate of Latin America and the Caribbean´s IOSA certified airlines is now below the world average, which is an important indicator of the region´s airlines and air transport associations´ relentless drive towards greater safety. However, we do see the need for our governments to ensure that all carriers are certified to the highest international standards possible and those that can’t participate because of their aircraft size have a similar but separate set of standards. This would serve greatly to improve the safety rates of current non-IOSA aircraft, which have a higher rate of incidents.

afm • Issue 83 – March–April • www.afm.aero

FLEET OPS: IFE

Stay connected: Developments in IFE Inflight connectivity is now crucial to airline operations. Mary-Anne Baldwin examines what the market currently offers and how airlines can monetise this.

ost of today’s passengers board the aircraft with at least one Wi-Fi device, be it phone, tablet or laptop. Our growing dependence on the Internet has created significant demand for in-flight connectivity (IFC) and entertainment (IFE), as well as more onboard bandwidth. After all, what better way to spend your travel time than to catch up on emails, shop online, or watch your choice of entertainment? “With this level of pressure only increasing, we expect the IFC sector to see its greatest growth over the next decade. Several airlines have demonstrated over the past few years that high-speed Internet access is both technologically feasible and popular with passengers,” says John LaValle, the CEO of Global Eagle Acquisition.

Leading the way Having recently taken over Row 44 and Advanced In-flight Alliance (AIA), Global Eagle Entertainment now holds more than half of the IFE and IFC sector. Row 44 was already a leader in providing both Wi-Fi and IFE for portable devices. It is matched perfectly with AIA, which offers in-flight audio, video and games. AIA’s services are active on the fleets of more than 130 airlines around the world, making it the most widely deployed IFE provider in the industry.

Row 44’s in-flight Wi-Fi solution is installed on roughly 500 aircraft, which accounts for approximately 20 per cent of today’s 2,500 aircraft flying with high-speed Internet connectivity. “Row 44’s Wi-Fi system can be installed on the smallest regional jets and the largest widebody planes. The hardware system’s architecture is nearly identical regardless of [the] aircraft manufacturer or airplane size and capacity. The main difference among different airframes is the number of wireless access points required to deliver a Wi-Fi signal throughout the cabin,” says LaValle, adding that larger aircraft require more access points. The company is dovetailing its services and expects to roll out a ‘host of packages’ soon. The clear target is to build the industry’s first end-to-end IFEC platform, which would “offer airlines a single partnership for all aspects of the unique in-flight entertainment experience they wish to create for their passengers,” explains LaValle. This full-service platform will enable airlines to deliver their own branded offering of high-speed Internet access; video-ondemand; live television; games; e-commerce; real-time flight information; and crew services such as real-time credit card authorisation, passenger billing and record maintenance.

afm • Issue 83 – March–April • www.afm.aero

FLEET OPS: IFE He explains that it is this ability to create a unique experience that enables airlines to monetise the service. “Norwegian Air Shuttle, for example, currently offers its Wi-Fi service free to passengers – and because it is the only carrier in the region with high-speed Internet, Norwegian has been able to grab a significant amount of market share from competitors. While other low-cost carriers in the area were competing on ticket price, Norwegian used Row 44’s Wi-Fi to lure passengers to its flights,” LaValle explains. “Southwest Airlines, by contrast, sells its Wi-Fi service, but at a lower price ($5) than competitive airlines offering air-toground connectivity. Southwest has also established a creative pricing scheme, making that $5 fee good for all flights a passenger takes during a 24-hour period. This means that passengers often find Wi-Fi ‘free’ on return flights. “Southwest also charges a fee for in-flight live television ($6) using the same 24-hour pricing model as with its Wi-Fi service. And the airline earns additional revenue from selling pay-per-view movies and television shows streamed to passenger devices.” Other ways to monetise the service include selling adverts during IFE, sponsorship, commissions on e-commerce sales and in-flight texting, which LaValle explains is “a low-bandwidth but very popular” service. “We also expect airlines to use our Wi-Fi service to offer credit card authorisation, sell meals and drinks in-flight, and a number of other creative ideas to generate ancillary revenue,” he adds. It takes approximately five days (or roughly 500 man-hours) to install Row 44’s full connectivity system but it can be installed over the course of several ‘overnights’, meaning the aircraft can return to revenue service during the day and not incur any downtime during the installation. The cost for equipping an aircraft with the Wi-Fi solution is around $300,000, including hardware, labour and testing.

Space to flourish Although Global Eagle will be the first to offer this full-service platform, it will not be the last. “We expect that our end-to-end platform for in-flight entertainment and connectivity will spur competitive services,” says LaValle, but adds that he is also confident Global Eagle will continue to dominate the market. What is clear is that the market will expand, providing space for many others. Indeed, LaValle says we will see an “exponential increase” in aircraft with passenger broadband over the next 10 years. In terms of what the broader market will offer over the period, LaValle says: “Those predictions are more difficult to

According to Ravi Madavaram, aerospace and defense consultant for Frost & Sullivan, top airlines commonly upgrade their IFE systems every four to five years. He says: “IFE also forms a major part of line maintenance during transit checks which maintain or upgrade the IFE system attached to the seats.” Indeed, he estimates that the airline industry spends about $1.2bn a year on IFE maintenance. make. Just a couple of years ago, the industry was still waiting for a wide-scale deployment of in-flight Internet service. Today Row 44 customer, Southwest Airlines, is offering not only Internet access but also live television over Wi-Fi, as well as on-demand movies and TV shows.” US-based Gogo is one company planning to grow into the market space. It offers pay-to-use Wi-Fi to passengers using their own devices and is currently installed on more than 1,800 commercial aircraft. Its clients include American Airlines, Air Canada, AirTran Airways, Alaska Airlines, Delta, United, Frontier, US Airways and Virgin America. Gogo also offers a wireless streaming video product called Gogo Vision that allows passengers to watch movies and television shows on their own Wi-Fi-enabled device. The service is currently enabled on more than 200 aircraft with partners including American Airlines, Delta Air Lines, Scoot and US Airways. Currently limited to the US, Gogo will launch an international service during the first quarter of this year. “Today, we use our proprietary air to ground service in the US, which leverages our own ground-based mobile network. We will soon launch Ku-satellite service for international connectivity and we also are partnering with Inmarsat to bring their Global Xpress Ka-satellite service to the aero market when it’s available,” says Gogo’s president and CEO, Michael Small. Ku- and Ka-band are satellite technology networks that support in-flight Wi-Fi. Ka-band, which is not yet in use for commercial IFC, will offer higher bandwidth and faster connectivity than ku-band, however a date for its entry into service has not yet been set. According to market researcher, IMS Research, Ka-band will be used on 6,000 applications by 2020. At the end of 2015, Ku-band will be the more popular of the two but Ka-band will surpass it by 2020. IMS predicts 15,300 aircraft will be connected by the close of 2021, 39 per cent of which will be Ka-band and 28 Ku-band. This compares with 2016, when 36 per cent is expected to be Ku-band and 12 per cent Ka-band. Ku-band has been adopted by Panasonic Avionics, Row 44 and Gogo, whereas Ka-band has attracted LiveTV, OnAir and, again, Gogo.

afm • Issue 83 – March–April • www.afm.aero

FLEET OPS: IFE

Heath Lockett, aerospace analyst at IMS, believes: “Much has been made of the rivalry between companies offering Ku- and Ka-band options; however, there is more than enough room in the industry for both technologies to co-exist. Every airline has a slightly different requirement for their connectivity solution – the requirements can even be wildly different across a single airline’s fleet.” According to Kevin Rogers, head of revenue development at AeroMobile, which offers an in-flight GSM network for passengers and crew, the benefit of IFC to airlines is clear. It offers more efficient crew operations, increased revenue and customer satisfaction. “As more and more people own smartphones, they expect to be connected 24/7, and airlines that don’t offer it will eventually lose out. It’s hassle-free for the airlines, as customers are billed directly by their own mobile phone operator, with the airline receiving an agreed revenue share for usage on the network.” Back in March 2008, AeroMobile, which provides a mobile network in the aircraft cabin, facilitated the world’s first authorised in-flight mobile phone call on a commercial flight in co-operation with Emirates. It is now available on 140 aircraft across 10 airlines, including Emirates, Etihad and Virgin Atlantic, and it has a further 190 aircraft in its backlog. “In 2013, we expect the number of airlines offering our service to increase to 20,” says Rogers. Any number of passengers can use the Internet on AeroMobile’s GSM network at any one time. However, as with any other mobile network, the speed of the service will vary depending on the number of simultaneous users.

“AeroMobile works much the same as any other mobile network operator; it supports voice, SMS and mobile data services. The service currently operates on 2.5G with 3G in the pipeline,” says Rogers. “The aircraft’s external antenna connects AeroMobile’s network to the ground via satellite, and the in-cabin base station (picocell) provides a signal. Once a passenger switches on their device, they will automatically connect to the AeroMobile network inside the aircraft, just like roaming. A crew control panel allows easy management of the services by cabin crew.” Through AeroMobile, an airline can track the use of the network to find out how many devices have connected, or tried to connect, and how many texts or calls were made on any given flight. This can help an airline interested in IFC chart the demands and needs of its customers. There are no limits to the type of aircraft the service can be used on, but the cost varies depending on the service and the size of the fleet. AeroMobile services are available during aircraft manufacture (forward fit) or after (retrofit). For retrofitting, the airlines will usually wait until the aircraft is grounded for a service or cabin refit, which means there is some time between an airline taking the service and it going live. “In the next four to five years, it will be commonplace to use your mobile in-flight. We know the demand is there from travellers – 81 per cent of devices onboard are smartphones, compared to 40 per cent on the ground,” says Rogers. “Traffic on the AeroMobile network is increasing at a phenomenal rate; data traffic in January 2013 exceeded the entire traffic we saw from the last six months of 2012, and we expect this accelerated growth to continue.”

afm • Issue 83 – March–April • www.afm.aero

FLEET OPS: IFE

Allegiant Systems FlyDesk software for cockpit and cabin procedures.

Tablets: The magic pill But it is not just smartphones that will gain greater use onboard. According to Ravi Madavaram, aerospace and defense consultant for Frost & Sullivan Asia-Pacific, the use of tablets for IFE will revolutionise the market. The use of personal tablets for IFE can potentially save airlines from investing vast sums equipping their seats with screens, although some airlines are choosing to provide passengers with tablets. “With tablets replacing traditional IFE devices, the whole value chain will see a major change. This opens a new revenue stream in addition to food, insurance and seat allocation revenues for low-cost carriers and one that is relatively easier to adopt. Hence, adoption is expected to be rapid,” Madavaram predicts. “Panasonic is the market leader in the IFE systems and has collaborations with most airlines,” he says, but adds: “The dynamics of the industry will alter significantly with Samsung making major inroads into the market. The service providers, maintenance technologies and processes will alter according to changes in the industry.” He notes that American Airlines and AirAsia have adopted the Samsung Galaxy Tab 10.1, while Qantas has adopted iPads, provided by Panasonic. The use of tablets together with IFC is by no means limited to passengers but is increasingly used by cabin crew, particularly pilots. For example, Allegiant System’s FlyDesk is a mobile software platform for cockpit and cabin procedures. There are currently two FlyDesk products available – FlyDesk Cabin, which is for in-cabin operations, and FlyDesk EFB, which is an electronic flight bag.

FlyDesk Cabin digitises manuals and reports on cabin defects and incidents so the information can be completed during flight and immediately submitted via Wi-Fi upon landing, reducing time and administrative burden for both the crew and airline. The solution also provides flight attendants with a secure email and allows a paperless operation, which reduces the cabin weight and improves fuel economy. “Initial research indicates a significant cost reduction when airlines go paperless. The actual amount varies based on the carrier and their FlyDesk products, but going paperless can result in cost savings of one third or more. As FlyDesk’s product offerings grow and as more of the CRM functionality is integrated, the cost benefit will increase drastically,” says Andrew Kemmetmueller, CEO of Allegiant Systems. In the future, FlyDesk Cabin will include a point of sale (POS) system for in-flight purchases and will support customer relations management (CRM) by merging seat maps with passenger information so crew can easily locate those with special dietary, medical or mobility needs. The solution can also be customised to include a variety of third-party aviation applications. “Because we custom-design the FlyDesk platform for every client, there is not a set fee. Pricing is based upon many different factors; for example, the number of features and applications, the number of crew members, and the size of the fleet,” says Kemmetmueller, but he adds: “Crews can be trained relatively quickly: 45 days for a smaller operation or 60 days for a larger one.” Regardless which platform you choose, the costs or efforts involved, it is vital for airlines to offer IFC and IFE services. As Lockett notes: “Despite the challenges and costs associated with providing Internet connectivity at 36,000ft and 500mph, we’re already seeing passengers expecting a similar service to that which they can experience on the ground in coffee shops, shopping centres and so on – that is, fast and free.”

afm • Issue 83 – March–April • www.afm.aero

FLEET OPS: Americas traffic

Travel growth in the Americas Bernard Fitzsimons examines forecasted air traffic growth within the Americas and the means by which it can be achieved.

he Americas’ vast landscape and growing GDP offer airlines great opportunities, but they will not be met without effort. The need for aircraft, better air traffic management (ATM) systems, airport development and trade liberalisation each stand in the way.

Forecasts show that traffic both into and out of Central and South America is forecast to grow, but domestic traffic is set to decline. According to OAG, the region’s traffic growth is the fastest in the world, charting eight per cent growth against a global average of just two per cent. Last November alone saw the addition of 4,200 flights representing 706,000 seats, compared with November 2011. This took the total flights to 57,500 and 9.5 million seats. In terms of seats, OAG’s data shows the top five city pairs all include São Paulo. Mexico City is the busiest Latin American airport, while Bogota is the busiest in South America with nearly 114,000 flights. São Paulo’s Guarulhos International has more than 101,000 flights and the city’s other international airport, Congonhas, has another 78,000. Rio de Janeiro’s two airports, Santos Dumont and Galeao International, are also in the region’s top 10.

Last year, the country raised $14bn by selling licences to run three of its busiest airports and it is planning to invest $7.3bn in improving 270 regional airports, the country’s President, Dilma Rousseff, announced in December. Earlier in the month, Rousseff told attendees at a conference in Paris that the Government planned to build no fewer than 800 airports, meaning every city with 100,000 inhabitants should have an airport within 50km or 60km. She added that the country also plans to strengthen its regional aviation.

North America Brazil (where passenger traffic increased by 118 per cent between 2003 and 2011, according to government figures) continues to gear up for growth (despite its gross domestic product slumping from 10.5 per cent in 2010 to an estimated two per cent in 2012) as it prepares to host the 2014 World Cup and 2016 Olympic Games.

Unlike neighbouring Central and South America, those in the north of the region have seen capacity decline by an average of 0.5 per cent each year for the last 10 years. This equates to a loss of 46 million seats between 2003 and 2012. That decline, allied to modest increases in passenger numbers, has led to a rise in load factors.

afm • Issue 83 – March–April • www.afm.aero

FLEET OPS: Americas traffic

According to the Bureau of Transportation Statistics (BTS), the total number of scheduled passengers during the first nine months of 2012 (before a 3Q in which statistics were distorted by the impact of Hurricane Sandy) was up 1.3 per cent to 559.2 million. Domestic traffic grew 1.2 per cent to 486.5 million and international traffic was up 1.9 per cent to 72.7 million.

international or intercontinental traffic will outpace US domestic traffic over the next 20 to 30 years.”

The number of domestic flights was down 1.7 per cent to 6.431 million, so load factor rose 0.6 points to 83.5. The number of international flights was up 1.7 per cent to 645,500, while load factors rose 1.3 points to 81.7 per cent.

There are good reasons for that. “We have a more mature domestic market. We’ve had essentially no trade barriers for domestic air service in 34 years now – whereas the concept of Open Skies is much newer, especially for some countries.”

The trend is set to continue, says John Heimlich, chief economist with the trade body, Airlines for America (A4A): “There are differences, of course, among forecasts from the supply chain and the airframe manufacturers, but the one thing I never see disagreement on is the fact that

Trade liberalisation is one factor influencing air service. Others are population and economic growth. “The US economy is incredibly mature,” Heimlich says. “While by definition, a developing economy is one that, on average, sees its gross domestic product per capita growing faster than a developed economy.”

He adds that while they may differ in their predictions regarding the rate or extent of growth, or offer regional bias, “I never see anyone who sees higher average domestic growth than international growth.”

afm • Issue 83 – March–April • www.afm.aero

FLEET OPS: Americas traffic

afm • Issue 83 – March–April • www.afm.aero

FLEET OPS: Americas traffic There is an established correlation between growth in GDP per capita and an increase in the number of flights per capita. “If it happens in countries with large populations you often have an exponential increase in demand for air trips per capita. That’s why there’s so much excitement about the BRIC countries [Brazil, Russia, India and China], or in particular the BIC countries.” Africa is another growth area, says Heimlich: “US airlines are keeping a close eye and are trying to develop their networks into Africa. Sometimes you do it with your own metal and sometimes you do it through your alliance partners. But one way or another, the opportunity to stimulate traffic or tap new business markets is probably greater outside the US, or at least coming to and from the US, than it is domestically. This is because carriers of all shapes and sizes are omnipresent throughout the US.” As recently as 10 years ago, the region’s domestic airlines were more regionalised. He adds: “Some were strong in the north-east, some were strong in some metro markets, but… [now] just about every carrier serves all parts of the US.”

growth in other parts of the world, the US carriers need the financial wherewithal to buy new, large widebody aircraft to accommodate those customers on a scale that we see some other carriers in Asia and the Middle East doing. We need far more than razor-thin accounting profits to make that happen in a sustainable, customer-attractive fashion.” There are other measures that would help. Along with an efficient air traffic management (ATM) system, Heimlich highlights “a reasonable, rational tax policy and a regulatory structure that doesn’t overly constrain the way we generate revenue or how we market to the customer. “A lot of other national governments view their airline industries as critical assets to enabling growth in their economies. Ours often sees us more as a utility or a cash source.” Despite the hurdles, the opportunities are there to be tapped, “and if the US carriers are internationally competitive they’ll be able to leverage that.”

Operation growth Ensuring progress Along with trade liberalisation, aircraft technology is a means for US airlines to exploit growth in the BIC countries and other international markets. The increasing availability of new aircraft offers longer-range flights and better fuel efficiency, meaning airlines can serve markets at lower costs. “It may have been that there was demand to be tapped before, but you weren’t positioned to tap it with the right cost structure. Or you had aircraft that couldn’t carry the payload quite so far or do it fuel-efficiently. So there might have been people who wanted to go non-stop but you could only go one stop and it just wasn’t the same,” Heimlich explains. Another potential avenue for growth is in sixth freedom traffic that connects emerging markets to each other via the US. “A carrier can transit passengers via its home country – A to B to C – so a passenger wants to go from A to C and you’ll take them via B. Instead of connecting via Dubai or Toronto they could connect via New York, or Chicago, or Denver, or Dallas. So that’s an opportunity too.” One of the preconditions for growing sixth freedom traffic, cautions Heimlich, is improving security and customs. Surveys within BIC countries have shown that security, border policies and obtaining visas each deter people from travelling to the US. Heimlich notes another obstacle: “I would say that in terms of flows to, from or via Europe, the looming European Union Emissions Trading Scheme (EU ETS) is a constraint in that it will result in less flying.” A final challenge is posed by the airlines’ finances, Heimlich says. “To really be poised to take advantage of this traffic

Delta Air Lines has focused on Latin America and the Caribbean during recent years with the aim of becoming the best carrier in the region. It has invested in SkyTeam partners – Gol and Aeromexico, has a codeshare agreement with Aerolineas Argentinas, and since the beginning of the year has based its regional sales VP in São Paulo. Latin America and the Caribbean have also been growth markets for JetBlue Airways, which recorded an 11.2 per cent increase in revenue passenger miles to nearly 2.8 billion in 2012. Departures were up 9.2 per cent to 22,545 and load factor up one point to 81.7 per cent. Corporate communications manager, Tamara Young, says that JetBlue plans to continue growing at five to seven per cent annually for the time being: “As we have added new routes like Fort Lauderdale to Bogota, JFK [John F Kennedy, New York] to Cartagena. And all the new services we have in San Juan, Puerto Rico, have all been positive for JetBlue’s network.” Boston has been another focus for growth. “We have been investing and growing significantly in Boston for the past couple of years,” says Young. “We are now much more relevant to business customers who want to fly non-stop than any other carrier. This position of relevance has helped us grow in Boston, and that directly translates into improvements to our bottom line.” For the year ahead, Young says, fuel prices and economic pressures remain a concern. “Weather events like Hurricane Sandy and February’s blizzard in the north-east will definitely impact our performance,” she says. “Industry consolidation may bring about certain challenges as capacity may shift and uncertainty arises. But we are excited for 2013 and the continued expansion of our network.”

afm • Issue 83 – March–April • www.afm.aero

TLF: Repossession

efaults do not often happen in an instant but develop over time and the specific act of repossession is merely a part of the ‘distress’ period. During this period, or indeed from the first day of the lease agreement, a lessor should prepare a contingency plan to cover the event of repossession. Given enough planning, repossessions can be conducted quickly and efficiently but there are numerous considerations a lessor must work through first. A lessor needs to involve a legal team in its contingency plan. Indeed, working closely with lawyers, aviation authorities, insurers and back-up maintenance providers will ensure that the seizure is quicker and cheaper. The lessor will need to collate all of the aircraft’s technical records ‘back to birth’ and ensure they are up-to-date, accurate and in the correct language. Incomplete or inaccurate records could affect the value of the aircraft, or in the worst scenario render it worthless, as any buyer (and indeed the aviation authorities) will require evidence of its maintenance history. It is important to know the full whereabouts of the aircraft records, which are usually at the operator’s maintenance base. Of course, diligently copying these records throughout the lease period will ensure full access to them. Otherwise, some records may also be available from the manufacturer and/or outsourced MROs. It is not unusual for technical records staff to charge for collating aircraft records prior to their release. While

this practice may not be ethical, or even legal, it is essential to keep records staff (or those who remain) on side during the repossession. The process of repossession and remarketing will be quicker and more efficient if the aircraft is regularly monitored and records are copied. Indeed, even without default, back-up records can aid the process of selling the aircraft (or the debt) to other parties.

MRO and liens Once a court has granted legal clearance to repossess the aircraft, the physical process can begin. Some believe that the act of repossession takes place under the cover of darkness with a team of camouflaged pilots and technicians, but this is rarely the case. However, each member of the repossession team should be well briefed for any eventuality. Gaining possession of the aircraft and its records can be an unpredictable process and may take considerably longer if the operator is not co-operative. If retrieving more than one aircraft, lessors are likely to find that the assets are at different locations. The company should ask that all aircraft be flown to a single location ready for repossession, although operators may not be compliant with the request. The aircraft should be surveyed thoroughly before repossession to provide evidence of its physical condition as the operator may claim any damage

afm • Issue 83 – March–April • www.afm.aero

TLF: Repossession

was due to the lessor or those in its service during the repossession. Similar claims are sometimes also made when an aircraft is returned to the operator for further use. Additional maintenance may have to be performed, which may involve major airframe, engine, landing gear and component overhauls. Not only would this incur a direct fee from the MRO provider but the aircraft would not be accruing revenue during its downtime, which could be as much as three to six months. Once the aircraft is reclaimed, the owner should provide round-the-clock security until it is moved to a secure

storage location. This should protect against other companies, which may be owed liens (payment for products or services such as aircraft parts and maintenance) from removing parts of the aircraft or seizing it entirely. Some creditors may require debts to be cleared prior to the release of the aircraft. Liens should be assessed prior to pre-default, during which stage the operator’s overall debt should also be calculated. When a fleet of aircraft is to be repossessed, it is likely that some will be undergoing maintenance. Components, including engines and landing gears could be in various states of disassembly. Also the aircraft may contain parts to which other parties hold title. It may be

afm • Issue 83 – March–April • www.afm.aero

TLF: Repossession

necessary to work closely with other parts suppliers to ensure they do not immobilise the aircraft by removing parts. Aerospace control authorities have the power to pursue debts against the aircraft owner as well as the operator and an airport may prevent the movement of a seized aircraft if it is associated with overdue fees. It is important that owners have the authority to regularly check the operator’s outstanding debts and the lessor should ask the operator to provide written authority entitling it to receive statements regarding any over-flight, airport, fuel or maintenance fees that are due. This will indicate the carrier’s financial health and help the lessor pre-empt the need for repossession and plan ahead. Lessors should ensure that debts are specific to the airline, not the aircraft serial number.

Ferry flight, storage and maintenance Lessors will need to arrange for the aircraft to be moved to a suitable storage facility. Prior to repossession, lessors should contact local airport and ground handling facilities to establish a procedure. The lessor will need to consult the authorities should the period from repossession to departure exceed a defined period, which may be as little as 24 hours for some types of aircraft. Authorities will require proof of the aircraft’s airworthiness and that no crucial maintenance is outstanding. In some cases, authorities may require maintenance to be carried out prior to the ferry flight.

Regular visits to the airline can provide useful contacts and can create a rapport with key staff. This can provide useful insights into their operation and to the attitudes held by staff. Such visits will show the operator that the lessor takes a serious view of its assets and will instil discipline within its operation. This is further reason to retain full and up-to-date maintenance documents, as without them it is impossible to establish the maintenance status. It is important to establish the insurance status of the aircraft prior to repossession, as its terms may render it invalid in the event of default or repossession. The lessor may need to organise insurance to cover the exposure to ground risk and the ferry flight. The owner will need to liaise closely with the relevant authority in order to secure an export certificate of airworthiness (C of A) and/or ferry flight permit. Placing a foreign-registered aircraft in Europe may also require upgrades and emergency equipment installation.

afm • Issue 83 – March–April • www.afm.aero

TLF: Repossession

It may be possible to keep the aircraft at the operator’s base should it be willing and have the appropriate facilities. However, an alternative location should be on standby as the media, creditors and disgruntled employees may arrive at the operator’s location. The defaulting operator could also provide a ferry flight crew as their pilots are likely to be looking for work. Such a solution is beneficial as their pilots would be knowledgeable of the aircraft. However, flight crew agencies and airlines operating the same aircraft type can offer alterative crews. Authorities will need to verify the credentials of such a crew. The validation can be relatively quick, so long as the proposed crew’s training and medical records are complete and transmitted in a timely fashion. The ferry crew will normally submit flight plans and determine fuel requirements and overfly permissions. In some cases, other parties with specific knowledge – such as SITA or Jeppesen – may be required.

Remarketing Aircraft may be advertised as available for sale or lease in any of the prominent aircraft sales journals and an asset manager or standby remarketing agent should be appointed. Such remarketing agents can include the manufacturer or an operating lessor, although in each case there may be a conflict of interest if they are selling other new or used aircraft from their own fleet. A specialist independent agent could also be employed, although care should be taken to ensure it has full technical and commercial capability to undertake the remarketing project.

Before the aircraft can be remarketed, additional maintenance may be needed, but the extent is to some degree dependent on the market. Unfortunately, a default usually means the airline will have neglected to keep up with its maintenance in the run-up to the default. In particular, the cabin interior may be heavily worn if costs have been cut. When demand exceeds supply, operators are likely to accept aircraft with fewer modifications, but when supply exceeds demand, the buyer will often be required to enhance the condition of the aircraft, such as repainting or upgrading the interior. In a balanced market, the downtime required to successfully exit from a repossession scenario and remarket an aircraft at a price within 95 per cent of its expected market value is four to five months (for new generation narrowbody and regional aircraft). Following repossession, potential buyers may consider the offer a ‘distress sale’ – one that needs to be finalised quickly, rather than for the highest price. Therefore, offers may be substantially lower than expected values, perhaps 20 per cent below the market value during the initial period of remarketing. The remarketing agent will have to judge the market conditions to determine whether the initial offers are reasonable enough to warrant further investigation. The remarketing strategy should include a reasonable time period (of four to five months) to ensure that the optimum price is achieved. Additionally, requiring that bidders support an offer with a deposit often determines which are serious. By reviewing defaults and repossessions over a period of 15 years, one can see that remarketing can take anything from one week to one year, and that the price and condition of the aircraft, as well as the condition of the market, will each play a part.

afm • Issue 83 – March–April • www.afm.aero

TLF: Aircraft technical records

Aircraft technical records Chris Brennan, operations director at Charles Taylor Aviation Asset Management (CTAAM), discusses the importance of maintaining aircraft records.

veryone from aircraft operators to owners and continuous airworthiness management organisations (CAMOs) should each understand their responsibilities when it comes to correctly maintaining and storing aircraft technical records.

airworthiness of the aircraft, they sometimes do not realise the extent of their responsibilities.

According to Tim Foxon, CTAAM’s quality manager: “This will lead to higher standards regarding the keeping of aircraft records, and in turn this will lead to better systems being in place.”

Part of this responsibility involves being aware of the latest methods and regulatory requirements regarding aircraft records. Complete and accurate records are particularly important for aircraft registered by the European Aviation Safety Agency (EASA). An accurate set of records makes it possible to determine when scheduled inspections and other maintenance efforts are due to be performed. This ensures that the certificate of airworthiness (C of A) does not expire.

However, the issue is even more important for aircraft owners, as despite being accountable for the

The regulatory requirements for aircraft records belonging to an EASA-registered aircraft are outlined in

afm • Issue 83 – March–April • www.afm.aero

TLF: Aircraft technical records

Airworthiness The meticulous storage and upkeep of aircraft records will instil confidence in the next potential owner, operator or relevant authority that is to decide whether an aircraft can be put back into service. Although additional maintenance may still be required, a back catalogue of previous maintenance work will quell concerns that an aircraft is unsafe to fly. Indeed, without records confirming its airworthiness, an aircraft poses too great a risk for investment. Occasionally, authorities will issue an airworthiness directive (AD), which notifies owners and operators of a potential fault with an aircraft type or a component within it. In this case, the owner or operator would be able to use the aircraft records to establish compliance with the AD instead of performing a physical check on the aircraft. One example of this is the AD, FAA AD2010-05-13C, which relates to the inspection of fuselage scribe line. It refers to service bulletin SB737-53A-1262, which states that external inspection is not necessary if the owner can produce complete records to confirm the aircraft has been stripped using non-metallic scrapers and painted in an approved manner. Without these records, the inspection would be necessary, whether or not the work had been carried out.

Third-party services When an aircraft owner leases an aircraft, the owner transfers the responsibility of airworthiness to the lessee, which is then responsible for ensuring that a suitable system of record keeping is in place during the lease period.

EASA Part M – MA305. It requires a continuing airworthiness record system, which is to be updated within 30 days of any maintenance event. In addition to the standard maintenance tracking, accurate and complete damage charts are essential to the continuing airworthiness of an aircraft. Damage charts need to be kept up-to-date at all times, whether the aircraft is in service or not. Alan Woodhouse, technical director at CTAAM, explains: “Accurate records also permit the demonstration of future compliance requirements and allow for proactive planning.” This is especially apparent for stored aircraft and for those returning to service.

If an airline both owns and operates an aircraft, it is responsible for ensuring its airworthiness. In this case, an airline can employ a CAMO, which will assume responsibility and ensure that the aircraft technical records are complete, accurate and secure. This would still be the case while the aircraft is in storage, as its technical records still need to be audited and updated ready for the aircraft’s return to service. A large number of companies now offer a complete solution for the management of aircraft technical records and there are numerous suppliers that can provide the latest software to help correctly maintain aircraft records. However, it is paramount that the owner or operator finds the right software for its operation. For example, a growing number of owners and operators have invested in having their aircraft technical records scanned. This allows records to be duplicated and stored without need for space, and they can be accessed quickly

afm • Issue 83 – March–April • www.afm.aero

TLF: Aircraft technical records

and easily. It also protects against the risk of damage from such things as fire, flooding or theft. At an extra cost, optical character recognition (OCR) software can be used, which dramatically speeds up the searching of records during an audit and is an investment that often pays off in the long-term.

Life-limited parts Indeed, aside from regulatory standards, there are numerous reasons why good record keeping is essential – and the most important is cost. Although it may take initial investment and time, keeping tight records is cost-effective as without them, your aircraft may prove hard to sell at a reasonable price, if at all. Poor upkeep of aircraft records can have particularly negative consequences for aircraft that include life-limited parts (LLPs). For example, many LLPs used within a 737 Classic’s landing gears are interchangeable between 300, 400 and 500 models. However, they have varying life expectancies depending on the aircraft model in which they have been installed. A lack of correct records will make tracing these components, and their age, far more difficult. This will not only affect the airworthiness of aircraft and their parts, but also their useful life and economic value. Furthermore, extensive knowledge is required during an aircraft audit. It is crucial that an auditor is able to trace an aircraft, its parts and their maintenance, over their

The Swiss Cheese model Failure to keep records within the regulatory framework will equate to a higher risk of error. British psychologist, James Reason, compared such faults in the system with holes in slices of Swiss cheese. Reason’s ‘Swiss cheese model’, which provides risk analysis of human systems, states that given enough holes and enough chances for them to line up, a serious fault will slip through the gap. The most common discrepancies relate to hours, cycles and dates. However, most errors can usually be resolved without many issues. The best time to identify these discrepancies is during the re-delivery phase when an aircraft is being returned to the owner or lessor.

entire lifetime, or ‘back to birth’. Should those records bare gaps or inconsistencies, it will cost both time and money to resolve. Additionally, without complete certification records, repairs can be very expensive. Incomplete or missing records will greatly impact the value and saleability of an aircraft and its component parts. But conversely, go above and beyond the regulatory standards for records and your aircraft will have a higher residual value, as a complete and accurate set of aircraft records will always support the value of the asset.

afm • Issue 83 – March–April • www.afm.aero

The state of aircraft

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MRO: PMA

PMA parts: A rose by another name? Locatory.com and its CEO, Zilvinas Sadauskas, offer insight into the development of the global PMA market.

ince the Federal Aviation Administration’s (FAA) ‘enhanced enforcement’ programme for parts manufacturer approval (PMA), the market for parts not certified by original equipment manufacturers (OEMs) has garnered substantial notoriety. Not only do PMA parts endow the market with a host of cut-rate alternatives, they also create competition in the spare parts market.

Economic forces have compelled airlines to seek cheaper alternatives in most facets of their operations, including aircraft maintenance. PMA parts seem a cost-effective choice, but the decision to use them is still contentious. The term ‘PMA’, sanctioned by the FAA, denotes a part that retains the same design characteristics as the

afm • Issue 83 – March–April • www.afm.aero

MRO: PMA

All in a name Although PMA parts penetrate a mere three to four per cent of the world’s spare parts market, their presence is widely acknowledged to have a strong coercive effect on the higher prices charged for OEM equivalents. Indeed, PMA manufacturers assert cost savings of around 30 to 50 per cent when compared with the comparable OEM product. Moreover, PMA manufacturers claim that the availability of their products offers further value as operators are less likely to face supply delays or order backlogs, as can happen when ordering OEM parts. An opinion of greater potency is that the manufacture of PMA parts has involved both revised technological processes and the use of new materials, which have arguably yielded better alternatives to some OEM components. Some airlines have conducted their own tests to verify the performance of select components. In many cases, the result is to opt for PMA parts for certain functions, while retaining OEM products for others – in particular, credence is often given to OEM parts required for flight-critical operations. The issue at the heart of this debate is the level of trust placed in PMA manufacturers, and the million dollar question – can one be content with risking the integrity and safety of a fleet by using what are, effectively, cheaper parts? Zilvinas Sadauskas, CEO of Locatory.com, states, “The agency of PMA manufacturers is constrained by a number of factors. Chief among them are the numerous campaigns instigated by OEMs regarding the reliability and safety of PMA alternatives. The crux of their reasoning is that OEM parts will prove cheaper in the long-term.

comparable OEM product, while offering equal or enhanced performance, yet is made by an indepedent manufacturer. The approval of PMA parts came as a result of FAA actions to eradicate uncertified parts following the varied expansion of the aircraft aftermarket in the 1980s. Following this crackdown, there was a shift in market dynamics, which in turn saw the much-improved credibility of PMA parts and their growth in markets beyond the US airline industry.

“Furthermore, with improvements in technology and the enhanced re-engineering of parts, OEMs are becoming increasingly reluctant to impart valuable know-how with other industry players. In order to secure their market standing, OEMs have engaged both airlines and maintenance organisations to sign long-term support agreements and exclusive licences, further reducing the scope of service available to PMA products. However, perhaps the most poignant issue for PMA parts are aircraft lessors – which collectively control more than 50 per cent of the global aircraft fleet. Lease contracts preclude the use of PMA parts, owing to concerns of aircraft liquidity, marketability and residual values.” Yet, in an industry that has long toiled with low profit margins, high fuel prices and a stagnant economy, airlines are seeking measures to reduce their mounting expenditure. It is because of this that we will likely see a greater prevalence of PMA parts over years to come.

afm • Issue 83 – March–April • www.afm.aero

MRO: PMA

XXX

afm • Issue 83 – March–April • www.afm.aero

MRO: PMA Demand for PMA Currently, the global market for aircraft maintenance is valued at $53bn annually, with the potential to expand to $76bn by 2021. For the civil sector, the PMA market in 2013 is set to be worth some $625m – a respectable figure considering earlier predictions of just over $550m for the current year. Should the tenacious growth of the PMA market carry on at a similar pace, market penetration is likely to exceed $900m by 2020. “On a regional level, we have seen a stronger interest in PMA parts from South-East Asia, Europe and Latin America, with potential customers seemingly drawn by the cost-savings and service standards afforded by PMA manufacturers,” says Sadauskas. The CEO goes on to explain: “In 1997, a sizable 76 per cent of the global PMA market was accorded to the Americas, with the US taking precedence. This has since changed dramatically, with recent figures suggesting the

Despite the positive outlook for PMA parts, Sadauskas suggests that market penetration for engine parts is likely to level off over the next few years due to the rise in OEM material agreements and the sheer volume of surplus components. “Nevertheless, there are still a number of opportunities available to PMA manufacturers. OEMs increased focus on MRO may be counterbalanced with licensed PMA [parts] or through airframes which OEMs no longer have the appetite to support. “It is worth mentioning that increasing numbers of retired aircraft available for tear down will provide the market with surplus spares, but PMA manufacturers have the advantage of a more predictable stream of parts – and parts that are new too. This is particularly relevant in the case of aircraft interiors and other components, where the market will continue to remain a fair deal more fragmented,” asserts Sadauskas.

The industry consensus has long been that the use of PMA parts will negatively impact on aircraft re-marketability and residual values...But more airlines are embracing PMA parts as recognition spreads

Americas accounts for only 47 per cent of the global market on the basis of huge gains in other regions, including 35 per cent for EMEA and 18 per cent for Australasia (which is up from a mere four per cent in 1997). This may change further still as certain economies recover from the recession.”

Challenges ahead

Sadauskas predicts that aircraft orders and traffic in India and China will drive growth in the country’s PMA markets, “although the US and Europe are likely to maintain their positions by forging the highest demand for PMA parts.”

Even though PMA parts are certified by aviation bodies throughout the globe, certain challenges will persist. In the future, we can expect OEMs to make further effort to restrict competition by legal means (such as patents) as well as continue claims that alternative products are less reliable. In addition, customers will begin to expect more than competitive prices from PMA manufacturers; indeed they will need to provide services and support on a par with that of major OEMs.

Adding a further dimension, evidence suggests that the PMA market is shifting up the value chain. A number of PMA manufacturers have begun to produce more intricate and higher-cost parts, taking advantage of opportunities in the market. The offering has been nothing short of substantial, ranging from PMA components for landing gear and interior elements to airframes and fundamental engine parts. The latter offer the airlines and MROs the opportunity to save anywhere from $400,000 to $500,000.

“At this time, the most pressing issue facing PMA manufacturers is the influence held by aircraft leasing companies. The industry consensus has long been that the use of PMA parts will negatively impact on aircraft re-marketability and residual values, therefore precluding their use in the bulk of leasing contracts. But more airlines are embracing PMA parts as recognition spreads and the product line diversifies,” says Sadauskas.

afm • Issue 83 – March–April • www.afm.aero

MRO: PMA

Whether OEMs or PMA manufacturers will be the first to reap the benefits of emerging markets is anyone’s guess “Will there be a sustainable future for leasing companies that withhold the right to employ PMA parts in their fleet? Surely with savings up to $1m per event, leases that do not allow for the use of PMA parts will soon prove uncompetitive? Evidently, there is an avenue for airlines to push lessors to adopt greater acceptance of PMA products, particularly in the current economic climate.” Knowledge of PMA parts will undoubtedly bolster their success in the global market. Although the majority of larger carriers have to some degree commissioned a PMA programme, acceptance varies widely within the industry. A lack of knowledge regarding PMA certification hinders further acceptance, with many airlines doubting pledges of quality and believing they will be required to re-certify the entire scope of components.

In the case of Asia, where future growth is deemed most profound, interest in PMA parts is high but knowledge of how to adequately incorporate or manage PMA parts continues to be limited. “The quality of a company’s logistics service will be an increasingly pivotal factor in aircraft maintenance deals over the years to come. Indeed, the scope of a manufacturer’s logistics and local contacts is likely to be a maker or breaker as airlines seek rapid and effective solutions in terms of maintenance and spare parts procurement. “Whether OEMs or PMA manufacturers will be the first to reap the benefits of emerging markets is anyone’s guess,” says Sadauskas.

afm • Issue 83 – March–April • www.afm.aero

MRO: Maintenance in the Americas

MROs in North America While Latin America’s airlines and MROs are focused on growth, the re-alignment of North America’s aviation industry is creating new opportunities for independent MROs and spares support operations. Bernard Fitzsimons reports.

RO activity in the Americas is set to grow substantially over the next 10 years, particularly in Latin America. Indeed, in 2011 the Latin American fleet represented around 8.4 per cent of the world’s active air transport fleet, numbering 25,870 aircraft, according to Jonathan Berger, VP of consultancy ICF SH&E, who spoke at last year’s ALTA/UBM Aviation MRO Summit in São Paulo. The associated spend on MRO was $3.2bn. Just over a third of that went on engines, just under a quarter on components and one fifth on line maintenance. Airframe maintenance accounted for 17 per cent of the total and modifications the remaining three per cent.

Of the $1bn spent on engines, nearly a third was for work on the CFM56 (with half of that going on the CFM56-7), and 17 per cent for V2500 MRO. The 412-strong A320 family fleet accounted for 16 per cent of the $2.2bn spent on airframe and component maintenance, and the 271 737 NGs a further 13 per cent. Both fleet and maintenance spend are set to grow, however. Berger suggests that although the population of turboprops will shrink slightly, the numbers of regional, single-aisle and twin-aisle jets will grow by more than five per cent annually, boosting the fleet to 3,100 aircraft by the end of the decade. By that stage the annual spend is expected to reach $5.4bn, which is $2.2bn up on the 2011 figure.

afm • Issue 83 – March–April • www.afm.aero

MRO: Maintenance in the Americas “If you look at particular fleet types, it shows that they’re actually going to expand,” he says. “Overall it may be flat but the military market’s come down and that represents a huge portion of the MRO business, so you have to be careful how you interpret the figures.” The Montréal component facility has been named AJ Walter Technique. “We bought all the component division assets,” says Simmonds. The acquisition includes 220,000sq ft of space and all the hardware, including ATEC 6 avionics testers and integrated drive generator test stands. “It’s custom designed,” Simmonds says. “All the rigs are built into the facility, brand new rigs, hydraulic, pneumatic, fuel.” The acquisition both reinforces AJ Walter’s existing offering and adds new markets. He says: “For AJ Walter Aviation it is massively exciting. You have an AJ Walter tag on an AJW repaired component sold through an AJW facility globally, and we will offer the whole service. Whether you take it from our pool or if you just do it as a customer repair, it will come with an AJW Technique tag on.” The primary focus, as mandated by its president, Christopher Whiteside, “is that everything we do has to be the right quality,” Simmonds says. “So price is secondary to outright quality, because of course you’re putting your neck on the line when you start putting your own name on the tag.”

AAR, Indianapolis.

Montréal offers a large skills base and is within easy reach of South as well as North America, he notes. And as well as reinforcing AJ Walter Aviation’s existing power-by-the-hour support activities, he expects the new facility to explore new markets.

Top spot The main cloud on the horizon, Berger says, is Brazilian airlines’ poor financial performance amid the country’s faltering economic growth. In such circumstances, airlines tend to reduce inventory and defer or reduce the scope of maintenance to reduce their outlays. So the airlines’ spend (as opposed to the fundamental demand) is likely to grow between two and four per cent in 2013.

AAR Corp – which generates around 4.5 million man-hours annually at five airframe maintenance facilities, plus a landing gear shop in Miami – is now the biggest independent MRO in North America. Co-chief commercial officer, Jack Arehart, is happy with the level of activity. “We’re pretty full in our own network,” he says. The company’s work package is “pretty robust”, and as well as scheduled checks, “there’s a lot of modification activity with IFE [inflight entertainment] installation, lie-flat seats and so on.”

North America By ICF’s reckoning, the Latin American market is dwarfed by a North American counterpart, which at $16.6bn is worth more than five times as much. On the other hand, it is likely to grow by only one billion over the next 10 years. The overall figure, though, masks some variations among different segments, cautions Gavin Simmonds, general manager of the liquidated Aveos Fleet Performance component business, which AJ Walter Aviation acquired last year.

Late last year, AAR re-opened what was formerly Northwest Airlines’ hangar in Duluth, US, and it is not the first mothballed hangar AAR has brought back to life. “Our Indianapolis facility was another example of that,” Arehart says. “It was built for United Airlines and it sat vacant for a while. We came in [in 2004] and it’s a facility that’s producing about 1.3 million man-hours now, with an assortment of ‘who’s who’ customers, around 1,500

afm • Issue 83 – March–April • www.afm.aero

MRO: Maintenance in the Americas

AJ Walter MRO facility.

employees. So it’s good for the community, it’s good for AAR and it’s good for our customer base.” Of Duluth, he says: “We had a customer or two who was asking for more footprint and there was another one of these facilities that was available. It was originally built for Northwest Airlines, and we’ve been able to work with the city leaders there and put together a structure similar to what we did in Indianapolis for Duluth. If we can keep growing, what we foresee is that facility ultimately becomes a sole facility for a particular customer.” The company has an average of 57 aircraft in work every day, according to Arehart, and its varied businesses enable it to offer customers “something more than just wrench turning. We have lots of spare parts – both on the airframe and the engine inventory – that fit these fleets, which are available for these operators. We have engineering services and we have component repair capability in our AAR Component Services shops.” He adds that AAR also has a hangar operation and landing gear shop in Miami: “We have more than one customer who will fly an airplane in on a Friday and have landing gear swapped out, and fly away Sunday or Monday.”

The maintenance facilities form a network AAR has branded 1MRO, with consistent systems and processes underpinned by its own IT systems. Arehart says 1MRO “offer[s] a bundle of solutions that changes the thinking of some carriers, and we’ve been quite successful at growing our support to the individual customers”. Arehart explains that its consistency enables AAR to move work to a second facility if a customer has need for an additional line of work. “We have the same paperwork, the same metrics, our quarterly meeting reviews with our customers are exactly the same, the web access to see how your airplane is progressing is exactly the same. We have a customer today that’s in three different AAR hangar facilities.” The data accumulated at the various facilities is stored and shared in a centralised repository. “It helps with our inventory demand forecast and our manpower prediction,” Arehart says. He cites the example a new aircraft type arriving at a hangar: “It may be the first airplane into one of our AAR facilities but it may not be the first airplane into AAR, so we can look up that type of airplane and that particular check sequence and our MRO hangar is then well ahead of a learning curve to get used to the customer, its

afm • Issue 83 – March–April • www.afm.aero

MRO: Maintenance in the Americas

AAR maintenance facility.

maintenance programme and what we typically see on their airplanes.” It also benefits customers, who can follow the history and progress of the check. “Dealing with our engineering team is exactly the same,” Arehart says. “Regardless of which hangar you’re in, it’s the same engineering group. All those things work together and when you add them all up they start to knock off shifts, and then portions of days, and then whole days. That’s what we’re hoping to do.” The consistency also makes it easier to integrate a new facility, such as Duluth. “We had a very robust programme for the new mechanics. They went and shadowed mechanics at our other operations for a couple of months so that when they went into Duluth they’re just in a different hangar. The computer’s the same, the paperwork’s the same, the morning meetings are the same, and in some cases the customer’s airplane that they’re working on is the same.”

Expansion AJ Walter’s mainstream spares business is also expanding in America, both North and South. Matt Millbank, VP of business development for the Americas, says it has been providing full component support to Mexico-based Viva Aerobus in Monterrey for more than two years and recently added VivaColombia. “For the low-cost carriers in the region, we’re a

very attractive option,” he says. “It means that all they have to do is fly the aircraft, which is a different model to a lot of other people in the region who want to control everything.” The result is that it becomes a ‘variable cost’. “All the carriers across the Americas are looking to save money, and our model fits that. A lot of the more established airlines are upgrading their fleets and I think there’s a big opportunity for us there.” From an operator’s point of view, Millbank adds, spares are “an unnecessary headache. Purchasing teams and logistic teams are not core to the business. What’s core to the business is getting bums on seats and moving them from A to B. Basically, we take the non-core part of the airline industry. That is core to us. We specialise in it and we have the inventory to back it up. Airlines can see that if they fly this hour, this is the variable cost that goes out the door. So it allows the bean counters to model it very accurately.” An airline could have $100m worth of inventory, sitting unused on shelves, which would not only tie up the airline’s capital but burden it with the responsibility of caring for that stock. “You can get rid of that hundred million of capital and put it into your aircraft and make it work for you, it’s a no-brainer.”

afm • Issue 83 – March–April • www.afm.aero

AIRPORTS & ROUTES: Brazil’s infrastructure

The sporting life: Brazil’s need for infrastructure Brazil’s hosting of the 2014 World Cup and Olympic Games in 2016 offers both plenty of opportunities and challenges for airlines.

ast summer’s Olympic Games in London were judged a great success. Key reasons were that new stadiums and transport infrastructure improvements were delivered on time, that there was good organisation, and customer service levels were highly rated.

Now, the spotlight turns to Brazil – which is hosting next year’s football World Cup and the 2016 Olympics – and a colossal amount of work is needed to bring the country’s infrastructure up to a level where it will be capable of handling millions of fans and provide a good service. Many of the country’s airport systems are already creaking under the strain of managing more passengers than they were designed to handle, the result of strong economic growth, and extensive upgrade work is required to bring them up to scratch. Brazil is also actively seeking to increase tourism in general, and new facilities will help the country achieve this. So with the clock ticking, will Brazil be ready to host both events? And what are the benefits? “Tourism and mega events are increasingly inter-dependent,” Carlos Vogeler, chairman of affiliates for the United Nations’ World

Tourism Organization, says.“The impact of hosting mega events is far longer lived than a few weeks. The hosting of these events is also a unique opportunity to showcase a country and its tourism positioning, attracting more visitors over the long-term through the development and implementation of legacy strategies. “For Brazil as a host country, every real spent on the 2014 World Cup and 2016 Olympic Games has to be regarded as a long-term investment. Moreover, the impact in terms of image is worth millions of reals.” “The eyes of the world will be turned towards Brazil,” says Marcelo Pedroso, director of international markets for Brazilian state tourism promotion agency, Embratur. “These large sporting events will have global repercussions for Brazil. These are fantastic opportunities to transform and reinforce the image of Brazil as a modern and diverse nation. What the spectators view on the TV, online, and in magazines and newspapers goes far beyond the competitions – they see the whole nation.” Brazil’s Sports Ministry believes construction spending leading up to the World Cup will hit $15.8bn, and Embratur estimates 600,000 foreign visitors will attend the four-week tournament –

afm • Issue 83 – March–April • www.afm.aero

AIRPORTS & ROUTES: Brazil’s infrastructure Number of flights between city pairs and weekly supply of seats 20,001 – 1 45,094

(27)

8,001 – 20,000

(71)

3,001 – 8,000

(80)

1,001 – 3,000

(90)

Less than 1,000

(162)

Airports with regular flights 130

contributing to an estimated 7.2 million total overseas visitors next year. The infrastructure needs are massive, with 12 stadiums in the process of being either upgraded or rebuilt, not to mention additional road and rail improvements; will everything be finished on time? “When it comes to the stadiums, the preparation for the World Cup is on track and we have the unique opportunity to test half of the 12 arenas during this year’s FIFA Confederations Cup,” said a spokesperson for FIFA. “Regarding the general infrastructure, the Local Organising Committee, FIFA, the Federal Government and the 12 host cities have achieved a very high level of integration. This makes us confident that the necessary infrastructure will be in place come 2014.” Infraero recorded a mean average increase in passengers of 11.8 per cent between 2003 and 2012. With 12 host cities spread across thousands of miles, teams, officials, media and fans will be clocking up frequent flier miles getting from game to game. This presents a golden opportunity for Brazil’s airlines. Brazilian airline, GOL’s strategy is particularly focused on domestic city pairs and it could reap significant benefits. “GOL will not change its fleet plan because of the World Cup and Olympics. Rather, the company will [make use of] the additional traffic to increase the load factor – which nowadays is near 70 per cent. We will therefore get an opportunity to maximise the extra 30 per cent in the operation,” explains GOL’s head of investor relations and planning, André Brandi Carvalho. The airline recently ordered 60 new 737 MAX aircraft from Boeing and announced new routes to Miami and New York. GOL – which owns the rights and brand of former flag carrier, Varig – purchased rival domestic carrier Webjet in 2011, ostensibly to gain access to the latter’s slots at busy airports such as São Paulo’s international gateway, Guarulhos (GRU), and Rio de Janeiro’s domestic airport, Santos Dumont (SDU).

Source: Secretaria de Aviaçäo Civil.

Carvalho confirms: “The deal was done to increase penetration in strategic Brazilian aviation markets – such as Santos Dumont and Guarulhos. “These airports represent the majority of passenger traffic volume in the domestic system.” Beyond the World Cup, the summer 2016 Olympics will see the city’s two airports – and its roads and urban rail – put to the test when as many as 380,000 visitors enter the former Brazilian capital. Again, many new sporting venues are under construction, as is transport infrastructure, and the hope is that everything will be finished on time. If the authorities are nervous about overruns, they are certainly not showing it. Embratur’s forecast for the total number of visitors in the country in 2016 is 7.9 million. With massive numbers of passengers seeking to pass through Brazil in 2014 and 2016, some heavyweight upgrades of airport facilities are vital. Much of this work would have had to be completed at some point anyway, as the country’s powerful economy is driving frenetic aviation growth, and equipment is in need of updating – but the two giant sporting events have made this a priority for President, Dilma Rousseff. Or as Sidrônio Henrique Gomes de Araujo from Brazilian state airport authority, Infraero, perhaps understates it: “Infraero’s work for the World Cup and Olympics until 2014 is quite expansive.”

afm • Issue 83 – March–April • www.afm.aero

AIRPORTS & ROUTES: Brazil’s infrastructure Major South American airports 30

Airports > 2mm Pax Total Pax – Brazil 25

Total Pax – South America Symbols 2014 FIFA World Cup

2016 Olympic Games Concession

0 GRU

BOG

CGH

BSB

GIG

SCL

LIM

CCS

EZE

SSA

SDU

CNF

AEP

POA

CWB

REC

VCP

FOR

UIO

GYE

MDE

CLO

BEL

FLN

MAO

NAT

VIX

GYN

CGB

CTG

Source: Secretaria de Aviaçäo Civil.

He goes on to specify what the work involves: “Passenger terminal makeovers, new control towers, expansions and improvements to runways and apron systems at the strategic Infraero-managed airports located in the World Cup and Olympics host cities – Rio Galeão, Confins, Manaus, Fortaleza, Porto Alegre, Curitiba, Salvador, Recife and Cuiabá.” When pressed on the specifics of what Infraero wants to achieve, Gomes de Araujo explains: “There are passenger terminal makeovers at Galeão, Confins, Manaus, Fortaleza and Cuiabá, the enlargement of Galeão’s main runway and improvements to the apron system – and also construction of a new control tower in Salvador.” He adds: “Last year, Infraero also finished many improvements to its airports, such as the passenger terminal makeovers for Natal and São Luís, the installation of passenger modules in Porto Alegre, Teresina and Imperatriz, and the refurbishment of the runway and apron system in Curitiba. We also concluded works on the airports currently under private concession – such as refurbishments and expansions in Brasília.” The cost is $2.9bn in of direct investment by Infraero – up to and including 2014.

contract which, among other things, predicts the return of the assets to the state after some period of time – 20 years in the case of Guarulhos (GRU), 25 years for Brasilia (BSB) and 30 years for Campinas/Viracopos (VCP),” says Rogério Teixeira Coimbra, secretary for regulatory policy at Brazil’s Civil Aviation Authority. Brazilian state apparatus is also looking on the projects with a spirit of generosity – the BNDES National Development Bank authorised a $236m loan to the Brasilia airport concession team in December 2012 to underwrite works, which will take capacity from 15.4 million passengers to 20.7 million in 2014 and 24.4 million in 2016. Most of this cash will go on a new terminal with 15 air bridges – along with associated apron and aircraft parking development, new access roads and car parks. Teixeira Coimbra explains the works are to be phased based on ‘demand triggers’. “When demand reaches a pre-determined value for each airport, the concessionaires must initiate the next phase of expansion.

But to realise its goals, the Brazilian government has turned to overseas investment and expertise to modernise its gateways. The first candidates are São Paulo-Guarulhos, Viracopos serving Campinas and Brasilia, which are to be run on a Build Operate and Transfer (BOT) basis by a series of consortia.

The concessionaires must fulfil quality requirements based on service levels – in this case IATA’s Level C – among other requirements listed in the contracts. Additionally, Infraero has a share of up to 49 per cent in the consortia.

“In the case of the Brazilian airports, we use the term ‘concession’ to make clear that the process is regulated by a

“Tariffs are regulated based on a ‘price-cap’ model, with non-discriminatory discounts widely admitted. We have six types

afm • Issue 83 – March–April • www.afm.aero

AIRPORTS & ROUTES: Brazil’s infrastructure

The Maracana Stadium in Brazil.

of tariffs: boarding, landing, parking, cargo, storage and a newly created connecting fee.” São Paulo’s Guarulhos (GRU) is Brazil’s main international gateway, with a network serving cities in Asia, Africa, Europe and North America. The work going on here involves a new terminal for seven million passengers a year, plus 20 air bridges, 12 remote stands and runway expansion. GRU’s concession was awarded to a consortium, including Brazilian infrastructure firm Invepar, OAS and several pension funds. Invepar is also involved in highway construction and the Rio Metro extension – which is also scheduled to be complete in time for the World Cup. Airports Company South Africa (ACSA) is also part of the consortium and its head of communications, Solomon Makgale, explains that the airport operator may be well placed for the job, given its prior experience of the 2010 World Cup, hosted by South Africa. “We faced a number of challenges ahead of the World Cup in 2010 in South Africa. However, all of the airports [ended up] ready. In this project, quick wins are being identified and implemented to show improvement to GRU already.” But whether it is big or small projects, investment is forthcoming at all levels. “The government has an extensive programme of investment in regional airports which aims to increase the availability of

airport infrastructure in locations with low air transport access,” points out Coimbra. “The investment plan at regional airports recently approved by the Secretariat of Civil Aviation comprises $115m for airports located outside metropolitan areas.” He adds: “It’s important to emphasise the dual role that the investment meets at smaller airports – on one side it meets a pent-up demand and, as a result, increases the welfare of the population, on the other it constitutes an important vector of regional development.” The World Cup and the Olympics will both underscore the new democratic Brazil’s startling economic (and political) transformation. Between 2003 and 2011, Infraero recorded average passenger growth rates of 11.8 per cent. New airlines such as Azul have invigorated the market. Manufacturer, Embraer, has won orders for its E Jets series. “Brazil is also an extremely important tourism source market, thanks to its economic performance, rising middle class and strong currency,” points out Carlos Voegler. “Tourism expenditures grew by an impressive 30 per cent in 2011, reaching $21bn. This has positioned Brazil as the third largest outbound market in the Americas after the US and Canada.” If Brazil can get its airports and stadiums completed in time, you can be confident that they will host international sporting events that will be talked about for all the right reasons for a long time to come.

afm • Issue 83 – March–April • www.afm.aero

INDUSTRY DATA: Repossession

Industry data

59 60 64

65 66

Repossesion assumptions

List prices and lease rates

Repossesion costs

Engine data

Firm orders

Data supplied by IBA’s JetData. www.ibagroup.com

Repossession assumptions 1. All models are assumed to be built in 2005. 2. The downtime is set at four months, which is an average typically recorded in repossession. 3. Loss of rental income is calculated over four months and based on IBA Lease Rate Digest Engine shop visit: Three scenarios are presented: worst case, a complete engine overhaul; half-life condition; and better than half-life. 4. Re-painting shows an average cost, though the aircraft may not require an entire re-paint. 5. Initial aircraft security: Upfront charges to fixed-based operators (FBOs) and agents to secure the aircraft. Parking & storage costs 6. Two options were presented based on actual charges quoted by one storage site in Europe and another in Morocco and storage charges in US.

Examples of tasks

Typical costs of repossession 7. Refuelling: It was assumed that the aircraft would require complete refuelling (See end of table for prices and capacities). 8. Registration transfer costs are based on the aircraft being possessed from a foreign country and requiring a registration change. Technical costs 9. Repossession agent: Typical costs are $1500/day for one agent and includes inspection costs 10. Record retrieval and inspection would take roughly 20 days for narrowbody and 30 days for widebody aircraft. Ferry flight and flight planning costs 11. Ferry flight costs are based on an average transatlantic flight and includes navigation and landing charges.

Potential liability - 737-300

Legal aspects Recovery, insurance and ferry flight Maintenance requirements: Airframe, engine shop visit, landing gears, (assuming heavy check / shop visit needed) Transfer of registry requirements Aircraft reconfiguration (3 class to 1 class) Parking / storage contract Reactivation costs Repaint Remarketing costs

$60,000 $200,000 - $300,000 $1 - $4 Million

$500,000 $400 - $900,000 $6 - $8,000per month $25,000 $50,000 $200,000

12. Crew costs are based on $2,400 for a two-person crew per day, hired for two days. Reconfiguration 13. Assuming the aircraft requires a full refit or reconfiguration based on new lease requirements. Typical travel costs associated with the repossession 14. Air ticket $1,500 + $250/day. 15. 20 days for a narrowbody and 30 days for a widebody. 16. Aviation fuel price (per gallon) $3.20 (IATA jet fuel price). Aircraft Fuel capacity in Type US gallons 737-800 6,875 A320 7,840 777-200ER 45,220 767-300ER 23,980

Estimated costs for repossession There is little variance in legal costs for repossessing different aircraft types. Costs are based on the aircraft being situated abroad at the time of repossession. The cost excludes any liens, which may include debt for airspace control, landing fees and/or maintenance. Remarketing costs can vary considerably. We have used a standard fixed fee that is typical of the aircraft and is based on its value. Remarketing significant numbers of aircraft at the same time will reduce costs per aircraft, due to economies of scale.

Source: IBA.

afm • Issue 83 – March–April • www.afm.aero

INDUSTRY DATA: Repossession Data supplied by IBA’s JetData. www.ibagroup.com

Boeing 737-800: 2005 service entry Repossession costs

worst half-life typical case condition scenario

Loss of rental income 1,320,000 1,320,000 660,000 330,000 / Month Hull insurance 50,000 50,000 25,000 MPD bridging costs C checks 226,300 226,300 113,150 Engine shop visit 1,500,000 750,000 187,500 Repaint 50,000 50,000 16,667 Legal costs of perfecting new lease / sale 50,000 50,000 50,000 Initial aircraft security 20,000 20,000 4,000

Parking & storage costs Europe (optional for reference) 24,000 USA Induction 10,100 4 Months downtime 7,200 Reactivation 11,655 Section total 28,955 28,955 28,955 12,000

Typical costs of reposseion Legal fees 80,000 Liens in place by authorities 20,000 Other charges imposed by organisations 20,000 Refuelling 22,000 Registration transfer 500,000 Section total 642,000 642,000 642,000

321,000

Technical costs

Records retrieval and inspection

30,000

(Aircraft & records inspection plus repossession agent fees)

Section total

30,000

15,000

Ferry flight and flight planning costs

Ferry flight 25,000 Flight planning 20,000 Engineers 3,000 Crew 4,800 Section total 52,800 52,800 52,800

26,400

Reconfiguration

Seating reconfig Section total

500,000 500,000 500,000 250,000

125,000

Typical travel costs associated with the repossession Air tickets plus local travelling costs 6,500 Section total 6,500 6,500 6,500 3,250

Total repossession costs

$4,476,555

$3,476,555 $1,558,967 Source: IBA

afm • Issue 83 – March–April • www.afm.aero

INDUSTRY DATA: Repossession Data supplied by IBA’s JetData. www.ibagroup.com

Airbus A320: 2005 service entry Repossession costs

worst half-life typical case condition scenario

Loss of rental income 1,160,000 1,160,000 580,000 290,000 / Month Hull insurance 50,000 50,000 25,000 MPD bridging costs C checks 203,600 203,600 101,800 Engine shop visit IAE V2500, CFM56-5 ($1.6M to $1.9M) 1,700,000 850,000 212,50 Repaint 50,000 50,000 16,667 Legal costs of perfecting new lease / sale 50,000 50,000 50,000 Initial aircraft security 20,000 20,000 4,000

Parking & storage costs Europe (optional for reference only) 24,000 USA Induction 10,100 4 Months downtime 7,200 Reactivation 11,655 Section total 28,955 28,955 28,955 12,000

Typical costs of reposseion Legal fees 80,000 Liens in place by authorities 20,000 O ther charges imposed by organisations 20,000 Refuelling 25,088 Registration transfer 500,000 Section total 645,088 645,088 645,088

322,544

Technical costs

Records retrieval and inspection

18,000

(Aircraft & records inspection plus repossession agent fees)

Section total

18,000

9,000

Ferry flight and flight planning costs

Ferry flight 25,000 Flight planning 20,000 Engineers 3,000 Crew 4,800 Section total 52,800 52,800 52,800

26,400

Reconfiguration

Seating reconfig Section total

500,000 500,000 500,000 250,000

125,000

Typical travel costs associated with the repossession

Air tickets plus local travelling costs Section total

6,500 6,500 6,500 6,500 3,250

Total repossession costs

$4,484,943

$3,384,943 $1,488,161

Source: IBA.

afm • Issue 83 – March–April • www.afm.aero

INDUSTRY DATA: Repossession Data supplied by IBA’s JetData. www.ibagroup.com

Boeing 777-200ER: 2005 service entry Repossession costs

worst half-life typical case condition scenario

Loss of rental income 3,400,000 3,400,000 1,700,000 850,000 / Month Hull insurance 50,000 50,000 25,000 MPD bridging costs C checks 622,300 622,300 311,150 Engine shop visit 5,300,000 2,650,000 662,500 RR Trent 895, PW4090, GE90-94B ($5.0M to $5.5M) Repaint 50,000 50,000 16,667 Legal costs of perfecting new lease / sale 70,000 70,000 70,000 Initial aircraft security 20,000 20,000 4,000

Parking & storage costs Europe 32,000 (Optional for reference only) USA Induction 14,100 4 Months downtime 7,505 Reactivation 15,805 Section total 37,410 37,410 37,410 16,000

Typical costs of reposseion Legal fees 80,000 Liens in place by authorities 20,000 Other charges imposed by organisations 20,000 Refuelling 144,704 Registration transfer 500,000 Section total 764,704 764,704 764,704

382,352

Technical costs

Records retrieval and inspection

27,000

(Aircraft & records inspection plus repossession agent fees)

Section total

27,000

13,500

Ferry flight and flight planning costs

Ferry flight 30,000 Flight planning 20,000 Engineers 3,000 Crew 4,800 Section total 57,800 57,800 57,800

28,900

Reconfiguration

Seating reconfig Section total

500,000 500,000 500,000 250,000 125,000

Typical travel costs associated with the repossession Air tickets plus local travelling costs 9,000 Section total 9,000 9,000 9,000 4,500

Total repossession costs

$10,908,214

$8,008,214 $3,359,569 Source: IBA

afm • Issue 83 – March–April • www.afm.aero

INDUSTRY DATA: Repossession Data supplied by IBA’s JetData. www.ibagroup.com

Boeing 767-300ER: 2005 service entry Repossession costs

worst half-life typical case condition scenario

Loss of rental income 2,280,000 2,280,000 1,140,000 570,000 / Month Hull insurance 50,000 50,000 25,000 Mpd bridging costs C checks 452,000 452,000 226,000 Engine shop visit 2,700,000 1,350,000 337,500 PW4000-94, RB211-524H, GE CF6-80C2 Repaint 50,000 50,000 16,667 Legal costs of perfecting new lease / sale 70,000 70,000 70,000 Initial aircraft security 20,000 20,000 4,000

Parking & storage costs Europe 32,000 (Optional for reference only) USA Induction 14,100 4 Months downtime 7,505 Reactivation 15,805 Section total 37,410 37,410 37,410 16,000

Typical costs of reposseion Legal fees 80,000 Liens in place by authorities 20,000 O ther charges imposed by organisations 20,000 Refuelling 76,736 Registration transfer 500,000 Section total 696,736 696,736 696,736 348,368

Technical costs

Records retrieval and inspection

27,000

(Aircraft & records inspection plus repossession agent fees)

Section total

27,000

13,500

Ferry flight and flight planning costs

Ferry flight 30,000 Flight planning 20,000 Engineers 3,000 Crew 4,800 Section total 57,800 57,800 57,800

28,900

Reconfiguration

Seating reconfig Section total

500,000 500,000 500,000 250,000

125,000

Typical travel costs associated with the repossession

Air tickets plus local travelling costs Section total

9,000 9,000 9,000 9,000

Total repossession costs

$6,949,946

4,500

$5,349,946 $2,355,435

Source: IBA.

afm • Issue 83 – March–April • www.afm.aero

AIRPORTS & INDUSTRY DATA: ROUTES: FirmAirport orders charges Data supplied by IBA’s JetData. www.ibagroup.com

Firm orders – 16 January to 15 February 2013

TOTALS

171

Airbus

ATR

166

Boeing

Bombardier

Source: IBA’s JetData.

Data supplied by IBA’s JetData. www.ibagroup.com

Firm orders – 16 January to 15 February 2013 Manufacturer Variant Customer

Order Date of Aircraft

Number

Engines

Airbus

A321

American Airlines

23/01/2013

130

Airbus

A350-900

Air Lease Corp

04/02/2013

Airbus

A350-1000

Air Lease Corp

04/02/2013

Airbus

A321neo

Air Lease Corp

04/02/2013

Airbus

A330-300

Turkish Airlines

04/02/2013

ATR

42-600

Leeward Air Transport Services

17/01/2013

Boeing

737 MAX

IcelandAir

13/02/2013

Boeing

737 MAX

Air Lease Corp

13/02/2013

Boeing

737 MAX

American Airlines

13/02/2013

100

Boeing

777

American Airlines

13/02/2013

Boeing

787

American Airlines

13/02/2013

Boeing 737

Unidentified

13/02/2013 2

Bombardier Q400

Qantas

17/01/2013

343 Source: IBA’s JetData.

afm afm • Issue • Issue 83 83 – January–February – March–April • www.afm.aero • www.afm.aero

AIRPORTS INDUSTRY & ROUTES:DATA: Airport List charges prices List prices and lease rates – February/March 2013

Data supplied by IBA’s JetData. www.ibagroup.com

Manufacturer Average Type Current Market Value Dry Lease Rate List Price % Oldest Newest Change Oldest Newest Airbus - A300-600R $4.50m $11.00m -10% $0.070m $0.170m Airbus - A310-200 $1.50m $2.00m -5% $0.050m $0.090m Airbus - A310-300 $3.50m $8.40m 0% $0.070m $0.140m Airbus $67.70m A318-100 $12.00m $25.00m 0% $0.120m $0.230m Airbus $80.70m A319-100 $9.50m $35.00m 0% $0.110m $0.270m $88.30m A320-200 $4.00m $40.50m 0% $0.065m $0.320m Airbus Airbus - A321-100 $9.50m $17.00m -5% $0.090m $0.200m Airbus $103.60m A321-200 $16.00m $48.00m -2% $0.165m $0.365m Airbus $208.60m A330-200 $34.00m $87.00m -0% $0.350m $0.850m Airbus $211.50m A330-200F $80.00m $91.00m 0% $0.750m $0.800m Airbus $231.10m A330-300 $17.50m $100.00m 1% $0.180m $0.900m Airbus - A340-200 $8.00m $15.00m 0% $0.150m $0.300m Airbus - A340-300 $8.00m $43.00m 0% $0.150m $0.500m Airbus - A340-500 $40.00m $80.00m -4% $0.440m $0.790m Airbus - A340-600 $40.00m $90.00m -4% $0.480m $0.830m Airbus $389.90m A380-800 $140.00m $205.00m 0% $1.350m $2.000m Boeing - B717-200 $6.00m $10.00m -9% $0.075m $0.140m Boeing - B737-300 $1.70m $5.50m 0% $0.040m $0.080m Boeing - B737-400 $2.80m $6.50m -2% $0.050m $0.090m Boeing - B737-500 $1.70m $4.80m -4% $0.040m $0.060m Boeing - B737-600 $9.50m $16.00m -4% $0.090m $0.160m Boeing $74.80m B737-700 $12.00m $34.50m 0% $0.135m $0.300m Boeing $89.10m B737-800 $15.00m $46.00m 0% $0.190m $0.360m Boeing - B737-900 $16.00m $24.00m 0% $0.150m $0.220m Boeing $94.60m B737-900ER $30.00m $48.50m 0% $0.260m $0.390m Boeing - B747-400 $11.50m $42.50m 0% $0.200m $0.480m Boeing $352.00m B747-8F $162.00m $180.00m -2% $1.300m $1.500m Boeing - B757-200 $5.50m $20.00m -7% $0.080m $0.220m Boeing $160.20m B767-200ER $3.40m $16.00m 0% $0.090m $0.250m Boeing $182.80m B767-300ER $9.50m $61.50m 0% $0.180m $0.480m Boeing $185.40m B767-300F $28.00m $68.00m 0% $0.300m $0.580m Boeing - B777-200 $22.00m $53.00m 0% $0.260m $0.420m Boeing $258.80m B777-200ER $40.00m $118.00m -2% $0.450m $0.950m Boeing $291.20m B777-200LR $80.00m $143.00m -3% $0.800m $1.250m Boeing $295.70m B777F $130.00m $165.00m -1% $1.200m $1.400m Boeing - B777-300 $43.00m $75.00m 0% $0.415m $0.650m Boeing $315.00m B777-300ER $88.00m $162.00m 0% $0.850m $1.500m Boeing $206.80m B787-8 $100.00m $113.00m 0% $0.900m $1.100m Boeing McDonnell Douglas - MD-11 $10.00m $16.00m 0% $0.150m $0.230m Boeing McDonnell Douglas - MD-81 $0.50m $1.00m 0% $0.025m $0.035m Boeing McDonnell Douglas - MD-82 $0.50m $1.50m 0% $0.025m $0.045m Boeing McDonnell Douglas - MD-83 $0.80m $1.90m -10% $0.035m $0.060m Boeing McDonnell Douglas - MD-87 $1.00m $1.70m 0% $0.025m $0.040m - MD-88 $1.20m $2.40m 0% $0.035m $0.060m Boeing McDonnell Douglas Boeing McDonnell Douglas - MD-90 $4.50m $5.90m 0% $0.072m $0.100m Bombardier (Canadair) - CRJ-100/200 $1.80m $5.90m 0% $0.035m $0.070m Bombardier (Canadair) $37.30m CRJ-700/705 $9.60m $22.50m 0% $0.090m $0.210m Bombardier (Canadair) $42.80m CRJ-900 $12.00m $25.00m 0% $0.120m $0.220m Bombardier (Canadair) CRJ-1000 $23.00m $27.50m 0% $0.200m $0.250m Bombardier - Q200 $4.50m $8.50m 0% $0.035m $0.080m - Q300 $5.30m $11.50m 0% $0.045m $0.120m Bombardier Bombardier $30.00m Q400 $9.50m $21.00m -2% $0.100m $0.200m Embraer $21.58m ERJ-135ER $1.70m $5.00m 0% $0.030m $0.050m Embraer $28.02m ERJ-145ER $3.00m $8.00m -3% $0.040m $0.080m Embraer $38.66m E170 LR $14.00m $27.00m 1% $0.140m $0.230m Embraer $41.61m E175 LR $17.00m $28.95m 0% $0.160m $0.250m Embraer $46.08m E190 LR $20.00m $32.00m -2% $0.180m $0.280m Embraer $48.67m E195 LR $22.00m $34.00m 0% $0.200m $0.300m Fokker - Fokker 70 $2.50m $3.00m 15% $0.040m $0.070m Fokker - Fokker 100 $2.30m $3.50m 9% $0.045m $0.090m Sukhoi SSJ 100-95B $22.00m $24.00m 0% $0.177m $0.225m Sukhoi SSJ 100-95LR $22.80m $24.70m 0% $0.182m $0.230m ATR $18.10m ATR 42-500 $4.20m $15.00m 0% $0.060m $0.140m ATR $18.90m ATR 72-500 $6.40m $19.30m 0% $0.080m $0.190m ATR $21.90m ATR 42-600 - $15.66m 0% - $0.150m ATR $22.70m ATR 72-600 - $20.00m 0% - $0.190m

% Change 0% 0% 0% 0% 0% 3% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% -9% -4% 4% 0% 0% 0% -3% -7% 0% 0% 6% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% -3% -3% -2% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Source: IBA’s IBA’s JetData. JetData. Source:

afm afm • Issue • Issue 83 83 – January–February – March–April • www.afm.aero • www.afm.aero

AIRPORTS & INDUSTRY DATA: ROUTES: Engine Airport datacharges Data supplied by IBA’s JetData. www.ibagroup.com

Engine data – February/March 2013

B737- B737- B737- A321- A319- A340- B737- B737- B737- B737- CRJ300 400 500 200 100 300 600 700 800 900ER 200

CRJ- E170/ E190/ A300- B767- MD-11 200 300ER 200 B747- A310- B757- Fokker A340- A330- B777- A380- ERJ700 175 195 600R 300ER A330- B777- A320- MD-82 400 300 200 100 600 300 200ER 800 145

B717200

Source: IBA’s JetData.

Engine data – February/March 2013

Data supplied by IBA’s JetData. www.ibagroup.com

standfirst

Type Engine Full-life mkt value Current half-life mkt value Mkt lease rate February 2013 February 2013 February 2013 B737-300 CFM56-3B1 $1.30m $0.60m $0.020m B737-400 CFM56-3B2 $1.90m $1.00m $0.022m B737-500 CFM56-3C1 $2.45m $1.45m $0.030m A321-200 CFM56-5B3/P $8.20m $6.00m $0.065m A319-100 CFM56-5B5/P $6.40m $4.20m $0.046m A340-300 CFM56-5C4/P $6.00m $4.00m $0.045m body B737-600 CFM56-7B22 $7.00m $4.80m $0.048m B737-700 CFM56-7B24 $7.60m $5.40m $0.057m B737-800 CFM56-7B26 $8.20m $6.00m $0.065m B737-900ER CFM56-7B27 $8.50m $6.30m $0.068m CRJ-200 CF34-3B1 $2.25m $1.25m $0.018m CRJ-700 CF34-8C5 $4.60m $3.10m $0.045m E170/175 CF34-8E5 $4.70m $3.20m $0.045m E190/195 CF34-10E6 $6.35m $4.80m $0.065m A300-600R CF6-80C2A5 $5.80m $3.20m $0.045m B767-300ER CF6-80C2B6F $7.50m $4.70m $0.054m MD-11 CF6-80C2D1F $5.80m $3.10m $0.045m A330-200 CF6-80E1A3 $14.80m $9.85m $0.120m B777-300ER GE90-115B $29.30m $21.80m $0.280m A320-200 V2527-A5 $7.75m $5.30m $0.060m MD-82 JT8D-217C $0.90m $0.50m $0.018m B747-400 PW4056 $7.20m $4.30m $0.055m A310-300 PW4152 $6.30m $3.40m $0.045m B757-200 RB211-535E4 $5.00m $2.90m $0.040m Fokker 100 Tay 650-15 $2.00m $1.40m $0.025m A340-600 Trent 556-61 $14.48m $8.60m $0.110m A330-300 Trent 772B-60 $14.58m $8.90m $0.120m B777-200ER Trent 895 $21.10m $13.90m $0.170m A380-800 Trent 970 $19.80m $13.80m $0.170m ERJ-145 ER AE3007-A1 $2.35m $1.35m $0.025m B717-200 BR715A $4.00m $2.50m $0.042m Source: IBA’s JetData.

afm afm • Issue • Issue 83 83 – January–February – March–April • www.afm.aero • www.afm.aero

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