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Fresh start for South African Airways? Business Aviation
New Ethiopian holding company
Malusi Gigaba, Finance Minister, South Africa.
Airport ownership
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DATE: SUNDAY, 18TH TO TUESDAY, 20TH MARCH, 2018 VENUE: INTERCONTINENTAL CITYSTARS HOTEL, CAIRO, EGYPT
CONFERENCE THEME
ADDRESSING AVIATION TRAINING PRIORITIES IN AFRICA E ARE delighted to announce that the 6th Annual African Aviation Training Conference & Exhibition will be co-located with AFRICAN AVIATION’s 27th Annual MRO Africa Conference & Exhibition, hosted by EGYPTAIR, which will take place from Sunday, 18th to Tuesday, 20th March, 2018, at the Intercontinental CityStars Hotel, Cairo, Egypt. This follows the successful co-location of these two events in Johannesburg, South Africa, in March, 2017, hosted by South African Airways. The 6th Annual African Aviation Training Conference & Exhibition will address critical training and capacity-building priorities facing the African aviation industry across multiple areas, including: Pilot Training; Cabin Crew Training; Maintenance .Training; Training for Aviation Management and Regulatory Authorities; Safety Training Strategies; Training for Airports and Air Traffic Controllers; Standardisation of Course Curricula, Harmonisation of Instructor Training; the Development of Centres of Excellence and International Co-operation. The role of ICAO’s Global Aviation Training (GAT) initiative in capacity building in Africa will be examined, as well as IATA’s Training Strategy on the continent. The Conference will also provide a unique opportunity for African and international aviation training organisations and suppliers to network, develop strategic partnerships, and showcase their courses, products and services. Once again, a highlight of the event will be to spotlight the valuable work and achievements of the Association of African Aviation Training Organisations (AATO). A co-operation agreement was signed between AFRICAN AVIATION and AATO in March, 2017, in South Africa, to support and promote the Association within and outside Africa.
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FOR MORE INFORMATION PLEASE CONTACT: AFRICAN AVIATION Email: conferences@africanaviation.com
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DATE: SUNDAY, 18TH TO TUESDAY, 20TH MARCH, 2018 VENUE: INTERCONTINENTAL CITYSTARS HOTEL, CAIRO, EGYPT HOSTED BY
IRCRAFT MAINTENANCE, Repair & Overhaul (MRO) representatives from around the world will converge in Cairo, Egypt, in March, 2018, for AFRICAN AVIATION’s 27th Annual MRO Africa Conference & Exhibition which is being hosted by EgyptAir and EgyptAir Maintenance & Engineering. This growing annual event provides a valuable opportunity for African airlines and other aircraft operators, MROs, Original Equipment Manufacturers (OEMs), Government Regulators, and aviation suppliers and service providers to network and establish beneficial business relationships. To Register for MRO Africa 2018, please contact AFRICAN AVIATION at the email address below
A
INTRODUCING:
A SPECIAL SESSION ON HELICOPTER MRO
OR THE first time, MRO Africa 2018 will include a Special Session on Aircraft Interiors, an increasingly important business segment for MROs in Africa. For example, Ethiopian MRO, a business unit of Ethiopian Airlines, recently refurbished one of its Boeing 767-300ER aircraft, with others to follow. The aircraft was fitted with brand-new full flat-bed seats in Cloud Nine business class (pictured right), a modern inflight entertainment (IFE) system, and in-seat power outlets.
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SEPTEMBER/OCTOBER, 2017
Fresh start for South African Airways?
CONTENTS
Business Aviation
COMMENT Africa could learn from Singapore and Dubai . . . . . . . . . . . . .9 New Ethiopian holding company
AIRLINES
Malusi Gigaba, Finance Minister, South Africa.
Fresh start for South African Airways? . . . . . . . . . . . . . . . . . .10 Air Côte d’Ivoire receives new A320 . . . . . . . . . . . . . . . . . . .12 Challenges facing Kenya Airways . . . . . . . . . . . . . . . . . . . . .14 Nigeria to implement aviation road map . . . . . . . . . . . . . . . .15 Why Ethiopia is adopting an aviation model similar to Dubai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Airport ownership
AIR FINANCE Financing African airlines . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 New engine leasing venture . . . . . . . . . . . . . . . . . . . . . . . . . .22
REGIONAL JETS Prospects for Regional Jet aircraft in Africa . . . . . . . . . . . . . .24
AIRLINE STRATEGY A new business model for African airlines? . . . . . . . . . . . . . .28
Fresh start for South African Airways? – page 10
SAFETY AIB releases accident reports . . . . . . . . . . . . . . . . . . . . . . . . .31
SECURITY New Security Roadmap for Africa and Middle East . . . . . . . .31
MRO EgyptAir to host MRO Africa 2018 in Cairo . . . . . . . . . . . . . .32 JORAMCO performs C-Checks on two Tunisair Airbus A330s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 Air Zimbabwe selects Seabury . . . . . . . . . . . . . . . . . . . . . . . .32
FORUM
Why Ethiopia is adopting an aviation model similar to Dubai – page 16
Why Sir Richard Branson is ceding control of Virgin Atlantic Airways . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
BUSINESS AVIATION Ensuring an effective global framework for business aviation growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
AIRPORTS Airport ownership and financial performance . . . . . . . . . . . .38
DRUMBEAT
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Airlink completes proving flight to St Helena . . . . . . . . . . . . .40
AVIATION DATA
. . . . . . . . . . . . . . . . . . . . . . . . . . .42
Prospects for Regional Jet aircraft in Africa – page 24
CHIEF EXECUTIVE OFFICER & EDITOR-IN-CHIEF NICK FADUGBA.
BUSINESS DIRECTOR JEFF LING.
AFRICAN AVIATION, Africa’s Aviation Industry Journal, was established in 1990. It is published bimonthly by African Aviation Publications, part of African Aviation Services Limited, 2 Kings Court, Newcomen Way, Severalls Business Park, Colchester, Essex CO4 9RA, UK. ENQUIRIES:
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Complimentary on-line subscriptions are provided to signed-up African aviation officials and at the reduced annual subscription rate of UK£95 by post. Annual subscription rate within the UK: UK£145. Outside the UK: US$265. NB: Only paid-up subscribers are guaranteed regular copies of AFRICAN AVIATION. © COPYRIGHT African Aviation Services Limited 2017. All rights reserved.
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
7
27TH AFRICAN AVIATION SUMMIT
DATE: TUESDAY, 22ND TO THURSDAY, 24TH MAY, 2018 VENUE: BILL GALLAGHER ROOM, SANDTON CONVENTION CENTRE, JOHANNESBURG, SOUTH AFRICA
2017 Airline Financing Panel (from left): Aslam Khan, Chairman, ALS, Kenya; Vipula Gunatilleka, Chief Financial Officer, TAAG-Angola Airlines; Meseret Bitew, Acting Chief Financial Officer, Ethiopian Airlines; William McCallum, Managing Director, Aviation Finance, Standard Chartered, and Nic Vlok, Acting Chief Executive Officer, Mango Airlines, South Africa.
PLUS THE
HIS IN-DEPTH Aircraft Leasing Seminar, organised by AFRICAN AVIATION and facilitated by leading International and African Aviation Finance and Legal experts, will provide much-needed practical guidance and training to African airlines and aircraft operators on all aspects of Aircraft Lease Financing, including: ● Typical Aircraft Leasing Structures, including ACMI ● Lease Preparation, Negotiation & Execution ● Implications of Aircraft Delivery & Re-Delivery Terms & Conditions ● Representations & Warranties; Indemnities & Default ● Aircraft & Engine Maintenance Requirements & Reserves ● Aviation Insurance Requirements ● Governing Law & Regulatory Compliance
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HE AFRICAN AVIATION LAW CONFERENCE & EXHIBITION will be co-located with AFRICAN AVIATION’s 27th ANNUAL AFRICAN AVIATION SUMMIT: AIR FINANCE AFRICA, and will include a few joint sessions to enable maximum networking and relationship-building. Leading international and African Law Firms, plus Legal representatives of African Airlines, Airports, Aviation Organisations and Government bodies will discuss a wide range of issues, including: ● Aviation Law across multiple African Jurisdictions ● Cross-border Aircraft Transactions ● The Montreal & Cape Town Conventions ● Aircraft Repossession in Africa & Dispute Resolution ● Legal Implications of Drones; Insurance Issues ● Liability Law for African Airports & ATCs ● Legal Responsibilities of Regulatory Bodies ● Air Accident Litigation and Liability Claims
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SUPPORTING THE AFRICAN AVIATION INDUSTRY FOR 27 YEARS ®
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Africa could learn from Singapore and Dubai HE AFRICAN aviation industry has grown considerably since AFRICAN AVIATION was launched 27 years ago. Much has been accomplished, such as the improvement in air safety in Africa and the transformation of several African airline fleets with state-of-the-art aircraft. However, so much more remains to be achieved, such as implementation of the Yamoussoukro Decision on ‘Open Skies’ and the development of modern aviation infrastructure in many parts of Africa.
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A particularly welcome development in recent years is that the African Union (AU), Africa’s highest governmental body, is paying more attention to the important role aviation could play as a tool for Africa’s economic growth. The AU’s key objectives include promoting unity, accelerating integration and intensifying co-operation among its 55 member states. We believe it would be difficult to achieve any of these worthy goals without a strong, safe, and efficient aviation industry providing vital connectivity throughout Africa. Hence our belief that Africa could learn a lot from the government policies of Singapore and Dubai where aviation has been deliberately, strategically and successfully harnessed as a tool for national development. Far-sighted Singapore was quick to recognise the power of aviation and utilised it to facilitate the remarkable growth in trade, investment and tourism between the small island state and the rest of the world. Before many others, Singapore adopted a liberal ‘Open Skies’ policy resulting in extensive air services which have turned it into a key hub in the Asia-Pacific region. Similarly, the Government of Dubai utilised aviation to drive economic development and transform the emirate into a global aviation hub. Oxford Economics calculated that Emirates Airline, Dubai Airports and the aviation sector as a whole contributed US$26.7 billion to the Dubai economy in 2013, almost 27% of total GDP, and supported a total of 416,500 jobs, 21% of total employment. It forecasted that aviation will contribute US$53.1 billion to Dubai’s economy, 37% of GDP, and support over 750,000 jobs by 2020. It concluded: “Without the aviation sector, it is hard to imagine Dubai as it is today.” We urge African Governments, with the full support of the AU, to develop and implement effective aviation policies which will foster and accelerate the economic and social development of this great continent. Significantly, Ethiopia, home of the AU, is leading the way.
Nick Fadugba FRAes President & CEO AFRICAN AVIATION Email: nickfadugba@africanaviation.com Follow us on:
@AfricanAviation
Websites: www.africanaviation.com
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AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
African Aviation
www.mroafrica.com
MRO Africa
Nick Fadugba
9
AIRLINES
A key task for SAA’s new CEO will be to decide the airline’s future aircraft fleet strategy.
Fresh start for South African Airways? Can VUYANI JARANA, the new CEO of South African Airways, turn around the lossmaking national carrier? In spite of the many challenges, it is not an impossible task.
M
Malusi Gigaba, Finance Minister, South Africa.
10
ALUSI GIGABA, South Africa’s Finance Minister, candidly says that the appointment of Vuyani Jarana as the new Chief Executive Officer of South African Airways (SAA), “Important as it is, is only one step in a stream of decisions that will need to be taken to address the challenges at SAA.” He adds: “Unless firm internal controls are established at the airline, it is likely to encounter the same problems over and over again.” Jarana joins SAA after 22 years at the Vodacom group, South Africa, where, as Chief Officer of Vodacom Business since 2012, he is credited with turning the loss-making subsidiary into a profitable growth engine for Vodacom, contributing 25% of group service revenues, compared to 10% previously. Jarana was a member of the core leadership team of Vodacom group responsible for the enterprise segment across the African continent, experience which will be useful in his new role as SAA CEO. In August, SAA Chairperson, Dudu Myeni, told Parliament that the airline made a year-on-year loss of R1.46 billion (rands) in the first quarter of this year - R71 million worse than in the same period last year. She added that SAA needs a capital injection of R13 billion over the next few years to survive. It was also revealed that the airline has 15 loans totalling R14.6 billion maturing from the end of September this year to 30 April, 2018. The government has already provided loan guarantees of almost R20 billion to SAA.
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
AIRLINES Given the airline’s financial predicament, there are now serious discussions at government level about finding SAA a strong equity partner that can provide sufficient funds for the much-needed recapitalisation. The potential twist in the tale is that the equity partner may not be from the private sector. Instead, South Africa’s Public Investment Corporation (PIC) is being tipped as a possible partner. In its five-year Corporate Plan for 2017 to 2022, which was tabled before Parliament by the National Treasury, SAA cited PIC as a possible source of
COMMENTS BY Our abbreviated Comments on SAA from 2004 and 2013.
2004
Management crisis at SAA
T
HE ABRUPT departure of yet another senior member of the leadership team of South African Airways (SAA) is a stark reminder of the serious management crisis at Africa's largest airline. In recent years, SAA seems to have been operating a revolving-door management policy with top executives coming and going at an alarming rate. This management instability, combined with SAA's current dire financial situation, does not auger well for the airline’s future….... Furthermore, there has recently been a serious erosion of SAA’s priceless technical and operational expertise. All of this is quite worrying. ●
2013
Saving South African Airways
A
CTION URGENTLY needs to be taken to rescue South African Airways (SAA) from its current plight before irreparable damage is done to Africa’s largest airline, which has a rich heritage of operational and technical excellence. As the sole shareholder of the airline, the Government of South Africa needs to face reality and take responsibility. To survive and prosper, SAA needs strong leadership, a clear vision, a sound business plan, a healthy balance sheet and zero political interference. On the other hand, it is unreasonable and unacceptable for an airline to willingly accept Government bailouts and then resist being held accountable. …....Malusi Gigaba, South Africa’s Minister of Public Enterprises, does not mince words in expressing the Government’s exasperation with SAA: “Given the difficult environment, a prudent shareholder is compelled to ask whether SAA, our national airline, responded adequately and timeously to these challenges. In truth, SAA performed below reasonable expectations. Its response to the deteriorating climate was both slow and inadequate. The airline’s liquidity position has declined significantly over the past two years. The liquidity challenges resulting from the cash burn also undermined the status of SAA as a going concern…....,” he says. What is crystal clear is that successive management teams and turnaround strategies have failed to yield positive results at SAA during the past couple of decades. It thus behoves the Government to think outside the box and put the issue of privatisation firmly on the table. A privatised SAA seems to be the most sensible way forward to safeguard the airline’s future. ●
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
Vuyani Jarana, CEO, South African Airways, South Africa. funding. Malusi has not ruled out this suggestion and plans to make a definitive statement when announcing the mini-budget in October. Musa Zwane, SAA’s Acting CEO, and his management team, have focused on cutting costs and improving the airline’s efficiency through “revenue enhancement” initiatives, including network and schedule changes, price segmentation and a symbolic 5% pay cut agreed by the executive management. However, there has been a growing clamour in South Africa for fundamental changes to be made at the national airline, in particular for the appointment of a completely new board and board chairman. Without this, it is felt that new CEO Jarana may not have a free hand to implement the tough decisions which urgently need to be made. The airline has had seven temporary and substantive CEOs since 2010 and has attempted to implement up to nine different turnaround strategies. This instability has jeopardised the airline’s future.
Business strategy For what it is worth, it has been pointed out that, historically, SAA has rarely been profitable. During the apartheid years, the airline served as the country’s vital bridge to the world, especially in the face of biting international economic sanctions. The South African government at the time went out of its way to support SAA financially and bottom-line profitability was never an issue. Thus, when the new democratic dispensation dawned on South Africa in 1994 the carrier was not in the best shape to capitalise on new business opportunities. The country’s geographical location at the southern tip of Africa has also been cited as a disadvantage for SAA in building an effective hub-and-spoke route network. In contrast, Ethiopian Airlines and Kenya Airways have benefitted from the fact that their hubs are more centrally located on the continent. Will Jarana’s appointment provide SAA with a much-needed fresh start? The answer depends on his vision, leadership, business strategy and management team, as well as a recapitalisation. It also depends on there being, as in Ethiopia, no micro-management by the Board and no political interference by the Government. ● 11
AIRLINES
Air Côte d’Ivoire receives new A320
A
IR CÔTE d’Ivoire, the Ivory Coast’s flag-ship airline based in Abidjan, has continued its impressive growth trajectory with the addition of a new Airbus A320 to its fleet. It already operated four A319s and two A320s on a network comprising 20 different destinations in West and Central Africa, plus five domestic destinations. With its experienced and stable management team Air Côte d’Ivoire is becoming a show-case airline for Airbus in Africa.
Operating costs Air Côte d’Ivoire says it chose the A320 because of its exceptionally comfortable cabin, low operating costs and excellent fuel consumption. The cabin is configured in two classes (16 business class seats and 132 economy seats). The business class features the new ‘Celeste’ seat provided by Stelia Aerospace, while the economy class features a modern lighting system and internet connectivity. Pictured above left during the ceremony at the Airbus Delivery Centre in Toulouse are, from third left to right: Didier Evrard, Airbus Executive Vice President, Programmes; Bakari Soro, Directeur de Cabinet du Ministère des Transport de Côte d’Ivoire; General Abdoulaye Coulibaly, Chairman of Air Côte d’Ivoire’s Board of Directors; and René Decurey, Directeur Général, Air Côte d’Ivoire. ●
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AIRLINES
Challenges facing Kenya Airways
P
ERHAPS THE biggest challenges that faced Kenya Airways’ new Group Managing Director and Chief Executive Officer, Sebastian Mikosz, when he assumed office on June 1 this year were dealing with the carrier’s large debts estimated at around US$1 billion, appeasing disgruntled creditors and keeping staff motivated, especially the vocal Kenya Airline Pilots Association (KALPA).
Sebastian Mikosz, Group MD and CEO, Kenya Airways. Kenya Airways’ Chairman, Michael Joseph, points out that previously Mikosz has been President and CEO of LOT Polish Airlines, Poland, a position he held twice including leading an in-depth turnaround which resulted in LOT’s first positive results in many years. Mikosz took over from former Kenya Airways’ CEO Mbuvi Ngunze who Joseph commended for ensuring that the airline stayed afloat, leading from the front in negotiations with financiers and critical partners, and launching the turnaround strategy, dubbed “Operation Pride.” The Government of Kenya has been supportive of the flag-carrier in which it has a major shareholding, regarding it as a valuable national strategic asset. This was amply demonstrated by the US$750 million in guarantees which Kenya’s Cabinet provided to existing creditors. The Government is also converting its own loans to the airline into equity, but does not intend to provide additional cash. Several banks agreed to a debtfor-equity swap, while others were compelled to do so by a court. Notably, KLM’s stake will now drop from 26.7% to 13.7%. ● 14
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
Pictured above in Abuja, Nigeria, are, from left: Dr. Olumuyiwa Aliu, ICAO Council President; Senator Hadi Sirika, Minister of State for Aviation; President Muhammadu Buhari, and Minister of Transportation, Chibuike Rotimi Amaechi.
Nigeria to implement aviation road map
T
HE NIGERIAN aviation industry breathed a collective sigh of relief when Head of State, President Muhammadu Buhari, appointed Senator Hadi Abubakar Sirika, a former pilot and member of the Senate Committee on Aviation, as Minister of State for Aviation in November, 2015. Even though the aviation portfolio was reduced from the status of a full ministry to become part of the Federal Ministry of Transportation (for cost reasons), there was optimism that an experienced aviator had been appointed to the job and that the industry would at last begin to move forward after several years of seeming stagnation.
regarding, for example, airport concessioning, the proposed new national carrier, bilateral air services agreements, and the future of Arik Air and Aero, which are both in administration under the control of the Asset Management Corporation of Nigeria (AMCON), a government body. The financial and operational problems faced by most Nigerian airlines have been exacerbated by the
the government’s aviation development roadmap. To this end, a Project Steering Committee and Project Delivery Team have been established to fast-track the road map, as well as to ensure transparency and instil confidence. The key projects to be executed through Public Private Partnerships (PPP) include the concession of four international airports (Abuja, Kano, Lagos, and Port
Positive impact Sirika has had a positive impact, so far, and has not shirked from taking tough decisions – such as shutting down the Nnamdi Azikiwe International Airport in the capital city of Abuja for six weeks for urgent rehabilitation of the single runway, and restructuring Nigeria’s aviation agencies to enhance efficiency. He was a close confidante of Buhari long before the President assumed office. This proximity to power has been helpful in getting things done. In addition, the aviation industry, in the main, has warmed to his confident and disarmingly affable style. He publicly volunteered to resign if Abuja Airport was not re-opened within the six-week deadline and, to the chagrin of sceptics, was acclaimed as ‘Minister of the Year’ when he accomplished this feat ahead of time. However, the fundamental challenges facing the country’s aviation industry still persist, from inadequate airport infrastructure, to ailing airlines and to the general uncertainty about government policies
There has been heated speculation about Ethiopian Airlines managing Arik Air. country’s economic recession which has resulted in lower load factors and yields. Allen Onyema, Chairman and CEO of Air Peace, voiced the widespread industry concern when he recently warned that at least six domestic airlines risked collapse due to ‘bad’ government policies and multiple taxation by government aviation agencies. Three-year old Air Peace now has 13 aircraft with several more due to be delivered soon, including two Boeing 777-200ERs. Even the former Minister of Aviation, Stella Oduah, who was removed from office and is now a Senator, criticised the “deviation” by the current administration from the ‘Aviation Master Plan’ launched during her tenure. Sirika has had to reassure the industry that all critical stakeholders will be involved in the deliberations on
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
Harcourt); establishment of a national carrier; establishment of a maintenance, repair and overhaul (MRO) facility; establishment of an aircraft leasing company; development of cargo/agro-allied terminals, and the development of an Aerotropolis (airport city). Meanwhile, Ethiopian Airlines has shown interest in taking over the management of Arik Air. But the feeling is not mutual, at least not yet. Arik has filed a N20 billion suit in the Federal High Court against the Federal Government of Nigeria and Ethiopian to prevent such a take-over. In spite of all this, new start-up airlines are queuing up in Nigeria. These (and their promoters) include: JetWest (Dikko Nwachukwu), Green Africa Airways (Babawande Afolabi)and Eagle Airways International (Otunba Peter Obafemi). ● 15
Tewolde GebreMariam, CEO of Ethiopia’s new Aviation Holding Group. Ethiopian recently ordered 10 more A350-900s.
Why Ethiopia is adopting an aviation model similar to Dubai
T
HE DECISION by the Government of Ethiopia to merge Ethiopian Airlines and Ethiopian Airports Enterprise into a single aviation holding company led by the airline, Africa’s largest and most successful carrier, took the local industry by surprise.
the primary reason for the merger was to drive efficiency at the airport company, create greater synergy between these key players and further develop the aviation sector. For years, successive managements of Ethiopian Airlines have discretely voiced their
Ethiopian Airlines and Ethiopian Airports are now part of the same group. The country’s Council of Ministers authorised the merger following recommendations from a committee headed by Sofian Ahmed, an Advisor to the Prime Minister, with Tewolde GebreMariam, CEO of Ethiopian Airlines Group, as head of the technical team. This caused a few smaller domestic operators to complain about a potential conflict of interest on the part of Ethiopian Airlines, especially as there was very little prior industry consultation. Ethiopian Airport Enterprises, which runs 23 airports, will now be grouped with Ethiopian Airline’s own seven business units: namely, Ethiopian Domestic and Regional Airline; Ethiopian International Passenger Airline; Ethiopian Cargo; Ethiopian MRO; Ethiopian Aviation Academy; Ethiopian In-Flight Catering Services; and Ethiopian Ground Service. When the structure of the new holding company is finalised a Board of Directors will be appointed by the Ministry of Transport. From the perspective of the Government and Ethiopian Airlines, 16
concern that the airport company was not keeping pace with the rapid progress made by the national carrier, especially in terms of airport infrastructure development. Numerous passengers at Bole International Airport, Ethiopian’s main hub, particularly those in transit, would concur. In effect, the Government has taken a bold decision to build on the impressive success of Ethiopian Airlines and make aviation a cornerstone of the Ethiopian economy and national development, very similar to the strategy embarked upon years earlier by Singapore and more recently by Dubai. In doing so, the Government, as it perceives it, has put the paramount interest of the country above that of individual citizens and organisations concerned about a monopoly in Ethiopia’s aviation industry. Reacting to the new development, Tewodros Dawit, CEO of Ethiopian Airports Enterprise, remarked pragmatically that the formation of the holding company would help
improve the competitiveness of Ethiopian Airlines’ hub, help the airports company to develop global standards of service and enable Ethiopia to continue its aviation leadership in Africa. To capitalise on its achievements, Ethiopian Airlines urgently needs a larger, more modern and very efficient hub airport. Since it joined the global airline group Star AIliance in December, 2011, Ethiopian has established a powerful hub-and-spoke route network system which has seen its passenger traffic soar due to the multiple citypairs connectivity provided. It truly does connect Africa to the world, and vice versa. This growth trajectory could be impeded by the inadequate infrastructure and passengerprocessing facilities at the Addis hub. However, the dedication of the management and staff of Ethiopian Airports should not be downplayed. What seems to have been lacking is the drive and entrepreneurial zeal found in abundance at Ethiopian Airlines, and the financial resources. Government ownership of key aviation organisations, such as the main carrier and airports, is common to both Ethiopia and Dubai. The main difference is that Emirates Airline and Dubai Airports work seamlessly together and both are at the sharp edge of modern technology and infrastructure. They play a critical role in the Dubai Government’s strategic economic plan. This aviation model works well for the emirate. “Aviation is one of the main engines driving Dubai’s emergence as a global centre for trade, commerce and tourism,” says Sheikh Ahmed Bin Saeed Al Maktoum, Chairman and CEO of Emirates; Group Chairman of Dubai Airports, and President of Dubai Civil Aviation Authority (CAA). A key similarity between Ethiopia’s new aviation model and Dubai’s is that one person will be the overall head of both the national airline and the airports company. A key difference is that Tewolde will not also head the Ethiopian CAA. ●
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
AIR FINANCE
Financing African airlines Funding is available for African airlines if they meet the right criteria, including having a viable business plan.
T
HE CHALLENGE of funding airlines in Africa – both existing carriers and startups – was high on the agenda during the 26th Annual AFRICAN AVIATION SUMMIT: AIR FINANCE AFRICA held in Johannesburg, South Africa, recently. International and African financial experts and senior officials representing leading airlines from around Africa candidly addressed the pressing issues at hand and, importantly, recommended practical solutions to help resolve the situation. James Geldenhuys, Head of Aircraft Finance at Nedbank CIB, South Africa, stated clearly that creating a viable business plan was an essential first step for an airline seeking funding. He added that important considerations from a financier’s perspective included capital costs, fuel costs, route profitability, short and long-term vision and strategy, aircraft values, management stability, government/shareholder participation, country risk and payment culture. “Airlines are one of the most difficult businesses to manage due to the complexity and vast variables changing
Meseret Bitew, Acting Chief Financial Officer, Ethiopian Airlines.
James Geldenhuys, Head, Aircraft Finance, Nedbank CIB, South Africa.
and impacting the carrier on a daily basis. The fact that there is a huge growing market out there is not enough on its own,” he said, “Continuous research and market information is required on a regular basis to ensure that management remains on top of their game. Continuous planning is everything and must be further enhanced by flawless implementation.” He examined the old versus new aircraft question, as well as the buy versus lease issue, and recommended an optimal mix based on each airline’s particular circumstances. Michael B. Cox, Vice Chairman of US-based Seabury Advisory Group, pointed to the strong competition African airlines face from foreign carriers, particularly from Europe and the Middle East (see table on page 19). “Any airline business plan should aim to satisfy all key criteria required to guarantee the financial and operational attractiveness of the airline. It needs to
clearly lay out key performance indicators (KPIs) to be attractive to investors.” His key criteria included a low cost base, strong network, management competence and stability, operational efficiency, access to capital and liquidity, a modern fleet and developed alliances or partnerships. His financial KPIs included a cash balance – a measure of financial liquidity – of 1520% of revenue, and a net profit – a measure of profitability – greater than 4% taking into account all costs. He added that access to financing was still limited for start-up carriers (see chart on page 20). Will McCallum, Managing Director, Aviation Finance, Standard Chartered, Ireland, reiterated his bank’s longstanding commitment to the African airline industry, through ups and downs. Standard Chartered had two Airbus A330s on lease to Arik Air, (Continued on page 20)
AIRLINE FINANCIAL RESULTS – GLOBALLY BY REGION System-wide global commercial airlines
EBIT margin, % revenues 2011
Global
2012
2013
2014
2015
3.1% 2.6% 3.5% 4.6% 8.5%
Net profit, US$ billion
2016 2017 F 2011 8.8%
2012
2013
2014
2015
2016 2017 F
7.5%
8.3
9.2
10.7
13.7
35.9
34.8
31.4
North America
3.0% 3.4% 6.8% 11.0% 14.8% 13.2% 11.6%
1.7
2.3
7.4
11.1
21.7
16.5
15.4
Europe
0.8% 0.7% 2.0% 2.0% 5.4%
5.2%
0.3
0.4
1.0
1.9
7.4
8.6
7.4
Asia-Pacific
6.6% 4.7% 2.9% 2.0% 8.0% 10.0% 8.3%
5.0
5.8
2.3
0.3
7.3
8.1
7.4
Middle East
3.1% 3.0% 0.9% 2.4% 3.6%
2.0%
0.8%
1.0
1.0
0.3
1.1
2.1
1.1
0.4
Latin America
2.0% 1.5% 2.2% 2.1% 1.5%
4.2%
4.7%
0.2
-0.2
0.2
0.0
-1.6
0.6
0.8
AFRICA
0.6% -0.4% -0.5% -2.4% -4.3% 2.0%
1.7%
0.0
-0.1
-0.5
-0.8
-1.0
-0.1
-0.1
REGIONS
6.1%
Data sources: ICAO revised data 2010-15. IATA estimates for regions in 2011-16. IATA forecast for 2017. Note: Bankruptcy reorganization and large non-cash costs are excluded. EBIT: Earnings Before Interest and Tax. Source: IATA. 18
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
START-UP CARRIERS IN AFRICA, JUST LIKE ESTABLISHED LEGACY CARRIERS, WILL FACE STRONG INTERNATIONAL COMPETITION 472,079,979,298
(% SHARE OF AFRICAN ASKs)
Air Austral 1.2% Corsair 1.3% Etihad Airways 1.3% Brussels Airlines 1.4%
Emirates, Qatar & Ethiopian have made strong in-roads largely at the expense of state-owned airlines in Africa.
404,431,721,053
EgyptAir 5.9% South African Airways 11.9% Other 30.5%
KLM 2.7%
Saudia 1.5%
Kenya Airways 2.9%
Corsair 1.5%
Air Algerie 3.1%
Tunisair 1.7% Air Austral 1.8% Qatar Airways 1.9% Air Algerie 2.0% Air Mauritius 2.1% Lufthansa 2.2%
Qatar Airways 3.2% Turkish Airlines 3.4% British Airways 3.9%
KLM 3.0% Kenya Airways 3.4% Royal Air Maroc 4.4%
Royal Air Maroc 4.8%
EgyptAir 5.6%
British Airways 4.6% Air France 5.7% Ethiopian Airlines 5.0%
Air France 6.3%
South African Airways 6.6%
Emirates 6.3% Emirates 8.5% EgyptAir 6.7%
South African Airways 8.2%
2007
2012
2017
Source: Seabury Consulting; Diio Mi, prior years ending in March.
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
Ethiopian Airlines 9.0%
Other 28.4%
SWISS 1.2% Air Mauritius 2.9% KLM 4.0% Emirates 4.7% Air France 7.8%
Ethiopian Airlines Air Algerie Virgin Atlantic Airways 2.1% 1.4% 3.1%
288,817,568,849
Saudia 2.2%
Other 33.1%
ASK: Available Seat Kilometres
British Airways Royal Air Maroc Kenya Airways Lufthansa Tunisair Qatar Airways Saudia Air Austral Brussels Airlines Alitalia 1.7% 3.5% 1.3% 1.2% 2.3% 1.4% 1.3% 1.3% 4.6% 6.0%
TAAG 1.4% Delta Air Lines 1.5% Turkish Airlines 1.6%
Tunisair 1.4% Lufthansa 1.6% Air Mauritius 1.8%
accenture.com/seaburyconsulting 19
Michael Cox, Vice Chairman, Seabury Advisory Group & Global Head, Seabury Corporate Advisory, USA.
David Minty, Head, Aviation Finance, Investec Bank, South Africa.
Chris Zweigenthal, Chief Executive Officer, Airlines Association of Southern Africa (AASA), South Africa.
Nigeria, when the carrier was put into administration but within a very short time the bank established good relations with the administrator, the Asset Management Company of Nigeria (AMCON) and amicably resolved the situation. Likewise, David Minty, Head of Aviation Finance at Investec Bank, South Africa, stressed the need for financiers to keep close to their airline customers. Investec Bank is very active in both the corporate and commercial aviation markets. Saif Malik, Standard Chartered’s
MD, Corporate and Institutional Banking and Global Head of Banking, cited challenges such as currency depreciation and large US dollar liabilities, the availability of financing drawn mainly to top-tier carriers and assets, increased competition from outside Africa, slow movement on air transport liberalisation which would open up intra-regional traffic growth and political challenges. “Despite the challenges, significant growth potential exists for the African market,” he concluded, on a positive note.
Chris Zweigenthal, CEO, AASA, in his comprehensive presentation, drew attention to the poor profitability record of the African airline industry, a fact evidenced by the financial results for commercial airlines around the world (see table on page 18) reported by IATA. Collectively, airlines from Africa made losses for most years between 2011 and 2016 and are forecast to lose US$100 million this year. In this regard, great value was provided during the Air Finance (Continued on page 22)
ACCESS TO FINANCING IS STILL LIMITED FOR START-UP CARRIERS Low interest rates and abundant liquidity in the market favour the aircraft financing industry and reduce the need for OEM and export credit funding Health of aircraft financing environment
2009
2010
2011
2012
2013
2014
2016 2015 2016F Africa
Applicability for start-up carriers
LEASING COMPANIES
With appetite for higher risk, major source of capital
CAPITAL MARKETS
Very limited opportunities, potentially through Exim-Bond
Commercial banks
Some appetite, increased ‘regional’ risk makes the banks cautious
ECA/EXIM/EDC
Temporary limited availability
PRIVATE EQUITY AND HEDGE FUNDS
Availability is limited, yield is key
TAX EQUITY
No feasible opportunities
NEW SOURCES OF FUNDING
Opportunities exist, mainly from public banks and insurance companies
OEM
Limited opportunities available
Key:
Satisfactory
Mostly satisfactory
Cautionary
Limited concern
Major concern
Source: accenture.com/seaburyconsulting 20
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
17713
A R2.15 BILLION ACQUISITION TAKES AVIATION TO NEW HEIGHTS. Comair’s acquisition of four new Boeing 737-800 aircraft helps thousands of people travel, connecting business, families and friends. At Nedbank CIB, we see money for the difference it can make. nedbank.co.za
see money differently Nedbank Corporate and Investment Banking is a division of Nedbank Ltd Reg No 1951/000009/06. Authorised financial services and registered credit provider (NCRCP16).
New engine leasing venture
G Will McCallum, Managing Director, Aviation Finance, Standard Chartered, Ireland.
Andrew Mudachi, Head of Engineering Services, Kenya Airways.
(Continued from page 20) Africa Conference event by in-depth interviews and open discussions with two of Africa’s leading carriers in contrasting situations: highly profitable Ethiopian Airlines and currently lossmaking Kenya Airways. Meseret Bitew, Acting CFO of Ethiopian, gave a masterful presentation on his airline’s Vision 2025 business strategy, which has so far resulted in a turnover of over US$2 billion and a net profit of around US$250 million. Responding to numerous questions from the floor, Meseret further elaborated on Ethiopian’s successful airline
partnerships and multiple-hub strategy. To his great credit, Andrew Mudachi, Head of Engineering Services at Kenya Airways, impressed delegates with his polished performance in explaining his airline’s current situation and, more importantly, delineating the huge work undertaken by the management and staff of Kenya Airways to restore it as ‘The Pride of Africa.’ Tough decisions were taken, such as cutting the route network and aircraft fleet, and selling assets, which have kept the airline going. The focus now, he said, was to reduce losses, increase revenues and work diligently towards profitability. ●
A TELESIS and Tokyo Century Corporation have launched a new leasing venture for new technology jet engines. The new joint initiative is aimed at enhancing GA Telesis’ current technology engine leasing business by providing a more competitive cost of capital for longerterm and more structured engine finance transactions. The target portfolio will consist of the following engine models: the General Electric GEnx, Rolls-Royce Trent 1000 and Trent XWB, Pratt & Whitney GTF and CFM International LEAP engines. GA Telesis and Tokyo Century say they intend to originate and close new-technology engine transactions worth US$1 billion over the next 24 months. “This is an unprecedented time in the history of aviation where each engine manufacturer is delivering a new technology engine simultaneously," says Abdol Moabery, CEO of GA Telesis. “With an industry backlog of over 10,000 new-technology engines, we are prepared to help our airline customers by providing them with customised financing solutions to meet their needs.” ●
BUSINESS PLAN NEEDS TO CLEARLY LAYOUT KPIS TO BE ATTRACTIVE TO INVESTORS FINANCIAL KPIS
OPERATIONAL KPIS
KPI
KPI IMPORTANCE
Revenue forecast
Measure of growth trajectory
–
Cash balance
Measure of financial liquidity
15 - 20% of revenue
EBITDAR
Measure of profitability, taking into account only variable operating expenses
EBIT
Measure of profitability, taking into account all operating expenses
>6%
Net profit
Measure of profitability, taking into account all costs
>4%
Long term debt
Total company indebtedness, excl. aircraft leases
–
Adjusted net debt
Total company indebtedness, incl. aircraft leases
–
Adj. net debt / EBITDAR
Adj. net debt / Equity
Ability to repay the debt over the long term Amount of debt relative to the equity the company is using to to finance its assets
TARGET
>15%
KPI
KPI IMPORTANCE
On time performance
Reliability establishes reputation
Cancellation rate
Measures efficiency and quality of the operations
Number of incidents
Indication of safety
Load factor (%)
Measures performance of the commercial department
Fleet utilization (hrs/ day)
Measures efficiency of asset utilization
Operational KPIs may give an indication of operational performance of the airline, however, the KPIs depend on airline strategy and should not be used as target ratios for investment purposes.
<4x <4x
Private vs Public: Investment criteria must be understood Source: Seabury Consulting. accenture.com/seaburyconsulting. 22
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
REGIONAL JETS
Prospects for Regional Jet aircraft in Africa BERNIE BALDWIN examines the use of regional jets across Africa, the various competing aircraft types and assesses the growth possibilities.
I
N NOVEMBER, 1992, the airline industry underwent a major change when the German carrier Lufthansa CityLine put the first 50-seat regional jet (RJ), a Bombardier CRJ100, into service. Although the type’s introduction was in Europe, it was when the US regional airlines realised the potential of RJs that orders for both the CRJ family and Embraer’s ERJ family came flowing in. As the 25th anniversary of that launch approaches, however, regional jets (RJs) have still barely made a dent in the African market. Comparatively few scheduled airlines across the continent currently operate RJs. When RJs were new, the asking price was on the high side for most African carriers, so orders from Africa were few and far between. As the years passed and RJs entered the second-hand market, so they began to appear. Indeed, the business case seemed ideal for Africa, as a vehicle – in both senses of the word – to develop thin routes linking business centres further apart than the optimum range of turboprop aircraft.
Embraer’s new E195-E2 Regional Jet aircraft during its maiden flight.
Technical support The weak uptake is perplexing given the plentiful supply of used RJs – particularly the 50-seaters – with low acquisition costs. Yes, these aircraft have higher maintenance costs, but the Original Equipment Manufacturers (OEMs) and specialist Maintenance, Repair and Overhaul (MRO) providers have used all the years of operational experience to develop effective technical support packages. For example, GE Aviation, the engine provider for all CRJs and Embraer’s larger E-Jets (not E2s), has reinvested to enhance the powerplants and create maintenance plans to reduce operators’ costs. South Africa, unsurprisingly, due to its well-developed aviation industry, is one of the countries in Africa to take to RJs. CemAir and South African Express have opted for CRJs, while Airlink flies Embraer ERJs and E-Jets. Notably, other E-Jet operators in Africa include carriers such as EgyptAir Express, Kenya Airways and Royal Air Maroc. Pilot scope clauses, which restrict the use of RJs in the US, particularly the larger variants, are virtually absent among African carriers. Generally though, the RJ fleets across Africa are fewer than five in (Continued on page 26) 24
The new Mitsubishi MRJ Regional Jet aircraft takes to the skies for the first time.
The roll-out ceremony of the new Bombardier C-Series Regional Jet aircraft.
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
Expanding Opportunities, Exceptional Support Across the African skies, our family of leading commercial aircraft is connecting operators to the pathway to growth. Through our support network, we are helping commercial airlines across the continent to expand domestic and regional markets, open new international destinations and grow market share like never before.
iďŹ&#x201A;ybombardier.com
Bombardier, C S10 0, C Series, CRJ10 0 0 and Q40 0 are trademarks of Bombardier Inc. or its affiliates. All rights reser ved. Š 2017 Bombardier Inc.
REGIONAL JETS
The 98-seat Sukhoi Superjet 100 (SSJ100) has now been in Bombardier’s CRJ900 has been the main breadwinner for this service for six years. family of Regional Jets.
(Continued from page 24) size. As more money flows into the continent to develop business, the growth of the RJ fleets seems very likely, even to the point of new aircraft being introduced, either via lease or purchase. Moreover, there are new models offering better economics which should make them more attractive. Launched officially at the 2013 Paris Air Show, Embraer’s second generation of E-Jets, the E2 family, is well into its development, with the first model – the E190-E2 – currently on target to meet its scheduled entry into service (EIS) in 2018. The Brazilian OEM listened carefully to the market as it decided the make-up of its new family. Gone was a successor to the E170, while the E175 and E195 were given one and three extra seat rows, respectively, and the E190 size remained the same. The E175-E2 is designed to have 88 seats in a single-class configuration and 80 in a dual-class layout. The E190-E2 will have 106 seats and 97 seats for those respective classes, while the figures for E195-E2 are 132 seats and 118 seats. Embraer is keen to emphasise that while the new Airbus NEO and Boeing MAX families are basically re-engined models, the E2 family, although having new engines, is so much more. Each model has its own wing design and there are a plethora of changes “under the skin” of the double-bubble fuselage. “If we had done a clean sheet design, it could not be much better than this aircraft family,” declared Luis Carlos Affonso, Chief Operating Officer, Embraer Commercial Aircraft at that 2013 launch. The engines chosen for the E2 family are part of Pratt & Whitney’s PW1000G PurePower family. The E175-E2 will have the PW1700G, 26
while E190/195-E2 aircraft will use the larger PW1900G. Brand new on the market and also using PW PurePower engines is the Mitsubishi Regional Jet, which currently has two models, the MRJ70 and MRJ90. The engine model, the PW1200G, received US FAA certification in May, 2017. The MRJ90 is the lead variant and has been undergoing flight testing since November, 2015. However, the programme has been delayed a number of times, pushing the original planned EIS back from 2013 until 2020. In August, 2017, the test fleet was grounded after an engine flameout. Flight testing was scheduled to resume once the cause was known and rectified.
Potential customers Despite the setbacks, those with orders have stuck by the programme, confirming their belief in the ultimate quality of the product. Those purchasers include the world’s biggest regional airline company, SkyWest Inc, which has firm orders for 100. Potential African customers not wanting too large an aircraft may well be interested in the MRJ70, the only next-generation 70-seat RJ on the market. Its EIS is scheduled to be a year after the MRJ90’s. Still available as a 70-seater is Bombardier’s CRJ700, although this has had only a few orders over the past five years. Its larger sibling, the CRJ900, has been the primary breadwinner for the family in terms of orders in recent times, followed by the CRJ1000. Although the latter pair have no reengining programme planned, they have benefited from regular CF34 improvements made by GE as well as Bombardier’s interior upgrades. The types remain highly renowned for
their low operating costs, so there may well be orders to come for these models as African regional aviation develops. Those looking to fly further will be studying the Bombardier CS100 (108120 seats) and CS300 (130-160 seats). These aircraft have considerably more range capability than the CRJ family, with respective ranges of 3,100 nm and 3,300 nm. The clean-sheet design entered service last year with Swiss (CS100) and airBaltic (CS300) and both airlines report their aircraft meeting or exceeding specifications. So far in Africa, only Air Tanzania has committed to the PW1500G-powered family, with orders for two CS300s. Last, but by no means least, is the 98-seat Sukhoi Superjet 100 (SSJ100), which has now been in service for six years. This may be an attractive option for carriers which have operated the BAe 146/Avro RJ. Already in Europe, CityJet has begun just such a replacement. It is also operating SSJ100s on behalf of Brussels Airlines, another former Avro operator. No orders in Africa have yet been confirmed by the OEM, although it has been reported that Sukhoi Civil Aircraft has signed contracts with customers in Zambia for five SSJ100s. Reportedly, the order comprises four SSJ100s for a planned start-up carrier and a VIP-variant for presidential use. All in all, the time seems right for RJ growth in Africa. Careful fleet planning by African airlines and technical support selection will be vital to ensure success. In addition, the range of options to develop muchneeded intra-Africa routes with regional jets is considerable. This will help to boost air transport connectivity in Africa, especially on thinner routes. ●
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
POSSIBILITIES IN THE MAKING. Made Easy.
I t t a ke s a n e x p e r t t o r e p air a n air c r a f t . A n d i t t a ke s an e x p e r t t o k n o w w h e r e t o ďŹ n d t h e r i gh t p ar t . Honey well A erospace Tr ading prov ide s customer s w i t h a c c e s s n e w an d u s e d r e p l a c e m e n t uni t s f r o m a v a r i e t y o f di f f e r e n t o r i gin a l e q uip m e n t m a n u f a c t ur e r s . A n d t o s e r v e y o u b e t t e r w e h a v e r e c e n t l y in c r e a s e d o u r s t o c k f o r B o e in g 737 N e x t G e n e r a t i o n a n d A ir b u s A 3 2 0 air c r a f t . O ur t e am o f e x p e r t s ar e h e r e t o h e l p . A t H o n e y w e l l w e deli ver t he Possibilitie s of Av ail abilit y. Made E as y.
F o r m o r e i n f o r m a t i o n v i si t aerospace.honey well .com/hat . Š 2017 Honey well International. All rights reser ved.
AIRLINE STRATEGY
A new business model for African airlines? CHRISTOPHE RITTER, Founder and Managing Partner of Predictive Mobility and its sister company Milanamos, puts the case for a new business model for African airlines which would help increase their competitiveness and profitability.
I
N THE aviation market an adverse correlation exists between distance and yield, that is, the shorter the flight distance, the higher the yield. In fact, some of the most profitable
carriers are commuter airlines serving business traffic on short routes. However, the African aviation industry has a very limited presence of small airliners providing scheduled
CHART 1: LOAD FACTOR CURVE BY INCREASING DISTANCE FROM ADDIS ABABA TO THE WORLD 120%
Load Factor
100%
services with 10-30 seats, leaving a majority of secondary markets in the hands of either private charters or road transportation. We believe this is definitively a mistake. Recently, several announcements have been made regarding either the re-launch of an air carrier, or a new start-up airline in the African market. It is a positive development, since we are convinced through our participation in the route network co-ordination project led by the African Airlines Association (AFRAA) that there is a need for more capacity.
80%
60%
40%
20% 2000
4000
6000
8000
10000
Distance (km)
Source: Predictive Mobility.
CHART 2: YIELD CURVE BY INCREASING DISTANCE FROM ADDIS ABABA TO THE WORLD 0.2
Yield
0.15
0.1
0.05
0 2000
4000
6000
Distance (km)
Source: Predictive Mobility. 28
8000
10000
Christophe Ritter, Founder & Managing Partner, Predictive Mobility. Not only is the market demand growing but it is also time for African carriers to recapture traffic carried by Middle East and European airlines. However, from our experience in the African aviation market, it is astonishing to see that sometimes grandiose projects are favoured over low-hanging fruits. Several start-up airlines in Africa want to fly to New York, London, or China almost from the start of their development, too easily forgetting that the large established carriers will compete with the new-comers burning cash by dropping their prices to maintain market share. At the same time, these new airlines will neglect their nearby markets with perhaps less traffic but with a higher yield and no competition, which would allow them to accumulate cash to finance their route network expansion. Charts 2 and 4 show the yield values for the distances in kilometres
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
AIRLINE STRATEGY
“
In African aviation, grandiose projects are often favoured over low-hanging fruits.
business and tourism. It would also provide the airlines with profitable markets, without competition, and help feed their network. There are numerous multi-role airplanes available on the market. The Pilatus PC12, Cessna Caravan, Quest Kodiak, Viking Twin Otter, as well as the future Tecnam P2012 are all capable aircraft within the US$2-2.5 million price range, brand new, carrying 8 to 20 passengers. Doing
100%
90%
80%
70%
60%
50%
40%
”
30% 1000
2000
3000
4000
5000
6000
7000
Distance (km)
Source: Predictive Mobility.
CHART 4: YIELD CURVE BY INCREASING DISTANCE FROM DAKAR TO THE WORLD 0.5
0.4
0.3
Yield
The revenue per available seat kilometre (RASK) is the solution, since it is the exact combination of load factor and yield and provides an airline with the revenue per kilometre of each seat scheduled. In both cases, (Charts 5 and 6), the RASK values are the highest for the shorter distances, confirming that this generic industry rule also applies to the African market. Another observation in Africa is that is quite surprising to see that the scheduled capacity of what we could call multi-role airplanes – serving passengers, charters, cargo and medivac purposes – is very limited in Africa, but quite common in other regions of the world. As an illustration, in the Republic of the Congo, out of the 26 airports less than five have regular scheduled operations, most operations being concentrated on Brazzaville and Pointe Noire. While not all of them could be successfully utilised for scheduled services definitively more than five could have regular scheduled services. This would not only meet the government’s desire to develop remote areas, but would also help develop
simple math, if the aircraft is amortized over 20 years, its ownership cost is about US$110,000 per year, or US$308 per day or US$25 USD per day and per seat with a 12-seater. How can an airline not make profit in such small markets since the costs are low – only one pilot is required – and these aircraft are robust and by their multipurpose nature can perform various missions? Of course, (Continued on page 30)
CHART 3: LOAD FACTOR CURVE BY INCREASING DISTANCE FROM DAKAR TO THE WORLD
Load Factor
from two major international African airports, Addis Ababa, Ethiopia, in East Africa, and Dakar, Senegal, in West Africa. Two completely separate regions, with very different markets, but with the same outcome: the lower the distance is, the higher the revenue per kilometre. Of course, a high average revenue does not guarantee a high load factor, and what would be the point to sell high to almost no-one? For our two referenced markets, the pattern is a little different, based on whether there is a strong domestic market (Addis) or not (Dakar). In the worst case, the load factor is lower when the distance is short. Therefore, the question is whether to focus on big volume or a high fare?
0.2
0.1
0 1000
2000
3000
4000
5000
6000
7000
Distance (km)
Source: Predictive Mobility.
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
29
AIRLINE STRATEGY (Continued from page 29) it does not sound glamourous or ambitious. But it serves a profitable purpose - connecting people and promoting development, and supports the overall business. If operated successfully, it would be a rewarding venture for the investors, the airline employees and the government. Our advocacy for a focus on multirole airplanes is not only due to the readily accessible revenue that would
be available to airlines. We also believe that the African aviation market should develop its own growth model, rather than copying and pasting the European or Middle East airline archetypes. Europe and the Middle East are ‘open sky’ markets, characterized by full competition not only between the airlines but also the service providers: ground handling, fuel, airports and maintenance services, etc. Their breakeven load
CHART 5: RASK CURVE BY INCREASING DISTANCE FROM ADDIS ABABA TO THE WORLD 0.15
RASK: Revenue Per Available Seat Kilometre
0.125
R.A.S.K.
0.1
0.075
0.05
0.025
0 2000
4000
6000
8000
10000
Distance (km)
Source: Predictive Mobility.
CHART 6: RASK CURVE BY INCREASING DISTANCE FROM DAKAR TO THE WORLD 0.4
R.A.S.K.
0.3
0.2
0.1
0 1000
2000
3000
4000
Distance (km)
Source: Predictive Mobility. 30
5000
6000
factor is well below any African carrier, not to mention the high taxes levied in Africa on the aviation industry. We believe that the following airline business model could help develop the aviation industry in Africa: 1 – A hub-and-spoke model: the bilateral constraints in Africa, high cost of operations and limited passenger demand require a central hub where passengers can connect to their final destination. For airlines the cost synergies from hub operations would come through facilitating passenger feed to their route networks; 2 – Frequencies rather than quantities: it is better to fly daily or five times weekly to fewer airports rather than twice a week to multiple destinations. Passengers need flexibility and convenience, since a large portion of the African traffic is made of business travellers and individual entrepreneurs; 3 – Get the right capacity: For example, a Bombardier CS-300 positioned in East Africa can cover almost all of Africa, South of Europe, the Middle East, and India – and yet this aircraft costs at least 20% less than an Airbus or Boeing equivalent The same applies for Embraer E-Jets or the Sukhoi SSJ100. 4 – Build a steady growth model: mixing multi-mission aircraft to cover all secondary monopoly markets with a flexible medium capacity unit is the best way to build a profitable network, support the financial cost of starting new markets, and tactically compete with large players. This would ultimately prepare your airline for more ambitious long-haul operations with a viable passenger feed from various routes. 5 – Be agile: One key advantage, largely underestimated, for a regional carrier is its flexibility versus large airlines. When you have flexible mission aircraft – either multi-role or a single aisle that can cater for short, medium and long-haul routes – you can tactically adjust your schedule to meet potential market demand, stop underperforming routes and start new ones. Large carriers cannot do it that easily because of their structural complexity and this is their weakness. In summary, for African carriers, it is time to leverage on the weaknesses of stronger carriers and recapture their traffic. ●
7000
The Predictive Mobility airports database provides detailed information on 11,000 airports worldwide. www.predictivemobility.com/airports-cg
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
SAFETY & SECURITY
SAFETY
AIB releases accident reports
N
IGERIA’s Accident Investigation Bureau (AIB), headed by Commissioner Engineer Akin Olateru, has released the final reports on two fatal air accidents and made several recommendations to improve air safety in the country. The first accident involved a Nigeria Police Force (NPF) Bell 427 helicopter and the second involved a Socata Tampico TB-9 training aircraft owned by the Nigerian College of Aviation Technology (NCAT). Regarding the NPF accident, the report said that although the cause could not be conclusively determined, some discrepancies and non-compliance with the Nigerian Civil Aviation Regulations in the operation of the helicopter were discovered. For example, both the simulator recurrency
Eng. Akin Olateru, Commissioner, Accident Investigation Bureau (AIB), Nigeria. of the pilot and his medical had expired at the time of the accident. In addition, the co-pilot was not typerated on the helicopter type, and the engineer that released the helicopter was also not type-rated. The AIB recommended that the Nigerian Civil Aviation Authority (NCAA) should ensure that the NPF Air-Wing complies with its Aircraft Maintenance Organisation (AMO) requirements, while the NCAA and Department of Petroleum Resources (DPR) should launch an independent inquiry into the quality of aviation fuel in the country. The second report recommended, among other things, a change in the flap control knob assembly by the OEM to make flap selections easier, and that flight instructors must at all times be in the control tower during solo training flights for closer monitoring. ●
ICAO Council President, Dr. Aliu, of Nigeria, advocates global co-operation.
New Security Roadmap for Africa and Middle East
A
HIGH-LEVEL Ministerial Conference on Aviation Security held in Sharm El Sheikh, Egypt, in August has endorsed a new Africa and Middle East Aviation Security Roadmap to align future programmes and targets with ICAO’s new Global Aviation Security Plan (GASeP). In his address to the 27 attending Ministers and 35 Directors General of Civil Aviation, representing some 45 African and Middle Eastern member states, ICAO Council President Dr. Olumuyiwa Benard Aliu stressed that ICAO’s new Global Aviation Security Plan sets out key priorities where ICAO, states and others should now focus their urgent attention, resources and efforts, as well as corresponding actions at the global, national and local levels. “ICAO recognized long ago that it is imperative that all states have optimized access to the significant socio-economic benefits of safe, secure and reliable global connectivity,” he noted. “And more effective compliance with our global standards, policies and plans is the very first and most fundamental step on that journey.” The main objective of the AFI and MID AVSEC Roadmap was to encourage and help guide the Africa and Middle East collaboration now needed. President Aliu therefore praised the commitments realized in Sharm El Sheikh as a critical first step which should be emulated worldwide as ICAO seeks similar commitments in aid of its co-ordinating efforts for global aviation security effectiveness and sustainability. “The GASeP provides an ambitious framework while incorporating key themes from United Nations (UN) Security Council Resolution 2309 on threats to international peace and security caused by terrorist acts via aviation security, adopted in September 2016,” he added. Egypt’s Minister of Civil Aviation, Sherif Fathi, declared the Ministerial conference open under the patronage
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
of the President of the Arab Republic of Egypt, Abdel Fattah Al Sisi, remarking that “this Roadmap complements the important milestone we achieved in the region earlier this year through the Riyadh declaration. It also strongly supports the current AFI and MID SECFAL Plans and will be essential to improved regional cooperation and co-ordination to enhance aviation security in both regions.” Minister Fathi thanked the ICAO President for the UN agency’s leadership in aviation security, while commending the expanded role now being played by its Regional Offices in Africa and the Middle East.
ICAO Council President Aliu also took advantage of his mission to Egypt to award the state with an ICAO Council President Certificate, in recognition of the state’s recent commitments and actions to address aviation safety oversight priorities and improve the effective implementation (EI) of ICAO Standards and Recommended Practices (SARPs). During his stay in Sharm El Sheikh, the President of the Council also held a number of bilateral meetings with senior government and aviation officials, including a meeting with Eng. Sherif Ismail, the Prime Minister of Egypt. Also in attendance during this meeting were Egyptian Minister Fathi and Mohamed Khalifa Rahma, ICAO’s Regional Director for its Middle East Office in Cairo. A specialized agency of the United Nations, ICAO was created in 1944 to promote the safe and orderly development of international civil aviation throughout the world. It sets standards and regulations necessary for aviation safety, security, efficiency, capacity and environmental protection, amongst many other priorities. The Organization serves as the forum for co-operation in all fields of civil aviation among its 191 member States. ● 31
Pictured far left at MRO Africa 2015 hosted by Ethiopian MRO, are, from left: Kassa Maru, CEO & President, American General Supplies, Inc; Nick Fadugba, CEO, AFRICAN AVIATION, and Eng. Hisham Nasser, Advisor for Maintenance & Engineering to the Chairman of EgyptAir Holding Company. Pictured immediate left is Eng. Abou Taleb Tawfik Abou Taleb, Chairman & CEO, EgyptAir M & E.
EgyptAir to host MRO Africa 2018 in Cairo
E
GYPTAIR, currently celebrating its 85th anniversary, is hosting AFRICAN AVIATION’s 27th Annual MRO Africa Conference and Exhibition taking place in Cairo, Egypt, from 18th-20th March, 2018. “Returning to Egypt, the land of the Pharoahs who built the Pyramids, a technological feat, will be a special home-coming for MRO Africa as the first event was hosted there by EgyptAir 27 years ago, and several times since then,” says Nick Fadugba, CEO of AFRICAN AVIATION.
18-20 MARCH, 2018 CAIRO, EGYPT “MRO Africa 2018 in Cairo will once again provide a unique platform for the key players in the African and global MRO industry to explore a wide scope of opportunities for the development of MRO partnerships and joint ventures in Africa,” adds Fadugba. “It is encouraging that the world’s leading MRO service providers, long-term supporters of MRO Africa, are seeking to expand their relationships with airlines and other aircraft operators in Africa.” MRO Africa comprises of a maintenance conference focused on operators in Africa, co-located with a major exhibition enabling leading MRO suppliers from Africa and around the world to showcase their products and services. The event has grown in recent years, reflecting the growth of aviation in Africa, and it continues to expand with more exhibitors each year. The scope has expanded too. In addition to the needs of African airlines, the event now also focuses on Aircraft Interiors, Business and General Aviation operators, Helicopters, and MRO requirements for Military and Police Air-Wing aircraft. ● 32
JORAMCO performs C-Checks on two Tunisair Airbus A330s ORAMCO, based in Amman, Jordan, recently performed heavy checks on two Tunisair Airbus A330 aircraft. The aircraft were returned to the Tunisian flag-carrier after the C-Checks were completed, in addition to several Airworthiness Directives (ADs) and Service Bulletins (SBs). The MRO work took place during May this year. “We are pleased that Tunisair selected JORAMCO to perform these maintenance activities,” says Osama
J
Fattaleh, CEO of JORAMCO. “This collaboration reaffirms JORAMCO’s expertise on the A330 and our drive to become the MRO of choice for operators in the Middle East, Africa, South Asia, and Europe.” Tunisair operates scheduled services from its Tunis Carthage International Airport main base to destinations throughout the Middle East, Europe and North and West Africa. A solitary transatlantic route serves Montreal, Canada, using A330-200 aircraft. ●
Air Zimbabwe selects Seabury IR ZIMBABWE has signed a contract with Seabury Solutions, a subsidiary of Seabury Capital LLC for the Alkym Management and Control System for aircraft maintenance, becoming the fourth Africa-based flag-carrier to implement the Alkym solution. With a complete solution to cater for CAMO and MRO service integrated with Logistics,
A
John Barry, Senior Vice President, Seabury Solutions.
Alkym was able to meet the high demands required from the selection process. Seabury Solutions Senior Vice President John Barry says: “While we are currently deploying Alkym in Europe, South America and the Caribbean, once again Africa will see our teams on site, proving time and again that cost-effective solutions are required but must never compromise on functionality.” Air Zimbabwe has opted for 13 of 18 of the modules provided within Alkym. The configuration of the system and training of the personnel are currently underway, with system implementation set to begin with a two-week workshop to map out the process for the most effective deployment of the solution to meet Air Zimbabwe’s needs. Captain Ripton Muzenda, Air Zimbabwe CEO, says: “The control of our technical operations is the foundation of the building blocks we are putting in place. We want to bring Air Zimbabwe back to its glory days.” ●
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
www.egyptair-me.com
FO R U M
Why Sir Richard Branson is ceding control of Virgin Atlantic Airways In recent years, Virgin Atlantic Airways, UK, has withdrawn its unprofitable services to Mauritius, Kenya and Ghana and pulled out of its unsuccessful Virgin Nigeria Airways joint venture. Now its owner, Sir Richard Branson, has sold his majority stake in the airline. IAN TAYLOR succinctly explained in the UK-based Travel Weekly publication why Branson is ceding control.
S RYANAIR Chief Executive Michael O’Leary put it: “Air France’s investment in Virgin Atlantic is a cover for Delta.” O’Leary added: “You have to ask how Virgin Atlantic retains a UK AOC [air operating certificate] when it is foreign owned.” Willie Walsh, head of British Airways parent IAG, made the same point in May. “The truth is Virgin Atlantic is controlled by Delta,” he said. “We know Delta has a 49% stake, but the way it is structured it is clear Delta controls Virgin Atlantic and is leading the joint venture. Delta came up with a smart way
of working around the restrictions. That is the reality.” EU and US regulatory approval nonetheless appears a formality. Why? Because the European Commission (EC) has previously signalled it is relaxed about its own ownership and control rules. EC Director General for mobility and transport Henrik Hololei said: “We have a 49% limit [on foreign] ownership in Europe, [but] it’s debatable whether it is fit for purpose. Is Manchester City less a Manchester football club because its owner is not British? It has a better stadium. It has better players. The fans are happy. It is the same with airlines. You see the ownership holding. Effective control is another thing.” Hololei added: “What allowed us to move ahead [of other regulatory authorities on foreign ownership] is we shifted the question. We don’t ask you to prove you have effective control, but to prove you don’t have effective control.” So in the case of Virgin Atlantic, Branson or Virgin Group do not have to prove that he or it exercises control. Rather, 49%stakeholder Delta has to demonstrate it does not exercise control. Hololei clearly suggested this is somewhat easier, otherwise how has the EC been able “to move ahead” on an issue where “it is debateable whether the limit on ownership in Europe is fit for purpose.” Branson’s letter pointed out: “Virgin Atlantic has been flying for half my lifetime.” He appears to measure the airline’s success in relation to British Airways and the latter’s efforts to scupper it – on which he has a point. He noted: “I remember the day we started when Lord King from British Airways forecast our early demise. “It hasn’t always been easy. We’ve had to withstand British Airways’
A dispute between Sir Richard and the Nigerian Government ended their promising Virgin Nigeria joint venture.
In Africa, Virgin Atlantic Airways now focuses on its profitable routes to Nigeria and South Africa.
S
IR RICHARD Branson’s deal with Air France-KLM at the end of July this year marks the end of an era, assuming regulatory authorities in Europe and the US sign off on it. Virgin Atlantic will remain a UK-based airline with a UK air operating certificate, but it will no longer be majority UK owned. Indeed, it appears the carrier won’t be majority EU owned when Britain leaves the European Union. Air France-KLM is taking a 31% stake. Delta Air Lines already holds 49%. So it was odd for Branson to assert in a letter to staff explaining the deal: “I will remain the largest individual shareholder.” Indeed, he may remain the largest individual holder of shares, but Delta has a shareholding two-and-half-times larger and it is difficult to avoid the conclusion that Delta calls the shots – and will do even more so with its partner Air France-KLM holding an additional 31% of Virgin Atlantic.
A
34
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
FORUM
airline industry “ The has consolidated... ...and it’s now our turn to put ourselves at the heart of an important alliance.
”
Entrepreneur Sir Richard Branson, Founder of Virgin Atlantic Airways, UK. ‘Dirty Tricks’ campaign, which tried to put us out of business and where we won the largest libel settlement in British history. “I’m sure plenty of you (staff) will remember receiving the ‘BA Christmas Bonus’. We’ve had to endure a consistently uneven playing field with British Airways keeping a stranglehold on Heathrow Airport slots, enabling it to feed its long-haul operation from a myriad of short-haul flights across the UK and Europe.” More recently, Branson noted: “[BA] has merged with Iberia to form IAG, [and] acquired rivals such as BMI, Aer Lingus and Vueling, increasing its presence at Heathrow and extending its network.”
O
THER CHALLENGES – “the trauma of 9/11 and the collapse in international travel that followed” – appear to pale beside the life-or-death struggle with BA. However, Branson informed staff: “Now we have Brexit, which before it’s even happened has had a negative effect on the financial performance of both our holiday company and the airline.” So thank goodness US fairy godmother Delta came along five years ago to take the 49% stake previously held by Singapore Airlines, which had acted as a sleeping partner. Branson insisted: “One of the best moves we made was
US mega-carrier Delta Air Lines, through its partner Air France-KLM, now effectively controls Virgin Atlantic.
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
tying up with Delta Air Lines to create a joint venture across the Atlantic. Part of the rationale was to provide a competitive alternative to BA and American Airlines’ alliance.” It has certainly done that. Branson recalled: “Willie Walsh predicted the Virgin Atlantic brand would disappear within five years. He said he’d accept a knee in the groin from me if it didn’t. Well Willie, that five-year point is up this December and Virgin Atlantic is still flying strong.”
F
INALLY, BRANSON’S letter to staff moves to the rationale for his deal with Air France-KLM. He told them: “Delta has helped us considerably with feed from America, but because we don’t have more slots at Heathrow or Gatwick we’re unable to enjoy feed from Europe or provide onward journeys for customers we are now carrying to London. Delta’s partners in Europe, Air France and KLM, give us that network and connections.” The enhanced joint venture with Delta, Air France-KLM and Alitalia “will be extremely beneficial to our airline, our customers and the brand”. He reassured staff: “We’ve agreed how important it is the Virgin Atlantic brand lives on as part of our arrangement.” However, the reality is Air France-KLM will not feed traffic to Virgin Atlantic, not with their existing schedules. They feed traffic to Paris Charles de Gaulle and Amsterdam Schiphol. Virgin Atlantic operates solely from London’s Heathrow and Gatwick. Air France and KLM don’t fly to and from Gatwick and both operate shuttle services from Heathrow to their respective hubs. KLM, in particular, has a remarkably extensive UK operation. It flies from 16 UK airports to Amsterdam. How will that feed Virgin Atlantic? Slots at Heathrow are not two a penny – rather more like two at UK£50 million. Slots at Gatwick at peak times also aren’t readily available. So it’s hard to fathom the feed argument unless the partners plan some significant changes. Branson’s other points make rather more sense: “The airline industry has consolidated . . . and it’s now our turn to put ourselves at the heart of an important alliance.” In other words, Virgin Atlantic can’t survive on its own any more. And “as I get older, I want to be certain that all the necessary building blocks are in place for Virgin Atlantic to continue.” It’s a retirement plan, and perfectly understandable as such. ●
35
The first Gulfstream G600 production aircraft on a test flight. Bombardier’s ultra long-range Global 8000 business jet.
Ensuring an effective global framework for business aviation growth Business aviation, often in the shadow of the airline industry, has received a strong vote of support from the International Civil Aviation Organisation (ICAO) through its Secretary General, DR. FANG LIU
D
R. FANG LIU, ICAO Secretary General, says that the global aviation regulatory body will continue to work closely with the business aviation industry to make sure that its voice remains an important one around the ICAO table and that member states more fully appreciate the valuable socio-economic contributions which business aviation has to offer.
aviation challenges due to a lack of stable demand, infrastructure constraints, and other issues which often impede the viability of commercial operations. Especially in these specific circumstances, business aviation helps to establish vital air links enabling improved connectivity. “Similarly, the ability of business aircraft to make use of shorter runways contributes substantially to emergency aid and other humanitarian efforts in the aftermath of earthquakes or other natural or man-made disasters.” Dr Fang Liu, Secretary General, International Civil Aviation Organisation (ICAO).
“For example, business aviation currently generates more than US$200 billion and 1.1 million jobs in the USA, and approximately €20 billion euros in gross value added (GVA) and 164,000 jobs in the European Union,” she adds. “More can be done to help ensure that similar levels of positive business aviation economic influence become more globally widespread. “Business aviation also plays an important role in less developed countries and rural regions, including landlocked and small-island states. These are often faced with specific 36
The need for effective global standards and policies for international business aviation operations is also high on ICAO’s agenda in this sector. These must take into account users’ unique needs, regional potential and global development priorities as a whole. An example of ICAO’s commitment to accommodating these diverse needs is the ICAO Council’s recently adopted Standards in Annex 6, Part II, General Aviation, which now facilitate the recognition of specific approvals. Ssys Dr, Liu: “I strongly urge ICAO member states to adopt these new Annex 6 provisions, and also to adjust their regulatory regimes in a manner which can help to facilitate and optimise business aviation’s benefits. Another important safety-related
development we can pursue together with the business aviation sector concerns the importance of its data to the global safety equation. “ICAO, working with the International Business Aviation Council (IBAC) and its member associations, has already begun the important work toward integrating our organisations’ respective safety monitoring results.” ICAO acknowledges and appreciates business aviation’s commitment to continuous safety improvement through IBAC’s voluntary Industry Standards for Business Aircraft Operators and Ground Handlers (ISBAO and IS-BAH, respectively). According to Dr.Liu, intensified collaboration will deliver further positive benefits, both to operators and regulators. IBAC Director General, Kurt Edwards, agrees. “The business aviation community is committed to continuous improvement in safety and this sector has a safety record that compares well with that of airlines. IBAC also supports the use of ICAO Standards and Recommended Practices (SARPs) to guide safety improvements in the sector, incorporating applicable SARPs and the Safety Management System (SMS) concept in voluntary codes of best practice tailored to business aviation.” Regarding current matters of concern to business aviation, such as airport and airspace access restrictions, Dr. Liu says: “These place serious limitations on business aviation’s growth potential and point to the need for more harmonised treatment of the business aviation sector by ICAO member states in accordance with the Convention on International Civil Aviation.” ●
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
AIRPORTS
Airport ownership and financial performance Many governments in Africa and elsewhere face the predicament of a surge in air transport demand outstripping the country’s airport infrastructure. Private investment is needed to address this challenge, along with regulatory consistency, says the Airports Council International (ACI) in a recent report.
U
NTIL RECENTLY, nearly all major commercial airports were government-owned and government-operated, primarily on a costrecovery basis. Deregulation in the aviation sector predominantly focused on airlines. The first full-scale privatisation of airports occurred in the mid-1980s when the British government privatised the British Airports Authority. That event marked the beginning of a trend that has been gathering strength worldwide. By 2016, the ACI inventory of
ment varies markedly by region. Europe has the largest propensity for private sector involvement (75%) in terms of passenger traffic handled by fully privatised airports or public-
private partnerships (PPPs) and is followed by Latin America-Caribbean (60%); Asia-Pacific (45%); the Middle East (13%); and Africa (11%). Notably, (Continued on page 40)
CHART 1: DISTRIBUTION OF AIRPORTS BY OWNERSHIP STRUCTURE AND REGION (2016) 2.2% 4.5%
12.3%
14.0% 31.1%
95.5%
25.8%
97.8%
86.0%
ASIA PACIFIC
EUROPE
74.2%
LATIN AMERICA CARIBBEAN
Proportions of airports that are government-owned (no private sector involved)
38
MIDDLE EAST
NORTH AMERICA
WORLD
Proportion of airports with private sector participation
CHART 2: DISTRIBUTION OF PASSENGER TRAFFIC BY OWNERSHIP STRUCTURE AND REGION (2016)
Ali Tounsi, Secretary General, Airports Council International (ACI). privatised airports revealed that 614 commercial service airports had private sector participation. On the other hand, an estimated 86% of the world’s 4,300 airports with scheduled traffic were public, in that they are owned by a government or government entity. Although airports with private sector participation account for only an estimated 14% of airports worldwide, these airports handle over 40% of global traffic. Market size matters for private investment. Private investment flows to airports with high throughput or potential for high throughput. For example, of the world’s 100 busiest airports for passenger throughput, 46 have some form of private sector participation. Of the world’s busiest 500 airports, 38% have private sector participation. An estimated 41% of global airport traffic is handled by airports that are managed and/or financed by private stakeholders. The propensity for private invest-
99.2%
87.7% 68.9%
AFRICA
0.8%
1% 11%
13% 41%
45% 60% 75% 99% 89%
87% 59%
55% 40% 25%
AFRICA
ASIA PACIFIC
EUROPE
LATIN AMERICA CARIBBEAN
Proportions of airports that are governmentowned airports (no private sector involved)
MIDDLE EAST
NORTH AMERICA
WORLD
Proportion of passenger traffic held by airports with private sector participation
Source: ACI Inventory of privatised airports, 2016 and ACI World Airport Traffic Database, 2016, adapted from OAG scheduled seats, 2016.
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
DRUMBEAT
● AMBITIOUS VULE Airways, Uganda, founded in March this year, says it plans to commence scheduled operations in early November. The privately-owned start-up carrier, headed by Robert Nviiri, Chairman and MD, has been selling shares to raise equity and eventually hopes to secure a listing on the stock exchange. According to Nviiri, the
proposed aircraft types in the fleet will comprise of the Bombardier DHC-8-200 (1), DHC-8-400 (1), Boeing 737-700NGs (3) and Boeing 777-200ER (1). Billed as a low-cost carrier it aims to serve 20 destinations in Africa, Europe and Asia. Nviiri adds that Vule Airways will make minimal losses in its first three years and become profitable thereafter. A key objective is to provide the country with a viable local carrier following the collapse of Uganda Airlines in April, 2000. ● MOZAMBIQUE’S new policy of opening up its domestic airline industry to African carriers has caused anxiety at LAM-Mozambique Airlines, the national airline. The Mozambican Civil Aviation Institute (IACM), headed by Captain Joäo Abreu, a former Chief Pilot at LAM, has given permission to Malawian Airlines, a joint venture between Ethiopian Airlines and the Malawi Government, to operate domestic flights in Mozambique. For several years, LAM-Mozambique has been struggling to survive and it is believed that the imminent competition on its domestic network may further diminish the carrier’s financial fortunes.
CAVERTON Helicopters, Nigeria, has signed a purchase agreement with Bell Helicopter, a Textron Inc. company, for the purchase of eight Bell 407GXPs (pictured below right) and secured a fiveyear logistics support contract from Chevron Nigeria. Caverton is a subsidiary of Caverton Offshore Support Group Plc which was founded by Aderemi Makanjuola, who is pictured top right (first left) with the Vice President of Nigeria, Professor Yemi Osinbajo. “Together with their fleet of Bell 412EPs, the new 407GXPs will be used for offshore logistics support, maritime and coastal surveillance, emergency medical services and search and rescue,” says David Sale, Bell’s MD, Middle East and Africa.
Ghana’s Minister of Aviation, Cecelia Abena Dapaah (on left) shakes hands on the MoU agreement with a senior Mauritius Government official in Port Louis.
● CO-OPERATION in the African aviation industry took another positive step forward recently when Ghana and Mauritius agreed to explore the possibility of jointly setting up a new national carrier for Ghana. A team of experts from both countries has commenced talks following the signing of an MoU between Air Mauritius and FlySafe Ghana, a new entity. Ghana’s
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
dynamic Minister of Aviation, Cecelia Abena Dapaah headed a sevenmember delegation from her Ministry, the Ghana Airports Company and the Ghana Civil Aviation Authority to Mauritius for high-level discussions and agreed the terms of a collaborative agreement. Air Mauritius’ interest in expanding in Africa is in line with the Government’s economic strategy.
39
AIRPORTS
Airlink completes proving flight to St Helena
A
IRLINK, South Africa, has successfully completed a proving flight to St Helena, a remote tropical island located in the South Atlantic Ocean. The proving flight in August was for Airlink to demonstrate to the South African Civil Aviation Authority (SACAA) operational proficiency in terms of ExtendedRange Twin-Engine Operations (ETOPS) requirements. This is a routine exercise for new air services, and part of the preparations for introducing an air service on a new route. The two-day programme covered training and audits at St Helena Airport, as well as discussions with key stakeholders on the island. The Airlink team, headed by Chief Executive Officer, Rodger Foster, was able to assess air traffic control, communications and navigation systems, emergency services, rescue and fire-fighting services, ground handling services, passenger assistance, terminal buildings and security.
As part of the training programme, Airlink carried out a total of 13 flight trials at St Helena Airport. These included ‘circuits and bumps’ – where the aircraft circles the runway, comes in to land, touches the wheels to the
runway and immediately takes off again for another circuit. “We hope that a commencement date for scheduled air services and ticket fares to St Helena will be announced shortly,” says Rodger Foster. ●
(Continued from page 38) North America (1%) remains predominantly government-owned and managed. Concession contracts (41%) represent the most common private sector participation model for airports, followed by freeholds (24%), listed
airports (23%) and management contracts (8%). Eight of the world’s top 20 and 15 of the top 50 airports are managed by airport companies and airport groups traded on stock exchanges. The fundamental motive for airport privatisations or PPPs is to finance
what states are no longer able or willing to finance. Private sector stakeholders also bring commercially driven management and the flexibility to adapt to a fast-changing world. Furthermore, private investment and entrepreneurship often go hand in hand. Entrepreneurs generate innovations and value for customers, but they also expect a return for the risk that investors must bear in doing so. Today, even government-owned and government-managed airports are increasingly required to have a commercial focus. Smaller regional airports with low traffic volumes tend to depend on government subsidies to operate because of the economic and social impact these airports generate for the local communities they serve. Alternatively, major operators that manage broader networks of airports use the earnings of larger airports to cross-subsidize or compensate for the net losses of their smaller airports in terms of throughput. The role played by economic regulation and the government oversight function has important implications for airport revenues and profitability. Not only do airport managers face multifaceted challenges in the areas of safety, security and the environment, but they must also often comply with economic regulations that govern the pricing of airport services. It can be argued that the regulations (Continued on page 42)
The goal is for Airlink, South Africa, to provide scheduled air services to St Helena.
CHART 3: AIRPORT PROFITABILITY BY OWNERSHIP MODEL (2014) 16.5% 15.1%
14.4%
7.4% 6.5% 5.5%
PUBLIC OWNERSHIP (100%) Net profit margin (net profit/total revenue)
PUBLIC PRIVATE PARTNERSHIP (PPP)
Return on invested capital (ROIC)
Source: ACI Airport Economics Survey, 2015. 40
PUBLIC PARTNERSHIP (100%)
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017
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AFRICAN AVIATION INDUSTRY DATA TOP AIRLINES (JULY, 2017) Rank Airline
Jun-17 capacity
Jul-17 capacity
% monthly change
1
Ethiopian Airlines
1,055,124
1,124,252
6.6
2
South African Airways
1,050,900
1,086,795
3.4
3
Royal Air Maroc
546,533
789,594
44.5
4
EgyptAir
683,413
699,413
2.3
5
Air Algérie
630,640
690,458
9.5
6
Kenya Airways
468,571
489,361
4.4
7
British Airways
367,261
373,668
1.7
8
Emirates
356,724
373,056
4.6
9
Comair
336,420
342,468
1.8
10
Air France
282,873
327,089
15.6
Jun-17 capacity
Jul-17 capacity
% monthly change 3.8
TOP AIRPORTS (JULY, 2017) Rank Airport 1
Johannesburg O.R. Tambo Int
1,188,790
1,234,068
2
Cairo International
1,073,938
1,103,600
2.8
3
Casablanca Mohammed V
484,289
650,531
34.3
4
Addis Ababa
607,746
642,734
5.8
5
Algiers
503,208
561,899
11.7
6
Cape Town
527,389
550,099
4.3
7
Nairobi Jomo Kenyatta International
441,438
474,107
7.4
8
Tunis
307,548
372,594
21.1
9
Lagos
357,080
370,662
3.8
10
Durban King Shaka International
306,971
311,535
1.5
TOP ROUTES (JULY, 2017) Rank Route
Jun-17 capacity
Jul-17 % capacity change
1
Johannesburg O.R. Tambo International (JNB) - Cape Town (CPT)
488,693
505,396
3.4
2
Johannesburg O.R. Tambo International (JNB) - Durban King Shaka International
334,549
336,009
0.4
3
Jeddah (JED) - Cairo International (CAI)
350,720
293,382
-16.3
4
Lagos (LOS) - Abuja (ABV)
154,912
160,440
3.6
5
Cairo International (CAI) - Riyadh King Khalid Intl (RUH)
126,468
152,278
20.4
6
Johannesburg Lanseria International (HLA) - Cape Town (CPT)
136,726
142,292
4.1
7
Kuwait (KWI) - Cairo International (CAI)
124,666
136,521
9.5
8
Durban King Shaka International (DUR) - Cape Town (CPT)
120,697
123,448
2.3
9
Algiers (ALG) - Paris Charles de Gaulle (CDG)
83,832
119,964
43.1
10
Port Elizabeth (PLZ) - Johannesburg O.R. Tambo International (JNB)
110,501
118,358
7.1
Source: David Casey, Online Editor – Aviation, www.routesonline.com (OAG). 42
AIRPORTS (Continued from page 40) governing airport revenues are precursors for financial performance. The regulatory model and accounting for non-aeronautical revenue not only determine an airport’s business in terms of the structure and magnitude of its revenues, but also the resulting economic health and performance of its operators. Although non-aeronautical revenues serve to offset the aeronautical costs faced by airline customers under the single till framework, the evidence suggests that non-aeronautical revenues on a perpassenger basis are higher among airports that move away from the single till arrangement. This is consistent with the assertion that the propensity for generating commercial revenues is higher under a dual or hybrid till structure. Conversely, there is a disincentive to develop commercial revenues under a single till regime. Based on a sample of 733 airports, non-aeronautical revenues on a per-passenger basis appear to be higher under a dual and hybrid till arrangement.
Value creation While airports that operate under either dual or hybrid tills generate higher aeronautical revenues, another key consideration is whether value is created not only for investors relative to overall airport costs, but also for passengers and other airport customers. Value creation not only helps generate returns for investors and stakeholders, but it also insures the future availability of capital to fund operations and future innovations. Because private investors require a return on their invested capital (ROIC), two profitability measures of key importance are an airport’s net profit margin and its return on invested capital. A larger proportion of government-owned or publiclymanaged airports operate on a costrecovery basis, which helps explain the differences in the profitability results shown in the chart illustrating the profitability of airports based on their ownership model. (see Chart 3 on page 40). ACI does not prescribe any specific type of ownership model. In short, airports should be permitted to operate under a range of ownership models. However, the role of the regulator and its oversight function should be to monitor and ensure there is no abuse of market power. ●
AFRICAN AVIATION / SEPTEMBER-OCTOBER 2017