Say hello to the future The LEAP engine has 19 fuel nozzles. While they may look deceptively simple from the outside, this revolutionary design, grown using additive manufacturing, is keeping harmful NOx emissions in line. We’re re-shaping the future from the inside, out. Another first. CFM gives you more to believe in. Go to cfmaeroengines.com CFM International is a 50/50 joint company between Snecma (Safran) and GE.
PERFORMANCE | EXECUTION | TECHNOLOGY
MORE TO BELIEVE IN
Foreword Editor Mary-Anne Baldwin mary-anne@afm.aero +44 (0)208 831 7511 Contributors Mary-Anne Baldwin, Jonny Williamson, Kathryn Creedy, Daniella Horwitz.
Firstly, I should start by letting you know that this issue is the final one of the year. Forgive us, we know you’ll be sad but don’t worry, everyone at HQ will be spending the rest of the year planning more excellent content for 2015. You could say that this issue is our early festive gift to you. Actually, it’s more like a stocking packed full of treats. And, it was a treat to put together.
Advertising Managers Ellis Owen ellis@afm.aero +44 (0)208 831 7519 Alan Samuel alan@afm.aero +44 (0)208 831 7519
Having written about aviation for many years, it’s rare that I come across something genuinely new and exciting, but in this issue we’ve discovered four!
Editorial Director Joe Bates joe@aviationmedia.aero Design Erica Cooper erica@afm.aero Website Jose Cuenca jose@aviationmedia.aero Published on behalf of MRO Network 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 (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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We start with an interview with Adam Scott, the CEO of UK start-up business airline, Odyssey. We’ve all come across business airlines, though right? So, what’s so interesting? Well, this airline was the first to use crowdfunding as a capital source. I was very pleased to chat with Adam, who, following the media hype surrounding Odyssey’s innovative inception, has been very busy indeed. I found out that while it’s limited in the extent to which it can support an airline’s finances, crowdfunding came as a huge advantage to building Odyssey’s profile. Next up, we look at the intriguing subject of 3D printing. Unless you’ve been under a rock, you’ll have heard of this one too, as had I. In fact, a 3D printing café (where you can have your items printed while you eat) has recently opened up a few hops from my London home. But what I didn’t know was how this mind-blowing technology could be applied to aviation – and I’m excited to show you what we found.
We also discovered some pioneering ways in which robots are being used both in aircraft manufacture and their maintenance. Sadly, we haven’t reached the heights of C3P0 yet (when we do, put my name down for one). But, it’s early days after all, and what’s there is certainly promising. And, we also scan a variety of ways in which new technology is being used to improve customer service. I bet you’re a business passenger used to good service, but have you ever seen staff use Google Glasses to provide it? Already get your boarding pass sent to your smartphone? Well, what about using your smart watch instead? And I guess you have an App for everything, right? But can it give you everything you need to know about your holiday or business trip in one go? Well, your answer may be ‘no, no and no,’ but from what we’ve discovered it won’t be long before it’s ‘yes’ all round. Ah, who doesn’t love getting the latest gadgets for Christmas?
Editor Mary-Anne Baldwin
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afm • Issue 93 – November–December • www.afm.aero
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The business and financing of airline operations AIRLINE FLEET MANAGEMENT
How crowdfunding helped Odyssey The 3D printing revolution Robots in manufacturing Technology in customer service
*ŷ& ŷ* ŷ& ISSUE 93 November–December 2014
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November–December 2014 Issue 93 www.afm.aero
Issue 93 November –December
In this issue
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Foreword
NEWS
The latest on deals, mergers, appointments and more.
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FOCUS
One to one: CEO, Odyssey Airlines Adam Scott, CEO of the start-up business carrier, Odyssey Airlines, talks to Mary-Anne Baldwin about the company’s business plans and how its innovative use of crowdfunding really built its profile.
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MAINTENANCE OPERATIONS
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Another dimension: 3D manufacturing Kathryn Creedy examines the intriguing world of 3D printing and discovers how it’s transforming aviation.
Robotic renaissance
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Daniella Horwitz reports on the new technologies that will allow Boeing, Lufthansa Technik and Valeri to introduce sci-fi-esque robots to aeronautical shop floors.
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afm • Issue 93 – November–December • www.afm.aero
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FLEET OPERATIONS
Computerising customer service Mary-Anne Baldwin reports from the World Low Cost Airlines Congress in London, where airlines discussed how they are using new technology to revolutionise customer service.
Spoilt for choice: Selecting the right aircraft
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Mark Evers, aviation consultant at the airline start-up and aircraft acquisition specialist, Evers Consulting, walks airlines down the right path towards successful aircraft acquisition.
Back to birth trace: Where does it end?
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Daniel James, senior associate at Stevens & Bolton, examines the need for the back to birth traceability of engine parts.
TRADING, LEGAL AND FINANCE
Winged ambition: What lies ahead? Mary-Anne Baldwin reports from the International Society of Aircraft Transport Trading (ISTAT), in Istanbul, where industry heads gave their forecasts for the global market.
Fuel hedging: Counting the cost
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Callum Macpherson, head of commodity hedging at Investec, explains how hedging works for airlines and the risks it presents.
DATA
Industry data Data including: Aircraft deals and orders; aircraft list prices and lease rates; engine market values; and lease rates.
afm • Issue 93 – November–December • www.afm.aero
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NEWS
Virgin takes an axe to Little Red
V
irgin Atlantic will cease the operations of its short-haul brand, Little Red, during the summer of 2015. Virgin announced the launch of Little Red just over two years ago after securing potentially lucrative slots at Heathrow awarded by the European Commission. The airline said the operation was inaugurated “as an attempt to reintroduce consumer choice on key domestic services” after British Airways’ takeover of bmi gifted them a monopoly on these routes; but unfortunately Little Red had “not been able to make a positive contribution to Virgin Atlantic’s network”. The airline’s CEO, Craig Kreeger, commented: “It was always a huge challenge on behalf of the consumer, as the totally inadequate number of slots made available by the European Commission did not deliver close to BA’s network position, even when supplemented by our own slots to fly between Heathrow and Manchester.” According to the CEO, the time between BA’s takeover of bmi and Virgin Atlantic entering the market was such that Little
Red initially faced an uphill battle to win recognition and convert customers to its services. Operated by Aer Lingus on Virgin’s behalf, Little Red operates 12 daily services from London Heathrow, three to both Manchester and Aberdeen and six to Edinburgh. Flights to Manchester will cease in March 2015, followed by the closure of its Scottish links at the end of September. President and founder of Virgin Atlantic, Richard Branson used the closure announcement to reiterate his feelings towards the unfair practices of competition authorities. “When the competition authorities allowed British Airways to take over British Midland and all of its slots, we feared there was little we could do to challenge BA’s huge domestic and European network built through decades of dominance. “To remedy this, we were offered a meagre package of slots on a short-term basis and decided to lease a couple of planes and give it our best shot. The odds were stacked against us and sadly we just couldn’t attract enough corporate business on these routes,” he concluded.
NEWS IN BRIEF IndiGo signs MOU for 250 aircraft IndiGo has signed a memorandum of understanding (MOU) with Airbus for 250 A320 neos. Having previously placed orders for 280 Airbus aircraft (100 A320 ceos and 180 A320 neos), this latest agreement will become the manufacturer’s single largest order by number of aircraft. The Indian carrier’s president, Aditya Ghosh, commented: “This new order reaffirms [our] commitment to the long-term development of affordable airtransportation in India and overseas.” Ghosh added that the additional aircraft would enable IndiGo to foster further growth and job opportunities as it enters a “new phase” of development.
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India proposes minimum fleet size The Indian Directorate General of Civil Aviation (DGCA) has proposed that “operators with less than three aircraft would not be permitted commercial operations”. In regard to the amendment, the DGCA stated that operators would be permitted to operate with one aircraft, but be given 12 months from the date of securing an operator’s permit to increase their fleet to the minimum size. “Within this one year period, operators will be permitted to operate non-scheduled services if they meet all airworthiness and operational requirements for such operations,” it added. Existing non-scheduled operators are to be given the same 12-month period to raise fleet numbers accordingly.
Airberlin cancels Boeing order Airberlin has cancelled its order with Boeing for 33 aircraft, currently worth around $5bn. The rescinded deal includes 18 737s and 15 787s. The airline group said it would continue to purchase or lease aircraft, although on a smaller scale than originally planned. Ulf Hüttmeyer, CFO at airberlin, said: “Not taking on the 33 aircraft ordered will significantly reduce future capital expenditure for airberlin and improve our balance sheet.” Hüttmeyer continued: “In order to operate more flexibly in the future and further reduce costs, standardisation of our fleet is a key element of our restructuring.” It will move to a narrowbody fleet by the end of 2016. Boeing will not receive compensation.
afm • Issue 93 – November–December • www.afm.aero
NEWS
Airline stocks feel Ebola turbulence With the news of a second US health worker being diagnosed with Ebola, shares of the country’s biggest airlines took a dip. United, American Airlines, Delta and Frontier all saw shares fall between five and eight per cent as concerns mount that the virus will deter people from travelling by air. The fall isn’t an isolated incident, with airline share prices tracking the effects of an Ebola outbreak, which reached epidemic proportions in September. To date, cases have been reported in the West African nations of Liberia, Sierra Leone and Guinea (where the outbreak began), as well as Nigeria, Senegal, the US
Virgin to take ownership of Tigerair Virgin Australia is planning to purchase the remaining 40 per cent of Tiger Australia from Tiger Holdings for just A$1. Once completed, the deal will see Virgin acquire the brand rights to fly Tigerair Australia to a number of shorthaul international destinations, which it hopes will provide new growth opportunities for the business. The transaction brings to conclusion a joint venture that started in July 2013, with Virgin’s purchase of Singapore Airline’s stake for A$35m. Virgin Australia’s CEO, John Borghetti, described the transaction as in “important milestone” and one that forms part of the carrier’s strategy through to 2017.
and Spain. However, the World Health Organization (WHO) has since declared Nigeria and Senegal free from the virus. In particular, Frontier Airlines’ stock took a nose dive after it announced on 15 October that one of its customers on flight 1143 Cleveland to Dallas/Fort Worth on 13 October tested positive for the Ebola virus. The healthcare worker exhibited no signs or symptoms of illness while on the flight and Frontier and Centers for Disease Control and Prevention are tracking all 132 passengers on the flight.
Xiamen to buy Hebi Airlines Xiamen Airlines has agreed to take a 95.4 per cent holding in domestic rival, Hebei Airlines, according to a release via the Hong Kong Stock Exchange. The investment is worth an estimated CNY680m ($111m) and is hoped to aid the carrier in consolidating its market share. Xiamen is a subsidiary of China Southern Airlines, which will also purchase a 3.8 per cent stake in Hebei currently held by Sichuan Airlines for CYN69m ($11m). Combined, the two stakes will provide the airline with 99.2 per cent of Hebei, although the two deals are still subject to regulatory approval.
Boeing gives ‘gutter oil’ the midas touch Boeing and the Commercial Aircraft Corporation of China (COMAC) have unveiled a demonstration facility that will turn waste cooking oil into sustainable aviation biofuel. The two companies estimate that 500 million gallons (1.8m litres) of biofuel could be made annually in China from used cooking oil, referred to as ‘gutter oil’. Named the China-US Aviation Biofuel Pilot Project, the facility will use a new technology to clean contaminants from waste oil and convert it into jet fuel at a rate of 160 gallons (65 litres) a day. The overall goal of the project is to assess the technical feasibility and cost of producing higher volumes of biofuel.
afm • Issue 93 – November–December • www.afm.aero
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NEWS
What does Europe’s illegal aid mean for LCCs? EU regulators have ordered a number of budget airlines and their European airports to pay back millions of euros in illegal subsidies. The ruling could significantly affect Europe’s low-cost model and the availability of cheap flights to secondary airports. The European Commission found that, wishing to attract budget carriers to secondary airports, regional authorities had offered airlines, including Ryanair and Lufthansa’s Germanwings, deals that stood against a single market. Zweibrücken Airport in Germany must now retrieve €1.2m from Germanwings, €500,000 from Ryanair and €200,000 from TUIFly. The commission also found that Charleroi Airport received state aid that was “incompatible with EU rules and must now be recovered”. Frankfurt Hahn and Saarbrücken, both in Germany, Alghero in Italy and Västerås in Sweden were also penalised, meaning
a total of six European airports were found guilty of providing illegal state aid. The commission also opened an in-depth investigation into state financial support granted to certain airlines flying from Brussels Airport in Zaventem. The decisions are based on the commission’s new guidelines on state aid to airports and airlines adopted in February 2014 as part of its State Aid Modernisation (SAM) strategy. Commission VP, Joaquín Almunia, in charge of competition policy, explains: “EU state aid rules allow public authorities to grant support to airports where it is justified, in particular where it improves the accessibility of a region and provides a significant contribution to its economic development. “However, duplicating unprofitable airport infrastructure or unduly favouring certain airlines wastes taxpayers’ money and distorts competition in the single market.”
NEWS IN BRIEF Rolls’ composite fan takes to skies Rolls-Royce’s composite carbon titanium (CTi) fan blade for Advance and UltraFan engines has marked another milestone, having flown for the first time. A set of the CTi fan blades successful completed its inaugural flight at Tucson, Arizona, mounted into a 747’s Trent 1000 donor engine. UltraFan, a geared design with a variable pitch fan system, is based on technology that Rolls-Royce says could be ready for service by 2025 and has the potential to offer upwards of 25 per cent less fuel burn and CO2 emissions. Rolls-Royce test pilot, Mark Lewis, commented: “The flight went very well and the demonstrator engine containing the CTi fan set performed as expected.”
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Embraer cuts first piece of E2 jet Embraer has cut the first piece of metal for the Ejets E2, the second generation of the EJet, at its Évora plant in Portugal. This first piece is the wing stub forward pressure bulkhead for the first prototype of the E190-E2 jet. The part will be sent to Brazil to start first assembly, ready for the prototype’s first flight, scheduled 2016. Paulo Cesar Silva, CEO of Embraer Commercial Aviation, said it was “an important milestone”, but added: “There is still a long road ahead until it actually enters service but we harbour no doubts as to whether we will deliver to the market the most efficient, modern and robust aircraft in this segment.”
MRJ is unveiled Mitsubishi Heavy Industries (MHI) and Mitsubishi Aircraft Corporation have unveiled Japan’s first aircraft, the MRJ Mitsubishi Regional Jet (MRJ). The jet was revealed at a roll-out ceremony at the Komaki Minami Plant of MHI’s Nagoya Aerospace Systems Works in Aichi Prefecture. The MRJ’s first flight is scheduled for the 2Q of 2015. The first delivery will be in 2017. MHI’s chairman, Hideaki Omiya, said the MRJ “is at long last about to leave the realm of dreams and become a reality”. He added: “It’s with utmost confidence and pride that we will soon be sending the MRJ out into the world.”
afm • Issue 93 – November–December • www.afm.aero
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NEWS: People
On the
move SAS EVP to step down
Etihad welcomes new COO
SAS has announced the departure of its EVP and COO, Flemming Jensen, who will step down in May 2015. Having joined SAS as a pilot in 1989, Jensen intends to leave sometime in May of next year. He will join Danish State Railways (DSB). Since 2008, he has held a number of senior positions within the company, with the past three years as EVP and COO. Jensen commented that it has “not been an easy decision”, however the opportunity “to use my experience in a role as CEO to contribute to developing DSB’s business is a challenge I could not resist”. The airline has now begun the process of finding Jensen’s replacement.
Etihad Airways has named Bruno Matheu as its COO, equity partners. With nearly three decades of senior management experience in the global aviation industry, Matheu joins the carrier after almost 20 years at Air France-KLM. He most recently served as chief long-haul officer at Air France and previously worked in executive roles across the airline’s network, marketing and revenue management operations. Etihad president and CEO, James Hogan, commented: “The high level of experience and expertise [Matheu] brings will be critical in addressing the new challenges and opportunities arising from the evolution of our business and the fast-moving, dynamic interaction with equity partners.” The French national is due to assume his new role in December.
KLM appoints new CEO KLM’s supervisory board has made Pieter Elbers its new president and CEO, replacing Camiel Eurlings. The Dutch airline stated that, in view of his term ending in April 2015, Eurlings has decided in “joint consultation” with the KLM board, to step down with immediate effect in order to pave the way for his successor. Elbers started his career at KLM almost 20 years ago and held, until now, the position of chief operating officer and deputy CEO. His previous positions have included SVP of network and alliances, GM for KLM Japan and Korea, and GM for KLM Mediterranean.
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Hayes to head JetBlue JetBlue Airways has appointed Robin Hayes as its current president, to succeed Dave Barger, effective 16 February 2015. Barger will serve on the JetBlue board of directors until 15 February 2015 and Hayes is expected to join the board on 16 February 2015. Joel Peterson, JetBlue’s chairman, said: “Dave’s talent, intellect and inspired leadership helped make JetBlue what it is today – one of the world’s great brands and a leader in its industry.”
Barger said: “I have been looking for the right time to take the next step in my life for a while, and my decision was ultimately determined by the strong state of the company and my absolute confidence in Robin’s leadership.” Hayes was named president of JetBlue in 2013. From 2008 to 2013, he served as JetBlue’s executive vice president and chief commercial officer. Prior to joining JetBlue, Hayes was British Airways’ executive vice president for The Americas.
A4A names new CCO Airlines for America (A4A) has promoted Paul Archambault to the position of COO. The industry trade organisation for US airlines has promoted its current CFO to SVP, chief financial and operating officer. Having joined A4A in 1991, Archambault has held several roles of increasing responsibility within the association. As current CFO, he manages financial and support services, with his promotion reflecting his growing responsibilities. President and CEO of A4A, Nicholas Calio, commented: “[Archambault] is exceptionally qualified to oversee and manage the operations of Airlines for America.” Continuing to report to Calio, Archambault’s promotion is effective immediately.
afm • Issue 93 – November–December • www.afm.aero
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FOCUS: Odyssey Adam Scott (left) and Chet Fuller, SVP, Bombardier (right) at Bombardier’s CSeries City Connector Event.
One to one: CEO, Odyssey Airlines Adam Scott, CEO of the start-up business carrier, Odyssey Airlines, talks to Mary-Anne Baldwin about the company’s business plans and how its innovative use of crowdfunding really built its profile.
O
dyssey Airlines first hit the news with its order for 10 CS100 aircraft in June 2011. No one knew who Odyssey was, but it had the industry’s interest.
Then came over-egged reports about how it’ll be the first airline to finance its entire operations through crowdfunding – or so the story went. The reality is much richer than this. And, reassuringly, more sensible. Due to start its business-only flights from London City Airport in 2016, it’s true that Odyssey has used crowdfunding to create some capital, but the visions of its CEO, Adam Scott, reach far wider. At the time of ’s interview with Scott in October, Odyssey had raised over $10m – much of which was
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through crowdfunding – but it has plans to raise another $100m in 2015 through more traditional means.
Working the crowd So if it’s not sourcing all of its cash through crowdfunding, why did it do it at all? “We wanted to do things differently. We wanted to turn the traditional way an airline starts up – and the way an airline runs – on its head,” the CEO tells . Equity and peer-to-peer crowdfunding was not part of the plan from day one, says Scott. “But it was part of the plan insofar as wanting to do things differently.” Towards the end of 2013, Odyssey “dabbled” with crowdfunding in a peer-to-peer lending structure. “It was so successful, we actually did the largest non-profit peer
afm • Issue 93 – November–December • www.afm.aero
FOCUS: Odyssey lending ever done for a total of £2.1m ($3.4m). And we did that in the weeks leading up to Christmas.” This sum came from a number of investors, all of which are a good reflection of the types of people Scott hopes will fly with the airline. “A lot of city folk, a lot of bankers, a lot of lawyers, accountants and wealthy individuals.”
“We’re targeting business class and we’re aiming to price it at business class, but we’re really aiming to be something very different. It’s almost a new hybrid, it’s certainly above business and potentially even above first.” Boston, Toronto, Chicago, Washington and some markets in between are all longer-term possibilities for
Adam Scott, CEO, Odyssey Airlines
We’re really aiming to be something very different. It’s almost a new hybrid, it’s certainly above business and potentially even above first
“That was really eye-opening for us as that was a closed platform, so it wasn’t in the public domain,” he explains. “It really showed that there was a lot of appetite and engagement in terms of questions and ideas for the business and so really, we thought, we’ve had such a fantastic response this way, why don’t we leverage that and go a little bit more public about it.” Having raised £2.1m through the closed group, it then raised just over £1m ($1.6m) through its UK public equity offering and $500,000 of commitments from its US offering. The average ticket from the UK public offering was £4,000 to £5,000 ($6,500 to $8,000) and in the US it was higher. “So it’s still attracting the right people,” says Scott. Odyssey hasn’t yet used the third type of crowdfunding, which is the most familiar to the public as it’s open to all. Scott appears less interested in this financial instrument but one gets the feeling that you never know with him – he keeps his cards close to his chest. For example, he has a US airport destination in mind, but won’t say which. He has a well-developed aircraft configuration and seat manufacturer, but won’t talk about either. He also refuses to leak anything about the customer experience, saying: “We want to save the best for last.” It seems he knows just how to use strategic silence to work the media’s interest. What we do know is that Odyssey will fly business class using the CSeries aircraft on long-haul routes out of London City Airport.
Odyssey, as is the Middle East and some of the airfields going into them. But what we also know is that Odyssey doesn’t like traditional hubs and won’t be flying to JFK. It wants airports that offer short check-in times, short queues, short walks to your gate and a high customer service. “We want to offer something that is truly different to the incumbents while not being seen as a direct competitor, because we’re also going after the part of the market that would otherwise fly business jets,” says Scott.
Brains behind the business While Odyssey has certainly gained a great deal of interest, it has also received some reticence, chiefly for its focus on business and the history of some of its key staff, three of which were involved in failed business airlines. John Bavister, Odyssey’s CFO, was formerly the CFO and co-founder of Silverjet. Its executive director, William Stockbridge, founded Maxjet Airways, both of which failed. “Those businesses were very different from our model but they were fundamentally all-business class carriers,” Scott admits. “But we’ve taken the experience of those who’ve come before us and we’ve learned from them. And with what they’ve shown us, we can get it right this time.” When pushed on what exactly those lessons are, Scott explains that Silverjet and Maxjet operated old 767s to
afm • Issue 93 – November–December • www.afm.aero
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FOCUS: Odyssey secondary airports; they had a discount offering, targeted at discretionary spenders who would otherwise have flown premium economy. “And so even if oil hadn’t hit $147 a barrel, the writing was probably on the wall come the great recession.” And here’s the crunch: “We’re using the right aircraft, we’re using the right airports, and we’re launching at the right time. We’re not going to be dependent on discretionary spenders, we’re not using old, fuel inefficient aircraft, and we’re not going to be operating into secondary airports.” Despite business travel being one of the first sectors in aviation to be affected by a recession (cargo being the other), Scott believes he can ride out the cycles with this business model. Indeed, he argues that while short-haul business flights take a significant dip in a downturn, in the last recession some companies found there were more transatlantic flights – due to a heightened need to please clients – it was just that fewer people were flying them. He is also confident that he has the team to weather any storm. Scott spent 10 years at Goldman Sachs and was also involved in developing the A318 transatlantic concept from London City Airport. Fellow co-founder, Raymond Hickey, had nine years at Goldman Sachs. Executive director, Patrick Creely, has worked in aviation structured finance with DVB Bank and later its aviation investment management division, while its chairman, Jacques Bankir, and executive director, Stephen Miller, share experience at over 10 airlines, including Air France Régional, CityJet, Dragonair, Hong Kong and Oasis Hong Kong Airlines. “We’ve been very lucky with the team that we’ve put together over the last two years… their own backgrounds speak for themselves,” Scott boasts.
Young blood While the team’s experience will no doubt help greatly, so far Odyssey’s biggest boon has been the media attention surrounding its crowdfunding. “The response has been fantastic. There have been a couple of individuals and reporters saying ‘what the hell are you doing, how can you finance an airline through crowdfunding?’ And we had to crack them. We have no illusions; we’re never going to finance an aircraft, let alone an airline, through crowdfunding. It’s more a case of ‘can we use that as part of our capital raising?’ and more importantly, ‘can we use it as a PR tool to create our profile and get people talking?’”
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One example of its success is the number of CVs and LinkedIn requests that Odyssey gets – the number of people who want to participate has grown exponentially. “It’s been fantastic PR,” admits Scott. “But in the greater scheme of things it’s just one little piece of where we ultimately need to get to and what we’re doing. But for us, especially on raising larger amounts of money as we gear up to institutional lenders next year – which is likely to be more traditional – this has really elevated our profile. Rather than walking into a meeting and taking 20 to 30 minutes explaining who we are and what we’re doing, we walk into meetings and everybody knows what we’re doing.” Scott plans to raise around $100m starting in the first half of 2015 and is already in serious talks with
afm • Issue 93 – November–December • www.afm.aero
FOCUS: Odyssey
a lessor willing to buy and leaseback its aircraft. It’s looking to launch in the middle of 2016, and after securing an international fundraiser it will seek its air operator’s certificate; that process needs to be under way in the middle of 2015. While Scott doesn’t think that many traditional airlines will adopt crowdfunding as a source of capital, one other, at least, has shown interest. Virgin Boss, Richard Branson, owns a stake in Indiegogo, a crowdfunding website, and has said that he would have used it had it been available at the birth of his business empire. Scott agrees that it’s better suited to start-up companies. “Over the time that we’ve been working on this business, crowdfunding as a potential source of capital raising has
really come into being. I would say that it’s definitely been a really interesting feature of ours and something that has certainly played an interesting and important role in what we’ve done. “Will more airlines participate in crowdfunding activities? Yeah, I certainly believe that’s the case, but I also think that you need to have some new blood in the establishment which is more familiar, let’s say more readily accepting, of the great changes that are under way in terms of finance and capital raising.” As a young blood itself, the way Odyssey has worked the new financing tool – as well as public interest – has been exemplary. And, while we’ll all be interested to hear what comes next, Odyssey really had us at ‘hello’.
afm • Issue 93 – November–December • www.afm.aero
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MRO: 3D Printing
Another dimension: 3D manufacturing Kathryn Creedy examines the intriguing world of 3D printing and discovers how it’s transforming aviation.
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he potential for 3D printing – or additive layer manufacturing (ALM) – is huge, and expectations are for hundreds of thousands of aviation parts to be produced by 2020. This could achieve more than a ton of weight savings per aircraft. Three-dimensional printing is mature in the field of medicine as well as others, yet the aviation industry is only now harnessing its benefits, which include significantly streamlined production, waste reduction and a change to the industry’s logistical infrastructure. Indeed, experts suggest that the impact of 3D printing will surpass that of advanced aerodynamics and noise reduction.
“We’re at the beginning of the revolution in 3D printing,” Peter Sander at Airbus’ Emerging Technologies & Concepts Innovation Cell tells . “We’re producing high-performance parts better than conventional manufacturing. If you do 3D printing, you don’t need tooling, and that leads to massive cost savings. Printing spare parts means a reduction in maintenance tools and stocks for spares. You can actually print on demand, even for out-of-production parts.” Boeing agrees. “Additive manufacturing is another tool that enhances the manufacturing process,” says Dave Dietrich, technical lead engineer for Boeing’s Metallic Additive Manufacturing. “If you need something very quickly, or something that has a low production volume, or you don’t have the tooling required to make it any other way, then additive manufacturing is the answer. If
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you’re doing something conventionally and you have a supply chain problem, or need extra capacity, it fits a niche role very well.”
Can you count the savings? Quantifying the savings manufacturers and airlines can make from 3D is not easy. “We don’t always look at the savings from a manufacturing cost point of view, but the efficiencies that may be achieved by utilising additive manufacturing are great,” says Mike Cloran, the marketing manager of GE’s Additive Center. “Let’s take the LEAP’s fuel nozzle, for example. Because we were able to 3D print the nozzle, we were able to make one solid part rather than create a part out of 20 separate pieces that needed to be welded or brazed together. This makes for a stronger part that we anticipate will be more durable.
afm • Issue 93 – November–December • www.afm.aero
MRO: 3D Printing
Peter Sander at Airbus Innovation Cell with 3D printed parts.
“Also, we were not subject to the limitations of other manufacturing methods, so we could re-design the nozzle so it’s more efficient than what we’ve experienced in the past. We were able to reduce the weight by 25 per cent. We’re making more efficient, lighter parts and anticipate there will be a saving in fuel burn.” Sander agrees. “There are no estimates on how much 3D printing will save,” he tells . “I’m always asked that.” Although exact savings are hard to calculate, it’s clear there will be many. Speaking of its outlays, Sander points out: “You have big development costs, especially on a metallic printer.” However, the list of financial and other benefits is far greater. “There will be a reduction in maintenance, tooling and stocks. It could move production closer to the end user,”
says Sander. “It is brilliant for the industrial environment. It’s a green technology; [it uses] a handful of metallic powder instead of milling, which produces 90 per cent waste to get a single part. It will significantly reduce the buy-to-fly ratio because of that.” But the emphasis is not just on profit. “While we have a profit motive, for us, the real value is in weight reduction,” says Sander, which of course lowers costs for the airline, and makes the aircraft more desirable. “The minimum weight reduction for an aircraft would be 30 per cent and the best case today is 55 per cent. Not everything will be printed, but a 30 to 50 per cent weight reduction is very good for customers.” According to Sander, in 2018, Airbus expects to print 30 tons of parts each month. “Normally we would need 300 tons of material every month in the milling shop and you waste 270 tons,” he explains.
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MRO: 3D Printing
Airbus uses a 3D printed safety belt holder in an Air Transat A300.
Revolutionary technology Sander’s excitement is palpable. “I have been with Airbus for 32 years. To me, this job in 3D printing is the most amazing story. It will revolutionise our world.” And he has reason to be excited. It has taken Airbus’ counterpart, Boeing, little more than a weekend to take a part from design to delivery; a revolution in an industry that’s used to spending one or two years on research and development. Airbus has already incorporated a 3D part – a safety belt holder – in an Air Transat A300, which has been flying since February. “It was a 30-year-old design, the supplier was no longer in business and the tools had been scrapped,” he says. “We took the manual drawing and re-designed it in two hours. We put it on the desk one week later.” In fact, Airbus has been printing in 3D for three years, in which time it has seen the technology advance rapidly. It now has more than 80 projects in metal or plastic. “We’re able to do so much more,” says Sander, who notes the breakthrough came with the ability to print geometrically complex shapes. “Metal is more complex than plastic but we have already replaced aluminum brackets with a 3D printed titanium
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bracket for the A350XWB. We integrated 10 different parts, printing it as a single unit. That meant a cost reduction of 30 per cent. This is the first aircraft to fly with a printed titanium part and it has been flying since June. We want to be ready for printing in series production by the beginning of 2016.” But Airbus is not the only one to have reached such a milestone; GE has also done it. “The LEAP engine features an additively manufactured fuel nozzle, which recently began test flights,” says Cloran. “This is the first additively manufactured metal part in the hot section of a jet engine.” Weight was reduced by 25 per cent and the new process eliminated the coking suffered with a multi-part nozzle. GE believes 3D printing could potentially produce over 100,000 parts in GE and CFM engines by 2020. In the short-term, GE is focused on combustion chamber parts, but in the longer term, it sees great potential in additive manufacturing for blades, blisks, tubing, external mounting hardware and stators. Pratt & Whitney (P&W), which has used ALM for rapid prototyping for years, is using it to print engine compressor blades and vanes, while Honeywell is using it
afm • Issue 93 – November–December • www.afm.aero
MRO: 3D Printing for heat exchangers and metal brackets. P&W has made more than 2,000 prototype metal parts in an effort to speed up engine development. But Boeing has been the most prolific. It has researched and developed its additive manufacturing – also known as direct digital manufacturing – for nearly two decades and already makes some 300 small parts, primarily in ducts for cooling electronic equipment, which again illustrates the flexibility of 3D printing to form complex shapes and geometries.
Future challenges Despite all the expectations, it’s still early days; 3D printing remains more of a promise than a reality. There are still numerous issues, such as the use of certain materials, certification, repeatability, printing speed and scalability. For the moment, the costs surpass conventional manufacturing, but given the pace of technological advances, it won’t be long before faster and cheaper technology leads to a widespread adoption. “Because 3D printing is a new technology, there are still challenges,” says Cloran. “Because of the machine’s limitations, manufacturers are restricted to the size of parts that can be created in one build. Additive manufacturing can be ideal for making complex parts that would be difficult or impossible to make any other way. However, in general it’s still more efficient to make simpler parts through traditional methods. Also, 3D manufacturers are limited by the materials available, as qualifying materials for the process can be both time-consuming and expensive.” “Three-dimensional printing is a disruptive technology that requires a new way of thinking,” says Cloran. “We need to educate engineers and designers about how to think in 3D and not restrict themselves to the limitations of other manufacturing methods.” “The biggest challenge will be scaling up and the second will be understanding the new kind of design,” Sander concurs. “The world is trained on milling and moulding. No one knows how to use this and we understand the design principles to use the technology most effectively. Suppliers have to change their shops, ramp up their materials production. It really is a revolution.” “You also have to stay current with what’s happening in additive manufacturing,” said Boeing’s Hayes. “You invest in materials and certification and you can’t ignore the improvements taking place but that is difficult.” Still, there’s great potential. Boeing’s Sanders gives a glimpse of what might be possible. “We are already
scanning the entire aircraft, which could be printed in the next decades,” he says. “But, I think, this is really a dream. I don’t think we will print an entire aircraft. But we will print more using fewer resources and investment.”
What lies ahead? As the industry is only on the edge of 3D printing, manufacturers uniformly agree that 4D isn’t even on their radar yet. “Four-dimensional printing develops materials that alter their properties and behaviours based on external stimuli such as changes in temperature,” Jithendranath Rabindranath, a research analyst at Frost & Sullivan Technical Insights, explains. “It facilitates the self-assembly of materials required to manufacture parts and products, thereby speeding up the process and reducing the need for labour. In the near future, 4D printing will revolutionise the business landscape by printing objects ranging from human organs to parts used in the aerospace and automotive sectors,” he adds. The company expects the aerospace, defence, automotive and healthcare industries to be the first to adopt 4D printing technology after its commercialisation, but manufacturers disagree. NASA, which recently deployed a 3D printer to the International Space Station to study how it works in space, may be some way off using 4D manufacturing techniques. “We are doing nothing with 4D,” says Airbus’ Sander. “We know people are thinking about it. But there is no clear definition of what it means.” Boeing agrees. “We’ve seen it at universities, but it’s too low to catch our interest,” says Cloran. “It’s way too early to consider at this point. The things we design need to be stiff; when you start talking about morphing geometry and load paths start changing, that’s a long way out.” “Four-dimensional [manufacturing] is a new technology that is in its concept stage and does not yet apply to commercial aviation,” Cloran adds. “The promise is interesting and encouraging, but there are no viable applications in aviation that we are aware of or exploring.” While 4D printing is still some way off, it’s both surprising and encouraging how much has already been accomplished with 3D printing. It really is only limited by imagination. Boeing’s Dietrich says he would describe the company as having bridled enthusiasm for it. “We are enthusiastic but we are approaching it cautiously as well,” he says. Yet, it can also be said that he who dares wins.
afm • Issue 93 – November–December • www.afm.aero
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MRO: Robots in manufacturing
Robotic renaissance Daniella Horwitz reports on the new technologies that will allow Boeing, Lufthansa Technik and Valeri to introduce sci-fi-esque robots to aeronautical shop floors.
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afm • Issue 93 – November–December • www.afm.aero
MRO: Robots in manufacturing
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raditionally, aeronautical robots have been large, industrial, and have worked in isolation from the human workforce. But now, breakthrough technologies mean that people will soon be working alongside mobile robots on the shop floor.
Another innovative function is how the robot is controlled. Anyone on the shop floor can use the simple user interface to instruct the robot and, currently, engineers are experimenting with haptic feedback, which allows the robot to interact with humans so that a person’s movements control the robot’s operations.
In the near future, mobile and autonomously operating robots will help to assemble aircraft without the need for these robots to be caged off in a protective space; the mobile robot is a game-changer because it’s able to co-exist with people.
Not only does this introduce fluid and intuitive control functions that are familiar thanks to smartphones and tablets such as the iPad and iPhone, but it also minimises the risk of injury – and when working with a 200kg robot, safety is paramount.
One such innovation is the robot being developed in the European Validation of Advanced Collaborative Robotics for Industrial Applications (Valeri) consortium.
For example, if a human enters the robot’s immediate space, it will stop, but what happens if the robot clamps somebody against a wall? Well, then there is an option to change the operating mode and use the tactile sensors to move it.
The project was initiated and is now co-ordinated by the Fraunhofer Institute for Factory Operation and Automation (IFF) in Magdeburg, Germany, but it has many industrial partners. These include Airbus Defence and Space, FACC, IDPSA, and Kuka Laboratories and their research partners Profactor and Prodintec. The consortium’s objective is to allow robots to take over repetitive and ergonomically difficult jobs. The robot will also be able to access small spaces and work on similar tasks in multiple locations. Currently, the Valeri robot has two primary tasks – the application of sealant and the quality inspection of it. José Saenz, project coordinator at Valeri, explains: “The idea is that the robot performs awkward tasks... Humans will not lose their jobs, their experience and know-how is still needed [but] a mobile robot can help ensure consistent and better production.” Valeri has built a test robot, and the first trials are being conducted with the sealant tool, the camera systems, the tactile skin around the platform and the safety components. At the time of writing in mid October, the research team was learning about the process and gaining experience with angles and speeds. Various components were being tested separately and were due to be integrated within four to six weeks.
Ironing out the issues Yet some significant issues still need to be ironed out. There is a heightened level of complexity to a mobile robot compared with standard industrial ones. Saenz explains: “You can drive a robot pretty well from one spot to another spot if the path is really well defined. But we have fixtures on wheels, so they are not always in the same position and the robot needs to take that into account.” “We also have to learn to deal with uncertainty – if the sensors aren’t accurate enough, or the part is not exactly as it was on the computer aided design, all these uncertainties are going to come together once we start testing in the production sites. But we aren’t there yet.” The objective of the last phase (2014–15) is gaining experience in factories. This involves integrating the many individual components and seeing how they work together. Valeri will also start testing its interaction. Highlighting some of the concerns, Saenz says: “What happens when we tell someone who has never seen the robot before to try to move it from here to there and do this task? How comfortable are they working next to a robot?”
Breaking new ground The Valeri project is revolutionary because it’s introducing ‘true mobile manipulation’, says Saenz. “We don’t want to just drive the robot somewhere and stop the platform while the arm does the work,” he explains. “With true mobile manipulation, the wheels, linear axis and manipulator arm all work as one system. We want the robot to drive and move the arm [placing the sealant] at the same time. To co-ordinate this complete motion is something you haven’t really seen before. It requires new algorithms and technologies.”
Significant questions such as costs and savings do not yet have answers and, of course, that will have huge implications. But Saenz is not yet concerned. “This is the ‘let’s see what we can do’ phase. There is no price information yet. But within the course of the project, we want to find the price point. How can we get this to a point where it is cheaper? Which features are absolutely necessary? And what price is economically viable? We are looking at it from both sides.” These are all questions posed by the project, but Saenz admits: “I don’t have any answers yet.”
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MRO: Robots in manufacturing
Boeing brings development Not to be beaten at its own game, Boeing is also developing large mobile robots to help build the 777. Jason Clark, VP of Boeing’s 777 and 777X operations, explains: “Fuselage automated upright build (FAUB) is a new advanced manufacturing technology currently being implemented on the 777 programme. “The process involves building the fuselage of the airplane in an upright position using automated, guided, mobile robotics equipment – or robots to fasten panels of the fuselage together.” There are two steps involved in this. First, an automated vehicle guides the robot to position, then the robot fastens the panels together, drilling and filling more than 60,000 fasteners. In addition to the FAUB, Boeing uses an automated spray technology that uses guided robotics equipment to paint the 777’s wings. Like the Valeri project, FAUB was set up to help humans with repetitive tasks and improve production. In the traditional hand-installation method, employees inside and outside of the fuselage drill and fill in synchronisation. The repetitive nature of the work can take its toll on shoulders and hands. Clark notes that the fuselage build accounts for more than half of the workplace injuries on the 777 programme. “One benefit of advanced manufacturing is improved worker safety... FAUB is expected to reduce these injuries.” And, of course,
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employees assigned to work with FAUB will receive appropriate training. But safety isn’t the only benefit. Clark explains: “Advanced manufacturing ensures improved safety, quality and productivity. These processes will also enable us to meet increasing future rates by improving productivity and flow. Additionally, the introduction of new technology creates highly skilled jobs which benefit the workforce.” The robotic system, designed for Boeing by Kuka Systems, is currently in its testing and production readiness phase at an off-site facility. It’s expected to begin low-rate production on 777 fuselages in the next few years.
Applications in MRO Stefan Mehler, project manager of innovation, aircraft maintenance division at Germany’s Lufthansa Technik (LHT), points out that, primarily, mobile robots have applications in the consumer market – for example, vacuum cleaner robots. But MROs are also investigating their uses. In MRO, mobile robots are mainly confined to warehouse management, but Mehler says that the only reason they’ve not been used in maintenance is simply that the technology has not been introduced. But that may change with the introduction of a mobile robot demonstrator, named MORFI (short for ‘mobile robot for fuselage inspection’). Currently, visual inspections and non-destructive testing of the aircraft fuselage are carried out manually.
afm • Issue 93 – November–December • www.afm.aero
MRO: Robots in manufacturing
This work requires immense human concentration, is time-consuming and expensive. But a new project is looking to change that. For the last three years, LHT has partnered with the Institute of Aircraft Production Technology (IFPT) at the technical university of HamburgHarburg, edevis, and IFF to develop the thermographic crack detection (TCD) robot-assisted procedure.
demonstrator for fuselage inspections; this advantage happens when we use robots in the daily business.”
Areas of the plane’s fuselage are put under stress so that it can be examined with an infrared camera and appropriate software. MORFI is fitted with a thermographic inspection unit, which moves past pre-programmed points of the fuselage’s outer skin and examines it for damage.
“I think people like to see that LHT is developing high-level automation technologies; nobody was afraid. We need worker expertise in the future anyway, but we can’t close our eyes in front of a big maintenance inspection burden that’s facing us. This large number of inspections is unable to be solved without the help of new technologies. Safety requirements are a concern that LHT and its partners will be looking at in a later stage.”
The inspection unit consists of two coils (inductors) that use a brief electrical pulse to heat the control areas by a few degrees. As the area heats up, the infrared camera records the change. Any cracks captured on the infrared images stand out from the background as they heat and even the tiniest of cracks are visible. It takes just a few seconds to make the infrared recording – so the entire inspection cycle, including saving all the data, can be carried out in less than 30 seconds. According to Mehler, the main advantages are to enhance the quality of the inspection, and to reduce time and cost. “We will reduce the amount of overlooked faults and abolish the wiggle room with the use of standardised inspection criteria,” says Mehler. “It will also be possible to stagger the inspection scope and apply single packages to the aircraft during planned ground times... But currently MORFI is only a
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Human reactions during the test programme were consistently positive, says Mehler. “This automation is seen as a necessary development not as an enemy that is stealing jobs,” he explains.
Mehler explains that the robot is currently only in a developmental phase and a user front end does not yet exist. MORFI’s introduction to the shop floor depends on inspections and economics. Mehler stresses that it will take some time to industrialise a mobile robot fit for the shop floor, but LHT is already considering further applications for maintenance and overhaul support. Indeed, mobile robots have huge potential and are only limited by the creativity of the engineer. And while their development does create engineering issues, it would be counter-productive to ignore the improved production rate that mobile robots can deliver. While it’s not yet possible to say when such robots will be working on aircraft, it is feasible that, one day, a whole fleet of them will be working alongside each other, as well as humans.
afm • Issue 93 – November–December • www.afm.aero
FLEET OPS: Customer service
Computerising customer service Mary-Anne Baldwin reports from the World Low Cost Airlines Congress in London last September, where airlines discussed how they are using new technology to revolutionise customer service.
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irlines across the globe are using the latest technologies to transform customer service and in doing so build profit. While the applications are impressive, often the ideas behind them are simple – as are the methods used to create them.
The smart one to watch According to its IT director, Samuel Lacarta, Vueling developed a smart watch application (or App) after just eight days of brainstorming.
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Vueling’s first stage was to ask its IT team to imagine some of the many ways in which its passengers might use the new technology, and following numerous ideas, they settled on a boarding ticket App. Lacarta, who was speaking at the World Low Cost Airlines Congress in London, explained that the turnaround for such projects can be much faster, and therefore much more economical than many would think. He explained that his technical team
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FLEET OPS: Customer service
were particularly motived both because of their interest in the project, and their desire to do something innovative.
they even withheld information about the App from the airport it was being trialled at, to test whether it would work without airport staff training or any other requirements.
His team willingly worked through the night to get it done, and while companies can’t guarantee round-the-clock dedication, Lacarta believes that, often, a team with a personal interest in a pioneering project will apply themselves in unexpected ways.
Vueling’s trial was a success. Its developers boarded the flight without a problem. This demonstrated the ease with which airlines can introduce new technology, and that the possibilities for such technology are far reaching.
Once the boarding ticket technology was functional, its developers tested the technology by using the watch and its App to board a flight, just as any passenger would do. Unforgiving in their approach,
Having gone through this process, Lacarta is confident his company can turn around similar projects quickly. “I don’t know what’s next,” says Lacarta, “but at least I know I will be ready.”
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FLEET OPS: Customer service Keeping an eye out for customers Like Vueling, Virgin Atlantic also trialled smartwatches (along with smartphones), but the same pilot scheme gained notoriety for its use of Google Glasses, which proved to be a winner both with the airline’s passengers and its staff. Last March, Virgin Atlantic used each of the technologies in a six-week trial at its premium passenger lounge at Heathrow Airport. The devices were used to retrieve crucial information about the customer, meaning staff were able to provide each one with a personalised and unique service. While people were fond of the smartwatches for their “relatively natural responses”, said David Bulman, CIO, he also became aware that looking at the smartwatch could be misinterpreted as the universal sign for boredom – not quite conducive to customer service excellence.
and preferences including the customer’s passport and flight details, connections, baggage, dietary requirements and hotel details. Using the glasses, staff could check and possibly alter all of these details while in front of the passenger. Staff could also use the Google Glasses to access the Internet in order to answer customer queries such as the temperature or time at the destination, whether allocated seats could be changed, or how to translate phrases into the relevant foreign language. Following feedback from the staff, Bulman explained: “They really felt it empowered them to give a better service.” But despite positive feedback from both customers and staff, Virgin Atlantic has not committed to using the wearables long-term – at least not yet.
Virgin Atlantic is soon to trial a new biometric tool that will be used to identify passengers using their unique heart rates
Similarly, people did not respond well to the use of mobile phones. Perhaps passengers assumed that staff were using their own phones for personal reasons, and instead of providing a service, were in fact shirking all duties whatsoever. In a culture where many people are all but addicted to checking their mobiles, looking at a phone instead of making visual or verbal contact can be considered the height of rudeness. Thankfully, Virgin Atlantic added Google Glasses to the mix, and they captured the imagination of both passengers and staff. Bulman explains that the initial interest in using the glasses took over from the enthusiasm for the trial, but that after a short period of adjustment, staff quickly became both eager to adopt the trial and adept at using the technology for the task at hand. But what, you may be wondering, did they use this technology for? Virgin Atlantic worked with the IT air transport industry firm, SITA Lab, to develop a ‘dispatch App’, which linked to its passenger service system and managed all task allocation and concierge availability. The technology allowed staff to know each passenger’s arrival in advance (allowing them to greet the passenger by name), as well as their travel details
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And, Virgin Atlantic did discover some issues, namely connectivity, the ability to link data sources and the glasses’ short battery life. But overall, the project was a significant success, said Bulman. He urged other airlines not to be put off if similar initiatives don’t go as planned. “Allow concepts to fail,” he advised. “Don’t keep throwing money at them.” In fact, according to Bulman, Virgin Atlantic regularly brainstorms five ideas before filtering them down to just one. If that doesn’t work, it tries another. And innovation doesn’t have to come at a high price. “You can do innovative things without spending lots of money,” he explained, adding that the Google Glasses trial cost “less than a few tens of thousands”. So with all of its ideas, what’s next on Virgin Atlantic’s list of technological initiatives? At the event, Bulman revealed that Virgin Atlantic is soon to trial a new biometric tool that will be used to identify passengers using their unique heart rates. Passengers will be given a heart-monitoring wristband that will allow airline staff to identify the customer, their flight details and requirements, and enable them to deliver a personalised service.
afm • Issue 93 – November–December • www.afm.aero
FLEET OPS: Customer service
APPlying innovation Also innovative in its use of technology, Japan Airlines (JAL) has likewise used Google Glasses in its operations however, it chose to use them not for customer service but for MRO. Maintenance workers used it both to record the work they did and check best practice documents, instructions, images and inventory while carrying out that work. But JAL’s manager of planning group web sales, Andrew Kenji Wang Fujiyama, was most vocal about the company’s use of Apps. JAL has a number of Apps, including its most recent one – Flight Navi for iPhones and iPads – which was launched in August. Many airlines, and indeed airports, now provide mobile Apps, be they for easy check-in and boarding tickets, or buying ancillaries. But JAL’s App is rather unusual. It amasses information such as weather conditions, city maps, guides and shopping information – essentially all the information you could want about your destination – using reliable sources such as Google Maps and YouTube. JAL directs users away from its App to those individual sites, which does affect its readership figures but also provides a valuable service for very little cost. One other unusual extra is that passengers can view live security footage of the airport they’re at, which, says
Fujiyama, is particularly useful when sceptical passengers don’t believe announcements telling them that areas are overcrowded. Seeing the images themselves, they are then happy to relocate to another area. Of course, while interesting, these innovations are by no means unique. Airlines are doing a great deal to use both technology and data to boost sales and provide better customer service. From predictive recommendations for purchases, to wayfinding or updates on flight delays, it’s all being looked at. Qantas is taking steps to use big data to provide a better service. For example, it will be able to tell whether a passenger has bought and eaten a meal at the airport before the flight, meaning that if they fall asleep during the onboard food service, staff will know not to wake them. Tokyo’s Narita airport, along with many others, now use biometrics at security gates, which has greatly reduced the time spent at checkpoints. And countless airlines now use tablet devices for things such as electronic flight bags and onboard sales. And it won’t stop there. In fact, in terms of the ways in which airlines could use new technology, the sky really is the limit.
afm • Issue 93 – November–December • www.afm.aero
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FLEET OPS: Aircraft acquisition
Spoilt for choice: Selecting the right aircraft Mark Evers, aviation consultant at the airline start-up and aircraft acquisition specialist, Evers Consulting, walks airlines down the right path towards successful aircraft acquisition.
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irlines will often gather a lot of data before taking their business plans forward, but they are sometimes unsure quite how to mould all of that data into a workable venture. For example, airlines will often spend large sums of money and hours researching possible route networks, legal requirements and types of aircraft available, yet still make the wrong decisions. At Evers Consulting, we regularly get enquiries from such companies, which having identified a gap in the market or a lack of airline capacity, and having done their research, are still stumped on how to continue. One company wanted to start an airline using the 737 Classic. They had meticulously devised a complete route network and a detailed timetable but, unfortunately, they had used the faster cruising speed of the 737 NG aircraft to work out flight times. The NG can cruise at Mach 0.78 while the Classic cruises at just Mach 0.73, which makes a considerable difference over an entire flight, let alone a whole network of flights. In addition, they had not allowed for taxiing time to and from the gate. Using the cruise speed instead of the block speed (the distance divided by the time it takes from the doors closing on departure to them opening on arrival) can create a considerable variance in overall times.
Instead of zoning in on a particular aircraft, a good feasibility study should focus on the market demand, travel patterns between city pairs and the likely number of passengers on each proposed route. Load factors should be realistic; 100 per cent load factors during the first year of operations are, more often than not, unrealistic. In addition, the new venture should decide on its positioning early on, from which it can decide whether the LCC, full service or hybrid business model should be used as the basis of the financial calculations and method of operations. Always ensure that the data you are using is verifiable and from reputable sources, such as the National Statistics Offices and Civil Aviation Authorities. There are a number of excellent companies that can assist in airline feasibility studies but, be aware, some companies may provide unsubstantiated figures.
So, when airlines are juggling a myriad of issues, costs and timing, how can they ensure no concerns are overlooked?
Once the numbers have been crunched and a clear view of demand has been established, the airline should have a well-defined mission requirement for aircraft. It should now move into the next phase, where it will find the most suitable aircraft for the mission and the airline as a whole. During this phase a highly detailed aircraft acquisition plan should be prepared.
Feasibility study
Aircraft acquisition planning
Checking the operation’s feasibility with data and analysis is an essential part of the project, yet it’s often overlooked or not done in sufficient detail.
The aircraft acquisition phase requires careful consideration of a multitude of factors. The first requirement is to research the exact mission requirement for the aircraft, including the minimum number of passengers on each route and the resulting load factor.
In many cases, the start-up has already decided on a type of aircraft; the feasibility study is then geared
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towards how this type of aircraft would be able to fly the proposed routes and with what costs. This approach may work but it will not provide the lowest cost base for the proposed venture – another aircraft may be able to do the same job but at a lower price.
afm • Issue 93 – November–December • www.afm.aero
FLEET OPS: Aircraft acquisition
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FLEET OPS: Aircraft acquisition
Then the airline should determine the stage lengths of the routes under consideration and the range requirements. If the route is flying over high terrain, what’s the required altitude capability of the aircraft? Are there predominantly headwinds or tailwinds? How long are the runways at the departure and destination airports, and what approach facilities are available? Does one of the destinations suffer from foggy conditions? Are there weight limitations at any of the airports? These are just a small number of the many questions that need to be considered and all answers should be presented in a clear statement. For example, the report may read something like: The aircraft must be able to carry 160 passengers up to 1,500nm. It must be able to take off and land on runways that are 5,000ft or longer and it must be able to fly at altitudes in excess of 22,000ft, even if it suffers an engine failure. The aircraft must be able to carry out an automatic landing. The galleys must be able to provide hot and cold food. Such a statement would immediately eliminate a number of aircraft, leaving the company with a smaller list of contenders. The next phase in the acquisition planning process is to provide a detailed analysis of the specifications of each aircraft under consideration. This process should include seating, avionics and galley options. It’s important to provide an overview that allows each aircraft to be compared on a like-for-like basis.
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Here, key questions include whether there is correct safety equipment. For example, long overwater sectors; the aircraft’s weight limits for take-off and landing, and its maximum payload; the aircraft’s dimensions; different engine power or thrust ratings; fuel speed; and the aircraft’s block speed. Once the aircraft specifications have been examined in detail, the company must assess the availability of maintenance support. Base maintenance, line maintenance and the pooling of spares must be carefully considered to ensure the dispatch reliability of the aircraft is optimised. Among many other things, the airline must look at what type of engine support is available, how long it would take to have a replacement engine delivered, and the availability of qualified engineering staff. Again, the company should make a list that allows a comparison on a like-for-like basis. Why is all of this so crucial? A real-life example may explain. A few years ago, an airline started a low-cost operation in the UK using four 737 Classic aircraft. They paid less than $10m for the four aircraft. This kept the start-up’s costs very low, but unfortunately the quality of the aircraft was so poor and the dispatch reliability so weak that the whole schedule was in tatters for the first six months of operations. This cost the company a huge amount of money in maintenance bills and passenger delay compensation, as well as having crew idle during extended delays.
afm • Issue 93 – November–December • www.afm.aero
FLEET OPS: Aircraft acquisition
Ascertaining the optimum number of aircraft is also a crucial part of the planning process. Insufficient aircraft will lead to bottlenecks in your airline’s operations, while too many aircraft will lead to a reduction in the revenue per seat mile. The first step here is to calculate the amount of miles flown across the route network and to see how many seats would be required to transport the potential client base. The number of miles an aircraft can fly in any one day depends on block speed, turnaround times and dispatch reliability. The required number of miles divided by the available miles per aircraft will determine the optimum number of planes needed. Of course, a round figure would be preferable, but what if you calculate the number of aircraft needed to be 4.7? Here, you would have to do some further calculations to decide whether you should opt for four or five planes.
Financial analysis Once the above items have been determined, it’s time to see what will fit in the budget. The company would be wise to calculate the costs of leasing aircraft, purchasing it outright using venture capital or financing the asset through a bank. The report should also include calculations comparing the cost of new and used aircraft, including not just the acquisition cost but also the maintenance fees. New aircraft would cost less in maintenance and would be covered by a warranty, whereas very old aircraft may be cheap to acquire but may be costly when it comes to maintenance.
The different operating costs of each aircraft must be listed so these can be used during the cost benefit analysis at the end of the process. Other items to be considered are depreciation and residual values, cash flow requirements and each aircraft’s lifecycle costs. The cost benefit analysis is the final stage of the acquisition planning as it will allow the company to rank each aircraft. It’s also time for the company to make some decisions. The airline may go for the lowest cost and accept a lower dispatch reliability, or a slightly higher cost and better dispatch reliability. Whatever the parameters, the above analysis should identify an aircraft that is most suited to the task in hand. Answering these questions takes considerable time and resources. A large number of clients are surprised when we tell them the time it takes to create a good acquisition plan – which can be up to two months. Not only does it take time, but it takes specific knowledge and expertise too, which is why many airlines appoint a consultancy to carry out this phase of the project. Aircraft acquisition planning is a process that requires specific knowledge and expertise. The importance of carrying out this planning cannot be emphasised enough, and it must be an integral part of every airline’s project planning. Starting an airline requires significant resources and financial investment, so choosing the wrong type of aircraft is simply not an option.
afm • Issue 93 – November–December • www.afm.aero
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FLEET OPS: Parts traceability
Back to birth trace: Where does it end? Daniel James, senior associate at Stevens & Bolton, examines the need for the back to birth traceability of engine parts.
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any transactions will fall upon the typical aviation lawyer’s desk, and in the vast majority of cases they proceed as planned. Some, however, present a problem. It may be financial, technical or legal – but each problem can play a part in bringing a deal to a shuddering halt.
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The ‘back to birth’ or ‘b2b’ trace of engine life limited parts (LLPs) – or, more particularly, the documents that provide evidence of the lives of those parts – is one such problem, and it is becoming more frequent. Furthermore, the objectiveness of what constitutes adequate trace documentation is even more problematic.
afm • Issue 93 – November–December • www.afm.aero
FLEET OPS: Parts traceability Everything but the kitchen sink Admittedly, legal documents rarely get shorter. A previously unforeseen event may take place, a new piece of legislation will come into force, a judgement will be made upon the terms (or lack thereof) and the parties may negotiate new terms. The result is that new clauses or provisions are added over time and, for the most part, few things are removed. This ‘kitchen sink’ approach may mean that standard lease, sale or purchase documents might contain clauses or provisions that have no bearing on the underlying transaction due, perhaps, to the location of the parties, the laws governing those parties or indeed the actual equipment being sold.
Similarly, EASA has considered the issue through its Notice of Proposed Amendment 2014-04, wherein it acknowledged that the different interpretations of back to birth traceability must be addressed. The upshot appears to be that the concept of in-service history must be introduced. This term partially incorporates the concept of b2b traceability in that detailed maintenance records to support such history must be kept, but EASA does not advocate keeping this history from the ‘birth’ of the component, but from another set time.
A step in the right direction The detailed maintenance records are those that the owner and operator must keep in order to determine the continuing airworthiness and configuration of the
So, what exactly is b2b trace – is there an industry standard or a definition? The answer is ‘not exactly’, and therein lies a problem Without sufficient scrutiny of these terms, or consideration as to whether they are actually relevant, irregular terms may appear in numerous more documents before finally being enrolled in that legal hall of fame known as ‘market standard’. Unfortunately for those trading engines, the same thing is happening to engine LLP records. Is a photocopied non-incident statement from a defunct airline worth anything? Must the MRO’s ‘dirty finger print cards’ (DFPS) be provided? Who says so? When queries have arisen as to why an engine buyer requires certain documentation under the heading ‘b2b trace’, the answer, more often than not, is: “Well, the buyer of the last engine we sold asked for that, so now we’re asking for it.” So, what exactly is b2b trace – is there an industry standard or a definition? Does the European Aviation Safety Agency (EASA) or the Federal Aviation Administration (FAA) prescribe requirements? The answer is ‘not exactly’, and therein lies a problem. The FAA requires that the operator of an incoming aircraft establish that the ‘current status’ of LLPs is true and correct. Note that only the current status needs be ascertained, not the b2b status. The FAA has issued guidance on what is considered acceptable in establishing the current status but, guidance being guidance, it’s not definitive.
engine. More importantly, these are different from the detailed maintenance records, which the maintenance organisation is required to keep. Whereas maintenance organisations are obliged to retain all detailed records to demonstrate that they worked in compliance with their respective requirements, aircraft owners and operators need to retain records required to assess the aircraft’s configuration and the airworthiness of its parts, including the engine. EASA goes on to say that the maintenance organisation need not transfer DFPs to the aircraft owner and operator. This may be a step in the right direction, but will anyone be brave enough to move away from the ‘kitchen sink’ approach? To do so would be to look at the issue pragmatically, realising you’re not (from a regulatory perspective) obliged to obtain a b2b trace, and even if you want a b2b trace, you’re not obliged to obtain DFPs together with the engineer’s inside leg measurement. The market – and its tendency to include measures for all eventualities – drives this issue, and the blame cannot rest with airworthiness authorities. There is also something of a vicious circle to contend with. Some might blame the MROs for refusing to purchase surplus parts without full b2b trace, whereas the MROs might say that the airline customers are too demanding in their b2b requirements.
afm • Issue 93 – November–December • www.afm.aero
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FLEET OPS: Parts traceability
Tracing your steps As the market becomes more competitive, it’s important to distinguish one’s business and the assets it deals with as being a cut above. Is the used engine market looking to take its cues from the OEMs in terms of delivering a gold-plated documentary standard for engines? Having spent 25 years in the surplus business, Calum MacLeod, CEO of Royal Aero GmbH, an international engine trading, leasing and surplus parts business, understands the importance of trace but believes that a co-operative stance needs to be taken for the benefit of the industry. “The only way out of this mess is for the world’s major carriers, operators and independent MROs to create a meaningful list of requirements that will become true industry standard,” says MacLeod. Royal Aero has offered to start up a working group in order to create such a standard, or at least to develop a tacit understanding as to what is really required and what is mere box-ticking. The latest ‘must have’ document from an EASA airworthiness directive is in relation to certain specific
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parts of the CFM56-5 engine and follows a repair carried out by a non-OEM-approved designated engineering representative. Even though this issue related to a particular set of parts following a particular repair, some purchasers are now asking for statements that the LLPs were never installed in their engines. To comply with such a statement would clearly require a review of the back to birth history of the engine. It presents an additional hurdle, not to mention a devaluation of material that does not meet this requirement. Of course, even if an industry standard were agreed, it would be naïve to suggest that it would be forever set in stone. Things will undoubtedly rise to create an extra level of due diligence in respect of a particular LLP or documents, but restraint should be exercised in blindly applying that criteria across the board. As aircraft engineers will agree, the true value of an engine is based on the extent of the overhaul at the last shop visit, its operational environment since that date and its on-wing trend data. This will tell you how much real value remains in the engine. The rest is commercial politics – as evidenced by the authorities’ stance on b2b trace.
afm • Issue 93 – November–December • www.afm.aero
TLF: ISTAT
Winged ambition: What lies ahead? Mary-Anne Baldwin reports from the International Society of Aircraft Transport Trading (ISTAT), in Istanbul, where industry heads gave their forecasts for the global market.
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n 1638, during the height of the Ottoman Empire, the legendary aviator, Hezarafen Ahmed Çelebi, climbed to the top of the 183ft Galata Tower in Istanbul and soared two miles using just the wind and his self-made wings.
But Çelebi wasn’t just one of the first people to fly. Because Istanbul’s Bosphorus Strait separates the two continents of Europe and Asia, he became the first person to take an intercontinental flight. Aviation has celebrated many pioneering flights in the 400 years since then, which is why Istanbul was the perfect meeting place for many of its leaders during the International Society of Aircraft Transport Trading (ISTAT), in September. There, aviation heads discussed today’s central issues from GDP and growth rates, to over-production and finance, but not all of it was positive.
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From Russia with love Despite aviation’s many successes, the industry – cyclical by nature – is slowly emerging from a period of low growth. The world economy, says Andrew Matters, a senior economist at IATA, is improving yet is still “patchy and fragile”. Speaking with Matters, and many others at ISTAT, Peter Morris, chief economist at Ascend, explained that GDP trends continue to drive aviation growth, yet there are both hot and cold markets. Morris predicted continued but divergent growth, and said that while Europe’s GDP will grow by two per cent between 2012 and 2018, Turkey and the Middle East will be “the stars”. Russia’s passenger growth will be on a par with China, at 10 to 15 per cent. While Morris acknowledged that Russian GDP is a concern, and in the short-term, at least, its political
afm • Issue 93 – November–December • www.afm.aero
TLF: ISTAT
Russia’s growth partner, China, is also showing increasing demand for aircraft leases. In a poll of the conference’s delegates, only 13 per cent believed that China’s outflow of money into the industry will not last. Jeff Knittel, president of CIT Transportation & International Finance, who moderated the lessor panel at ISTAT, highlighted that 20 per cent of leased aircraft are going into China. Similarly, Steven Udvar-Hazy, CEO of Air Lease Corp (ALC), emphasised that China’s older aircraft are now reaching 15 years old, meaning that there aren’t just growth but also replacement opportunities. Indeed, ALC placed 100 aircraft into China last year. “We’re still experiencing very strong demand from China,” said Udvar-Hazy. But Knittel questioned whether, as China’s homegrown leasing platforms strengthen, Western lessors would be able to lease into China at the same rate. Scruggs believes this competition does indeed mean the West won’t be able to place as many leases into China, but he judges that, overall, leasing rates won’t decline. Adding to this argument, Peter Barrett, CEO of SMBC Aviation Capital, noted that sharing a mother tongue would mean local lessors would have the edge over Western lessors, therefore posing an even greater threat.
Istanbul’s Galata Tower, where the first transatlantic flight was made
tensions will affect business, he also stressed that it has huge potential.
But Western lessors have more experience over their Asian competitors. Speaking on the aircraft finance panel, Gordon Welsh, director of aerospace at UK Export Finance, wondered whether Chinese finance would continue after a troubled transaction. “Everybody goes through it,” warned Welsh, “so will China.” However, he argued that all new financing is good for the market and divulged that UK Export Finance is looking at renminbi financing and will announce a deal soon.
It’s all relative And unless political conflicts mount to such a severity that existing deals are shattered, Russia’s progress will benefit Western OEMs and lessors. According to Morris, in 2005, 95 per cent of Russia’s routes used Russian aircraft. By 2014 that dropped to 10 per cent, demonstrating its increasing reliance on Western aircraft.
However, with a range of analysts at ISTAT, not all agreed that Russia is the one to watch. According to Adam Pilarski, SVP at Avitas, Russia’s growth will be below average. Looking at long-term trends for the BRIC market, Pilarski found that Russia will see growth of 10.8 per cent between 2010 and 2015 against an industry average of 13.6 per cent, similar to Morris’ prediction.
While the risk is clear, lessors have the benefit of being able to move their assets to safer jurisdictions should they need to. Yet bad relations with Russia could affect things on a wider level, should it place sanctions that ban European airlines from its airspace. Philip Scruggs, chief commercial officer at AerCap, counselled: “I wouldn’t underestimate the risk of Russia and its sanctions.”
He argued that, of the BRIC nations, India and China are the real winners, while Russia and Brazil are so dissimilar they shouldn’t even be grouped with the others. Underscoring this, he quoted that Brazil will see growth of 9.1 per cent between 2010 and 2015, while India will see 31.3 per cent and China 45.8 per cent. Here, Pilarski’s forecast for China differs greatly from Morris’ 10 to 15 per cent.
afm • Issue 93 – November–December • www.afm.aero
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TLF: ISTAT
So how can these divergent ideas come about? Is it all lies, damn lies and statistics? Pilarski claims it’s a matter of perspective. He compared world growth analysis with the famous drawing by MC Escher (titled Relativity), in which people seem to be walking both up and down the stairs at the same time, depending on the perspective. It’s all just a point of view and it all depends on your positioning. But while China and Russia were contentious issues, each of the analysts agreed that India is ear-marked for progress. “India is a story of growth and opportunity,” said Matters. “But the question is when that opportunity will develop.” He believes that India is a near-term market and although it’s typically a slow mover, when it’s grown it will be a “global game-changer”. One of its biggest issues, said Matters, is bureaucracy and aviation charges, which help the government but hinder aviation and, consequently, GDP growth. “But things are beginning to change,” Pilarski observed. “There are all the right elements.”
Tinseth claimed: “We struggle sometimes to get aircraft into the hands of our customers.” But others worry that, fuelled by low and available financing, the industry has over-ordered. Indeed, Boeing’s current backlog is 5,237. Nigel Taylor, SVP of customers for project and structured finance at Airbus, noted: “We have huge amounts of funds coming in at a very low cost,” which shows confidence in the market. Airbus currently has a backlog of 5,892 but it will always argue that it’s carefully managed.
Just two days after the conference ended, airberlin announced its cancellation of 33 Boeing aircraft (18 737s and 15 787s), saying that it needed to reduce capital expenditure as part of its restructuring.
Udvar-Hazy noted that league times are the longest they’ve been in his four-decade career. He believes the OEMs are low on resources and that “we are reaching the point of saturation”. Udvar-Hazy divulged that he probed Boeing and Airbus on whether they would reconsider their production rates, not because they won’t be placed but because they may fail to deliver them.
No doubt Randy Tinseth, VP of marketing at Boeing Commercial Airplanes, was relieved at its timing. Had it
But again, this is just perspective. Scruggs believes “the question is not will they build them but who will buy them”.
Will orders bubble over?
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happened just before or during the show it would no doubt have powered the already prickly topic of over-ordering. Airbus’ chief operating officer for customers, John Leahy, said air traffic will double in the next 15 years, while his counterpart Tinseth sees demand for 42,000 aircraft by 2033. Much of this, says Tinseth, will be driven by the need for replacements and low-cost growth.
afm • Issue 93 – November–December • www.afm.aero
TLF: ISTAT
In another poll, 46 per cent (the majority by a large margin) believed the optimum level of ECA financing in a normal market is 10 per cent. Christian McCormick, MD and head aviation finance at Natixis, agreed that 10 per cent is the right amount of ECA financing for the market, but that it needs to increase “when times are tough”. However, Thomas Hollahan, MD at Citi, questioned why any airline should really need ECA financing while US airlines didn’t have access to it during the last 30 years. In response, Welsh highlighted that without the financing, airlines would either go bankrupt or merge, and while American airlines continued to survive because of mergers, those tie-ups also drained value from both the airlines and the American air travel market in general.
He takes the view that both manufacturers have overbooked for many years, and have always managed that.
The cost of capital “The entire economy, and lessors and airlines, have gotten used to very low interest rates,” said Barrett. “Rates can’t stay this low and the industry will experience an increase in the cost of assets.” When polled, 41 per cent of the audience believed the pricing on commercial loans has reached the bottom; 34 per cent thought pricing will decline but only for the best signatures; and only 25 per cent believed it will fall for all borrowers. “Talking about too much capacity is really a nonsense,” countered Morris. “There’s no such thing as too much capacity, there is only capacity at the wrong price.” He believes individual orders may prove volatile and older technology may fall out of favour more rapidly, but he observed that the timeframe over which that backlog exists has changed significantly. Clearly, we have already seen a decrease in ECA financing. Airbus’ Taylor argued that the industry doesn’t want ECA finance but is happy to have it when it is needed. If the market were healthy enough, it wouldn’t require it. But, he added, that seems unrealistically utopian. “If we saw zero per cent ECA financing we would be delighted, as would Boeing.”
But it’s not just about finance. Pilarski reminded that an order bubble is a “very complicated issue”, hinged upon myriad factors, including supply and demand; aircraft retirements; productivity; oil prices; interest rates; environmental policies; and terrorism or war. A change to any one of these factors can disrupt the planned projection. Perhaps what’s most tentative is the latter – the prospect of war. As Hollahan pointed out, most cycles are event driven, for example SARS and 9/11. While GDP forecasts can give us an insight into the future, such events are almost always unforeseen. Will Russia place sanctions on European airlines flying into its airspace? What would that mean to lessors and aircraft manufacturers wishing to trade with Russia? Furthermore, what would that do to oil prices, and could a trade war ensue? Or perhaps a war in the Middle East will tip us over the edge, with the threat of terrorism keeping travellers out of the sky. “It is always a good idea to assume that another event is not only possible but likely,” highlighted Hollahan. But while we prepare for the worst, we should also prepare for the best. While Çelebi’s Greek counterpart, Icarus, is a marker of failed ambition, Çelebi was the polar opposite. First rewarded for his flight with 1,000 gold coins by Istanbul’s then Sultan (Murad Khan IV), he later died in exile having been banished by the Sultan for his apparent ability to do anything he wished. While his demise was lonely, Çelebi taught us one clear lesson – that ambition and drive can lead us to unimaginable feats.
afm • Issue 93 – November–December • www.afm.aero
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TLF: Fuel hedging
Fuel hedging: Counting the cost Callum Macpherson, head of commodity hedging at Investec, explains how hedging works for airlines and the risks it presents.
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ot surprisingly, jet fuel is one of the most significant parts of an airline’s cost base, often accounting for as much as a quarter of total operating costs. It’s also a highly volatile cost. Over the last seven years, jet fuel has cost between $400 and $1,400 a metric ton (mt), with the highest price being 250 per cent higher than the lowest. Because of this volatility it has become standard practice for airlines to use financial instruments to set the future price of jet fuel, however the market behaves, thereby eliminating uncertainty. Forward price contracts with banks allow them to do this, but that approach can have its drawbacks. Should the price of jet fuel fall below the agreed price, the airline would then retain the difference between the actual and the agreed price, creating a risk for the bank should the airline get into financial difficulties. To offset this risk, banks often require airlines to place cash that the bank can keep if the airline becomes insolvent. Known as a ‘margin requirement’, this means airlines can suffer a cash outflow should the price of jet fuel fall. Indeed, this could potentially lead an airline into financial difficulty.
Hedge your bets ‘Hedging’ is the process of making a financial investment that behaves in reverse to the risk, thereby neutralising it.
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to hedge the cost of future jet fuel because the average price that the airline receives on the swap matches the cost of actually buying the jet fuel. For example, let’s say an airline wishes to fix the price at which it buys jet fuel in June 2015. If the swap price for buying jet fuel in June 2015 were $840 a metric ton, the airline could agree with a bank to pay $840mt to receive the average price of fuel in that month – whatever it turns out to be. If the average price of fuel in 2015 were $900mt, the bank would give the airline $60mt ($900 minus $840). This offsets against the cost of actually buying the fuel, leading to an all-in cost of $840mt ($900 minus $60).
In the case of airlines, fuel suppliers deliver jet fuel to aircraft at airports. This occurs under a contract whereby the supplier may charge the prevailing jet fuel price at the time, or the average price over a period such as a month. This price will change over time, in line with the whims of the global crude oil markets, as well as factors that are specific to the supply of and demand for jet fuel.
However, if the price of jet fuel fell to $700mt at some time prior to June 2015, the airline would owe the bank $140mt ($840 minus $700), which would have to be paid at the end of June 2015. Of course, the airline would benefit from paying less for the physical fuel, so the overall price would still be $840mt.
Fortunately, an active financial market in jet fuel products exists, enabling airlines to manage these risks. One such product is a swap, which allows an airline to pay a fixed price for a given amount of jet fuel while receiving the average price of jet fuel in return. Such a product is designed
But imagine an airline had hedged 20,000mt per month for a whole year. On that scale, $140mt would mean the airline would owe the bank around $34m in the future on the swaps. This is a substantial risk for a bank to bear and many would require the airline to provide cash to reduce that
afm • Issue 93 – November–December • www.afm.aero
TLF: Fuel hedging
exposure. Because the airline cannot access the cash deposited with the bank for margin, it is treated as restricted cash on the airline’s balance sheet rather than cash and cash equivalents. Of course, if the price moves the same amount in the other direction, the airline would have a similarly large exposure. As mentioned above, banks address this problem using a margining arrangement whereby they are able to call cash, or a margin, from the airline to cover exposures. Should the airline become insolvent, the bank would retain the offset losses from a default on the swap. If the price of fuel were to rise, the bank would give back some of the money to ensure there was just enough to cover exposures. Generally, banks will allow a limited exposure before asking for a margin – maybe the first $5m or $10m. In the example above, if the bank had granted the airline a $10m threshold before requesting a margin, then $24m – rather than $34m – of cash would need to be placed. However, there is a way around this. If the airline had a similar arrangement in place with three other banks and had split its hedges equally across all four banks, the exposure of each bank would be less than $10m, so the airline would not have to provide any margin.
Having multiple bank lines also means that the airline is able to put lenders in competition with each other, meaning they can often improve their costs. For these reasons, airlines generally like to deal with several different banks to execute their hedging programmes.
How much to hedge Another challenge is deciding how much to hedge. Airlines may reduce their planned services if customer demand does not warrant it, and vice versa. This makes it hard to decide how much to hedge. Imagine an airline expected to burn 500,000mt of fuel in a year and decided to hedge all of this in advance at a price of $900mt. Let’s say that, in reality, the airline’s demand turned out to be lower and consumption is only 400,000mt while fuel prices fell to $800mt. This means that the cost of purchasing 400,000mt of fuel is $900mt ($800 plus $100), but the airline also owes $100mt on the 100,000mt of hedging it no longer needs. That equates to a very uncomfortable loss of $10m! Sometimes periods of low oil prices are associated with weak macro-economic environments in which travel demand is reduced. This correlation increases the risk of over-hedging and is one of the reasons why airlines tend to
afm • Issue 93 – November–December • www.afm.aero
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TLF: Fuel hedging
under-hedge. Airlines are also wary of hedging significant portions of their projected exposure at any one time in case they later find they have bought at a high point. For this reason it is usual to hedge small amounts periodically while trying to pick local minima in fuel prices. Another approach to the problem of volume uncertainty is to buy call options. These give the holder the right, but not the obligation, to buy jet fuel at a fixed price in the future. If the price rises, the airline receives the amount by which it exceeds the fixed price, but does not have to pay if the price falls, which avoids the problem of over-hedging, from which swaps can suffer. However, there is no free lunch! The airline must pay a premium for a call option and the privilege of insuring against fuel costs. Still, in combination with swaps – which cover a core amount of hedging – options can provide protection against rising prices on the portion of projected fuel burn that is less certain.
Banking cash The task of finding sufficient counterparties for bank hedging has been made more difficult in recent years because several banks have scaled down, restructured or simply closed their commodity businesses. There are a number of reasons for this. Regulations on commodities are getting tougher and regulators are particularly concerned about banks engaged in physical commodity business. Secondly, commodity trading is not seen as a core part of a bank’s offering and, lastly, income from trading commodities has fallen and banks have had to chase volume to maintain revenues and keep trading desks occupied.
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As such, it has become more difficult for airlines to have a sufficient number of bank lines in place to avoid the need to deposit a margin, but there has not been much evidence of an increase in the costs of hedging due to reduced competition. However, the decline in the number of banks providing commodity hedging has occurred at a time when the banks’ credit appetite has generally increased, so the remaining banks have been able to increase credit lines to customers to take up some of the slack. Yet, as the global economy looks to be slowing down again, there is a danger that lines will come under pressure once more. There have also been some new players coming into the market to help fill the gaps with an alternative banking model. These banks are building streamlined commodity businesses that are founded on the principle of extending commodity credit lines to clients with the intention of building long-term hedging relationships, rather than simply looking for a flow to feed a large trading operation. Such banks work by laying off risk with other banks, trading houses and exchanges, thus avoiding the costs associated with maintaining a large internal trading operation. Investec is an example of a bank that employs such a strategy – we offer commodity and currency hedging products to airlines to augment our aircraft leasing business. As the price of oil becomes more volatile once again, and the economic outlook more uncertain, hedging will be a very important tool to manage fluctuating jet fuel costs, as will having access to lines with banks that have a good understanding of the airline industry – and that are prepared to stick with it across the economic cycle.
afm • Issue 93 – November–December • www.afm.aero
INDUSTRY DATA: Deals
Industry data Aircraft deals 47 53
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Firm orders
List prices and lease rates
Engine data Data supplied by IBA’s JetData. www.ibagroup.com
Aircraft deals 1 to 26 September, 2014 MSN
Manufacturer
Model
Event
Owner
Operator
Date
292 277 157 28567 28200 28151 24231 1169 1174 6209 6252 23988 31202 31203 6263 1173 29143 1561 36699 6271 6272 17000419 17000422 17000421 17000424 17000423 17000425 23448 33881 33097 1174 41322 39820 6227 6231 295 15330 26466 26467 43406
Airbus Airbus Airbus Boeing Boeing Boeing Boeing ATR ATR Airbus Airbus Boeing Boeing Boeing Airbus ATR Boeing Airbus Boeing Airbus Airbus Embraer Embraer Embraer Embraer Embraer Embraer Boeing Boeing Boeing ATR Boeing Boeing Airbus Airbus Airbus Bombardier Boeing Boeing Boeing
A300 A300 A300 737-300 737-300 737-400 737-400 ATR72 ATR72 A320 A321 737-400 737-800 737-800 A319 ATR72 777-300 A330-200 737-800 A321 A321 170/175 170/175 170/175 170/175 170/175 170/175 737-300 737-700 747-400 ATR72 737-800 737-800 A321 A320 A320 CRJ-705/900 737-400 737-400 737-800
AOC suspended AOC suspended AOC suspended Converted Converted Converted Converted Le & leaseback Le & leaseback Le & leaseback Le & leaseback Le & leaseback Le & leaseback Le & leaseback Le & leaseback Le & leaseback Le & leaseback Le & leaseback Le & leaseback Le & leaseback Le & leaseback Operated by partner Operated by partner Operated by partner Operated by partner Operated by partner Operated by partner Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease
AG Air AG Air AG Air GECAS Kahala US-28200 Aero Acquisitions Kahala US-28200 Aviation PLC AviancaTaca Wells Fargo Wells Fargo BCI 2005-11 Wells Fargo SMBC Wells Fargo MSN 1173 Leasing ICBC Leasing CIT Group Wells Fargo Wells Fargo Wells Fargo United United Skywest Republic Republic Skywest ACG All Nippon Airways 33097 Leasehold AviancaTaca Air Lease Corp PK Airfinance Avolon SMBC Eastok Avia Delta Air Lines Bin Vali Leasing Bin Vali Leasing GECAS
AG Air AG Air AG Air GECAS Kahala US-28200 Aero Acquisitions Kahala US-28200 Virgin Australia Avianca Avianca American Swift Air American American American AZUL Garuda Indonesia Virgin Australia Aeromexico American American Me Me United Express American Eagle American Eagle United Express My Indo Air Do Centurion Air Cargo Aviateca Garuda Indonesia 9 Air American Spring East Air Endeavor Air Air Wings Air Wings Solaseed Air
14/09/2014 14/09/2014 14/09/2014 01/09/2014 01/09/2014 01/09/2014 01/09/2014 01/09/2014 02/09/2014 03/09/2014 03/09/2014 05/09/2014 10/09/2014 10/09/2014 10/09/2014 10/09/2014 15/09/2014 22/09/2014 24/09/2014 26/09/2014 26/09/2014 10/09/2014 15/09/2014 18/09/2014 19/09/2014 23/09/2014 26/09/2014 01/09/2014 01/09/2014 02/09/2014 02/09/2014 03/09/2014 03/09/2014 03/09/2014 04/09/2014 04/09/2014 04/09/2014 05/09/2014 05/09/2014 05/09/2014
Source: IBA’s JetData.
afm • Issue 93 – November–December • www.afm.aero
47
INDUSTRY DATA: Deals Data supplied by IBA’s JetData. www.ibagroup.com
Aircraft deals 1 to 26 September, 2014 MSN
Manufacturer
Model
Event
Owner
Operator
Date
2908 1175 1451091 6151 1014 7591 41200 55031 41323 27377 7989 28494 15336 53079 961 212 215 6218 1554 15331 41253 6223 6220 44548 35316 6270 6242 E2302 6256 333 41563 1179 23513 41269 35817 44547 29001 28550 27418 26697 1694 48555 27271 33097 39820 32885 53250 1530 63 22822 22821 26910 26316 26689 24586
Airbus ATR Embraer Airbus ATR Bombardier Boeing Boeing Boeing Boeing Bombardier Boeing Bombardier McDonnell Douglas Airbus Airbus Airbus Airbus Airbus Bombardier Boeing Airbus Airbus Boeing Boeing Airbus Airbus BAE/Avro Airbus ATR Boeing ATR Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Airbus McDonnell Douglas Boeing Boeing Boeing Boeing McDonnell Douglas Airbus Airbus Boeing Boeing Boeing Boeing Boeing Boeing
A320 ATR72 ERJ-135 A320 ATR72 CRJ-100/200 737-800 717-200 737-800 767-300 CRJ-100/200 737-400 CRJ-705/900 MD-80 A330-200 A340-300 A340-300 A320 A330-300 CRJ-705/900 737-800 A320 A320 777-300 787-8 A320 A320 146-200/RJ85 A321 ATR42 737-800 ATR72 737-300 737-800 767-300 777-300 737-400 737-400 737-500 757-200 A320 MD-11 737-300 747-400 737-800 737-800 MD-80 A320 A340-200 757-200 757-200 747-400 737-400 757-200 757-200
Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked
Pegasus Aviation Avation PLC Skydome China Aircraft Leasing NAC Aircraft Capital Leasing ACG Boeing Capital Corp Air Lease Corp AWAS Natixis Lease Falcon Aviation Delta Air Lines Arctic One Aercap Novus Novus AWAS Intrepid Aviation Delta Air Lines GECAS BOC Aviation AWAS Air Lease Corp AerCap ICBC Leasing AWAS Falko Regional Aircraft CIT Group Aircraft Leasing & Mgmt CIT Group Wings Abadi GECAS GECAS LAN Air Lease Corp ACG Tombo Aviation GECAS United Vueling AerCap China Southern 33097 Leasehold PK Airfinance ACG Wilmington Trust Iberia Express AvCorp Delta Air Lines Delta Air Lines Air New Zealand AerCap United Pacific Airfinance
VivaAeroBus UNI Airways NasJet China Eastern Fiji Link Air Nostrum Aeroflot-Russian Delta Air Lines Air China Boliviana de Aviacion Severstal Farnair Hungary Endeavor Air Everts Air Turkish Plus Ultra Plus Ultra Spring Skymark Endeavor Air Garuda Indonesia Vistara Spring Etihad Airways Thai Airways Intl Citilink VietjetAir Summit Air American Chalair Aerolineas Malindo Air Atlantic Hainan TAM Cargo Air New Zealand Solaseed Air Solaseed Air Ukraine Int'l United Vueling KLM - Royal Dutch China Southern Centurion Air Cargo 9 Air ACG American Iberia Express Aerolineas Delta Air Lines Delta Air Lines Air New Zealand AerCap United American
05/09/2014 05/09/2014 05/09/2014 06/09/2014 06/09/2014 07/09/2014 08/09/2014 09/09/2014 09/09/2014 09/09/2014 09/09/2014 10/09/2014 10/09/2014 10/09/2014 11/09/2014 11/09/2014 11/09/2014 12/09/2014 12/09/2014 12/09/2014 13/09/2014 13/09/2014 15/09/2014 16/09/2014 16/09/2014 16/09/2014 17/09/2014 18/09/2014 18/09/2014 22/09/2014 23/09/2014 23/09/2014 24/09/2014 26/09/2014 26/09/2014 26/09/2014 01/09/2014 01/09/2014 01/09/2014 01/09/2014 01/09/2014 01/09/2014 02/09/2014 02/09/2014 03/09/2014 05/09/2014 05/09/2014 08/09/2014 08/09/2014 09/09/2014 09/09/2014 10/09/2014 11/09/2014 11/09/2014 11/09/2014 Source: IBA’s JetData.
48
afm • Issue 93 – November–December • www.afm.aero
INDUSTRY DATA: Deals Data supplied by IBA’s JetData. www.ibagroup.com
Aircraft deals 1 to 26 September, 2014 MSN
Manufacturer
Model
Event
Owner
Operator
Date
24415 34018 1285 6223 25 2176 702 24187 25277 24335 200 26471 25257 25442 23815 10030 267 1902 38077 28724 32753 27983 672 674 497 402 379 385 53189 49937 49790 23846 24599 631 662 49269 49270 25869 25160 25166 25702 26100 26200 66 24555 23815 48555 7100 24167 28550 303 24917 26065 24917 26065
Boeing Boeing Airbus Airbus Airbus Airbus ATR Boeing Boeing Boeing Airbus Boeing Boeing Boeing Boeing Bombardier Airbus Airbus Boeing Boeing Boeing Boeing Airbus Airbus ATR ATR ATR ATR McDonnell Douglas McDonnell Douglas McDonnell Douglas Boeing Boeing Airbus Airbus McDonnell Douglas McDonnell Douglas Boeing Boeing Boeing Boeing Boeing Boeing Airbus Boeing Boeing McDonnell Douglas Bombardier Boeing Boeing ATR Boeing Boeing Boeing Boeing
767-300 747-400 A319 A320 A340-300 A319 ATR72 737-500 757-200 767-300 A330-300 767-200 767-200 767-300 747-400 CRJ-700 A320 A320 747-8 767-300 737-700 737-800 A310-300 A310-300 ATR42 ATR72 ATR72 ATR72 MD-80 MD-80 MD-80 757-200 757-200 A300-600 A300-600 MD-80 MD-80 747-400 737-500 737-500 747-400 737-500 767-300 A320 737-400 747-400 MD-11 CRJ-100/200 737-400 737-400 ATR72 737-400 737-400 737-400 737-400
Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Parked Retired Retired Retired Retired Retired Retired Retired Retired Retired Retired Retired Retired Retired Retired Retired Retired Returned Returned Returned Returned Returned Returned Returned
All Nippon Airways Nippon Cargo GECAS BOC Aviation Turkish NBB Leasing Co NAC US Bank Trus PMCC Leasing Corp British Airways Philippine Boeing Nevada Wells Fargo British Airways Cathay Pacific Airways Lufthan Cityline Lufthan AerCap Cargolux Qantas WestJet Defag United Airways Airbus Asset Mgmt Hevilift Phoenix A/C Phoenix A/C Phoenix A/C United Airways Jetran United Airways Delta Air Lines Wilmington Trust Korean Air Korean Air Bank of Utah Bank of Utah Cathay Pacific AerCap AerCap Aircraft MSN 25702-2 Spectre Air Capital GECAS GPA Group Midamerican Aero Cathay Pacific AerCap Delta Air Lines Orix Tombo Aviation Helitt Lineas Aereas Flyfair Flyfair Flyfair Flyfair
All Nippon Airways Nippon Cargo GECAS Vistara Turkish FastJet Borajet Southwest United British Airways Philippine Aeromexico US Airways British Airways Cathay Pacific Lufthan Cityline Lufthan Wizz Air Cargolux Qantas WestJet TUIFly United Airways United Airways Hevilift United Airways United Airways United Airways United Airways United Airways United Airways Delta Air Lines American Korean Air Korean Air American American Cathay Pacific AerCap AerCap Aircraft MSN 25702-2 Spectre Air Capital GECAS US Airways Midamerican Aero Cathay Pacific Airways KLM - Royal Dutch Delta Air Lines Orix Tombo Aviation Helitt Lineas Aereas Flyfair Flyfair Flyfair Flyfair
11/09/2014 12/09/2014 12/09/2014 13/09/2014 13/09/2014 14/09/2014 14/09/2014 15/09/2014 15/09/2014 15/09/2014 15/09/2014 16/09/2014 16/09/2014 16/09/2014 17/09/2014 17/09/2014 18/09/2014 18/09/2014 19/09/2014 19/09/2014 22/09/2014 22/09/2014 24/09/2014 24/09/2014 24/09/2014 24/09/2014 24/09/2014 24/09/2014 24/09/2014 24/09/2014 24/09/2014 25/09/2014 03/09/2014 03/09/2014 03/09/2014 04/09/2014 04/09/2014 05/09/2014 07/09/2014 07/09/2014 09/09/2014 11/09/2014 11/09/2014 16/09/2014 17/09/2014 17/09/2014 22/09/2014 23/09/2014 01/09/2014 01/09/2014 01/09/2014 02/09/2014 02/09/2014 02/09/2014 02/09/2014
Source: IBA’s JetData.
afm • Issue 93 – November–December • www.afm.aero
49
INDUSTRY DATA: Deals Data supplied by IBA’s JetData. www.ibagroup.com
Aircraft deals 1 to 26 September, 2014 MSN
Manufacturer
2273 2925 53624 30854 462 30841 26316 29925 29926 1285 40234 372 409 34903 E2330 741 26470 333 333 7283 63 11505 49630 28563 671 726 202 32799 4714 26302 35831 26943 25119 29045 29046 383 29338 30625 33097 49575 95045 26561 1451091 1451106 28054 274 261 2192 225 53079 25095 25096 26100 81
Airbus A319 Airbus A319 McDonnell Douglas MD-80 Boeing 767-300 Airbus A330-200 Boeing 767-300 Boeing 737-400 Boeing 737-800 Boeing 737-800 Airbus A319 Boeing 737-800 Airbus A330-200 Airbus A320 Boeing 737-800 BAE/Avro 146-200/RJ85 Airbus A330-300 Boeing 767-300 ATR ATR42 ATR ATR42 Bombardier CRJ-100/200 ATR ATR42 Fokker Fokker 100 McDonnell Douglas MD-80 Boeing 737-300 Airbus A320 Airbus A320 Airbus A340-300 Boeing 737-800 Airbus A320 Boeing 737-400 Boeing 737-800 Boeing 777-200 Boeing 737-300 Boeing 737-700 Boeing 737-700 Airbus A340-600 Boeing 737-300 Boeing 737-800 Boeing 747-400 McDonnell Douglas MD-80 Sukhoi SSJ 100-95 Boeing 747-400 Embraer ERJ-135 Embraer ERJ-135 Boeing 737-300 Airbus A300 Airbus A300 Airbus A319 Airbus A340-300 McDonnell Douglas MD-80 Boeing 737-400 Boeing 737-400 Boeing 737-500 Airbus A320
Model
Event
Owner
Returned AWAS Returned GECAS Returned Dougherty Air Trustee Returned GECAS Returned AerCap Returned GECAS Returned AerCap Returned CIT Group Returned CIT Group Returned GECAS Returned Avolon Returned Deucalion Capital Returned ACG Returned BBAM Returned BAE Systems Returned AerCap Returned Wells Fargo Returned Aircraft Leasing&Mgmt Returned Aircraft Leasing&Mgmt Returned Voyageur Airways Returned Danish Air Transport Returned Denim Air Returned AvCorp Returned Aircraft Finance Trust Returned off sub-lease Eastok Avia Returned off sub-lease AerCap Returned off sub-lease NBB Leasing Co Returned off sub-lease AerCap Returned off sub-lease Avolon Returned off sub-lease AerCap Returned off sub-lease SMBC Returned off sub-lease T7 Aviation Returned off sub-lease AWAS Scrapped Mitsui Scrapped Mitsui Sold off lease Al-Naser Sold off lease Unknown (France) Sold off lease Wells Fargo Sold off lease 33097 Leasehold Sold off lease Tristar Sold off lease Interjet Sold off lease Cargo Air Lines Sold off lease Skydome Sold off lease Aurogold Assets Sold off lease Aircraft 28054 Sold off lease Transcarga Airways Sold off lease Transcarga Airways Sold off lease Cote d'Ivoire Government Sold off lease Unknown Sold off lease Arctic One Sold off lease Bank of Utah Sold off lease Bank of Utah Sold off lease Spectre Air Capital Sold off lease Global Airways
Operator
Date
AWAS GECAS Dougherty Air Trustee GECAS AerCap GECAS AerCap CIT Group CIT Group GECAS flydubai Deucalion Capital Avion Express SpiceJet BAE Systems AirAsia X SkyGreece Aircraft Leasing&Mgmt Aircraft Leasing&Mgmt Voyageur Airways Danish Air Transport Denim Air AvCorp Aircraft Finance Trust YanAir YanAir Hi Fly Miami Air Int'l Air France AirExplore GOL Omni Air Int'l AWAS Mitsui Mitsui Al-Naser Unknown (France) Wells Fargo 33097 Leasehold Tristar Interjet Cargo Air Lines Skydome Aurogold Aviation Aircraft 28054 Transcarga Airways Transcarga Airways Cote d’Ivoire Government Unknown Arctic One Bank of Utah Bank of Utah Spectre Air Capital Global Airways
03/09/2014 04/09/2014 05/09/2014 09/09/2014 09/09/2014 10/09/2014 11/09/2014 11/09/2014 12/09/2014 12/09/2014 15/09/2014 16/09/2014 17/09/2014 18/09/2014 20/09/2014 21/09/2014 22/09/2014 22/09/2014 22/09/2014 22/09/2014 23/09/2014 23/09/2014 23/09/2014 24/09/2014 01/09/2014 01/09/2014 02/09/2014 05/09/2014 06/09/2014 08/09/2014 11/09/2014 07/09/2014 22/09/2014 09/09/2014 11/09/2014 01/09/2014 02/09/2014 02/09/2014 02/09/2014 03/09/2014 03/09/2014 05/09/2014 05/09/2014 05/09/2014 10/09/2014 10/09/2014 10/09/2014 10/09/2014 10/09/2014 10/09/2014 11/09/2014 11/09/2014 11/09/2014 11/09/2014
Source: IBA’s JetData.
50
afm • Issue 93 – November–December • www.afm.aero
INDUSTRY DATA: Deals Data supplied by IBA’s JetData. www.ibagroup.com
Aircraft deals 1 to 26 September, 2014 MSN
Manufacturer
Model
Event
Owner
Operator
Date
81 48437 24811 24231 24828 28754 26689 41668 48411 28733 34018 23214 53624 26697 1005 48523 49328 24373 41097 24482 24483 25315 25545 25546 68 26550 41665 53365 31543 497 7021 24691 24358 1360 501 1174 24492 24567 273 32601 35229 36724 5228 135 30401 25377 25535 1005 409
Airbus McDonnell Douglas Boeing Boeing Boeing Boeing Boeing Boeing McDonnell Douglas Boeing Boeing Boeing McDonnell Douglas Boeing Airbus McDonnell Douglas McDonnell Douglas Boeing Boeing Boeing Boeing Boeing Boeing Boeing ATR Boeing Boeing McDonnell Douglas Boeing ATR Bombardier Boeing Boeing Airbus Airbus ATR Boeing Boeing Airbus Boeing Boeing Boeing Airbus Airbus Boeing Boeing Boeing Airbus Airbus
A320 MD-11 737-400 737-400 737-500 747-400 757-200 777-300 MD-11 737-300 747-400 767-200 MD-80 757-200 A320 MD-11 MD-80 747-400 737-800 747-400 747-400 747-400 747-400 747-400 ATR42 747-400 777-300 MD-80 777-300 ATR42 CRJ-100/200 737-400 767-300 A330-300 A330-200 ATR72 737-300 757-200 A340-300 737-800 767-300 737-700 A320 A320 747-400 737-400 767-300 A320 A320
Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold with lease Sold with lease Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Transferred Transferred Transferred Transferred Transferred Transferred Transferred Wet-leased Wet-leased Wet-leased
Aircraft Support Group Bank of Utah Swift Air JetTime Advantage Aviation GA Telesis Federal Express American M48411 flyVista Georgia Wilmington Trust Jet Midwest Aero Capital Dyn Federal Express Avion Express Mobility Air Southwind Industries Q747 Shandong Q747 Q747 Q747 Bank of Utah Bank of Utah Rheinland Air Service Delta Air Lines American Delta Air Lines American Hevilift Regional One Wells Fargo Guggenheim GECAS AerCap AviancaTaca AerCap AWAS Orix Urumqi LAN Argentina Southwest Tigerair Germanwings Valerie Leasing Sideral Air Cargo AWAS Avion Express ACG
Aircraft Support Group Bank of Utah Swift Air JetTime Advantage Aviation GA Telesis Federal Express American M48411 flyVista Georgia Wilmington Trust Jet Midwest Aero Capital Dyn Federal Express Avion Express Mobility Air Southwind Industries Q747 Shandong Q747 Q747 Q747 Bank of Utah Bank of Utah Rheinland Air Service Delta Air Lines American Delta Air Lines American Hevilift Regional One Xtra Airways ABX Air Garuda Indonesia Garuda Indonesia Avianca Regional Ellinair Cargojet Airways Tunis Air Urumqi LANArgentina Southwest Tigerair Germanwings Cargolux Italia Sideral Air Cargo Medview Cubana Aruba
11/09/2014 11/09/2014 12/09/2014 12/09/2014 12/09/2014 12/09/2014 12/09/2014 12/09/2014 12/09/2014 15/09/2014 16/09/2014 16/09/2014 16/09/2014 17/09/2014 17/09/2014 18/09/2014 18/09/2014 19/09/2014 21/09/2014 22/09/2014 22/09/2014 22/09/2014 22/09/2014 22/09/2014 22/09/2014 23/09/2014 23/09/2014 23/09/2014 24/09/2014 24/09/2014 24/09/2014 24/09/2014 26/09/2014 01/09/2014 02/09/2014 02/09/2014 04/09/2014 05/09/2014 11/09/2014 02/09/2014 02/09/2014 04/09/2014 18/09/2014 19/09/2014 24/09/2014 18/09/2014 04/09/2014 17/09/2014 18/09/2014
Source: IBA’s JetData.
afm • Issue 93 – November–December • www.afm.aero
51
INDUSTRY DATA: Firm orders Firm orders – From 1 September to 27 October, 2014
Data supplied by IBA’s JetData. www.ibagroup.com
Source: IBA’s JetData.
Firm orders – From 1 September to 27 October, 2014
Manufacturer Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Bombardier Embraer Mitsubishi Sukhoi Sukhoi
Data supplied by IBA’s JetData. www.ibagroup.com
Variant
Customer
Order date
No of Aircraft
Engines
A320ceo A330-200 A320ceo A320neo A321neo A320ceo A330-200 A319ceo A330-200 A320 family A320neo family 737 MAX 8 737 MAX 8 737-800 737-800 737 MAX 9 787-9 737 MAX 8 737-800 777-300ER 737 MAX 787-9 767-300F BBJ 737-900ER 747-8F CS300 E175 MRJ90 SSJ100 SSJ100
Qatar Airways Private Customer Lufthansa Swiss International Air Lines Swiss International Air Lines easyJet Iberia Z/C Aviation Partners One LLC Air Algerie China Aviation Supplies (CAS) IndiGo Ethiopian Airlines Ryanair Undisclosed Undisclosed Avolon Avolon Garuda Undisclosed GECAS VIP Customer Undisclosed FedEx VIP Customer Alaska Airlines AirBridgeCargo Airlines Macquarie AirFinance Republic Airways Holdings Eastern Air Lines Group, Inc Undisclosed (Laos) Undisclosed (Indonesia)
04/09/2014 16/09/2014 17/09/2014 17/09/2014 17/09/2014 18/09/2014 22/09/2014 24/09/2014 25/09/2014 10/10/2014 15/10/2014 01/09/2014 08/09/2014 10/09/2014 11/09/2014 12/09/2014 12/09/2014 12/09/2014 14/09/2014 23/09/2014 26/09/2014 26/09/2014 29/09/2014 30/09/2014 06/10/2014 Oct. 2014 26/09/2014 17/09/2014 22/09/2014 02/09/2014 02/09/2014
8 1 10 10 5 27 8 4 3 70 250 20 100 5 4 5 6 50 8 2 1 15 4 2 10 1 40 50 20 3 10
CFM56-5B CF6-80E CFM LEAP-1B CFM LEAP-1B CFM56-7B CFM56-7B CFM LEAP-1B CFM LEAP-1B CFM56-7B GE90-115B CFM LEAP-1B CF6-80C2 CFM56-7B CFM56-7B GEnx-2B67 PW1500G CF34-8E5 PW1200G SaM 146 SaM 146
Source: IBA’s JetData.
52
afm • Issue 93 – November–December • www.afm.aero
AIRPORTS INDUSTRY & ROUTES:DATA: Airport List charges prices Data supplied by IBA’s JetData. www.ibagroup.com
List prices and lease rates – October 2014 Current Market Value Manufacturer
Average List Price
Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus
$71.90m $85.80m $93.90m $110.10m $221.70m $224.80m $245.60m $295.20m
Airbus Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing McDonnell Douglas Boeing McDonnell Douglas Boeing McDonnell Douglas Boeing McDonnell Douglas Boeing McDonnell Douglas Boeing McDonnell Douglas Bombardier (Canadair) Bombardier (Canadair) Bombardier (Canadair) Bombardier (Canadair) Bombardier Bombardier Bombardier Embraer Embraer Embraer Embraer Embraer Embraer Fokker Fokker Sukhoi ATR ATR ATR ATR
$414.40m $78.30m $93.30m $99.00m $368.40m $160.20m $191.50m $193.70m $269.50m $305.00m $309.70m $330.00m $218.30m $257.10m $40.00m $45.80m $48.90m $30.34m $22.20m $29.10m $40.00m $43.10m $47.70m $50.50m $18.10m $18.90m $21.90m $22.70m
Type A300-600R A310-300 A318-100 A319-100 A320-200 A321-100 A321-200 A330-200 A330-200F A330-300 A340-200 A340-300 A340-500 A340-600 A350900XWB A380-800 B717-200 B737-300 B737-400 B737-500 B737-600 B737-700 B737-800 B737-900 B737-900ER B747-400 B747-8F B757-200 B767-200ER B767-300ER B767-300F B777-200 B777-200ER B777-200LR B777F B777-300 B777-300ER B787-8 B787-9 MD-81 MD-82 MD-83 MD-87 MD-88 MD-90 CRJ-100/200 CRJ-700/705 CRJ-900 CRJ-1000 Q200 Q300 Q400 ERJ-135 ERJ-145 E170 LR E175 LR E190 LR E195 LR Fokker 70 Fokker 100 SSJ 100-95B ATR 42-500 ATR 72-500 ATR 42-600 ATR 72-600
Dry Lease Rate
Oldest
Newest
$3.50m $2.50m $10.00m $8.00m $3.50m $9.00m $14.00m $20.00m $75.00m $16.50m $5.00m $5.00m $18.00m $20.00m -
$9.30m $5.50m $18.00m $37.00m $43.50m $13.50m $51.00m $93.50m $91.00m $105.00m $8.00m $28.00m $32.00m $45.00m $142.80m
% Change -2% 0% 1% 1% 0% 5% 2% 2% 0% 1% -4% 0% 0% 0% 0%
$129.00m $6.00m $1.00m $1.20m $1.00m $8.00m $11.00m $14.50m $14.00m $28.50m $8.00m $125.00m $4.00m $2.00m $7.00m $20.00m $18.00m $28.00m $65.00m $125.00m $40.00m $76.00m $93.00m $0.50m $0.50m $0.50m $0.50m $0.70m $3.60m $1.20m $7.50m $10.50m $19.80m $4.90m $5.60m $8.00m $1.50m $2.00m $11.00m $14.50m $16.50m $18.00m $1.70m $1.75m $17.50m $4.20m $6.50m -
$225.00m $10.00m $4.00m $5.50m $3.30m $13.00m $36.50m $48.00m $19.50m $49.85m $29.00m $180.00m $17.50m $11.00m $65.00m $60.00m $41.00m $105.00m $145.00m $167.00m $66.00m $167.00m $117.00m $132.80m $0.50m $1.10m $1.50m $1.00m $1.50m $4.60m $4.30m $20.30m $25.00m $28.00m $8.00m $11.00m $21.50m $4.00m $6.50m $26.30m $29.50m $33.00m $35.00m $1.90m $2.50m $23.00m $12.00m $17.50m $16.00m $21.00m
0% 1% 6% 3% -2% 0% 2% 1% 0% 0% -3% 0% 1% -2% 1% 0% 0% 0% 0% 0% -2% 0% 1% 0% 0% -6% -5% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 2% 1% 0% 0% 0% -15% -15% 0% 0% 5% 0% 0%
$0.060m $0.055m $0.100m $0.090m $0.050m $0.080m $0.160m $0.200m $0.650m $0.200m $0.100m $0.130m $0.225m $0.270m -
$0.150m $0.120m $0.185m $0.310m $0.380m $0.170m $0.430m $0.860m $0.800m $0.920m $0.190m $0.360m $0.380m $0.525m $1.250m
% Change -7% 0% 0% 1% 5% 0% 1% -2% -3% 0% -7% 0% 0% -1% 0%
$1.150m $0.070m $0.030m $0.045m $0.030m $0.080m $0.120m $0.195m $0.125m $0.255m $0.120m $1.300m $0.060m $0.060m $0.125m $0.220m $0.220m $0.310m $0.650m $1.200m $0.400m $0.700m $0.800m $0.020m $0.020m $0.020m $0.020m $0.020m $0.060m $0.035m $0.080m $0.110m $0.170m $0.060m $0.065m $0.090m $0.035m $0.045m $0.105m $0.140m $0.155m $0.165m $0.040m $0.050m $0.140m $0.060m $0.080m -
$2.000m $0.120m $0.075m $0.100m $0.065m $0.145m $0.320m $0.410m $0.190m $0.420m $0.380m $1.500m $0.200m $0.200m $0.480m $0.520m $0.360m $0.840m $1.000m $1.400m $0.660m $1.550m $1.100m $1.200m $0.040m $0.045m $0.050m $0.040m $0.050m $0.090m $0.060m $0.195m $0.235m $0.265m $0.080m $0.120m $0.190m $0.070m $0.080m $0.215m $0.250m $0.280m $0.290m $0.060m $0.090m $0.225m $0.140m $0.180m $0.155m $0.185m
0% -3% 5% 3% -2% -2% 2% 2% -3% 1% -3% 0% -4% 4% 0% -5% -7% -5% 0% 0% -1% 0% 0% 0% 0% 0% 0% 0% 0% 0% -5% -2% -4% -3% 0% 0% 0% 0% 0% -3% -1% -2% -2% 0% 0% 0% 0% 0% 0% -5%
Oldest
Newest
Source: Source: IBA’s IBA’s JetData. JetData.
afm • Issue 93 87 – November–December • www.afm.aero
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AIRPORTS & INDUSTRY DATA: ROUTES: Engine Airport datacharges Data supplied by IBA’s JetData. www.ibagroup.com
Engine data – October 2014
Source: IBA’s JetData.
Data supplied by IBA’s JetData. www.ibagroup.com
Engine data – October 2014 Type B737-300 B737-400 B737-500 A321-200 body A319-100 A340-300 B737-600 B737-700 B737-800 B737-900ER CRJ-200 CRJ-700 E170/175 E190/195 A300-600R B767-300ER MD-11 A330-200 B777-300ER A320-200 MD-82 B747-400 A310-300 B757-200 Fokker 100 A340-600 A330-300 B777-200ER A380-800 ERJ-145 ER B717-200
Engine CFM56-3B1 CFM56-3B2 CFM56-3C1 CFM56-5B3/P CFM56-5B5/P CFM56-5C4/P CFM56-7B22 CFM56-7B24 CFM56-7B26 CFM56-7B27 CF34-3B1 CF34-8C5 CF34-8E5 CF34-10E6 CF6-80C2A5 CF6-80C2B6F CF6-80C2D1F CF6-80E1A3 GE90-115B V2527-A5 JT8D-217C PW4056 PW4152 RB211-535E4 Tay 650-15 Trent 556-61 Trent 772B-60 Trent 895 Trent 970 AE3007-A1 BR715A
Full-life market value October 2014
Current half-life market value October 2014
$1.00m $1.40m $2.10m $8.65m $6.75m $5.60m $7.05m $7.85m $8.60m $8.90m $2.20m $4.60m $6.00m $7.10m $5.15m $7.10m $5.20m $14.80m $31.90m $7.80m $0.90m $6.50m $6.00m $4.20m $2.20m $14.00m $14.58m $20.50m $19.80m $2.30m $4.00m
$0.60m $0.75m $1.20m $6.30m $4.35m $3.80m $4.70m $5.50m $6.25m $6.55m $1.15m $3.20m $3.20m $5.00m $2.65m $4.00m $2.75m $10.00m $24.10m $5.35m $0.55m $3.90m $3.30m $2.80m $1.30m $8.50m $8.60m $13.50m $13.80m $1.30m $2.50m
Market lease rate $0.020m $0.022m $0.028m $0.065m $0.045m $0.045m $0.047m $0.056m $0.065m $0.066m $0.017m $0.045m $0.045m $0.065m $0.040m $0.055m $0.045m $0.120m $0.250m $0.060m $0.025m $0.055m $0.045m $0.050m $0.025m $0.110m $0.120m $0.170m $0.170m $0.025m $0.042m Source: IBA’s JetData.
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afm afm •• Issue Issue93 93––November–December November–December••www.afm.aero www.afm.aero