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Low Cost Airline World

MARCH/APRIL 2009 | ISSUE 1

iT’S hARSh OuT ThERE!

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NEVER MIND 20:20 OUR VISION GOES BEYOND 20:40.

A visionary partnership was formed in the 1970’s. GE and Snecma created CFM International*. With eyes clearly focused on tomorrow, that highly successful partnership has now been extended through 2040. We look forward to the future. To setting industry-leading reductions in fuel burn and emissions.

To delivering the next-generation engine for narrow-body aircraft. Be far-sighted. Visit www.cfm56.com/agreement now. *CFM, CFM56 and the CFM logo are all trademarks of CFM International, a 50/50 joint company of Snecma and General Electric Co.

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ISSUE 1 : MARCH/APRIL 2009

NEWS 04 NEWS ROUND UP

International LCC news from across the globe: December 2008 to February 2009

MANAGING DIRECTOR AIP Philip Tozer-Pennington Email: philipt@aviation-industry.com Tel: +44 (0)207 579 4841

EDITORS Philip Tozer-Pennington & Paul Copping

DEPUTY EDITOR Jason Holland Tel: +44 (0) 207 579 4849

JOURNALIST(S) Mary-Anne Baldwin: Tel: +44 (0) 207 579 4843 Michael Gubisch Tel: +44 (0) 207 579 4844

FOCUS 18 THE LONG-HAUL LOW-COST MODEL

During the last recession, the low-cost model brought affordable air travel to the masses in Europe. Now that a global recession prevails, is it time for low-cost airlines to expand?

INTERVIEW 22 LOW COST IN CHINA:

Low Cost Airline World puts the questions to Wang Zhenghua, chairman of Chinese low-cost carrier Spring Airlines.

AIRLINE FOCUS 26 S7 AIRLINES FOCUS:

S7 Airlines is hoping for light at the end of the tunnel. Low Cost Airline World talks to spokesman Ilya Novohatskij

SPECIAL CORRESPONDENTS Africa: China: Russia-CIS: South America: Europe:

Kaleyesus Bekele Lu Haoting Vladimir Karnozov Elias Gedeon Terry Spruce

ENVIRONMENT 32 VOLUNTARY CARBON OFFSETTING:

Stevenson Harwood explore the potential of carbon offsetting as pressure on airlines to tackle environmental impact grows

MAGAZINE DESIGN & PRODUCTION Dean Cook The Magazine Production Company Tel: +44 (0)1273 467579 Website: www.magazineproduction.com E-mail: deancook@magazineproduction.com

DISPLAY ADVERTISING Philip Tozer: philipt@aviation-industry.com

LOW COST AIRLINE WORLD (ISSN Print: 1759-1112 – Online: 2040-3402) (USPS 022-324). Published bi-monthly.

2nd Floor, Ludgate House, 245 Blackfriars Road, London, SE1 9UY. Periodicals Postage paid at Jamaica, NY 11431.

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Printed in England by Headley Brothers Ltd. All rights reserved. No part of this publication may be reproduced by any means whatsoever without the express permission of the Publisher. Although care has been taken in the compilation of this magazine, Aviation Industry Press does not take responsibility for the views expressed herein.

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IMPROVING THE A320 & 737 WHILE WAITING FOR REPLACEMENTS

Airbus and Boeing face real challenges with the bread and butter A320 and 737 families in today’s eco-aviation and fuel price challenged environments. Scott Hamilton reports on what can be done whilst there is no viable replacement.

TECHNOLOGY 42 V2500: PAST PRESENT AND FUTURE

Paolo Lironi of SGI Engine Advisory provides a profile of the V2500 engine and considers development, maintenance costs and future prospects.

46 NEAR AND LONG TERM ENVIRONMENTAL SOLUTIONS

The world’s engine makers are under tremendous pressure from environmental lobby groups to reduce emissions but major advancements are a long way off, LCAW looks at the latest developments.

INFRASTRUCTURE 52 A SINGLE EUROPEAN SKY?

Air traffic service providers are fragmented and overrun. LCAW looks at the fragmented European air traffic system, which if ever were to be merged, would save airlines a fortune in fuel costs.

MAINTENANCE OPERATIONS 56 NARROWBODY MAINTENANCE AND SUPPORT

The 737NG and A320 contest the hotly-fought battle for the affections of LCCs around the world, both seem evenly matched — So LCAW decided to investigate whether either can claim a maintenance advantage.

FACTS & FIGURES 62 FIRM ORDERS / TRANSACTION SUMMERY / STORAGE SUMMERY / LIST PRICES AND LEASE RATES / ENGINE DATA / FUEL PRICE CHART

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Welcome to: Low Cost Airline World An industry journal with global distribution dedicated to the low cost carriers and their suppliers.

L

OW COST AiRLinES have come a long way since the 1970s when Southwest and Laker tried to bring air travel to the masses. Laker may well have been driven out of business by stronger flag carriers such as British Airways, but Southwest proved that on a regional basis at least an airline with a low cost base could succeed. It then took another decade before anyone else realised that the Southwest model could be adapted to other regions: cue Ryanair. But incredibly it has taken a full three decades and an industry catastrophe for many flag carriers and/ or legacy carriers to realise that the low cost model, at the very least in part, is the way forward for the aviation industry. Now, at the end of the first decade of the 21st century, there is a low cost carrier with a strong foothold in every major market.

The European low cost market could be considered the most advanced with the South East Asian/Pacific market(s) looking likely to overtake it within the next decade. The South East Asian market is key to the future of aviation as it is this region, with its various long distance routes, that the likes of AirAsia X and Tiger will force a huge change as countries are linked like stepping stones towards India and the Middle East and Australasia to the South West. In part, the unnoticed vanguard in the leap toward global low cost carriers, or low cost long-haul carriers as they are referred to, has been with Virgin Blue and its related operations, Skywest, Pacific Blue and Polynesian Blue; it will not take much of a leap to link Singapore.

All eyes at the moment continue to be fixed on whether a European low cost carrier will take on the Atlantic route. This remains to be seen, but Ryanair is in a position to move in on the profitable Atlantic routes if it so desired. Although the current recession will help the low cost airlines Ryanair, and others, are plagued by the fact that every low cost to traverse the Atlantic has failed, the latest of which was poor Zoom. There is also the attempt by Oasis Hong Kong to link London and Hong Kong, another failure. Traditionally business travellers would not take a low cost option long distance. We should now ask if the economic reality of 2009 leaves businesses across the globe with no choice but to send their employees on the cheapest air fare on all routes at all times. If this is going to be the case during this recession then the low cost airlines have an opportunity here and now that surely cannot be missed!

The future is low cost and all airlines will need to get into shape or go out of business.

The likes of Ryanair now have the opportunity of a lifetime to expand organically or through merger and acquisition to become the intercontinental airlines of the future!

The manufacturers, aircraft and engine lessors, airports and all other suppliers wait with baited breath. Low Cost Airline World will be with them all the way!

I hope that you enjoy this issue. The next issue will be published in April with the Paris Air Show issue following that with full distribution on the site.

Many thanks,

Philip Tozer-Pennington Managing Director, Aviation Industry Press.

A division of UBM Aviation.

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NEWS: EUROPE

easyJet raises revenue forecast

A jump in the number of passengers originating outside of the UK, combined with the strength of the euro and added capacity at major airports, helped easyJet increase its first-quarter revenues by almost a third, the low-cost airline said today. The airline also raised its forecast for first-half revenues, helping to send its shares up 25p or nearly 10 per cent to 280p in early London trading. For the three months to the end of December revenue jumped 31.5 per cent to £550m, while passenger numbers rose 10 per cent from 9.1m to 10.1m. The company said a general reduction in flight capacity of four per cent across Europe helped contribute to a 23 per cent increase in average revenue per seat to £45.57, an increase of 14 per cent in constant currency terms. Andy Harrison, chief executive, stated: “This is a good performance, especially the 14 per cent increase in our total revenue per seat at constant currency and the 20 per cent growth in non-UK originating passenger numbers.” Load factors increased from 80.8 per cent to 83.4 per cent. The airline warned that the outlook for the summer was more uncertain due to the weakness of sterling and the uncertain economic environment. The fastest growing revenue stream for easyJet has been the “ancillary revenues” it generates from baggage charges, as well as hotel bookings and car hire from its website. These almost doubled over the space of a year from £57m to £105m and now account for 19 per cent of total sales.

LOW COST AIRLINE WORLD

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Business travellers lift LLCs in Europe

Businesses desperate to keep market share are not prepared to cut travel, but in order to cut costs they are compelling employees to travel low cost. Air Berlin, Europe’s third-largest low cost airline, saw 3Q operating earnings increase as cost cuts helped its bottom line and more business travellers started to use the airline. The company also said it had signed contracts with 241 companies in the first nine months of 2008 — a 50 per cent advance on corporate contracts signed in the same period of 2007, when many companies were still booking only full-fare carriers.. Hog Robinson, a UK-based corporate travel service, has reported that its clients are opting to travel on low cost airlines and rail services.

Air Berlin’s execs take 50 per cent bonus cut Air Berlin’s executive directors and managers will take a 50 per cent reduction on their bonus entitlements for 2008, equivalent to a 10 per cent reduction on the annual income of the carrier’s senior management and 25 per cent reduction for its board of directors. The cuts total EUR2m collectively. The company’s 2008 year-end results will be released on 30 March 30 in Berlin. Joachim Hunold, the airline’s CEO, said the company had last year seen “the best quarterly result in the history of our company”.

Ryanair partners with Costa Cruises Ryanair, Europe’s largest low fares airline, has announced its new partnership with Costa Cruises. Ryanair will use the 50 of its 820 routes which connect to ports to offer customers travel to cruise hubs. Ryanair will enable passengers to book cruise holidays directly via their website and connect to Costa Cruise liners departing from Barcelona, Civitavecchia, Kiel, Marseille, Palermo, Savona and Venice, among others

Air Malta and bmi celebrate first codeshare flight Air Malta and bmi today flew their first codeshared flight having signed an agreement which covers Air Malta’s flights between Malta and the United Kingdom and to/from Brussels and Amsterdam. The agreement also covers bmi flights to/from destinations in the UK that connect via Heathrow, Manchester, Brussels and Amsterdam. The agreement will offer new flight connections between the Maltese islands, Aberdeen, Edinburgh, Glasgow, Dublin, Leeds Bradford, Belfast, East Midlands and Durham Tees Valley. Dr Brock Friesen, Air Malta’s COO said: “Codeshare agreements are proving to be essential to increase flight connections and accessibility... Other codeshare agreements should be announced soon.” Air Malta already has codeshares with Lufthansa and Turkish Airlines.

Ryanair cuts flights and jobs at Dublin airport

Ryanair, Dublin airport’s largest airline, has announced it will cut back its summer season flights to the Irish airport for the first time ever. The airline blamed: “high and rising DAA (Dublin Airport Authority) charges, allied to the Irish government’s crazy decision to impose a €10 tourist tax from 30th March,” which the operator believes will “decimate traffic and tourism through Dublin Airport.” The airline said its monthly traffic at the airport is already running at 9 per cent, or 150,000, less than the previous year and cites the DAA’s “high costs and third rate facilities” as the reason. The low-cost carrier will cut 200 jobs among pilots, cabin crew and engineers; carry out a 20 per cent cut in Dublin-based aircraft (22 to 18 units); and a 20 per cent cut in traffic (from 10.8m to 8.7m pax in 2009/10). The airline has said further winter 2009 cuts will be announced.

Aer Lingus falls after Irish government rejects Ryanair bid Aer Lingus Group’s fell the most in Dublin trading since shares were first sold to the public in 2006. The airline’s shares fell as much as 30 cents, or 22 per cent, to €1.05, the biggest decline since its September 26, 2006.

The second-largest investor, whose 25 per cent holding is second only to Ryanair’s 29.8 per cent stake, rejected a takeover bid saying the bid undervalued Aer Lingus and a merger of the Dublin-based carriers would harm competition. Aer Lingus’ stock has fallen 56 per cent in the past 12 months, cutting its market value to €561m. The question now is: will Ryanair dump its Aer Lingus holding onto the market or try again later?

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NEWS: EUROPE

Ryanair posts a third-quarter net loss after being hit by fuel hedges Europe’s largest lowcost carrier posted a €101.5m ($130m / £90m) adjusted net loss for the three months to the end of December, falling from a €35m profit during the same period last year. Third quarter fuel costs had risen by 71 per cent to €328m during the period, and accounted for 47 per cent of operating costs. Yet the Irish LCC was upbeat, saying: “The 38 per cent reduction in oil prices which our fuel hedging has secured will ensure that Ryanair returns to substantial profitability next year, when many of our competitors will be reporting losses,” Michael O’Leary Ryanair CEO, said that the longer the recession lasts, the “better it will be for the lowest cost producers in every sector”.

Ryanair opens eight new routes Ryanair, Europe’s largest low-cost airline, has announced it will introduce eight new European routes. Four new routes will fly from Reus, Barcelona in June. The carrier will invest $210m into the airport and use it as a base for its third new 737-800 aircraft.

RyanaIr opens new UK-Ibiza route Ryanair, Europe’s biggest low-fare airline, will open its new route from Liverpool John Lennon (JLA) to Ibiza starting March 30. The airline already operates over 40 routes from JLA. Flights will operate three times per week departing on Mondays, Wednesdays and Fridays.

Air Berlin reduces is fuel surcharges Air Berlin, Germany’s second largest airline, has cut its fuel surcharge and now charges up to €15 per flight. Domestic German and European intercity flights will see a reduction of €5 to the cost of €20. On mediumhaul tourist routes will be down €10 from €35 to €25.

LOW COST AIRLINE WORLD

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Air Berlin reports 23 per cent increase in January’s yield

Air Berlin, Germany’s second largest airline, saw a double-digit increase in its revenue per available seat kilometer (Yield per ASK) during January. Revenue per available seat kilometer increased by 23 per cent from €4.06 to €4.99 year-on-year. Fleet capacity utilisation improved by 0.3 per cent to reach 69.4 per cent although capacity for the month was reduced by 4.9 per cent. January’s passenger numbers fell by 4.5 per cent, reaching 1,701,780.

Fraport sells Germany’s Hahn Airport after Ryanair threatens to leave

Fraport has sold Frankfurt-Hahn, one of Germany’s leading cargo airports, for the equivalent of $1.30. The company, which also owns Frankfurt-Main airport, Europe’s biggest cargo hub, sold its 65 per cent stake in Hahn to the German federal state of Rhineland-Palatinate for a symbolic price of €1. Fraport said the deal, effective from January 1, ends all its financial obligations to Hahn, which had operated at a loss for several years.

Traffic at Hahn fell 11 per cent in 2008 from the previous year to just under 124,000 metric tonnes. It also handles approximately four million passengers annually. Fraport decided to sell its stake after its biggest customer, Irish discount airline Ryanair, threatened to leave Hahn if it introduced a $3.90 passenger tax as part of a plan to cut losses. Rhineland-Palatinate, which owns 17.5 per cent of Hahn, feared Ryanair’s departure would cost 6,000 local jobs, and offered to buy out Fraport’s stake.

Airbus rejects Ryanair’s multibillion dollar bid invitation for 300-400 aircraft

Airbus has rebuffed Ryanair’s invitation to bid against Boeing for an order of 300-400 short-haul jets. The carrier announced that it was in early talks with both Boeing and Airbus for what would be one of the biggest orders for new aircraft in aviation industry. John Leahy Airbus CEO, has since been reported as saying: “We are not in discussions with Ryanair about aircraft. That is on the record.” The surprise rejection is likely to be a response to Ryanair’s 2002 negotiations when it had both manufacturers battling for an order of more than 100 aircraft.

Leahy has been reported as dismissing sales negations with Ryanair as ‘expensive’ and ‘time-consuming’

Ryanair to continue war against screenscrapers Ryanair, Europe’s largest low-fares airline, has announced rulings in favour of Atrapalo, who Ryanair claim to be a ‘screenscraper’ website which unlawfully accesses the airline’s data and sells on its flight with massive hidden costs to the customer. Ryanair likens the third-party flight sales to unauthorised music downloads.

Michael O’Leary said: “Our case has successfully been put before the EU and we will appeal any Spanish court decision which fails to stop the unauthorised activities of these overcharging ticket-tout sites.”

Ryanair welcomes EU ruling over €1bn in unlawful state aid to Air France

Ryanair, Europe’s largest low-fare airline, welcomed the decision by the European Commission to disallow unlawful state aid to Air France in the form of reduced airport charges on domestic routes in France.

The commission’s investigation resulted from Ryanair’s complaint in May 2006 against over €1bn in state aid received

by Air France in the form of the domestic route discounts.

Ryanair’s Jim Callaghan said that the decision confirms that: “flag carriers throughout Europe have been, and are, in receipt of billions of Euros in State aid, while the commission has been wasting time pursuing tiny regional and secondary airports, like Charleroi, for, what the courts have now found, were commercial arms-length deals with Ryanair, easyJet and other low fares airlines.”

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Air Berlin announces its figures

easyJet raises revenue forecast

Air Berlin flew 28,559,220 passengers last year, a one per cent increase from 2007. Fleet capacity rose 1.2 per cent to 78.4 per cent. For December 2008, the carrier’s yield per ASK increased by 17.6 per cent from the same period of the previous year.

Passenger numbers decreased due to capacity cuts by 5.4 per cent to 1,806,618 passengers

Ryanair must work harder to woo Aer Lingus shareholders

Ryanair, the biggest European low-cost airline, extended the offer period to Aer Lingus shareholders after its €750m ($1 = €0.73) takeover bid for its Irish rival was largely ignored. Ryanair, which owns 29.82 per cent of Aer Lingus, said it had received acceptances totalling 29.83 per cent of the shares in Aer Lingus, including its own stake. The deadline was put back from Monday, January 5, to February 13, 2009. Andrew Fitchie, Collins Steward analyst said: “For this to go ahead they need to substantially increase the offer, sweeten it from the government and unions’ perspective, if they stand any chance.” Ryanair has offered €1.40 a share for the former state airline, just half the price of a previous offer in 2006 which was blocked by the European Commission on competition grounds. Michael O’Leary, Ryanair CEO, who has held talks with the Irish government and Aer Lingus employees (the carrier’s two other major shareholders) said he remained confident the offer would succeed. The board of Aer Lingus is determined to fight this new approach, with the airline’s workers, which control a 14 per cent stake, concerned over job prospects in spite of assurances

by Ryanair.

March/April 2009

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Stelios shelves plans to extend easyJet’s board Sir Stelios Haji-Ioannou, founder of easyJet, has said he will postpone plans to appoint two new directors to the company. The decision comes after a dispute with existing directors about the expansion of the company during a recession. Stelios increased his voting power from 15.6 to 26.9 per cent in November by taking control of his sister’s stake in the company.

A jump in the number of passengers originating outside of the UK, combined with the strength of the euro and added capacity at major airports, helped easyJet increase its first-quarter revenues by almost a third, the low-cost airline has said. The airline also raised its forecast for first-half revenues, helping to send its shares up 25p or nearly 10 per cent to 280p. For the three months to the end of December, revenue jumped 31.5 per cent to £550m, while passenger numbers rose 10 per cent from 9.1m to 10.1m. The company said a general reduction in flight capacity of four per cent across Europe helped contribute to a 23 per cent increase in average revenue per seat to £45.57, an increase of 14 per cent in constant currency terms. Andy Harrison, chief executive, stated: “This is a good performance, especially the 14 per cent increase in our total revenue per seat at constant currency and the 20 per cent growth in non-UK originating passenger numbers.” Load factors increased from 80.8 per cent to 83.4 per cent. The airline warned that the outlook for the summer was more uncertain due to the weakness of sterling and the uncertain economic environment. The fastest growing revenue stream for easyJet has been the “ancillary revenues” it generates from baggage charges, as well as hotel bookings and car hire from its website. These almost doubled over the space of a year from £57m to £105m and now account for 19 per cent of total sales.

Will Ryanair give up on Aer Lingus?

Ryanair CFO Howard Millar stated his airline will give up on the acquisition of Aer Lingus if it is not accepted by its offer deadline of February 13, 2009. Millar said: “If the offer isn’t successful, we’ll fold our tents and go elsewhere.” Ryanair still owns 29.9 per cent of Aer Lingus, a throwback from the first failed takeover bid back in 2006, and it is not known if it plans to offload this if the current bid is rejected.

The Aer Lingus board, for its part, has rejected the €1.40 a share offer, which values the carrier at about €748m ($964m), or half the 2006 bid.

Ryanair remains in discussions with the Irish government and with Aer Lingus workers, who own a critical 40 per cent of the carrier.

Air Berlin’s major stakeholder sells its shares Air Berlin’s largest shareholder, AI Aviation Cooperatief has sold its 18.94 per cent stake in the carrier to an unknown buyer. The Dutch investment company, a subsidiary of Access Industries, has said it will not disclose the buyer for legal reasons. The sale was not made through the stock market. Industry rumours suggest that Etihad Airways may be the buyer as they have been seeking a part of the European market, yet the airline has reportedly denied any purchase of the shares.

easyJet to open 14 new European routes easyJet is to launch 14 new routes across Europe, it has announced. The routes are due to be opened in time for summer 2009, nine of which are to be based in the UK. The carrier has said it will also acquire additional aircraft to be based at Liverpool from June 1, 2009 and Manchester from August 4, 2009. New routes include: Newcastle to Malta; Bristol to Corfu; Liverpool to Dubrovnik; Manchester to Bastia; Basel to Bordeaux; Paris CDG to Ajaccio and Bilbao to Ibiza.

Ryanair launches Stansted compensation claim Protestors involved in the Stansted airport climate change rally may have to pay compensation to Ryanair, which was badly affected by the disruption, after the carrier lodged a compensation claim for €2.5m.

Most of the 22 ‘Plane Stupid’ campaigners were ordered to commit between 50 and 90 hours community service after admitting aggravated trespass. All of them must pay compensation of £60 to cover £3,000 worth of damage to the perimeter fence, and total court costs reached £570.

Ryanair is claiming €2m for loss of revenue after it had to cancel 57 flights during the incident, as well as €500,000 for ‘reputational damage’.

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EasyJet row Standard Life Investments, the largest institutional investor in EasyJet, has sided firmly with the board and management of the low cost carrier in its growing row with the founder Sir Stelios Haji-Ioannou. Sir Stelios stated that he was engaging with other leading shareholders to explain his concerns that the group was not focused on conserving cash and limiting its capital expenditure commitments in response to the deepening recession. But David Cumming, head of UK equities at Standard Life, yesterday rejected Sir Stelios’s stance and said: “We’re comfortable that the board have been moving the company in the right direction.”

Air Berlin and TUIfly merger hangs in the balance The merger between Air Berlin and the charter airline TUIfly is likely to collapse, industry sources have said. The cancellation would match the airline’s move last year when it dropped plans to take over Thomas Cook’s charter airline Condor. The airline halted its plans last year — which were to provide competition to rival Lufthansa — because of concerns over global finance. Air Berlin has said it is still in talks with the charter airline and neither has confirmed any conclusions between the parties.

Ryanair cleared of Charleroi case Ryanair, Europe’s largest low-cost airline, has been cleared of the allegation that it took subsidies or state aid from Charleroi or the Walloon region.

The carrier recently heard that the European Court of First Instance (CFI) ruled against the EU Commission on its 2004 Charleroi case which wrongly accused Ryanair. Additionally, the Commission’s 2005 report, Airport Guideline, which was based on the flawed Charleroi case is now deemed null and void.

LOW COST AIRLINE WORLD

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Easyjet’s Stelios ups stake to battle against expansion Sir Stelios Hajiloannou, the founder of Easyjet, has stepped up his campaign against the board of the UKbased LCC in a row over the airline’s strategic direction.

Sir Stelios has voiced grave concerns about the lack of caution being displayed by the board, saying that the airline should be far more reserved in its expansion ambitions going into a deep and lengthy recession. He is also questioning the need for the vast number of additional A320 family aircraft currently on order. Another area of contention is the board’s plan to openly offer revenue guarantees to a potential bidder for London Gatwick airport in return for reduced landing fees. As you may recall, Sir Stelios has raised his holding from 15.6 per cent to 26.9 per cent via a transfer of legal interest in his sister’s 11.3 per cent stake to EasyGroup Holdings, his Cayman Islands-registered company. Sir Stelios, with more than 25 per cent under his belt, now has the right to appoint the new directors — giving him control of more than a quarter of the board. He also has the right to appoint himself chairman at any time should he decide to do so.

Ryanair claims Aer Lingus is playing unfairly As Aer Lingus opened its new base at London’s Gatwick airport last Friday, Dermot Mannion, CEO, fought off claims by Ryanair that the carrier was making “contradictory claims and forecasts”. Aer Lingus said it expects to improve its finances next year due to a cost-cutting deal with unions and decline in fuel prices. It has previously forecast an operating loss for next year and has not yet given specific forecasts for 2009.

Standard Life backs board in easyjet boardroom battle continues as aircraft sold

easyJet has agreed the sale of two aircraft to an undisclosed purchaser, thought to be A321s at this time, possibly ex-GB Airways aircraft, although there has been no confirmation of this. The company said that the price was “in line with the company’s expectations”. This follows-on from Sir Stelios’ claims that up to eight aircraft “should be written down to their estimated market value”, which he believed had “probably fallen” since they were put on the block in February.

Whisper, whisper: Ethiad to buy Berlin?

Etihad Airways may be in line to acquire Air Berlin, Europe’s third largest low-fare airline. Sources say that the airline is not yet at a decision-making stage, but that it has been researching for some weeks the benefits and practicalities of the buy-out. The deal would make available to Etihad a network of feeder services in Europe, with many flights running to Germany — a desirable destination in terms of traffic rights. Air Berlin is valued at €281m ($404.6m).

bmi introduces A330 from Heathrow to Cairo and Amman bmi, Heathrow’s second largest airline, is to introduce A330 aircraft on its routes from Heathrow to Cairo and Amman.

The changes will come into effect early in Spring 2009.

HSH Nordbank poised for realignment At a joint cabinet and senate session today the governments of Hamburg and SchleswigHolstein took a decision on the Management Board’s realignment concept for HSH Nordbank.

Dirk Jens Nonnenmacher, CEO of HSH Nordbank commented directly following the decision: “I welcome the fact that the governments of both states support the proposals made by the Bank on its realignment. This is good news for the region, the Bank, our staff and our clients.

We now have the possibility of rapidly bringing our business model into line with the new underlying conditions on the financial markets, which will enable us to be successful once again. After the increase in capital the Bank will have a Tier 1 capital ratio of almost 9 %, and the size of its balance sheet will be reduced by half to around 100 billion euros in the coming years. Our concept is both coherent and correct. We shall continue to focus principally on the higher-end corporate clients business in addition to private clients, nationwide real estate operations and business with savings banks. It goes without saying that we shall also continue to support our clients in the key industries of shipping, transportation and renewable energies. Precisely against the backdrop of the overall economic situation, HSH Nordbank is more than ever needed in order to ensure the supply of credit to all the aforementioned sectors.

Today’s decision will enable us to meet our responsibility in the future, too. The discussions over the past few days and weeks have been very constructive and purposeful. We shall continue with this close dialogue with a view to advancing the progress of HSH Nordbank jointly with the governments involved.”

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NEWS: EUROPE

Greek Aerospace to partner Irkut on new aircraft

BMI to close Manchester operations

Greece’s Hellenic Aerospace Industry will cooperate with Russia’s Irkut to build its new MC-21, aiming to rival the A320 and 737 passenger aircraft. The MC-21 is scheduled to enter service by 2014 and will be able to carry 150, 180 or 220 passengers, Victor Khristenko, Russia’s industry minister, said.

Bird strikes force Ryanair emergency landing On November 10, 2008 a Ryanair jet carrying 166 passengers made an emergency landing at Rome Ciampino airport after starlings were sucked into its engines. Two cabin crew and five passengers were taken to hospital with minor injuries after evacuating the aircraft via emergency chutes and the stairs. The left-hand landing gear suffered “substantial damage”, leaving the 737-800 stranded on the edge of the runway, with one of its engines resting on the ground.

bmi will end its long-haul flights from Manchester. Flights to Chicago O’Hare ended on 14 January 2008 and those to Las Vegas, Barbados and Antigua will stop after Easter holiday in April. The airline will transfer the two A330s currently used at Manchester to London Heathrow.

Air Berlin receives its first Q400 from Bombardier

EADS may be renamed Airbus

Louis Gallois, CEO of EADS, is considering a restructure of the aerospace conglomerate, replacing its current two headquarters with one, and renaming it Airbus. The current five divisions would thereby be re-organised into three units: civilian and military aircraft; space and defence activities; and the helicopter division Eurocopter. The present two headquarters in Munich and Paris would be closed, and a new one opened in Toulouse.

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Air Berlin’s first Q400 took to the skies, but only after a delay of almost two hours due to a technical fault with the wing flaps. The flight lfrom Dusseldorf to Stuttgart marked the first of a route which will be taken five times a day. The delivery is the first of ten turpoprop aircraft ordered by the carrier from the Bombardier in March 2008. The airline has also signed for an option to buy 10 additional aircraft financed through HSH Nordbank. The aircraft: “enables us to obtain a significant cost reduction over the previously deployed Fokker 100 aircraft and to make an active contribution to protecting the environment. At full capacity, the Q400 only consumes 2.76 litres of fuel per passenger per 100 kilometres, while emitting 30 per cent less CO2 than jets of a comparable size,” said Joachim Hunold, Air Berlin’s CEO.

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S7 cancels $2.4bn 787 order Siberia’s S7 Airlines has cancelled its $2.4bn order with Boeing for 15 787s. The airline has said it is now interested in leasing the 787 — a clear sign that they could not afford to pay for the aircraft. Nationally, Russia’s airlines are suffering through lack of funding, the Kremlin is urging home-grown alternatives and passenger demand is weakening. The Boeing’s 787 sales still have much riding on Russian airlines and it thought its Boeing will be looking to Aeroflot to secure future deals.

S7 pays 122.3m rubles for third coupon

S7 A i rl i n es pa i d 122,353,668.71 rubles (RUB) for the third coupon of a debut fiveyear bond issue. The company paid RUB53.35 for one bond at 1,000 par value. The yield rate of the third coupon was set at 10.7 per cent annual ($1 = RUB33.4154).

SITA booking system selected by S7

S7, Russia’s largest domestic airline, is the first to implement SITA Marketplace-Air, enabling its sales agents, partner travel agents and customers booking on their website, to access and book last seat availability on 530 airlines through SITA Reservations. SITA partnered with Travelport GDS, a provider operating both the Galileo and Worldspan platforms, to provide S7 with extensive access to the content from over 400 additional airlines. The solution is now being made available to other carriers hosted on SITA Reservations.

S7 Airlines announces debt service default as troubles become clear S7 Airlines has announced the debt service default of a bond loan totalling 2.3bn rubles (RUB). The main creditors of S7 Airlines, including Sberbank and Uralsib, will collect debts from the airline next week of more than RUB9bn. Bonds totalling RUB2.197bn have been put up for redemption. After the announcement Reiffeisenbank, which was appointed as an agency for loan restructuring, specified the terms of deferring the payment offered by the airline to the bond holders. The company is to pay RUB460m of debt (20 per cent) immediately and another RUB920m (40 per cent) by monthly tranches of RUB230m each from May to August and RUB920m paid under the same scheme from May to August 2010.

S7 Airlines sets rate of 4-10 coupons at 18 per cent S7 Airlines has set the interest rate of 4-10 coupons of 01 series at 18 per cent annual. The airline will pay 89.75 rubles (RUB) for one bond at RUB1,000 par value, 4-10 coupons. Total payment is RUB206.425m and the issue consists of RUB2.3m bonds. The Bank of Moscow was assigned as the lead manager, with co-lead managers being: Absolut Bank, International Moscow Bank, KIT-Finance, RAF Group, Tatfonbank, underwriters — Adekta, KMB-Bank, Konversbank, Nomos-Bank, Promsvyazbank, and Bank Soyuz ($1 = RUB33.4154).

S7 Airlines ends negotiations with NRC over asset consolidation

S7 Airlines debt before Tolmachevo Airport down to 70m rubles

S7 Airlines has ceased negotiations with National Reserve Corporation (NRC) over the consolidation of its aviation assets, in order to establish a new united airline.

S7 Airlines announced on February 12 that its the debt had decreased from 102m rubles(RUB) to

Sky Express revenue totalled 3.926m rubles (RUB) in 2008 (up 1.5 times). In 2009, Sky Express expects a 67 per cent increase in revenue to RUB6.5bn (USD1 = RUB32.8926).

Sky Express disputes FTS claims totaling 1.2bn rubles Russian low-cost Sky Express has disputed the claims of Federal Tariff Service (FTS) in court. In October 2008, the customs service accused the airline of non-payment of customs duties, fining the company a total of 1.2bn rubles.

The airline has challenged the decision. ($1 = RUB35.8323)

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Sky Express revenue up in 2008

Sky Express announces operating results Sky Express handled 969,154 people in the elevenmonth period of 2008 to November end, an increase of 63 per cent on the same period last year. International passenger service totalled 13, 097 people in the reported period, domestic passenger service — 956, 057 people — up 60 per cent on last year. Passenger traffic totalled 1,234,966 813 p-km in the eleven-month period — up 58 per cent. Passenger load factor totalled 62.4 per cent — down 1.5 per cent, cargo load factor was — 72.4 per cent — up 3.8 per cent on last year. The company handled 1,082.47 tonnes of cargo and mail in the reported period (up 2.6 per cent). International cargo traffic totalled 5.28 tonnes, domestic cargo traffic — 1 077.19 tonnes (also up 2.6 per cent). Cargo traffic totalled 1,417 914 t-km in the reported period (up 2.9 per cent).

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Skywest announce January statistics

Jet Airways and United Airways in frequent flyer partnership India’s Jet Airways has formed a frequent flyer partnership with United Airlines, one of the world’s largest airlines, allowing customers to earn points on both Jet flights and the US airline’s global route network. The scheme, which was effective from November 15, 2008, will also aid in “boosting connectivity across the busy India-USA sector,” Wolfgang Prock-Schauer, CEO, Jet Airways said.

Skywest, the Australian and South East Asia regional airline, has announced its line network operating statistics for January 2009 show an increase of 57.69 per cent in scheduled charter services compared with the year before. Capacity (measured by ASKs) decreased by 11 per cent from 2008. Traffic (measured by RPKs), decreased by 14.95 per cent, while load Factor fell by 2.37 per cent to 50.98 per cent compared to the previous year.

FlyDubai to Launch within months FlyDubai, Dubai’s first low-cost carrier, is due to launch within a few months — despite delays to the carrier’s aircraft deliveries from Boeing. The company placed an order with Boeing for 54 of their 737 aircraft at a value of $4bn. The agreement comprises a firm order for 50 aircraft and a leasing agreement for four more with Babcock and Brown Aircraft Management. Initial FlyDubai flights will be within a four to five hour radius of the city; though later destinations have not yet been disclosed, a company spokesman has said the ‘Indian subcontinent’ is a likely. The company has said they are ready to launch during the middle of this year.

FlyDubai concerned over affects of Boeing Delays FlyDubai has raised concerns over the ability to start operations on time as a result of expected delays to the delivery of Boeing aircraft. However, the low-cost carrier has said after talks with the manufacturer, that it is to continue with plans to launch its service by the second quarter of 2009, hitting just a small number of destinations. The state airline ordered 54,737 aircraft worth $4bn last November, 50 of the aircraft were ordered directly from Boeing, four from the lessor Babcock & Brown.

Jet Airways confirms where the cash came from and looks to fuselage ad revenue In the December quarter, Jet Airways earned Rs 3,871 crore ($8m) from selling its slots at London Heathrow Airport (LHR) and wet-leasing its aircraft. This non-passenger income helped it show a growth of 87 per cent in its international revenue, even when its domestic revenue had slipped 14 per cent, compared to last year.

Wolfgang Prock-Schauer, CEO, Jet Airways estimated that his airline would be earning roughly $2-2.2m per month per aircraft from wet leases. Jet’s low-cost subsidiary, JetLite, is also chasing ancillary revenues such as in-flight advertising, catering and in-flight sales. Jet’s budget airline is also looking into fuselage advertising, which could bring in Rs 50-60 lakh per month.

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V Australia receives its first 777-300 The Virgin Group’s new V Australia airline has received its first 777-300ER. The aircraft is one of seven to have been ordered from Boeing under a lease contract with International Lease Finance Corporation.

V Australia will launch threeclass Sydney-Los Angeles nonstop services on February 27, building to daily flights by March 20. Brisbane-Los Angeles flights begin April 8.

CFM awards TRUEngine status to Malaysia Airlines and AirAsia CFM International has awarded the TRUEngine designation to 77 CFM56-3 engines in Malaysia Airlines’ fleet and nearly 110 CFM56-5B engines in the AirAsia fleet. The engines were awarded TRUEngine status following a comprehensive review of the airlines’ fleet operational data and maintenance records.

These records validated that maintenance is consistent with CFM International’s requirements for those engine models.

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Jet slashes prices during winter decline

Foreign interest for shares in Kingfisher mounts

Jet Airways, India’s international airline, has introduced discount fares to several destinations across Europe to compete during the slow winter months. All discount flights will operate via the carrier’s European hub in Brussels, and London. The deal is in association with Jet Airways’ interline partner carriers, is valid until December 31, 2008.

As Jet Airways continues the search for a cash injection stories of a success circulate India’s largest domestic carrier, Jet Airways, saw shares jump in trading to a high of INR204.4 as local news sources circulated a story that the airline had secured a loan agreement of INR10bn ($205m) from the investment arm of the Abu Dhabi government, Mubadala Development Company. Yet Mubadala spokeswoman, Kate Triggs, sent an e-mail to elements of the press this stating that it has “no knowledge” of the loans.

Kingfisher wishes to defer five A380s Kingfisher Airlines, India’s second-largest private carrier, has unofficially confirmed the deferral of its five A380s. It is also reported that Kingfisher has made a request to Airbus asking that the specifications for its A380s be amended to increase fuel and operational efficiency. It is understood that Kingfisher is looking to fly its A380s non-stop between India and the US. Airbus however, has denied the deferral.

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Kingfisher Airline’s owner Vijay Mallya has said the company received several enquiries from global airlines interested in buying a stake in carrier. The country’s current policy however, bars such foreign investment and revisions to the policy would have to be made before any deal went ahead. “I have received several Expressions of Interest from foreign airlines as the Kingfisher network is unparalleled.

However, I cannot give details,” Mallaya said. On another note, the airline has recently said they will neither recruit nor fire any staff for the foreseeable future. “There is no question of layoffs” Mallya said in an address at the World Economic Forum’s India Economic Summit, a statement which comes after recent fear of large-scale layoffs as a result of low demand. As a result of this Kingfisher Airlines shares gained 7.2 per cent to 28.20 rupees in Mumbai trading.

Kingfisher still trying to sell 25 per cent stake in airline, but now United Spirits too

Vijay Mallya, the Indian entrepreneur at the helm of Kingfisher Airlines is in talks to sell 25 per cent of his airline to a foreign rival, while also looking to sell off United Spirits. Mallya is locked in talks with Diageo, the British drinks group, to explore the divestment of a stake in United Spirits, his drinks business, which is the world’s third largest producer of spirits. It has been reported that he hopes to raise as much as $500m by selling off 15 per cent. The proceeds could well be used to reduce United’s debt of $1.2bn, largely due to the group’s purchase of the Scottish distillery Whyte & Mackay back in 2007. Mallya has been among the hardest hit of India’s mega-rich in the wake of the global credit crunch. Last week, he suffered the ignominy of falling off the Forbes list of India’s 40 richest tycoons and losing his billionaire status. It is hard to see how talks on the future of the airline can be taking priority while United Spirits, the hub of the Mallya empire, is at stake.

KD Avia and Kingfisher Airlines sign bilateral agreement KD Avia and Kingfisher Airlines have signed a bilateral agreement which came into force on 14 November 2008. Under the terms of the agreement each party can now sell tickets for the flights of the partner airline.

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AirAsia X shows true grit

AirAsia X will launch its low-cost long-haul flights between Europe and South East Asia in March with services between London Stansted and Kuala Lumpur. The flights were announced yesterday with fares set at £99 ($151) one way. Tony Fernandes, chief executive and founder of Air Asia, stated that the services would ‘revolutionise’ air travel between Europe and Asia and confirmed that around 20 per cent of seats would be offered at the lowest prices of £99 one way.

Australia records sharp rise in safety incidents The Australian Transport Safety Bureau’s annual review, which covers the nation’s entire aviation fleet from GA to large passenger aircraft, shows a distinct rise in the number of reported incidents that involve aircraft frames and engines. Between 2003 and 2007, the number of reported incidents involving the structural frames of aircraft across Australia increased by 75 per cent, including a 48 per cent rise between 2006 and 2007.

Reported incidents involving aircraft power and propulsion components increased by 26 per cent over the period. While these figures are largely due to Australia’s ageing GA fleet, experts have also expressed concern about the impact of costcutting measures introduced by airlines. “In the past Qantas and the other major Australian players did far more than required on maintenance,” said Dick Smith, former chairman of the Civil Aviation Safety Authority, “but now they’re going right to the limit of what they’re allowed to do under the regulations.”

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Frontier announces fourth quarter results

Skywest Airlines report 41.5 per cent revenue increase Skywest Airlines today announced its revenues had increased by 41.5 per cent, up $130m from the prior year, it said in its audited financial statements for the year ending 30 June, 2008. Pre-tax profits rose to $14.5m from $12.7m recorded the previous year. Group net profit after tax increased to $10.4m up from $7.96m the prior year notwithstanding tax charges of $4.08m.

Frontier Airlines announced in its quarterly report ending in December 2008 a consolidated operating profit of $5.6m and a net profit of $1.1m. Excluding special items, the company reported an operating profit of $14.3m and a net profit of $7.6m for the quarter. Load factor for the quarter improved 3.9 points versus the prior year. The company said it had realised net proceeds of $44.1m from the sale of four aircraft during the quarter — “Which was offset by a decrease in working capital due to the traditionally low booking period at the end of the year.” Sean Menke, Frontier president and CEO, said: “These results truly buck the industry trends right now... Despite significant competitive pressure and other economic factors, we have been able to reduce our operating expenses, increase revenues and maintain our high quality of service.”

JetBlue fourth quarter and full year 2008 pre-tax results JetBlue Airways Corporation reported its pre-tax results for the fourth quarter and full year 2008: Pre-tax losses of $49m fell during the last quarter including a special noncash charge of $53m related to the valuation of JetBlue’s auction rate securities. Excluding this special charge, JetBlue reported pre-tax income for the quarter of $4m.

This compares to a pre-tax loss of $3m in the year-ago period. For the full year 2008, JetBlue reported a pre-tax loss of $76m. Excluding the special charge, JetBlue reported a pre-tax loss of $23m. This compares to pre-tax income of $41m for the full year 2007.

JetBlue 4Q and full year 2008 pre-tax results Jet B l u e A i rwa y s Corporation reported its pre-tax results for the 4Q and full year 2008: Pre-tax loss of $49m in the 4Q, which includes a special non-cash charge of $53m related to the valuation of JetBlue’s auction rate securities. Excluding this special charge, JetBlue reported pre-tax income for the quarter of $4m. This compares to a pre-tax loss of $3m in the year-ago period. For the full year 2008, JetBlue reported a pre-tax loss of $76m. Excluding the special charge, JetBlue reported a pre-tax loss of $23m. This compares to pre-tax income of $41m for the full year 2007. JetBlue is evaluating the tax deductibility of the special charge, but has not yet finalised the amount given the technical nature of the issue.

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Southwest Airlines and Volaris to form codeshare agreement Southwest Airlines has announced its wish to form a codeshare partnership with Mexican carrier Volaris. The agreement will mean the airlines’ customers will benefit from network flight routes covering a variety of destinations and should provide lower fares for flights across the US-Mexican border. Full details of the codeshare including flight schedules will not be announced until 2010, after approval from both the US and Mexican authorities.

Warning to 737 pilots The FAA has directed that 737 pilots be reminded not to ignore a cabin pressure warning horn, ordering pre-flight briefings as well as changes in manuals.

The airworthiness directive, effective November 25, stems from a crash in which 121 people died on August 14, 2005 when a Helios Airways 737-300 crashed into a hillside north of Athens, Greece. Authorities say the cabin pressure control settings had been operated incorrectly and that an alarm went unheeded.

The attorney general of Cyprus said five people would face criminal charges for the crash.

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We Unlock Financial Doors Even In The Most Difficult Economies The financial and aviation professionals at SkyWorks maintain direct contact with the lending, investment and aviation community, and provide unsurpassed strategic and financial business solutions to senior executives. When we structure aircraft financing, raise capital, restructure obligations, advise on merger/acquisition transactions or remarket aircraft, we investigate all options so that you receive the best possible execution.

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LCAW Issue 1 April 09.indd 15

www.skyworksLeasing.com, info@skyworksLeasing.com

www.skyworksAsia.com, info@skyworksAsia.com

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NEWS: AMERICAS

JetBlue to expand with new service to LAX

JetBlue Airways has announced plans to further strengthen its commitment to Southern California by bringing premium low-fare service to Los Angeles International Airport beginning June 18, 2009. LAX will be JetBlue’s third Los Angeles-area airport, and the 55th destination in the airline’s growing route network.

JetBlue will kick off its LAX service — from the airport’s Terminal Six- with two daily nonstop flights to New York’s John F. Kennedy International Airport and two daily flights to Boston’s Logan International Airport. The new LAX service goes on sale February 4, 2009.

Biofuel-powered aircraft within three years, says Boeing Biofuel-powered aircraft could be carrying millions of passengers around the world within three years, according to Boeing. Darrin Morgan, Boeing’s environmental expert, said the group was expecting official approval of biofuel use in the near future. “The certification will happen much sooner than anybody thought,” he said. “We are thinking that within three to five years we are going to see approval for commercial use of biofuels — and possibly sooner.”

Brazil police blame 10 officials for TAM A320 crash Ten Brazilian government regulators and airline officials were to blame for the fatal crash landing of a TAM A320 in Sao Paulo in July 2007, according to an investigation by Sao Paulo state civil police. The findings were leaked by a police official investigating the accident on condition of anonymity. A former director of the country’s national civil aviation agency (ANAC); a former president of Infraero, which oversees airport infrastructure; and TAM’s safety director were named in the report among others, saying they failed to properly train pilots, implement rainy day procedures or fully repair the airport’s drainage system. All 187 people aboard TAM Flight 3054 and 12 people on the ground died in Brazil’s worst aircraft accident.

It has been confirmed that one of aircraft’s reverse thrusters was not functional. A separate investigation into the crash is being conducted by Brazil’s Air Force.

Frontier Airlines reaches pact with its pilots Pilots of Frontier Airlines, the Denver based low-cost airline, have struck a long-term agreement which will see wage and benefit concessions extended through to December 2011. Nearly 85 per cent of votes cast by members of the Frontier Airline Pilots Association (FAPA) were in favour of the accord.

Sean Menke, president and CEO, said the agreement: “will prove critical in attracting exit financing for our emergence from bankruptcy.”

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Superjet International Opens North American Office Superjet International has opened a North American sales and customer support office in Washington DC. The Superjet 100 project is a family of medium-haul passenger aircraft developed by a leading Russian manufacturer, Sukhoi, in cooperation with the U.S. and European aviation corporations, including Boeing, Snecma, Thales, Messier Dowty, Liebherr Aerospace and Honeywell. North America is an important market segment for an efficient and modern 100-seater plane like the Sukhoi Superjet 100. The office will be run by Mr. John Buckley, vice president for business development. Sukhoi, which is part of the United Aircraft Corporation (UAC), plans to manufacture at least 700 Superjet 100s, and intends to sell 35% of them to North America, 25% to Europe, 10% to Latin America, and 7% to Russia and China. The first Superjet 100 was rolled out from Sukhoi’s final assembly shop at Komsomolskon Amur in September 2007.

The first flight was successfully accomplished in May 2008. The first two aircraft are currently undergoing test flights with a third aircraft scheduled to join the flight test program in spring 2009. The certification plan calls for Russia civil certification by November 2009, followed by EASA certification in 2010 and FAA certification thereafter.

Southwest Airlines swings to 4Q loss but looks good Southwest has reported a fourth-quarter loss of $56m, or 8 cents a share, compared to a gain of $111m, or 15 cents a share, for the same period last year. Revenue in the fourth quarter rose to $2.73bn from $2.49bn. Excluding special charges and other items, Southwest said it earned 8 cents a share. It also said it would cut 4.4 per cent from its seat capacity in the first quarter.

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the long-haul low-cost model During the last recession, the low-cost model brought affordable short-haul air travel to the masses in Europe.

Now that global recession prevails, is it time for low-cost airlines to expand into trans-continental markets?

But why have so many low-cost long-haul models failed and what is the key to future success?

m

Any FACTORS hAvE contributed to short-haul low-cost carriers’ success. They include high aircraft utilisation, low distribution costs, low labour costs and high-density seat configuration. High aircraft utilisation plays a particularly significant role in a low-cost carrier’s cost-saving and revenue generation.

Aircraft lease rental accounts for about 15 per cent of direct operating costs. The rental is charged on a monthly basis and does not vary with aircraft utilisation.

Hence, if the aircraft operator can achieve high aircraft utilisation, it can lower the aircraft rental per flight-hour. JetBlue achieved an aircraft utilisation of nearly 14 hours per day in 2004, compared with US legacy carriers’ average of 11 hours. This means that JetBlue’s aircraft leasing cost per flight-hour was about

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20 per cent lower, which granted the airline a competitive advantage. High aircraft utilisation is a prerequisite of a low-cost operation; a longhaul carrier can only be qualified as a ‘low cost’ carrier if its aircraft utilisation is high.

In the short-haul low-cost airline model, competitive advantage can be gained through operating more sectors and having shorter transit times. For example, European LCCs have an average stage length of between 800nm and 900nm, which makes it possible to operate eight flights per day. By contrast, the traditional European airlines achieve only four flights per day. The difference is partly accounted for by airport transit time. Ryanair, for example, may record an average airport transit time of 25 minutes, where Aer Lingus may need a turnaround time of 45 minutes.

Obviously, it is impossible for an aircraft

operating on transpacific or transatlantic routes or on routes between Asia and Europe to achieve more than two flights per day. A flight from Hong Kong to London, for example, requires a flight-time of about 12 hours and an airport turnaround time of about three hours. The most likely utilisation for the aircraft operating on the route might be 17 hours per day, which is easy for Cathay Pacific Airways and British Airways to achieve. Without a huge fleet, it would be impossible for a long-haul operator to achieve such a high utilisation. Given necessary aircraft transit time and MRO, an aircraft utilisation of 17 hours per day is almost the limit a long-range aircraft can achieve.

“In the specific case of a 12-hour flight time, the likely utilisation might be only 12 hours,” says William Swan, chief economist at Seabury Airline Planning Group and former chief

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economist at Boeing. “However, a long-haul carrier would also get 12 hours utilisation for that route. Fast turn-times do little to improve utilisation for long-haul airplanes. What improves utilisation for long-haul networks is a larger network with more opportunities for dovetailing routings. However, on most routes LCCs and heritage cost carriers will get the same number of trips per airplane per day.”

Hence, some of the essentials to a short-haul low cost airline’s success (namely higher aircraft utilisation and shorter aircraft transit time than rivals) are difficult to realise for long-haul lowcost airlines.

Furthermore, a short-haul low-cost carrier’s high aircraft utilisation results in high humanresource productivity. easyJet, for example, has 45 staff members per aircraft where British Airways has 176 staff members per aircraft.

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High labour productivity lowers total labour costs, which traditionally account for more than 30 per cent of total direct operating costs. But if a long-haul low-cost airline cannot achieve higher aircraft utilisation than its rivals then it cannot attain higher labour productivity.

Another major contributor to short-haul lowcost airlines’ success is low distribution costs.

Global distribution systems (GDSs) usually charge airlines about $4 per ticket and travel agents charge the airlines about three per cent of the price. Normally LCCs do not join GDSs and strive to avoid dependence on travel agents to distribute tickets. Rather, the LCC usually sets up its own websites to distribute e-tickets.

The rationale is derived from the cost-saving priority, but also from the LCC’s market scope.

With a short-haul operation, a LCC can easily enter a target market that is near to its operation base and where it can establish its reputation by traditional advertising methods. Hence a GDS is not necessary for the airlines, while travel agents’ assistance is required only at the beginning of the operation.

The situation is different for a long-haul carrier. Its customers can be divided into two groups: origin and destination (O&D); and connecting passengers. The long-haul carriers might be able to save distribution costs for the O&D passengers by selling tickets through their websites. But travel agents and GDSs are necessary for the airlines to attract connecting passengers, since it is difficult for passengers to find the best flight combinations through one airline’s website. Equally, airline websites, no matter how powerful, cannot replace the travel agents role of selling tickets to some market segments. For example, the majority of London-

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based Chinese passengers flying between London and Hong Kong purchase their tickets through UK-based Chinese travel agents. Hence, for a long-haul airline, some of the distribution costs arising from GDSs and travel agents seem unavoidable.

Some long-haul airlines have used secondary airports to achieve lower operating costs by reducing airport charges. They borrow this concept from easyJet and Ryanair. For the shorthaul low-cost carriers, almost all secondary airports are usable provided their charges are much lower than the gateway airports and that they are acceptable for the passengers.

For the long-haul carriers, however, the use of secondary airports might not help them to achieve a low-cost structure. To be suited to a long-haul carrier, a secondary airport must have a wide route network to facilitate connecting passengers. The dilemma for the airlines is that the airports fitting that bill might not charge the airlines much less than gateway airports.

Furthermore, airport charges only account for about three per cent of an airline’s direct operating costs. Even if a secondary airport does not charge a long-haul carrier at all, the carrier cannot reduce its operating cost significantly.

“The difficulty for long-haul low-costs is that most of the low-cost factors are to be found at the airport, ticket sales and in labour. Other factors such as fuel and airplane costs are a bigger fraction of the total and these are generally set by global prices. Also, long-haul airplane utilisation, seating densities, specialisation to a route are already well managed by the standard carriers,” says Swan. “The real problem is that the low-cost carriers need to get their average costs per seat below the marginal cost per seat

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of heritage carriers, based on the marginal cost of moving from one size to a bigger or smaller size of long-haul airplanes. So they need to be at 80 per cent of the cost, which is difficult. Plus they need to be perceived as having matching or superior quality.

“Low-cost carriers need to have their costs positioned so that the marginal cost of seats for the heritage carriers is above their own cost of seats. In such circumstances they cannot be price-matched unless the higher-cost guys want to lose money.”

Revenue generation Some long-haul low-cost airlines aim to beat their rivals by carrying passengers who would originally have had to stop once or twice on their ways to their destinations. Such a strategy sounds reasonable at a big hub such as London Heathrow, where a considerable number of passengers might take one or two stops to reach long-haul destinations. However, the revenuegeneration reality may be that passengers connecting along the route are used to fill empty seats while simultaneously weakening the prospects of rival airlines.

Cathay Pacific, for example, deliberately schedules its flights to London to allow for transfers from China Southern Airlines’ flights from Wuhan to Hong Kong, providing such passengers with big discounts. In this way, Cathay Pacific can fill the empty seats which cannot be filled with local passengers.

This presents the long-haul, low-cost airline with a dilemma: does it fly with empty seats or with passengers on cheap airfares? The only answer is for connecting passengers to account

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for a small percentage of the passengers flown since otherwise substantial losses can be incurred. “Where the low-cost guys lose in longhaul is in a lack of network feed (two-thirds of onboard loads are connecting in or out, or both).

So they often have to use a smaller airplane with a higher seat cost.” says Swan. Attracting large numbers of O&D passengers is the only way to make the flight economically viable.

However, “such carriers die because they are not perceived to be as ‘as good’ as the mainline carriers, and cannot draw any traffic at all during the off-peak seasons,” says Swan. “Nor can they get their share of the higher fares during the peak seasons.”

Where to go The long-haul low-cost model may have a difficult future, based on the analysis above.

“However, there are long-haul carriers in the charter or leisure markets, where local feed

is not an issue,” says Swan. “The problem is that their costs and prices are very close to those of heritage carriers, who also specialise in such markets.”

The other market in which a long-haul start-up airline might do well could be by linking regional low-cost carrier hubs. Here the advantage would be access to connecting destinations or cheap regional flights, rather than any fundamental advantages of low-cost styles of operation. For instance, long-haul flights between JetBlue’s operation in New York and Ryanair’s operation in London would provide access to a large number of connecting markets, even if the local London-New York fares were no more than competitive. At any given moment, some of these connecting services would be unique, superior or more attractively priced compared with the offerings of conventional carriers.

Is the LCC model of operation viable in longhaul markets?

“But the real problem is that the low-cost carriers need to get their average costs per seat below the marginal cost per seat of heritage carriers,based on the marginal cost of moving from one-size to a bigger or smaller size of longhaul airplanes. So they need to be at 80 per cent of the cost, which is difficult. Plus they need to be with a perceived matching or better quality.”

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FOCuS

Thus far, successful low-cost carriers have concentrated for the most part on short-haul operations with an average sector of about 800 miles. An exception to this would be JetBlue which recorded an average stage length of 1,383 miles in 2004.

With the liberalisation of air traffic rights between some countries, some carriers sought to launch long-haul low-cost operations, with Oasis Hong Kong Airlines and Zoom being notable examples. The former took off in October 2006 with its first route between Hong Kong and London Gatwick Airport while the latter flew on Atlantic routes between Canada, New York, France and the UK. Both have now failed and are no more.

Can a long-haul operation achieve a low-cost structure? The simple answer to this is yes.

There is no doubt that Jet Airways, Aer Lingus and Air Canada are low-cost airlines operating long-haul routes, although they may not be fond of the description. However, they are the key to the understanding of future long-haul low-cost operations. They are well-rounded airlines having large, mixed fleets operating a large number of routes from 200 to more than 2,000 miles.

Jet Airways is an interesting airline that has never posted a balance sheet that was not deep in the red. If it were not for its domestic and regional operations, then its long-haul operations would have dragged it into bankruptcy, just as has happened to Oasis Hong Kong and Zoom.

In contrast, Air Canada could be described as a modern low-cost model that all airlines should try to emulate. It has the low-cost base, its unions are pacified and its operations are

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in a far stronger position than could have been thought possible only a decade ago. So, some traditional carriers have already moved to the low-cost model. Equally, many other flag carriers and/or legacy airlines have tried and failed to adopt a low-cost model because of union pressures.

In this latest recession, it is interesting to note that traditional low-cost carriers are now in a position to purchase or lease long-range aircraft very cheaply. These same low-cost airlines have an existing customer base, brand and reputation. What is more, they have sufficient clout with airports and manufacturers to ensure that they are in a position to start and succeed in the operation of low-cost long-haul routes.

21

Everything has fallen into place for the likes of Ryanair, Southwest and Tiger. And their targets will be the long-haul routes operated by airlines that have not been able to reduce staff costs due to union strength. Does this sound familiar? Well it should, since this time around they will merely be using their existing operations as the platform to launch their new plans of attack, this time concentrating on the long-haul routes.

The future is low-cost and all airlines will need to get into shape or go out of business. The likes of Ryanair now have the opportunity of a lifetime to expand organically or through merger and acquisition to become the intercontinental airlines of the future! n

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22

inTERviEW

Low cost in china Low cost airline world puts the questions to Wang Zhenghua, chairman of Chinese low-cost carrier Spring Airlines.

i

unDERSTAnD ThAT Spring Airlines was derived from Spring Tourism Company and is a subsidiary of Spring Group. Airline business is high-risk business compared to tourism and requires a lot of expertise and fund. Why did you enter this business?

“As a matter of fact airline business is not strange to us. We have been involved in tourism business for more than two decades.

In 1994 Spring Tourism Company became the biggest tourism agent in China. Facing the

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“The development of LCCs and low-price tickets in China is an overwhelming trend,” says Wang Zhenghua. new situation, we held an internal discussion regarding how to capitalise on the opportunity and reached a conclusion that we should establish our own airline to accommodate the growth. From 1997, when Civil Aviation Administration of China (CAAC) began to implement deregulation, we began to purchase some domestic airlines’ flights to carry the tourists and eventually dominated some routes.

From 1997 to 2005 we purchased more than 30,000 flights and load factors averaged at 99.07

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inTERviEW

23

wang zhenghua, chairman of spring airlines.

per cent. We learned from the experience and accumulated knowledge, to some extent, and expertise on how to implement airline business in China, [in areas] such as seat reservation, pricing and passenger purchase behaviour.

With the business developing, however, we were constrained by the airlines, whose route network, schedule and pricing were not in our best interest. In 2004, when CAAC allowed and encouraged private companies to start up airlines, we determined to break into the market after 10 years’ preparation.”

The low-cost carrier (LCC) concept is a controversial one in China. Supporters hold that China is a land of opportunities for LCCs due to the country’s large population and immature airline industry, while opponents argue that the prerequisites for LCCs, such

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as a reducible cost structure and convenient airport facilities, do not exist in China. Why did you position Spring Airlines as a low-cost airline? Have you reached your goal after 32 months’ operation?

“The opponents only consider one side of the coin. We must admit that some hardware and charges in China, such as airport facilities and airport landing fees, do not favour LCC. But we focus on the good side, which cements our confidence, and make every down-toearth effort to materialise it. China’s domestic narrowbody aircraft utilisation, for example, used to be only nine hours per day [on average].

After careful calculation, we were confident of reaching 11 hours for our fleet. We have achieved this goal. This significantly lowered our operating cost per flight hour and increased revenue. Shanghai-based Spring Airlines stood out among China’s privately held airlines to report a profitable 2008.

What is the rationale behind your decision to open new routes? What is your route structure?

“In 2006 our operating costs, management costs, capital costs and marketing costs were, respectively, 24.5 per cent, 68 per cent, 75 per cent and 55 per cent lower than the average among Chinese airlines,” says Wang Zhenghua, chairman of Spring Airlines.

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24

inTERviEW

What is the growth rate of passenger and cargo business?

“Spring Airlines is based in Shanghai, the most influential commercial city in China. Similar to most of start-up airlines, we adopt a pointto-point operation model and prefer operating in the cities that have high volumes of tourists and business passengers. So far we have flown on 18 routes, covering Guangzhou, Haikou, Sanya, Kunming and other popular cities.

Fortunately, we have penetrated the market of Guangzhou and Shanghai, two of three major cities in China. The passenger and air cargo volume have increased by 533 per cent and 939 per cent respectively in 2007.”

I understand that Spring Airlines is operating four A320s. Why did you select this type of aircraft? What is your plan for the fleet expansion? Why have you selected to purchase rather than lease? And how will you finance the aircraft deliveries?

“The reason why we chose A320 is that this aircraft type is economical and comfortable, and thus suitable to us. Currently all the aircraft are leased from GECAS, but we intend to purchase 20 A320s in the next few years. Two reasons justify the shift in acquisition method. The first is that after the

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successful operation we found ourselves in a much better financial position, hence we are able to sustain the purchase. The second is that the operating lease terms offered by aircraft leasing companies required us to lease the aircraft for 10 years, which makes leasing uneconomic compared to purchase.

Obviously a huge amount of funding will be demanded to finance the aircraft deliveries.

Commercial loan, private equity and IPO are all on the list. We are considering all options and will optimise the financial techniques.”

Spring Airlines is using a revenue management system developed by its own staff. How did you develop the system and what difficulties have you encountered?

“In line with the evolution of our airline and tourism business and the data we collect, we tailored a RM system suitable for us. Now online sales account for 67 per cent of our total sales. The system not only saves us a huge amount in purchase and maintenance costs and agent commissions, it also makes our forecast of revenue fluctuation, passenger consumption behaviour and other key indicators precise and reliable. Furthermore, our IT department has developed other information systems, such

as an airport departure system. Please bear in mind that all these systems are developed by ourselves and respected as a key asset of Spring Airlines. Although a modern IT system is sophisticated and complicated, technology is never a problem for us. Rather the problem came from some Chinese airport operators’ wish to protect the monopoly of old systems.

Fortunately, after negotiations and CAAC’s intervention, we eventually were able to use our own systems in these airports.”

It was recently reported that Spring Airlines would be fined by the Price Bureau of Jinan for selling one-yuan ($0.13) tickets. What is your reaction?

“The development of LCC and low-price tickets in China is an overwhelming trend. But we also are aware that many existing regulations covering aviation were stipulated in an era of tight regulation. Although the Price Bureau at last gave up further legal action and we have reached a mutual understanding, the event profoundly reflected the clash between the old regulation and the changing aviation world.

Eventually the old regulations will fade from our life and new and liberal regulations be ruling the industry. This is the barrier we are bound to overcome as the first LCC in China.”

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inTERviEW

You seem to have overcome hardship and adversities. What kind of financial performance did you achieve last year?

“Spring posted a CNY21 million ($3.1 million) net profit last year, down 70 per cent from the more than CNY70 million earned in 2007. It credited the result partly to a CNY20 million civil aviation infrastructure payment imposed in the second half of last year. Operating revenue climbed 32 per cent to CNY1.62 billion on passenger figures of 2.9 million, up 26%, with an average load factor of 93.3%.

In contrast to Spring, other privately run carriers are suffering from capital shortages and struggling to survive in the difficult operating environment.”

How do you intend to sustain success in 2009?

“As per the CAAC’s latest policy that allows start-up airlines to operate at the eight busiest airports, we will capitalise on this opportunity to optimise our route network, especially the markets around Guangzhou. Another strategic move will be to establish the second base in Sanya, one of the most popular resorts in China.

We have signed a cooperation agreement with the government of Hainan Province, which promised to fully support our development

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25

strategy. In return we will allocate sufficient capacity on the routes to Sanya and bring millions of passengers to Hainan. According to our blueprint, the morning and evening flights will fly to Sanya from other domestic destinations, bringing tourists in and out of the city. The daytime flights will mainly fly from and to Shanghai, mainly carrying business passengers. In this way we will significantly improve the aircraft utilisation and substantially optimise our route network.”

What measures will you take toward achieving this ambitious strategy?

“As a start-up in China, currently short of experienced pilots, we established air safety as our first priority and will intensively continue to improve air safety through effective training and sound management. The second aim is to improve passengers’ satisfaction. Although Spring Airlines is a LCC, we don’t think that status authorises us to ignore the service quality and leave passengers stranded. So, improving the service quality in a cost-efficient way will be another focus. Improvement of the RM [revenue management] system, maintenance capacity and internal management are also on the list. These measures together will guarantee us a bright future. I am confident of this.” n

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26

AIRLINE FOCUS: S7

S7 Airlines S7 Airlines is hoping for light at the end of the tunnel. Central to its aspirations is increased liberalisation, as current regulatory strictures limit potential not just for international expansion, but for domestic growth as well. Low Cost Airline World talks to airline spokesman Ilya Novohatskij.

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AiRLinE FOCuS: S7

27

s7’s positioning, name and identity were created by London-based branding and design consultants Landor associates.

i

n ApRiL 2005, Siberia Airlines, Russia’s largest domestic carrier and second largest airline, revealed the new positioning, name and identity created for it by London-based branding and design consultants Landor Associates. In a statement, Landor described its brief: “The new brand had to be radical, challenging passengers’ existing perceptions that travel in Russia is a rather ‘grey’ experience. At the same time, the plan to introduce Western aircraft into the Russian fleet offered the opportunity to rebrand.

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The new brand will be the catalyst for a break with the past.” This meant, in the phrase of Siberia Airlines general director Vladislav Filev, “overcoming the Soviet ‘anti-brand’ legacy”.

The rebranding exercise gave Siberia Airlines a new name derived from its IATA Code: S7. Thus the Cyrillic alphabet was abandoned.

Rebranding brought also a new livery, its colour palette consisting of two shades of bright green with a touch of red rather than the old blue and white. “If we’re talking about advertising, we’re trying to position

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28

AIRLINE FOCUS: S7

“Consumers in Russia are more brand savvy and familiar with Western branding and associated lifestyle aspirations than ever,” noted Landor director Peter Knapp.

ourselves on more an emotional level of being different from all the rest, as you can see for example from our liveries,” S7’s press secretary Ilya Novohatskij tells LCAW. “Everything in [Russia’s airline market] is blue, red and white: standard colours, everybody’s the same. We’re positioning as something different visually and we’re trying to position ourselves as something different in terms of service. Part of the business positioning is that we’re the largest domestic airline with a large Western fleet. The main marketing thought is ‘a breath of fresh air’.”

Toward an all-Western fleet The much-trumpeted move to Western aircraft types has in practice cut both ways for S7.

Russian aircraft, notes Novohatskij, “have a bad image for being not very comfortable, for being noisy inside and outside, but they do tend to have the image of being a more safe type of aircraft”. A number of incidents have fed this perception. In July 2006 an S7 A310 skidded off a runway and burst into flames in the Siberian city of Irkutsk, killing 124 people.

Two months previously, 113 were killed when

Production results of OJSC “S7 Airlines” for the year 2008 Indicators

Units of measurement

Year 2007

Year 2008

Growth rate 07/08

Passengers transported (regular + charter)

people

5,697,974

5,892,458

+ 3.4%

Passenger

mln. pkm.

13,915.49

14,350.72

+ 3.1%

Cargo + Mail

tons

33,306

41,619

24.9%

Cargo traffic

thousand tkm.

1,344,818

1,411,733

5.0%

Passenger load factor

%

80.9

79.1

- 1.8 perc. pts.

Cargo load factor

%

75.3

73.1

- 2.2 perc. pts.

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an A320 operated by Armenian airline Armavia crashed into the Black Sea while trying to land in the resort city of Sochi. S7’s rebranding effort was dealt a further blow by the crash of a Helios 737-300 near Grammatikos near Greece in August 2005, which caused 121 deaths. “That was bad for us because we really had a strong position in advertising that we have Boeings on lots of short- and mid-haul routes,” comments Novohatskij.

Nonetheless, Western aircraft are “more efficient”, he says, and S7 continues to aim toward operation of an all-Western fleet. The airline’s current fleet consists of 25 Western aircraft (eight A310-200/300s, six A319-100s, one 737-400, 10 737-500s) and 36 Russian aircraft (nine Il-86s and 27 TU-154Ms). If you count the number of passengers carried, it’s already 50:50 and increasing [in favour of the Western types].” It is likely that the airline will continue to dual-source aircraft from Boeing and Airbus. “We’re negotiating to lease a fleet that will cover our demand at this time”.

Even so the new economic reality has forced S7 to cancel its flagship order of 15 Boeing

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AIRLINE FOCUS: S7

787s. In the process becoming the first carrier to actually terminate a major deal in full for Boeing’s next generation “Dreamliner”. The May 2007 order placed for 15 787s, due to be delivered in 2014, was worth about USD$2.4bn at list prices and also included 10 purchase rights. Novohatskii, although not wishing to comment on the cancellation, did mention that S7 “retains interest in using the Dreamliner and at the moment is looking into receiving the planes under a leasing scheme at an earlier date, for which it is in negotiations with several leasing companies.“ Novohatskii declined to comment on whether the orders would have been cancelled if the 787 program was on track to deliver as originally agreed, although it seems highly unlikely.

Protectionism bites About 65 per cent of S7’s traffic is domestic.

“We were originally a domestic airline,” recalls Novohatskij. Based in Novosibirsk, Siberia’s initial mainstay was a service between that central-Siberian city and Moscow. In 2001, it merged with Vnukovo Airlines, which in the mid-’90s had been the largest domestic carrier.

“It went into decline in the late ‘90s and then we bought it out,” explains Novohatskij. “[It had] lots of licenses and flight permissions, so we really benefited from its network.”

S7’s potential for international expansion is severely limited by the absence of an open-skies agreement between Russia and the EU and by the priority afforded to Aeroflot in Russia’s bilateral agreements. “Aeroflot is the flag carrier and it’s still funded by the government in the form of royalties and in the form of tax cuts: they don’t pay the import tax for aeroplanes,” notes Novohatskij. “Aeroflot is in all the intergovernmental agreements and it has a big lobby in government. But it’s gradually opening up.” Last year, for example, S7 gained access to new Spanish and Austrian destinations.

It continues to lobby the Russian government for further liberalisation. “There used to be no airlines except Aeroflot and Transaero that had Western aircraft,” recalls Novohatskij.

“Transaero is a private company, but still it had a big lobby in the government so was granted the import tax cuts. We went to the Supreme Court in the early 2000s saying that it’s not fair that two carriers get the tax cut and nobody else does, but with no result.” Yet, in Novohatskij’s view, the import-tax burden is still outweighed by the efficiency improvements offered by Western governments.

The Russian authorities have appeared to drag their heels in open-skies negotiations with the EU, presumably out of concern that

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29

Passenger Traffic (Millions) 6 5 4 3 2 1 0

1.9m 2001

2.7m 2002

3.4m 2003

3.7m 2004

Russian carriers would suffer greatly in the face of external competition. Novohatskij acknowledges that such concern carries weight: “I couldn’t say that open skies will be positive for the Russian market because Russian players are really weaker right now. They’re not really that competitive compared with European airlines, for example, so our government is not really keen on opening up our skies to Western airlines.”

One industry source even suggests that, behind the scenes, Russian officials have been brainstorming ways in which they can continue to stall open-skies negotiations and ensure a continuation of the status quo!

The government’s aspirations to protect local carriers appear to be contradicted by the import-tax concessions it grants Aeroflot.

Says Novohatskij: “Our government really fears Russian airlines being uncompetitive compared to the Western airlines, yet at the same time they keep the import taxes on Western-built aircraft, making our airlines less competitive!” Nor do the concessions help local manufacturers, he claims: “They haven’t rolled out a decent plane for 15 years.”

“We can’t even have a normal low-cost airline here because 70 per cent of the expenses go to monopolies. There’s one airport, one fuel tank, one caterer; — Ilya Novohatskij, S7 Airlines

4.2m 2005

4.9m 2006

5.7m 2007

5.9m 2008

Overcoming structural barriers The main obstacle to development of the local airlines lies in the imposed market structure, suggests Novohatskij: “We can’t even have a normal low-cost airline here because 70 per cent of the expenses go to monopolies.

There’s one airport, one fuel tank, one caterer; so we just can’t drop our price more than 25 or 30 per cent. With all their intentions to be competitive, their stature can’t make them that competitive.” S7, meanwhile, has lost its own monopolistic privileges. “Several years ago, the market wasn’t that saturated or that competitive,” recalls Novohatskij. “We, and other airlines, had several big cities where we were practically the only player. We lost our last monopolistic route [in 2006].”

Like so many players in today’s global airline industry, S7 has not been recording profits of late, though, less typically, that’s by design!

The vagaries of Russia’s taxation system mean that accountants go out of their way to ensure that reported profits are as low as possible.

“Vladislav Filev, our general director, was openly quoted on that. He said, ‘As long as I’m in charge of the company, we’ll be at about zero level of profitability,’” recalls Novohatskij.

Nonetheless, other indicators reveal steady growth of S7’s business. In 2008, it carried around 5.9 million passengers, compared with 4.7 million in 2007. Although growth has slowed for S7 over the past year as the downturn bites it is growth nonetheless, we have to go back to 2006 to see how the airline last weathered a series of unusual storms. 2006 was the year of the Irkutsk A310 crash, it was catastrophic for the airline, and Novohatskij comments: “We had several incidents after that which had a lot of public interest. In terms of image it was a terrible year.”

In September 2006, for example, it was

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AIRLINE FOCUS: S7

“The new brand had to be radical, challenging passengers’ existing perceptions that travel in Russia is a rather ‘grey’ experience,” said a Landor Associates statement.

alleged that S7 had failed to provide advance payments for the victims of the Irkutsk crash.

Stuart Dench, a solicitor and partner at London law firm Stewarts, representing victims’ families, commented: “It is unfortunate, despite S7’s aspirations to be a major player on the international aviation stage, that they have decided that they will not treat their Russian national passengers as favourably as international passengers.” S7 has instructed the specialist aviation firm, Beaumonts at Clyde & Co., to act on its behalf. Yet with all this S7 has continued its growth.

Route and market development Business traffic between large industrial cities has been the recent engine of growth. “The middle class is beginning to travel more,” adds Novohatskij. “A lot more people have enough money for at least one vacation a year with the whole family, having in mind that loans from the bank are a lot more accessible now.”

So, where next for S7’s route development?

“The largest international market for us [at present] is Germany, of course, because Germany has the most liberal bilateral agreements: lots of city-pairs. We would like to fly to the largest European cities and hubs; basically we’re interested in all routes that are within our flight

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range. For example, we’re hoping to be the next in line when the bilateral agreements between Russia and Great Britain go a little bit more liberal. It recently opened up to new players, one from each side. It was Transaero from our side and bmi from Britain’s side, so we were competing with Transaero but they got it first.”

Regulatory reform is essential if S7 is to achieve the domestic and international growth “We’re really looking forward to some market barriers [being] lifted, to the market being more liberal, more civilised and, not deregulated, but more smartly regulated,” says Novohatskij. “There are lots of problems with that in Russia. We don’t have a unified civil aviation authority.

These things are divided between five or six authorities. It’s really hard, and government management of that is not really good.”

As for the issue of infrastructure, Novohatskij offers a candid assessment of Russia’s current predicament: “The airport system in Russia is [expletive deleted]. A lot of the landing strips are really old and rusty. The number of airports is decreasing every year. It’s a whole big issue. We and other Russian airlines which are operating Western aircraft are having big problems adapting Western aircraft to Russian environments because, while they can stand the cold, the landing strips are so bad sometimes that you don’t want to fly there. They’re not

“We’re really looking forward to some market barriers [being] lifted, to the market being more liberal, more civilised and, not deregulated, but more smartly regulated.”

— Ilya Novohatskij, S7 Airlines really Western-aircraft-friendly. That goes for the whole infrastructure in Russia. In Moscow we have three international airports. Two of them are rapidly expanding: Domodedevo, Vnukovo... But Sheremetievo is stagnating a little bit. Everything was built in Soviet times...

The infrastructure really needs to be repaired nationwide. That goes for the airports also.”

Meantime, undeterred by “local protectionism”, S7 continues to target route development where it is achievable. Says Novohatskij: “The recent development in the market is that major players are looking at setting up regional hubs with connections not only to Moscow but to other cities as well. We’re doing that in the city of Perm, near the Ural Mountains; UTair is doing it. There’s a huge trend of developing not only traffic for business to Moscow, but also traffic from the regions to the south of Russia, to the Black Sea: the vacation routes.... We’re going where we can.” n

March/April 2009

26/2/09 16:40:16

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32

EnviROnmEnT

voluntary carbon offsetting Mark Bisset, an aviation finance partner at Stephenson Harwood, and Michael woods, the international law firm’s head of environment, explore the potential of carbon offsetting.

T

hE pRESSuRE On airlines to tackle the environmental impact of aviation is now inexorable.

Airlines are becoming increasingly concerned that measures proposed to be taken to curb emissions will be disproportionate (exaggerating aviation’s contribution) and politically motivated.

WhAT iS A CARBOn OFFSET? A carbon offset ‘neutralises’ a tonne of CO2e (carbon dioxide equivalent) emitted in one place by avoiding the release of a tonne of CO2e elsewhere or absorbing/sequester-ing a tonne of CO2e that would otherwise be emitted or have remained in the atmosphere. Carbon offsets can

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be created through various types of projects, such as renewable energy, energy efficiency, destruction of various industrial gases, and carbon capture and storage underground or in soils and forests. A project does not necessarily have to offset carbon dioxide but can also offset a variety of other greenhouse gases (GHGs).

In aviation terms, the aim is for the same quantity of emissions as those released by a flight to be neutralised through a project. A key characteristic in ensuring robust carbon offsets, as defined under the Kyoto Protocol (KP), is ‘additionality’, which means that the emissions reductions must be ‘additional’ to those that would have otherwise occurred under a business-as-usual scenario.

There are a number of options available to policy makers to tackle aviation emissions. These include taxes, charges, trading, improved technology, operational improvements in fuel efficiency, possible use of fuel from renewable sources, voluntary or compulsory carbon offsetting and (as a last resort) demand control. Not one of these measures is likely to be sufficient by itself — but together they could deliver.

The focus of EU attention is currently on the proposed inclusion from January 2012 of all flights arriving or departing from the EU within the European Union Emissions Trading Scheme (EU ETS), but that is not to say that other measures should (or will) be ignored. This article looks at one of those measures: voluntary offsetting.

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EnviROnmEnT

ThE CARBOn mARkETS Since the signing of the KP in 1997 (under the United Nations Framework Convention on Climate Change), several carbon markets have emerged, both regulatory and voluntary.

The main regulatory regimes have been set up under the KP and the EU ETS, with other schemes emerging in the United States and Australia. Voluntary regimes include the UK emissions trading scheme (UK ETS) — which no longer operates — and the Chicago Climate Exchange.

ThE REguLATED SECTOR In meeting their Kyoto targets, industrialised countries have the option of using “flexible

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Mark Bisset

Michael woods

mechanisms” such as the clean development mechanism (CDM), joint implementation (JI) or emissions trading. These mechanisms allow for carbon credits from offsetting to be used by governments and companies to demonstrate compliance under the KP (and in certain circum-stances under the EU ETS and elsewhere). This is known as the compliance market (or the regulated market). In the EU, there exists a linking directive that enables those participating in the EU ETS to import credits from JI and CDM projects in order to meet their targets, and it is expected that further linking directives will exist in the future allowing the carbon trading market to become truly global.

Credits and allowances in the regu-lated market are subject to a full verification process under the KP with these processes overseen by the UN CDM Executive Board. The accreditation process ensures that the reductions achieved by the projects are additional to what would have been achieved without that project.

Credits generated by the regulated market can be surrendered or purchased by business for compliance reasons — but can also be purchased by those volunteering to offset their emissions.

part of, the KP — these projects are not seeking CDM/JI registration and therefore will not be able to be used for meeting Kyoto or EU ETS targets.

Note that a buyer can voluntarily purchase credits from a CDM or a non-CDM project. The action is defined as voluntary so long as the credits will not be used to meet a regulatory target. Unlike the compliance market, in which credits are tradable under the Kyoto flexible mechanisms and EU ETS (i.e. they are ‘fungible’), credits in the voluntary market are generally non-fungible, i.e. they are not tradable between different schemes.

VER projects can range from forestry to energy efficiency schemes and are often nonindustrial projects with broader environmental or sustainability benefits than compliancesector projects, which have greater appeal to consumers. The voluntary offsets are often bought from retailers or organisations that invest in a portfolio of offset projects and sell slices of the resulting emissions reductions to customers in relatively small quantities.

ThE nOn-REguLATED SECTOR In addition to the regulated market, a voluntary market for carbon offsetting has also developed (separately from but reflecting government policies and targets), in which businesses and individuals choose to offset their emissions. Entities in this market (companies, governments, NGOs and individuals) are purchasing carbon credits for purposes other than meeting binding regulatory targets.

Carbon credits produced in this non-regulated market are generally referred to as ‘voluntary emissions reductions’ (VERs). These arise from projects outside of the regulated market and are therefore not recognised by, and do not form

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SizE OF ThE nOn-REguLATED mARkET The size of the voluntary offset market is difficult to quantify, because of the fragmented nature of the market. A report issued at the end of 2007 by New Carbon Finance and Ecosystem Marketplace estimated that 23.7 metric million tons of carbon dioxide (23.7 MtCO2e) was traded in 2006, with just under half exchanged on the Chicago Climate Exchange (CCX) and a confirmed 13.4 MtCO2e traded over the counter (OTC). The report estimated that the total global voluntary market was worth $91m in 2006. Significantly, the CCX market’s trading volume grew by 60 per cent from 2005 and that of the voluntary OTC market by 80 per cent.

“Traded Volumes could well be twice as high [in 2007] as in 2006,” speculated the report.

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Drivers Much of the demand for offset products comes from companies in Western Europe and North America that aim to reduce or eliminate their carbon footprint. An increasing number of companies have taken on voluntary commitments to reduce their carbon emissions or become ‘carbon neutral’ as part of an overall commitment towards ‘corporate social responsibility’ (CSR). A typical carbon management strategy includes measures such as reducing energy consumption, enhancing energy efficiency and purchasing larger quantities of renewable energy. Investments in carbon offsets tend to be the final piece in the jigsaw to either meet emissions targets or become fully carbon neutral. Even without regulatory constraints such as those imposed by the EU ETS, companies may choose voluntarily to purchase compliancegrade offsets to ensure the highest level of ‘green’ credibility. The all-premium carrier Silverjet claims to be the world’s first carbonneutral international airline, and uses offsets delivered by The Carbon Neutral Company. The responsibility to offset is thus removed from the

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passenger and borne by the airline.

Passengers of any airline maychoose to voluntarily offset their emissions, and many travel agencies and airlines are increasingly offering a voluntary off-setting option. For example, Key Travel, a travel agency in the UK, has developed an online carbon calculator for bookings, and a link is provided to the Edinburgh Centre for Carbon Management (ECCM) for customers interested in purchasing offsets from the Plan Vivo scheme (this is an agroforestry scheme through which smallholder farmers can plant trees on their land and sell the emissions reductions). British Airways has links with Climate Care and offers its passengers the option of offsetting their emissions when making online bookings, though a House of Commons report from July 2007 describes BA’s initiative as “risible” because of poor uptake (1,600 tonnes each year, the equivalent of four return flights to New York on a 777). Lufthansa, Swiss, TUI and Virgin Atlantic recommend ‘myclimate — The Climate Protection Partnership’.

Various governments have develop-ed plans to purchase carbon offsets for air travel. For example, in the UK, all central government

official and ministerial air travel is offset by purchasing credits. DEFRA has suggested that those airlines offer offsets as a “compulsory choice” (i.e. something that will automatically be added to the purchase of an air ticket unless the passenger requests otherwise) or by making the default option for the price of the ticket inclusive of an appropriate offset.

Advantages of voluntary offsets The voluntary market has a number of advantages compared to the regulated market.

One notable benefit is that projects tend to be less burdened by the high transaction costs and bureaucratic procedures which have resulted in projects often not being commercially viable under the CDM process. Furthermore, CDM projects tend to be concentrated in large markets such as India or Brazil, bypassing the least developed countries, which some consumers may be keen to assist.

Concerns Public concern has been raised as to whether some of the claims made by offset projects

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ENVIRONMENT

are misleading; and whether projects actually offer lasting, real climate-change benefits. The main concerns of a buyer of voluntary offsets should be environmental benefit, additionality, certification and verifi-cation. However, there is no over-arching, internationally agreed project approval or emission-reduction-verification procedure for such projects. In addition, there is no international registry for tracking or cancelling VERs. Because the voluntary market currently operates with no common defined criteria or standardised market documentation, the precise nature or quality of the offset can vary from seller to seller. The huge diversity of offset projects results in a large difference in the value of offsets. Very importantly, the absence of a central registry opens up the potential for fraudulent duplicate units to be created and sold to different organisations. Further, there is no dominant supervisory organisation. It is up to market players to establish procedures.

Since the non-regulated market is not linked to the EU ETS, the price of VERs varies considerably between projects, and bears little relation to the established carbon price in the regulated sector, although they are generally cheaper than allowances available under the EU ETS (EUAs). The price of an offset for a set amount of carbon can vary depending on the provider. For example, reports have been produced showing how different offset providers calculated different quantities of carbon for the exact same flight. A paper released in December 2000 from the Tufts Climate Initiative sets out how for a return flight from Boston to Washington DC there were variances between emissions calcul-ations resulting in the cost of the appropriate offset being cited from a low of $1.31 to a high of £18.40.

Aside from the varying levels of quality, other problems are the size of the mark-up on the VERs and the percentage of revenue that is spent on marketing and administrative costs rather than the project itself. In Germany, for example, non-project retailers must spend at least 70 per cent of revenues on project activities.

There is controversy about the credibility of land-based sinks (forestry) projects as carbon offsets. To take one argument, it is difficult to guarantee that the trees will not be burned or otherwise destroyed at some point in the future, thus releasing CO2 back into the atmosphere (this issue is called ‘permanence’). The EU ETS currently does not permit emissionsreduction credits from forestry projects to be used to meet emissions targets under the scheme although, following the recent climatechange discussions in Bali, it is expected to form part of future schemes. Some providers only consider renewable energy-based projects to be credible offsets. Others, such as British Airway’s recommended company Climate Care, are aiming to build a portfolio one quarter of which is comprised of land-use projects.

The company has explained: “Planting trees

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cannot be seen as a solution to climate change when taken in isolation. Climate change needs to be addressed by reducing emissions through developing renewable fuel sources or boosting efficiency, rather than on focusing on sequestration. Nevertheless, approx-imately 20 per cent of emissions each year are from deforestation and forest fires. Therefore from now Climate Care aims to have 20 per cent of their annual website-sales CO2 liabilities in reforestation. In addition, reforestation is a relatively low risk project and allows Climate Care to balance risk in their portfolio.”

Standardisation To address the concerns raised, a variety of standards, protocols and verification methods are being developed to better regulate voluntary carbon offsets, such as: 1. The CDM Gold Standard. This was created in 2003 as a means of channelling CDM and JI funds into projects that deliver genuine addition-ality and sustainable development benefits. Its acceptance by NGOs allows for the credits to be traded as a premium in the marketplace and provides additional protection to purchasers of the credits concerned about reputation. However, since meeting the CDM Gold Standard is costly few projects outside of the compliance market are attracted to using it as a foundation.

2. The Voluntary Gold Standard (VGS). Created in May 2006 and only available for projects in developing countries, this is a simplified version of the CDM Gold Standard.

3. The Climate, Community and Bio-diversity (CCB) Standards. These were created by a consortium of NGOs for forestry projects.

4. Self-developed standards, set by providers of VERs. One push towards standardisation is the launch of a new Voluntary Carbon Standard (VCS) in late 2007 by the International Emissions Trading Association (IETA), the World Economic Forum, the Climate Group and the World Business Council for Sustainable Development. The VCS has created a unit called the Voluntary Carbon Unit (VCU) and will require that all VCUs be issued, held, traded, retained and cancelled through a registry managed by the Bank of New York.

A second initiative is the Voluntary Offset Standard (VOS), launched in mid-2007 by a group of leading carbon financiers under the banner of European Carbon Investor Services (ECIS). Morgan Stanley has pledged to use VOS to screen voluntary credits in its new Carbon Bank.

The UK government is working on establishing a voluntary code of best practice for the provision of carbon offsetting to consumers.

The purpose of establishing a code “is to ensure consumer confidence in an emerging market and continued growth of that market through

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that confidence”. A consultation took place early in 2007 and a summary of responses was published in July 2007 which showed broad support for the voluntary code, a draft version of which is currently due for publication by the end of February 2008.

For the present, however, it is largely for the purchaser of the offsets to make the assessment as to quality standards, though he or she is unlikely to be in a position to do so.

EU ETS While the safe bet is that aviation will be included in the EU ETS from 2012, the current uncertainty surrounding the European Commission’s proposal is causing significant difficulties in long-term business strategic planning, and the impact on the voluntary sector in aviation is a large part of that uncertainty. It is difficult to see the incentive for an airline to participate in a voluntary offsetting scheme if it will also be subject to the EU ETS. Virgin argues that “if the ETS works efficiently, then that should cover all of the airlines’ emissions“. However, an airline that decides to offset all of its emissions is arguably doing more to tackle the problem of climate change than an airline that meets the EU ETS cap.

Conclusions In any event, voluntary carbon off- setting is not a complete cure for climate change, and the scale of offsetting that would be required to fully cover aviation emissions is high. For example, if the UK’s current aviation emissions were to be fully offset it would be the equivalent of stopping all emissions from Bangladesh, which has a population of 140 million people.

If offsetting were made mandatory, there would therefore be a massive increase in demand for offsetting projects, and it is likely that such an expansion in demand would lower the quality of offset projects.

Nevertheless, carbon offsetting is a valuable part of the package that will be needed to tackle climate change and in the meantime can help raise awareness. Voluntary offsetting is a useful element of what the aviation industry and passengers can do to address climate change for several reasons: • Providing the means to work out the emissions from airline activities helps raise awareness of the industry’s impact on climate change and drive behavioural change.

• When done in a robust and responsible way, offsetting leads to a reduction in carbon dioxide emissions in the area local to the offsetting project, often in developing countries.

• Offsetting projects provide a mech-anism for inward investment in clean technology in the areas which lack it the most. Such investment can lead to the spread of lowcarbon development across entire regions, further reducing climate-change impact. n

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PurePower Engines.. ™

The Eagle is Everywhere.™

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Redefining green.

Eighty years ago, we helped define flight. Today, we’re redefining it. The Pratt & Whitney PurePower PW1000G engine delivers double-digit reductions in fuel burn and CO2 emissions. With half the noise and NOx of conventional engines. Pratt & Whitney PurePower Engines. This changes everything.™

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ENVIRONMENT

Improving the A320 & 737 while waiting for replacements Airbus and Boeing face real challenges with the bread-and-butter A320 and 737 families in today’s ecoaviation and fuel price-challenged environments: what to do with these aircraft while waiting for technologies to advance enough to make replacing the aircraft worthwhile. Scott Hamilton reports

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nvironmentalists agitate for solutions now to reduce emissions and want the airlines taxed—an additional burden on an industry already struggling with fuel prices that nail them coming and going. The price of oil hit $150bbl this year, leading to unprecedented losses. Pummeled, many airlines belatedly hedged at more than $100bbl, only to be nailed with new losses when prices unexpectedly fell to as low as $62bbl in November and hedge losses added to the red ink.

Airbus and Boeing each said they don’t see technology providing enough advances until the middle of the next decade to justify replacing the A320 and 737 families until around 20182020. “The reason we don’t currently envisage a new product before then is we need to step up to the airlines and the environmentalists — we can’t get there until then,” says Stuart Mann, Airbus’ director of product marketing for the A320 family.

Airlines want improvements a lot sooner than that. Air France and Southwest Airlines have publicly advocated for a new aircraft (see sidebar).

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Airbus seeks A320 Enhanced Airbus is pursuing an enhancement for the A320 family, aimed at gaining a reported five per cent improvement in fuel burn, through a combination of aerodynamic upgrades, weight reduc-tions and minor advancements in the CFM-56 and V2500 engines supplied by CFM International and International Aero Engines.

The production A320E is expected to enter service next year and many of the features may be retrofitted to older aircraft.

CFM’s Tech Insert, providing a 0.5-1 per cent fuel burn improvement, and 5-12 per cent longer maintenance cycles and lower emissions, went into service in 2007. It meets the CAEP 6 require-ments that went into effect this year.

IAE’s Select One went into service this year. It provides a one per cent reduction in fuel burn, a 20 per cent time on wing improvement and 40 per cent fewer miscellaneous shop visits.

“We have a drag reduction prog-ramme saving one per cent [in fuel burn],” says Airbus’ Mann.

This includes a new vent on fuel system tank, a new pylon design and new wing root fairing.

The lower drag fuel inlets emerged from the A380 programme. The pylons are reshaped for both engine types. The wing fairing is between

the top skin on the wing and the fuselage.

Airbus is also taking its third crack at adding blended winglets to the A320 family. The aircraft had wingtip fences (except on the short-run A320-100 series) from the start and looked into converting to blended winglets a few years ago. Airbus did its own testing and also explored a design from an independent company.

“The aerodynamic benefit was there, but the loading was substantial and shut the door,” says Mann. Beefing up the wing to handle the additional loading would offset the benefit of the winglets.

Now, however, Aviation Partners — the creators of the blended winglets for the 737, 757 and 767 — is working on a design for the A320. Mann says Airbus can resurrect a gust load alleviation system previously designed for the A320. Reinstalling it will allow loads to be absorbed. The system activation had been removed because certification rules changed, Mann states. The system deflects the outboard ailerons up when it detects the loads.

“Thankfully we kept everything in place for it so it’s very easy to activate again and we can just do that with software,” he comments. Flight

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EnviROnmEnT

Before

testing should be underway at this time.

The weight reduction production programme is a bit of a moving target. Interior changes required for 16g and flammability, and a fuel inerting system, will add some weight even as Airbus strives to shave weight from the aircraft.

“We have to make sure we’re taking more out than adding to preserve payload capability and to reduce weight for fuel and emissions,” he said.

Airbus is also making cockpit improvements, which include RNP (Required Navigation Performance) that allow more direct routing in the air traffic system, thus saving fuel and reducing emissions.

And then there is the speculation over reengining the A320, a prospect that surfaced when Pratt & Whitney made real progress in the development of the Geared Turbofan engine, now the PW1000G. The PW1000G fits nicely on the A320 family but is prob-lematic on the 737, which sits much closer to the ground.

When Airbus agreed to place the engine on its house A340-600 test bed for in-flight testing, speculation went through the roof that Airbus is laying the groundwork to put it on the A320.

BOEing AnD ThE 737 Boeing has a long history of progressively improving its products, and the 737 is no exception. The company was more than willing to talk about what it has done in the

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39

after

tech insertion compressor on test at peebles

past to improve the 737. But when pressed, for the purposes of this article, to talk about what it plans to do in the future to improve the aircraft and its com-petitiveness against the A320, Boeing clammed up. This is despite some limited, if broad, statements made by Mike Bair, VP of business strategy &

marketing, over the summer about the possibility of re-engining the 737 with the PW1000G. But like prison grapevines, there are few secrets in aviation. Aviation and the Environment spoke with nearly a dozen sources with knowledge on some level of the Boeing studies going forward and learned that Boeing is quietly —

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ENVIRONMENT

LEAP-X

super-quietly — studying how to improve the 737 Next Generation. In some ways, it could be called the 737 ‘Re-Generation’.

In a nutshell, here is what Boeing is doing: Studies are underway looking at placing the PW1000G on the 737. This would likely require a major makeover of the 737, with a new wing, taller landing gear, moving the gear outboard and redesigning the wingbox.

CFM International is developing the LEAP-X engine with a 2016 certification date promised.

There are hints Boeing is looking at putting this engine on the 737, which could mean a true replacement for the 737 might be pushed out beyond the previously publicised target

date of 2020.

All sorts of internal systems improvements are being considered, which while not directly related to superior environmental performance would make building and maintaining the airplane easier.

A new avionics system is likely, with a key feature making RNP standard. RNP is being retrofitted now by airlines like Southwest and Alaska.

An entirely new interior design has already been given the green light, for roll-out next year, with delivery of the first 737s to FlyDubai. This was origin-ally scheduled for next September but may be delayed due to the two-month IAM

strike in September and October. Features from the 787 will find their way into the 737 interior.

This version of the 737 falls short of the entirely new aircraft sought by airlines, which would achieve a 20 per cent or better improvement in oper-ating costs. But the 10 per cent improvement it would offer might mean it will serve well as a bridge aircraft.

With the pressure on Boeing to act sooner rather than later and the limits on technology, a “regenerated” 737 may be the answer.

Indeed, Southwest told Aviation and the Environment that it doesn’t want to wait a decade for a new aircraft, and that a 10 per

Southwest: Give us 10 per cent sooner rather than 20 per cent later

LEAP-X TAPS II Sector Test

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“We can’t wait 10 years [for fuel burn improvements],” says Mike van der Ven, executive vice president for Southwest Airlines. “I’m not comfortable waiting a decade for an improved engine. We’re very interested in a manufacturer improving engine economics.”

This suggests Southwest might be interested in a geared turbofan-powered airplane, although Van der Ven also notes that the LEAP-X holds great promise, and will be “very competitive” with the PW1000G. “From an operator’s perspective, you could have a firm choice by 2013 with 10 per cent improvements, and that’s meaningful,” he says. 2013 is the planned EIS for Pratt & Whitney’s PurePower 1000G engine on smaller jets being developed, but within the timeframe the company could develop one for the 737.

Van der Ven acknowledges that Boeing faces greater challenges than Airbus when it comes to putting the geared turbofan engine

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ENVIRONMENT

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Geared turbofans, the LEAP-X: Any future on the A320, 737?

cent fuel burn improvement is acceptable (see sidebar). The PW1000G and LEAP-X promise at least this much gain.

Boeing reinvented the 737 three times.

The first 737 version, the (100/200) was not especially successful. Boeing created the 737200 Advanced and the plane became a hit. This was followed up with what is now called the 737 Classic, the first CFM-56 version, another success. When the A320 family went on to outclass the Classics, Boeing created the Next Generation series, with a new wing and an all-in 80 per cent difference to the Classic. Although Airbus and Boeing partisans differ on which aircraft is best, sales have for the most part been on the existing airframes.

“It’s not as simple as taking the CFM off and putting the Pratt & Whitney on,” van der Ven comments. (Boeing’s 787 is designed to allow easy engine type swaps, a first for a jet.).

Because the 737 sits closer to the ground, taller landing gear and related structures will be necessary. New struts, new engine pylons and heavier wing structures will be needed as well. All this means significant research and development and certification costs, for which Boeing will have to make a business case, the executive says.

With a replacement aircraft EIS suggested for 2018 or 2020, only four-to-six years after a 737 PW1000G might enter service, the cost-benefit is uncertain. On the other hand, if a re-engined 737 means an entirely new aircraft gets pushed beyond 2020, as one Boeing insider suggests, then that’s an entirely different cost-benefit analysis.

Southwest, the launch customer of the 737300, -500 and -700 series, flies more than 500 of these types. Overall, the airline has ordered 643 Boeing aircraft, giving it a lot of clout with the manufacturer. Southwest could well be a launch customer for a 737 “regeneration”.

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evenly split.

A regenerated 737 might be another example of an 80 per cent different airplane (to pick a number), but with Airbus and Boeing both saying a composite aircraft doesn’t have the same benefit for the A320/737 class as it does for the long-haul types, this may be as good as it gets for now.

Boeing is considering “block points” in 2013 and 2015 for improvements, or commitments to improvements. Both dates are interesting.

Entry-into-service for the PW1000G is targeted for 2013, and this date largely coincides with the first real availability in delivery positions for the 737. The CFM LEAP-X certification is planned for 2016 and may tie in nicely with a 2015 block point.

Boeing engineers have been charged with coming up with ideas about how the 737 can be improved and the down-select process is to begin next year, according to sources. Two areas that appear to have less em-phasis are aerodynamic and weight improvements. The belief is that the aircraft is already pretty lean, with little opportunity to make meaningful gains in these areas. There are however no guarantees that anything dramatic will be done. Boeing is waiting to see what Airbus does, according to a source familiar with the situation. “It’s a game of chicken,” the source said — if Airbus places the PW1000G on the A320 family, Boeing will be compelled to respond by placing it on the 737.

Part of the challenge currently facing Boeing is that there are few resources available to the 737 programme — the troubled 787 and 747-8 efforts have sucked up engineering resources from all over the company.

Boeing apparently isn’t worried about the A320 enhancements putting the 737 at a disadvantage. The improvements Airbus seeks will only enable the A320 to match the 737’s better fuel burn, according to the Boeing insider. n

Boeing may be pondering the Pratt & Whitney PW1000G and CFM International LEAP-X to re-engine the 737 and Airbus might be flying the P&W engine on an A340-600 test bed, but whether the engines will wind up on the 737 or A320 is, well, up in the air.

Stuart Mann, director of product marketing for the A320 family at Airbus, downplays speculation. “Pratt & Whitney said a couple of years ago ‘we’ve got this new engine; would you be interested in testing it?’” he says. “Only an idiot would say no.

[So] that’s what we’re doing. We’re doing really interesting research work, but we shouldn’t read too much into it. We don’t know if it’s the right one. CFM is doing the LEAP-X and we’d like to flight test it.

“Do we have plans to re-engine the A320?”

Mann asks. “The answer is clearly no. Do we have a research department? The answer is clearly yes. We’re not talking with them about re-engining.”

Boeing declined to comment on its plans for 737 enhancements.

Pratt & Whitney is immersed in developing the PW1000G for the 70-90 seat Mitsubishi MRJ regional jet and the 110-149-seat Bombardier CSeries, which have thrusts of 13,000-17,000 and 24,000 lbs respect-ively. An engine for the A320 or 737 requires 25,000 to 30,000 lbs of thrust or more, says Robert Saia, vice president for the next generation product family at P&W. An engine for the A320 and 737 also requires a larger fan diameter to maintain the anticipated 12-15 per cent fuel burn improvements forecast for the MRJ/ CSeries engines.

Although P&W is immersed in the current geared turbofan designs, Saia says, “We could do another engine concurrently [for the A320/737]. We have the knowledge.”

P&W requires a four to five year lead time and a solid business case before proceeding.

Boeing’s timeline for “down-select” next year could fit into this re-quirement for a 201314 EIS. Saia says the A340 PW1000G test programme is not designed or intended to place the engine on the A320.

CFM International is the sole-source engine supplier for the 737 and competes with the Inter-national Aero Engine V2500 to power the A320 family. CFM is developing the LEAP-X on the assumption it will go on an entirely new aircraft.

“There are no discussions about re-engining the A320 or 737 with the LEAP-X,” says a CFM spokesperson. “An engine has to be fully integrated with the aircraft it powers and you would not get all the benefits of the LEAP-X technology by putting it on an existing aircraft.” The spokesperson also said the certification target for the LEAP-X of 2016 is certification under FAA rules (FAR 33) and not entry-into-service.

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TECHNOLOGY

The powerplant

V2500: past, present and future Paolo Lironi, director of Amsterdam-based SGI Engine Advisory, provides a profile of one of the most successful engines in the commercial aviation market: the V2500. He considers its design, development, maintenance costs, values and future prospects.

T

he IAE consortium has just marked its 25th year of cooperation.

During the early 1980s, several engine manufacturers realised that there was the need to fill the 20,000-30,000lb engine market. This was stimulated by Airbus’ discussions concerning engines for its new A320 family. In view of the huge costs associated with new engine development, several engine manufacturers concluded that it would be better to cooperate than compete in satisfying the A320’s requirement. As a consequence, the IAE collaboration was formed.

The IAE consortium was formed between Pratt & Whitney, Rolls-Royce, MTU and IHI in 1983. At the beginning of the programme, Fiat Avio was also a sharing partner but its role subsequently changed to being that of a pure supplier. The design and production of the engines was rigidly divided between these companies with P&W & R-R acting as senior partners.

Each partner contributes to the engine by having design responsibility for the engine

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modules as follows: • Pratt & Whitney: diffuser-combustor, highpressure turbine, turbine exhaust case • Rolls-Royce: high-pressure compressor, external gearbox • Japanese Aero Engines Corporation: fan case, low-pressure compressor • MTU Aero Engines: low-pressure turbine module

“The V2500 design came from some of the advanced technology available from the design and development departments of Rolls-Royce and Pratt & Whitney.”

All V2500 engine models have the same basic design. The engine is a two-spool, axial flow, high-bypass ratio turbofan engine. The compressor has a single-stage fan, a threestage booster, and a 10-stage high-pressure compressor (HPC). The low pressure compressor (LPC) is driven by a five stage low-pressure turbine (LPT) and the HPC by a two-stage high pressure turbine (HPT). The HPT also drives a gearbox which drives the engine and aircraft mounted accessories. The two shafts are supported by five main bearings.

The engine incorporates a full authority digital electronic engine control (EEC). The control system governs all engine functions, including power management.

The engine has seven major modules: the fan module, the inter-case module, the HPC, the diffuser/combustor module, the HPT, the LPT and the accessory drive gearbox.

A Fan module: a single stage, widechord, shroud-less fan and hub.

B Inter-case module: the fan containment case, fan exit guide vanes (EGV), intermediate case, booster, low spool stub-shaft, the accessory gearbox tower-shaft drive assembly, high spool stub-shaft and the station 2.5 bleed valve (BSBV). The booster consists of inlet stators, a rotor assembly, and outlet stators. The (No. 1, 2 and 3) front bearing compartment is also built into the module.

C High-pressure compressor module: has a 10 stage, axial flow design. It comprises of the drum rotor assembly, the front casing which houses the variable geometry vanes and the rear casing which contains the fixed geometry stators and forms the bleed manifolds.

D Diffuser/combustor module: The combustion section consists primarily of the diffuser case, combustor, fuel injectors and igniters.

E High-pressure turbine module: is a two stage turbine and drives the HPC and the accessory gearbox.

F Low-pressure turbine module: has a five stage design. The elliptical leading edge airfoils improve aerodynamic efficiency.

Active clearance control is used to control seal clearances and to provide structural cooling.

G Accessory drive gearbox: provides shaft horse power to drive engine and aircraft accessories.

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TECHNOLOGY

The V2500 design came from some of the advanced technology available from the design and development departments of RollsRoyce and Pratt & Whitney. Pratt & Whitney contributed to the hot section by introducing developments gained from the PW2037 and PW4000 programmes, including single crystal turbine blades, powdered metal turbine disks, and an advanced, low emissions combustor.

Rolls-Royce contributed the 10-stage; 20:1 pressure ratio compressor, similar to that developed for the RJ.500 programme. The compressor blades feature the latest threedimensional aerodynamics and these are more highly loaded than earlier designs.

Technical development and models The V2500-A1 was the first version of the engine to be produced and the first to fly on the A320. This version can only be rated at 25,000lb thrust. It was delivered in 1989 to Adria Airways and subsequent operators came from Indian Airlines, Cyprus Airlines and Mexicana.

This engine model experienced its fair share of technical problems, as often happens with a totally new engine design. Reliability was quite low and IAE therefore chose to develop a more reliable variant of the engine to compete against the CFM56-5A. At the same time, CFM was working on the CFM56-5B engine model, promising better reliability. In 1993 the new version, designated the V2500-A5 entered service with United Airlines.

The basic architecture of the V2500-A5 is similar to the V2500-A1 although the fan diameter was increased from 63in to 63.5in, weight was decreased and new materials and designs were introduced in certain areas.

IAE subsequently became involved in the MD90 project and the V2500-A5 engine model was adapted to the McDonnell Douglas application.

It was given the V2500-D5 designation and this was first delivered in 1995.

Since the basic engine is different, there is no possibility of upgrading the V2500-1A model to the more recent V2500-5A. However, the V2500-5A and V2500-5D can be modified with a QEC change.

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“From 2005, IAE worked on a further development of the V2500-5 engine model, called SelectOne, which is a product improvement package offered offered to customers to reduce maintenance and fuel costs.”

The V2500-A1 has a thrust bump option so that the engine can provide additional thrust for a limited period of time. In order to use this option, the aircraft must have this option incorporated and operators are requested to record its usage. Life limited parts (LLP) life is affected by the number of thrust bumps used (LLP life may be reduced if the part has accumulated a set percentage of thrust bumps).

The V2500-A1 model is no longer produced by IAE, although it is fully committed to supporting operators of the engine type. Recognising that some operators were experiencing reliability problems with the V2500-A1 and having proven some of the new design features on the V2500A5, IAE developed a series of modifications for V2500-A1 engine model to increase the reliability. The programme was called the ‘Phoenix Standard’ and this can be incorporated when the engine is fully disassembled. SGI believes that the V2500-A1 fleet is now almost completely modified to Phoenix Standard.

From 2005, IAE worked on a further development of the V2500-5 engine model, called SelectOne, which is a product improvement package offered to customers to reduce maintenance and fuel costs. This package can be incorporated during engine repair and is also being incorporated at engine production.

SelectOne improvements are to be found in the HPC (improved efficiency/durability, aerodynamics, elliptical leading edges and super polished airfoils), HPT (improved internal cooling, advanced thermal barrier

coatings, redesigned outer diameter air-seal with advanced material for improved sealing) and LPT (1st vane re-stagger to optimise NGV skew closed)

Application V2500 engines are installed on the Airbus A320-family and the MD-90 aircraft. As mentioned, the V2500-A1’s thrust can only be set at 25,000lb, where the V2500-A5 can be rated from 22,000lb to 33,000lb. The thrust ratings, the numbers of operational engines on-wing and the hour/cycles accumulated are shown in table 1.

Maintenance costs: V2500-A1 model IAE, through its senior partners, proposed a full maintenance support package to potential customers. Indeed, Rolls-Royce has been very successful in this regard and several airlines have signed-up to its cost per flight hour offering. SGI estimates that 50 per cent of customers have agreed to this type of support contract.

Because of the limited number of engines produced, only a few shops have capability to work on the older V2500-A1 model: MTU, IHI, P&W and R-R. In comparison, several shops have the capability to repair the later variants of the V2500. In Europe IAE partners compete with Lufthansa Technik, in the US P&W is the dominant service provider, and in Asia IHI is the market leader.

The V2500 series of engine experiences fairly predictable gas path deterioration with later

V2500 Engine Variant

Thrust Rating (lbs)

Application

Number of engines delivered

Number of operators

Flown hours accumulated

Flown cycles accumulated

Average ratio

V2500-A1

24,800

A320-200

361

15

+13.5m

+7.0m

1.8

V2522-A5

23,040

A319 A319 2964

96

+44.5m

+22.9m

1.9

285

10

+5.3m

+4.1

1.3

V2524-A5

24,480

V2527M-A5

24,800

A319

V2527-A5

26,800

A320

V2530-A5

29,900

A321

V2533-A5

31,600

A321

V2525-D5

25,000

MD-90

V2528-DS

28,000

MD-90

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TECHNOLOGY

models of engine performing well on wing. The V2500-A1 deterioration rate is usually stable and in the range of 3/3.5 degrees every 1,000 cycles. An engine with an initial exhaust gas temperature (EGT) margin of 30°C is therefore unlikely to be removed for performance reasons.

Instead the causes of removal are more likely to be associated with mechanical problems or borescope findings.

The V2500-A1’s mean time between removal (MTBR) can be quite low and the engine has an on-wing reliability of 8,000 to 9,000 hours at first run, decreasing to an average of 7,000 to 8,000 hours at subsequent runs. The average cost of a shop visit for a mature engine is approximately $1.8m, excluding the cost of LLPs. IAE has been able to equalise the life of the LLPs to 20,000 cycles although some parts still have a life limit of 15,000 cycles. The cost of a total LLP stack is $1.9m and the cost per cycle is $93.

Maintenance costs: V2500-A5 and V2500-D5 models While the V2500-A1 and V2500-A5 have several parts in common, their maintenance costs differ for a number of reasons. However, the V2500-A5 basic engine is the same as the V2500-D5 engine and therefore their costs do

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not differ significantly.

All LLPs installed on the V2500-A5 have a life limit of 20,000 cycles, with no difference on the thrust rating. Since the engine has no thrust bump option, LLP recording is simplified. The cost of a full stack of LLPs is $2.22m and thus the cost is $117 per cycle.

The on-wing life of the V2500-A5 depends greatly on stage length and on the thrust rating of the engine. SGI experience indicates that a V2527-A5 operated at 1.5hrs to cycles ratio will have an on-wing life of 18,000 hours for the first run and 15,000 hours for subsequent runs.

A V2533 operated at the same hours-to-cycles ratio is likely to remain on-wing for 13,000 hours for the first run and 10,000 hours for subsequent runs.

The performance restoration cost and on-wing life are greatly dependent upon a number of factors, which need to be considered by operators and lessors alike. These include: the quality of the last shop visit; the EGT margin achieved; operator use of de-rated takeoff thrust; the operating environment (for example, exposure to sand and salt water); the hours-to-cycles ratio; the interim maintenance performed; aircraft operating weight (146,00lbs to 162,000lbs); and annual utilisation. If LLP lives are aligned and suitable engine restoration

is performed, an engine can have two full runs before LLP replacement.

The EGT margin of this engine variant greatly depends on the thrust at which it is operated.

A V2527/24-A5 will have an average EGT margin at installation, from new or following a performance restoration at a shop visit, of 90°C. A V2527-A5 will have an average EGT margin in the range of 60-70°C and a V2530/33A5 will have an average EGT margin in the range of 40-50°C. The EGT deterioration rate is usually stable, provided the engine had an adequate workscope applied at a shop visit. It will depend on a number of factors: flight length; de-rate policy; environment; with the thrust rating being applied being a prominent factor. SGI has accumulated experience of V2524-A5 engines deteriorating at an average rate of 2-2.5°C per 1,000 flight hours and a V2533-A5 engines averaging 4-4.5°C per 1,000 flight hours. Based on these figures, lower thrust engines are seldom removed because of lack of performance, while high-thrust engines may be.

The first shop visit of a V2500-A5 engine usually requires an overhaul of the hot section and a repair of the compressor. Subsequent shop visits are driven by the workscope applied at the last shop visit, any on-wing mechanical problems

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TECHNOLOGY

experienced and performance. However, an overhaul will be required on most occasions including LPC and LPT disassembly, dependent on findings. The cost of the first shop visit will be in the range of $1.3m-$1.5m, depending on the engine’s modification standard and its thrust rating. Subsequent shop visits will cost more and be in the range of $2.2m-$2.5m.

Technical issues affecting the fleet SGI experience indicates that the main reasons for engine removal are: LLP life limitations, HPC rotor path lining liberation, HPC damper wires protruding in the gas path; HPC stage 3 clapper wear; hot section distress; and HPT stage 2 blades corrosion. Additionally, the main technical issues affecting the fleet are: HP duct segment failure, HPC stage 3 blades liberation and number 3 bearing failure.

IAE has been working on all these problems and has remedies for each of them. At the same time, IAE is suggesting several other modifications, some of which are not essential for engine durability and reliability. Operators and owners should be careful when introducing modifications to engines, as they need to discriminate between important modifications and those which are ‘nice-to-have’ in order to minimise engine repair costs. SGI works with several leasing companies and operators in the technical management of engines and has accumulated a significant experience on this subject.

The V2500-A1 is now in its mature period and age-related issues are now starting to affect the fleet. In 2008 the FAA issued AD 2008-1415 requiring the engines to be inducted in the shop for replacement of some internal ducts and this is required by the end of November 2008.

This requirement is likely to create logistical problems for operators and repair stations.

As the number of engines is constantly increased, the V2500 market has attracted the attention of PMA and DER suppliers. The number of PMA parts available on this engine is constantly increasing, as well as the number of repairs developed for V2500 parts.

Ownership and leasing During the last five years, competition between IAE and CFM on the Airbus A320 family has allowed operators to negotiate some very good deals. Despite the fact that more CFM engines

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are now flying than IAE engines, sales have been very similar over recent years, with both manufacturers publicising the big deals they have signed. New engine values are in the region of $6-$8m depending on discounts, components and warranties.

IAE is currently leading the Asian and Middle Eastern markets, where several V2500 operators are based. IAE’s main operators are United Airlines, America West and Jet Blue.

The operator base is increasing with 2008 figures indicating 15 V2500-A1 operators and 96 V2500-A5 operators. The main V2500A1 operators continue to be Indian Airlines, Mexicana and America West.

A major problem affecting spare engine availability on V2500-A1 fleet can be put down to the increased number of operators.

During the early years of operation, only a handful of operators were flying this engine model and they had sufficient spare engines to support their requirements. As aircraft were phased out from larger fleets the number of operators increased substantially and the market fragmented. Smaller operators are not typically buying spare engines and therefore

“The V2500 series of engine experiences fairly predictable gas path deterioration with later models of engine performing well on wing.”

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problems have arisen. Furthermore, the fact that the engine is in its mature phase means that leasing companies may not consider it to be a good long-term investment. Consequently, lessor-owned V2500-A1 engines are rare with just a few leasing companies offering them to operators. The future of this engine model will be based on the future of the oldest versions of the A320 aircraft. Should they be converted into freighters, then the engine may be flying for several years to come.

Based on the scarcity of V2500-A1 engines, lease agreements tend to be one-off deals and so no real average can be arrived at. However, SGI is of the opinion that this engine model could be made available to operators at $3,500$4,500 per day plus maintenance reserves and LLP costs.

In comparison the V2500-A5 market is influenced by different factors: • IAE suppliers are having significant problems in supplying spare parts. For example, at the time of writing, HPT stage-2 blades, were in very short supply. This problem is affecting engine turn around time and as a consequence, the leasing market, as operators seek more spare engines.

• The IAE production line is providing engines to new Airbus aircraft and the lead time to acquire a spare V2500-A5 engine is in the range of six months.

Based on the current market situation, SGI is aware of lease rates in the range of $3,000/4,000 per day plus maintenance reserves and LLP costs.

The V2500-A5 is considered a good asset by lessors as the installed based is constantly expanding and because the engine can be used at different thrust ratings, which provides increased flexibility. This should ensure that asset values will be maintained or possibly increase in the years to come. Major leasing companies are eager to have this engine model in their books and ‘buy & lease back’ transactions are proving popular.

Conclusions IAE has become an example of excellent and fruitful co-operation between major players. Its V2500 fleet is becoming ever more popular in the market. IAE is investing in the resolution of technical issues and SGI expects the V2500 to reach even higher on-wing reliability with still lower maintenance costs. n

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TECHNOLOGY

Engine makers work on near-, long-term environment solutions The world’s engine makers are under tremendous pressure from environmentalists to reduce greenhouse gas and other noxious emissions and from airlines to reduce fuel burn, but major advancements are years away. Low Cost Airline World reports on the latest developments.

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TECHNOLOGY

for the A380, for which sales have stalled at about 200 aircraft.

As good as these backlogs are the 1,400 medium-sized twin aisle airplanes and 300 Very Large Aircraft will barely make a dent in the world’s fleet. Single-aisle aircraft are far and away the most populous and make far more take-offs and landings than the big jets. There are thousands more of these aircraft in service than twin-aisle aircraft. And it’s these, and other short- and medium-haul aircraft, that by sheer volume provide the major source of emissions that have environmentalists up in arms.

New engines for single-aisle aircraft

A

lthough GE Aviation and Rolls-Royce are here today with new, more environmentally friendly engines for Boeing’s 787, it will be a decade before the current backlog of 900 aircraft are delivered at the current production rate. Airbus’ new A350 XWB isn’t scheduled to enter service until 2013 and its order book of nearly 500 aircraft won’t be delivered until about 2017 or later.

GE developed the GEnx engine for the 787 and the 747-8 (for which there are just 114 orders); Rolls-Royce developed the Trent 900 for the A380 and the Trent 1000 for the 787, and is developing the Trent XWB for the A350.

Engine Alliance, a joint venture between GE and Pratt & Whitney, developed the GP7200

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Replacements for the sales-leading A320 and 737 families may be a full decade away, and it will take decades after entry-into-service of these new aircraft for the current and previous generations to phase out. Engine development is the pacing item, though the engine manufacturers say that concurrent airframe advances are necessary to optimise new engines.

This means interim advancements to engines and enhancements to the A320 and 737 families are necessary to reduce emissions, although in all likelihood these won’t satisfy environmentalists who seek immediate action or who want to ban air travel entirely.

Europe is far ahead of the U.S. in proposing environmental regulations on commercial aviation. Many of these rules are, to the great annoyance of the industry, impractical and costly. The U.S. Environmental Protection Agency under President Bush pretty well stiffarmed environmental petitioners for greenhouse gas emission regulations for the airline industry; the reaction of the new Obama Administration and a heavily Democratic Congress remains to be seen.

Still, engine research is going full bore. The “Big Three” manufacturers — GE and its joint venture CFM International, Pratt & Whitney (P&W) and its partnership International Aero Engines (IAE), and Rolls-Royce (also an IAE partner) — are pouring billions of dollars into research to come up with a new generation of engines that will power the successors to the

47

A320 and 737 families. But this research won’t produce results until 2013-2016 or even later, depending on the engine technology being pursued.

P&W’s PW1000G geared turbofan (GTF), in research and development for 20 years, is finally targeted for entry into service (EIS) in 2013, but on the Mitsubishi MRJ and — if the aircraft ever gets a bona fide launch — the Bombardier CSeries. But the MRJ seats fewer than 100 passengers and isn’t in the same category as the Airbus and Boeing workhorses. The CSeries seats 110-149 passengers, the upper-end being at the lower end of the A320 and 737 families, a market segment Boeing at least appears ready to abandon with its 737 replacement, according to strong hints by Scott Carson, president of Boeing Commercial Airplanes, at the Farnborough Air Show last summer.

P&W will have to develop a larger version of the GTF to power replacements for the A320 and 737, or to put on enhanced versions of these aircraft. P&W told our sister title Aviation and the Environment that it could develop such an engine in parallel with the smaller GTF designed for the regional jets and could have the larger version ready by about 2014 if the goahead were given this year. Boeing is evaluating a major enhancement of the 737 that might be available around 2014, with decisions targeted for this year. The U.S.’s granddaddy of low-cost carriers, Southwest Airlines, doesn’t want to wait a decade for a more efficient engine and 737 replacement and is pushing Boeing for an earlier solution.

Airbus is testing the GTF for P&W on an A340-600 house test plane, but says this is not tied to re-engining the A320—though officials acknowledge that the test data will work its way to Airbus’ R&D department.

GE’s CFM and the other partner, Safran Group, announced in July the formal development of the LEAP-X successor to the ubiquitous CFM56 engine that exclusively powers the 737 and around half the A320 families. But this engine is intended for an entirely new aircraft, not an enhancement. CFM set a goal of a 2016 engine certification under the U.S. Federal Air Regulations 33, subject to market requirements,

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TECHNOLOGY

with EIS a few years later in keeping with the publicly stated target EIS dates of around 2020

by Airbus and Boeing for all-new A320/737 successors.

CFM said in October it was not discussing any A320 or 737 re-engining prospects, believing that an entirely new engine-airframe combination is necessary to optimise economic advances.

The LEAP-X targets a 16 per cent fuel burn reduction with a correspondingly lower CO2 output, 60 per cent lower NOx and 10-15 db lower noise levels than current regulations require. CFM is also developing an open rotor engine. Also known as an unducted fan, this engine is similar to the concept tested on 727 and MD-80 aircraft in the late 1970s and early

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1980s, then called the GE-36 under the GE Engines brand.

CFM has a goal of an additional 10 percentage points better burn for the open rotor, or 26 per cent better than today’s engines. CFM believes that technology for the UDF won’t be ready before the end of the next decade — which is not that long after the LEAP-X. But because of the technological challenges of the open rotor, CFM is developing both engines on a parallel path. “At some point, we will choose one engine architecture or the other. We are working to resolve the technical challenges with the open rotor, but the majority of the LEAP-X technology will still apply. The fact is you cannot do the open rotor without LEAP-X foundational technologies, including the core

and fan blades,” CFM says.

“The other important factor is that an open rotor architecture must be designed in close co-operation with the aircraft manufacturers; it simply can’t be done separately because of installation issues, drag, etc.”

Rolls-Royce has been working on an open rotor engine for years but has generally been tightlipped about the project, DREAM, the acronym for the inartful “valiDation of Radical Engine Architecture systeMs.” This, ironically enough, was a 2007 joint venture research project with Snecma, the 50-50 JV partner of CFM. Rolls’ open rotor seeks to reduce emissions by 30 per cent from today’s power plants from perhaps as early as 2015, but certainly by 2025.

This is about 10,000 tonnes of CO2 per year

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TECHNOLOGY

per aircraft, as Rolls engineer, Mark Taylor, told The Guardian newspaper in October 2008. The problem, as always with an open rotor engine, is noise. According to the presentation, the open rotor is far above the ACARE noise target of a 20 per cent improvement over today’s baseline.

Open rotors, with a huge fan diameter, also present an installation challenge. Test platforms in the 1970s/80s were rear-engine mounted 727-100 and MD-80 aircraft. easyJet revealed a concept two years ago with two open rotor engines mounted between twin tails.

An open rotor engine is also slower than a turbine, adding about 10 minutes to a two hour flight or around half an hour to a U.S. transcontinental trip; and 40 minutes to a typical transatlantic flight between Europe and the U.S., according to a study by the Society of British Aerospace Companies (SBAC).

Open rotors may be pusher or puller engines and can have a single propeller or a pair of contra-rotating propellers. Contra-rotating propellers can reduce the diameter of the fan blade, providing easier integration with the airframe design. Contra-rotating propellers allow a slower RPM and a higher cruise speed compared with a single propeller, according to the SBAC. But contra-rotating propellers add

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weight, complexity and cost. easyJet’s concept, called an eco-jet, could be in operation by 2015, according to the company; although CFM believes a viable open rotor engine would be years after this date. RollsRoyce states that an open rotor engine could be available as early as 2015 but perhaps as late as 2020. The eco-jet would reduce NOx emissions by 75 per cent and CO2 emissions by 50 per cent, with a 25 per cent noise reduction compared with A320s and 737s. The airframe would make generous use of composite materials. It is an intriguing concept, but one which doesn’t seem to have caught on with the manufacturers.

Rolls is also exploring a three-shaft RB285 option based on Trent technology and a two-shaft RB282 project that builds upon the so-called E3E (Environment, Efficiency, Economy) technology and the heritage V2500 and BR700 (Boeing 717) engines, incorporating material and technological advances from the Trent family.

Rolls’ Robert Nutall, vice president of strategic marketing, says no one engine encompasses all the airline requirements for low fuel burn, low emissions, low noise and low life-cycle costs.

(Often, achieving one goal results in missing another.) Accordingly, the short-term goal is a 15 per cent improvement over today’s engines

49

with a longer-term goal of 50 per cent gains.

Rolls calls this the Option15-50.

This series of studies is called, also inartfully, SILENCE, for SIgnificantly LowEr commuNity exposure to airCraft noisE, VITAL (enVIronmenTALly friendly aero engine) and, more gracefully, EFE (Environmentally Friendly Engine). Rolls’ Option15 targets an EIS date in 2014/15, followed by Option20 in 2016, Option30 in 2018 and Option50 some time thereafter. The figures represent percentage improvements over today’s fuel burn.

Product improvements to current engines Europe’s militant environmental community isn’t satisfied that the engine makers are years away from major gains in reducing emissions.

They want action now. The problem, of course, is that instant gratification rarely comes in the form of technological advances but more often in personal endeavours.

Still, the engineers haven’t been standing still.

CFM developed its Tech Insertion for the CFM 56-5 and -7 engines in 2007 for the 737 and A320 families. IAE countered with the Select One upgrades for the competing V2500 engine on the A320.

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50

ENVIRONMENT

Tech Insertion reduces NOx emissions required for CAEP 6, reducing maintenance costs by nearly 12 per cent, fuel burn by up to one per cent and NOx is reduced by 20-25 per cent.

The fuel-burn reduction equates to reducing CO2 emissions by 200 tonnes per aircraft per year. CFM also offers a Tech Insertion upgrade for pre-2007 -5B and -7B engines.

IAE’s response, SelectOne, offers similar advances over the standard V2500 engine.

SelectOne provides one per cent reduced fuel burn, 20 per cent time on wing improvement, 40 per cent fewer miscellaneous shop visits and compliance with CAEP 6 regulations.

IAE says it has the lowest fuel burn in its class (a claim CFM will likely dispute). “IAE calculates an approximate four per cent fuel burn advantage for the V2500 SelectOne engine versus the competition on a typical two-hour A320 mission,” IAE states. “This fuel burn advantage relates to savings of approximately $110 per aircraft hour.

The operating cost saving for a V2500 powered A320 aircraft over a 15 year period is up to $6m per aircraft from fuel alone.” These figures are based on $2.85/gallon, for 3,600 hours annual utilisation over 15 years without inflation.

IAE also claims it has lower emissions that the CFM power plants on the A320 family. “Offering four per cent less fuel burn than the competition correlates directly into lower CO2 emissions,” the company states. “Every tonne of fuel saved is equivalent to over three tonnes lower CO2. We are comparing current production standards of the V2500 and CFM56-5B engines — that is the SelectOne versus the Tech Insertion.” n

Engine development

Here is a rundown of the engines in development:

SINGLE-aisle engines CFM International LEAP-X, open rotor. Details are in the main story.

Pratt & Whitney PW1000G: This geared turbofan engine will be marketed through the International Aero Engines partnership, which includes P&W, Rolls-Royce and Japanese Aero Engines. It’s currently being designed for the Japanese Mitsubishi MRJ 70/90-passenger regional jet for which there is only a handful of orders and the Bombardier 110-149 seat CSeries, which remains a conceptual airplane with only a Letter of Interest from Lufthansa Airlines. A larger version of the engine would be required for an A320/737 category engine and if a go-ahead were given this year, it could be ready by 2013 or 2014.

Boeing is considering the prospect of re-engining the 737 with the geared turbofan as an interim step to a full replacement (see Aviation and the Environment, December-January issue 4 for more information on this) with a decision possible this year. Airbus tested the engine on an A340-600 test bed, but said this has nothing to do with the prospect of hanging it on the A320. Nonetheless, Airbus’ research and development department has all the test results from the A340 testing.

Pratt & Whitney: P&W told reporters at the Farnborough Air Show that it was approached by an airframe manufacturer about the prospect of developing a geared turbofan engine for a twin-aisle medium size transport. An Airbus official said it wasn’t Airbus, and Scott Carson, president of Boeing Commercial Airplanes, dodged the question when he was asked.

Boeing faces a dilemma about what to do with the 777. The 777-200ER is already essentially dead to the market and its stable mate, the 777200LR, is a niche airplane. The 777-300ER remains a solid seller, but is threatened by the A350-1000, according to Teal Group analyst Richard Aboulafia. Although the -1000 is yet to be fully defined, inhibiting Boeing’s response until final details emerge on the Airbus aircraft, Boeing is caught between enhancing or replacing the 777, and what shape either will take.

Twin-aisle engines

P&W’s Robert Saia says the company has not started any geared turbofan study for the 777 or a replacement but “we have not ruled that out.

We will have a lot of product knowledge.” More details are in the main story.

GE Aviation: GE is developing two versions of the GEnx, one for the no-bleed air 787 programme and the other for the bleed-air 747-8. The engine is widely reported to be 1-2 per cent over fuel burn targets, but the lengthy delay in the 787 programme of more than two years (and now of 9-12 months for the 747) gives GE time to bring the engine to target levels.

Rolls-Royce: Rolls is developing the Trent 1000 for the 787 and this, like the GEnx, is reported to be over its fuel burn target by 2-4 per cent, depending on the report. As with the GEnx, the 787 delays give Rolls time to work on meeting its target. Rolls is also developing the Trent XWB for the Airbus A350 XWB.

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check_FPA:ATEM

5/12/08

08:29

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The fact is we manufacture over 5000 parts that meet or exceed OEM standards at a fraction of the cost.

1 9 5 7-2 0 0 7

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inFRASTRuCTuRE

a single european sky?

Air traffic service providers were originally mandated to ensure air traffic safety. This mandate has now been radically expanded to include not just safety but also optimisation of airspace management, fuel efficiency and emission reductions. The challenge is again amplified in Europe where each state has provided its own air traffic management (ATM) system. This fragmentation impacts on efficiency, air pollution, and capacity limits.

T

hE EuROpEAn STATES established Eurocontrol in the 1960s to harmonise ATM but it has taken the executive power of the European Union to make real progress towards rationalising the 50 different European airtraffic control centres and the realisation of an estimated saving of up to €1bn per year of operating costs.

The Single European Sky programme has lofty ambitions including efficiency gains of 6-12 per cent, saving up to 6 million tonnes of CO2 and an annual fuel cost saving of more than US$10bn. These goals will only be achieved, however, if air traffic control and air traffic management can be optimised across all countries and airports.

This would be a wonderful thing — and would significantly help the airline industry

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reach sustainable profitability — but it depends not just on the interconnection of many different IT and data systems, but also on successful negotiation across several different governments, industry groups and forums.

EU states will not need to surrender sovereignty over their national airspace, but will need to agree to use Air Navigation Service Providers (ANSP) that operate panregionally and are not limited to national boundaries. While many governments face obstacles, concerns relating to parallel plans to include airlines in the EU Emissions Trading Scheme (EU ETS) are providing a compelling incentive to make real progress in the short term.

Following an agreement in principle by Europe’s environment ministers at a meeting

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inFRASTRuCTuRE

53

Equipping aircraft with new communications avionics will be the critical path in the implementation of new ATM. Aircraft manufacturer and operator installation of these avionics should not be held back by doubts over changing future requirements.

in Brussels on December 20 2007, airlines operating in European airspace will soon be subject to emissions controls as part of the EU ETS. The deal — which recently obtain-ed the approval of MEPs and EU transport ministers — effectively brings aviation into the same carbon trading scheme that already applies to much of Europe’s industry, and will cap airline CO2 output at 2004-2006 levels. Airlines will have the ability to trade emissions between themselves, but any further growth in total aviation sector emissions will need to be offset by reductions in emissions in other sectors. Subject to final agreement next year, the deal will come into effect in 2012, and will initially apply to flights between EU nations, as well as flights departing or landing in any EU country.

Including air transport in the emissions trading scheme is one more driver for fixing

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the more fundamental issues resulting from Europe’s heterogeneous ATM system. A 2007 European Commission report stated: “Current air traffic control infra-structure will probably be incapable of meeting the new challenges relating to the sustainable development of European air transport.” It added that the capacity of the current ATM system has “reached its limits”, the tech-nologies used “are obsolete”, and “the proliferation of different technical systems remains a concern”.

The reason the required technology in ATM has not yet been implemented across Europe is that the very stringent safety requirements and institutional nature of the industry make it extremely conservative and fragmented in terms of introducing change and adopting new technologies.

Today, the real-time sharing of information between the stakeholders involved in ATM and aircraft turn-around including ANSPs, aircraft, airline operations, ground handlers, security, immigration and airport operators at both an airport and regional level, ranges from nil to very limited. This is being addressed by the Eurocontrol Airport Collaborative Decision Making initiative to connect airport systems to the Central Flow Management Unit.

To provide for the continued steady increase in passenger numbers, data link services have also been identified as a key communication tool that will contribute to stretching European ATM capacity and efficiencies. Data link services are expected to ease the bottlenecks that currently exist on voice communication channels significantly. For an equivalent amount of inform-ation, data link uses significantly less

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INFRASTRUCTURE

bandwidth, helping solve chronic fre-quency congestion problems. Data link messages are also far easier to understand, eliminating the risk of misinterpretation for pilots and con-trollers; they always reach their target (no confusion over call signs); and are not affected by strong regional accents or bad radio quality.

However, equipping aircraft with new communications avionics will be the critical path in the implementation of new ATM. Aircraft manufacturer and operator installation of these avionics should not be held back by doubts over changing future requirements. The EU Single European Sky committee recently adopted an Implementing Rule mandating that all aircraft flying in Europe be equipped with data link systems by around 2015.

For the longer term, the Single European Sky SESAR initiative is defining the applications and infra-structure required for the delivery

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of a pan- European ‘Virtual Information Pool’ accessible by a dedicated net-centric network infrastructure under the general heading ‘System Wide Inform-ation Management’ (SWIM). It is a simple concept whereby all aeronautical information related to ATM, realtime or static, is available to any stakeholder who needs the data whenever it is required — an intranet for aviation. All information on this ‘intranet’ will be published in XML, the industry standard exchange format, allowing computer to computer exchange without the need for human intervention and associated risks.

The SESAR Master Plan foresees the availability of a regional IP network backbone as the most efficient means of interconnecting all stakeholders across Europe and therefore as the starting point for SWIM imple-mentations.

It is only relatively recently that ANSPs have

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INFRASTRUCTURE

started to migrate their networks to use the industry standard Internet Protocol (IP) that has been the standard option for airlines for about 10 years.

SITA delivers IP network services across the globe to airports, airlines and to an increasing number of air navigation service providers. These innovations, coupled with existing partnerships with leading European air navigation service providers, make SITA a natural partner to deliver the pan-European SWIM services. The Single European Sky is providing the industry with a golden opportunity to accelerate the transformation of European air traffic management. SITA, as an air transport industry owned organisation, will continue to support the deploy-ment of operational IP services to make SWIM, the lifeblood of the Single European Sky, a reality.

The Single European Sky initiative aside, the

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global aviation industry and governments are facing enormous challenges in how to manage con-tinuing traffic growth while reducing aviation’s environmental footprint. This is not just a question of ecological credibility, but also one of cost. Fuel has become the airlines’ single biggest expense, and burning less fuel is as good for the bottom line as it is for the planet.

Together they are taking two complementary approaches: • Operational improvements that reduce environmental impact, and • Regulatory obligations and compliance.

In the medium- to long-term, the industry as a whole will need to reduce its carbon footprint significantly — or pay major financial ‘penalties’ through the EU ETS. Indeed, as the industry will most likely require massive allowance acquisitions, billions of dollars are likely to flow from the ATI to other industries.

55

This is a major concern for the ATI. In fact, the drive to consume less fuel is nothing new to the industry, but in recent times it has taken on a great deal more urgency, as fuel prices continue to rise along with the need to prove environmental credibility. And regardless of short-term expectations, the pressure to use less fuel will increase inexorably over the medium- to long-term, as the oil production peak approaches and the costs attributable to emissions rise.

In line with the recommendations outlined in the IATA Fuel Efficiency Campaign, SITA already offers airlines the ability to apply a dynamic cost index methodology within the flight plan calculation to optimise fuel economy.

This can equate to a $1,600 saving for a 747 operating a single long-haul sector.

SITA also supports the practice of in-flight re-routes with its flight planning system, which is capable of recalculating the flight plan from a defined en-route position with refreshed and updated weather data. This new route can be uplinked to the aircraft in-flight, and help deliver significant savings to the aircraft operator — reducing fuel consumption and emissions.

SITA has a unique role as the ATI community technology provider and will take an increasing role as a key enabler to help the industry comply with all the proposed regulatory schemes: • Using IT and industry leverage to enable operational improvements. A good example is enabling the collaborative decision-making bet-ween airport airside operations, air traffic management and airlines which will be pivotal in reducing the 6-12 per cent of fuel which is currently wasted on the ground or in the air.

• Providing green IT-compliant services through the application service-provisioning (ASP) model, where single applications are shared across the entire industry and operated in our new data centre, reducing the total data capacity required.

• Helping our customers cope with new regulatory burdens by using the community approach to set up an ‘information hub’ for emissions trading — to fulfil monitoring, report-ing and verification obligations.

SITA’s goal is to facilitate the creation of a single aviation market in Europe with established common rules and standards for all aviation stakeholders, to ensure an efficient and sustainable European air transport system. n

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MAINTENANCE OPERATIONS

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MAINTENANCE OPERATIONS

57

Narrowbody maintenance and support The 737NG and A320 contest the most hotly-fought battle for airlines’ affections around the world and separating the types is no easy task. Operationally the two appear evenly matched, so LCAW has decided to investigate whether either can claim a maintenance advantage.

D

uring the development of the 737NG, Boeing focused on maintenance and reliability, because these factors account for an estimated 17 per cent of airline operating costs. A well-known characteristic of the 737NG (-600/-700/-800/-900) is that it is easy to maintain, especially at small airports. From the first steps of the design process, Boeing looked for specific ways to improve maintenance. Using CATIA (Computeraided Three-dimensional Interactive Application), engineers addressed maintenance accessibility. Boeing also incorporated input from various carriers and a chief mechanic pointed out potential maintenance issues.

A number of changes have evolved in the quest to decrease MRO costs. Simple designs such as one-man APU removal and fewer landing gear and flap systems parts mean less maintenance and labour time compared with

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earlier 737s. Zonal and structural inspections have replaced corrosion prevention and control programmes applied to previous variants. Digital rather than analogue systems have increased reliability and facilitated the introduction of built-in test equipment. The 737NG’s low-to-the-ground stance allows easy access to the engines and, in most situations, specific equipment is not required to service or maintain the aircraft.

737NG: changing maintenance philosophies In maintenance terms, the 737NG has engendered a change in philosophies from traditional letter checks to task-based maintenance. While Boeing recommends intervals for each of the aircraft’s 883 inspection tasks, operators decide how to package them. This allows operators to fly with a MEL (Minimum Equipment List), conducting maintenance during short

overnight stops, keeping the aircraft in the air for as long as possible and generating maximum revenue. Throughout the NGs’ life cycle, technical dispatch reliability (without accounting for cascading events from a delay) has measured 99.5 per cent.

Jack Trunnell, director of Boeing Commercial Aviation Services’ (BCAS) maintenance engineering department, explains the paradigm shift: “The main change in the philosophy was not to prepackage the tasks into defined letter checks, but to provide the required parameter for each interval and task, and to let airlines decide if they wanted a letter check philosophy or a different, segmented approach. The 777 was the first Boeing aircraft to incorporate that philosophy and the 737NG later adopted it.”

Due to the volume of 737NGs flying, this has impacted significantly on maintenance.

Depending on the type of airline and operation, it can take up to eight years before

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MAINTENANCE OPERATIONS

a 737NG is driven into the hangar for a heavy maintenance check. Cost savings depend on the maintenance programmes preferred by the operator. Some operators of early 737s follow older MSG-2 programmes whereby replacement of parts occurs at specific intervals; others prefer MSG-3 programmes whereby the part is replaced according to its condition (newer aircraft such as the 737NG follow MSG-3).

Some airlines develop their own hybrid maintenance programme. Many operators have achieved a 15 per cent reduction in maintenance costs compared with earlier variants. This can be attributed to MSG-3 maintenance and improved design of the aircraft.

Improving maintenance efficiency In 2004-5 Boeing’s maintenance engineering department, in collaboration with customers and regulatory authorities, conducted a project to improve maintenance efficiency. About onethird of the maintenance task intervals were

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lengthened; based on in-service data provided by airlines making up 41 per cent of the world’s 737NG fleet.

The longer interval between maintenance checks saved time and money. Trunnell elaborates: “Based on the operation of a 20airplane fleet, over a 20-year period, one would save about $150,000 per airplane. About 2,500 labour hours are saved per airplane... That was significant because we gained another 40 inservice days for the aircraft over that period of time. Depending on the dollar value of labour rates and gained revenue opportunities, our calculation was about a $25m airline benefit over the period.”

The 737NG has very low scheduled maintenance in the first six years. This enables operators to perform phased maintenance overnight. The 737NG requires less non-routine maintenance than classic models with a faster return to service. Typical 737NG schedules involve A checks every 70 days, C checks every 6,000 flight-hour intervals (up from an initial 4,000 interval) and D checks every eight

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MAINTENANCE OPERATIONS

years. The high frequency utilisation of 737NG

by LCCs leads to these aircraft reaching C checks in shorter calendar time than in traditional operations.

When looking at the 737NG family, over 2,700 examples have entered service since December 1997. Requirements for heavy maintenance will peak at the end of the decade. Global revenues from such work are expected to increase about four times between now and 2010.

Airlines are being advised to book D checks in advance for winter of 2009/10 in the northern hemisphere.

Maintenance issues Scribe marks (scratches made on the skin of the aircraft, which could develop into cracks) have affected the 737NG. However, according to Boeing, they are not exclusive to Boeing aircraft or to the particular model. Scribe line inspection requirements are now a challenge for all airlines, but there are tools that make testing easier and more efficient.

One such tool is phased array equipment that

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conducts NDT (non-destructive testing) of the scribe line. It performs an optical evaluation of the scribe-lined area by taking a digital image and mapping every blemish in the area. For the re-inspect, the tool will go back over the same area and remap the aircraft based on the last mapping. It will alert the user to any changes.

There have also been issues with jammed/ restricted rudders on the 737NG. Boeing is monitoring the rudder situation and directions have been issued. Trunnell adds that the company changed to a different control rod assembly in April 2006 and that it has issued bulletins for the replacement of suspect rods.

“We don’t see any immediate risks and upgrades are underway throughout the fleet,” he states.

A320 support The A320 family is the most important contributor to Airbus’ success as an aircraft manufacturer and enjoys one of the widest customer bases in aviation history.

After almost two decades of operation the A320 is considered a highly reliable investment.

Maintenance glitches such as problems with the air conditioning and brakes have been ironed out and fly-by-wire technology is fully accepted.

Airbus is aware that airlines are constantly looking to reduce maintenance costs and MPD Revision 28 allowed operators to extend the intervals between maintenance checks. A checks could be conducted every 600 hours (previously 500 hours), C checks every 20 months (previously 15 months) and heavy checks after six years and 12 years (previously five and 10 years). Equalised checks that focus

59

on optimised usage of each part have also been introduced. CSA Czech Airlines is an example of a carrier that has adopted the intervals offered

by MPD Revision 28 and so far it is working well for them. According to Stuart Mann, Airbus’ director of product marketing, A320 family, airline response to MDP 28 has been favourable. “Airlines love the extra flexibility that MPD 28 gives them and, naturally, they get the maximum time out of all the components between overhauls,” he says.

A popular maintenance option on the A320 is the Airbus AIRMAN system which allows the aircraft to transmit faults to the ground during flight. This software tool enables the necessary resources and maintenance personnel to be in place when the aircraft touches down and thus reduces the time the aircraft spend not in revenue service. CSA is preparing to start AIRMAN utilisation this winter. “We expect AIRMAN to support our line maintenance operations and to increase effectiveness of our preventive maintenance, leading to further improvement of technical dispatch reliability of our A320 fleet,” states Daniela Hupáková, a spokeswoman for CSA.

Upgrades In early 2006 Airbus conducted a research programme on winglets for the A320 family.

The company tested two different winglet designs on two different aircraft in over 80 hours of flight testing. Initial testing was done on a prototype aircraft and then, because the prototype was not production-representative, an aircraft was borrowed from JetBlue (prior to delivery) for further testing. Results showed

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MAINTENANCE OPERATIONS

the aerodynamic advantage expected from the wingtips, but increased loads were introduced to the wings. Mann explains: “Obviously if you have a higher load you have to reinforce the structure. If you reinforce the structure, you add weight and with the designs that we have tested thus far, the aerodynamic benefit was effectively negated. We have done a lot of work and we have a research programme that has not brought us where we hoped to be...

Now we need to reflect on how the knowledge acquired can be used.”

Conversions in Russia and Germany In October 2006 EADS, representing Airbus and EFW (Elbe Flugzeugwerke), EADS’ freighter conversion centre based in Dresden (Germany), signed an agreement with leading Russian aircraft manufacturer Irkut, preparing the foundation of a joint venture responsible for the conversion of Airbus A320 family aircraft into freighters.

Then, at the 2008 Farnborough Air Show, it was revealed that leasing company AerCap had become the launch customer for the A320/321 passenger-to-freighter conversion, with an order for 30 freighters. The aircraft will come from AerCap’s portfolio and will be converted at EADS EFW in Dresden. Meanwhile, a parallel conversion line will be set up by Russia’s Irkut, part of UAC, a 50-50 partner in the A320 P2F programme.

For the A320 family, the future looks positive; demand and various improvements are in the

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pipeline, such as an aerodynamic revamp introducing a new engine pylon and a tidy-up of various vents on the wing. There are also plans for a new passenger cabin with more overhead stowage, better lighting and sidewall panels.

And what of a replacement for the A320 family? It is thought that Airbus will release this around 2020, possibly a couple of years after Boeing unveils a 737NG replacement. “At the moment the deals are there,” says Mann.

“It is not just us that continue to invest in the programme; it is our suppliers as well. CFM has come out with its tech insertion engine, which is reducing maintenance cost and fuel burn. IAE has come out with its SelectOne engine, again improving maintenance costs and fuel burn. We have a lot of development going into the aircraft to make sure it stays at the top of the pile. I am delighted to say our biggest problem at the moment is producing them fast enough.” n

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09:01

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62

FACTS & FIGURES

Firm Orders 1Jul - 11 Sep 08 Mfr & Type

Variant

Customer

Order date

Order /Type Swap

Number

Engines at Order

Variant at Delivery

Engines at Delivery

Airbus A320

210 (CFM)

easyJet

15-Jul-08

Type Swap

25

CFM56-5B4/3

210 (CFM)

CFM56-5B4/3

Boeing 737 (NG)

800 Winglets

FlyDubai

11-Jul-08

Order

50

CFM56-7B26/3

800 Winglets

CFM56-7B26/3

Boeing 737 (NG)

800 Winglets

Ryanair

29-Aug-08

Order

4

CFM56-7B24/3

800 Winglets

CFM56-7B24/3

Boeing 737 (NG)

800 Winglets

Saga Airlines

29-Aug-08

Order

2

CFM56-7B26/3

800 Winglets

CFM56-7B26/3

TRANSACTION SUMMARY Variant

Reg. No.

Owner Name

Operator Name

Event Remarks

230 (IAE)

VT-DNT

Amentum Capital Ltd.

Deccan

Purchased - sale & lease-back on delivery - parked

800 Winglets

OO-JBG

Undisclosed Bank / Broker / Lessor JetAir Fly

400

G-ECOD

Rand Merchant Bank

Flybe

Purchased - sale & lease-back on delivery Purchased - sale & lease-back on delivery

230 (IAE)

VH-VQD

Wombat 3547 Leasing Pty Ltd

Jetstar

Purchased - sale & lease-back on delivery

AR

VH-ZPF

VBNC9 Pty Ltd

Virgin Blue Airlines

Purchased - sale & lease-back on delivery

230 (IAE)

VT-INU

Allco Leasing (IGO No.2) Ltd

IndiGo Airlines

Purchased - sale & lease-back on delivery

AR

VH-ZPG

VBNC9 Pty Ltd

Virgin Blue Airlines

Purchased - sale & lease-back on delivery

230 (IAE)

LZ-WZB

General Electric Capital Corp

Wizz Air Bulgaria

Purchased - sale & lease-back on delivery

210 (CFM)

EI-DSU

Aircraft Purchase Company No. 10 Ltd

Air One

Purchased - sale & lease-back on delivery

210 (CFM)

EC-KJD

Babcock & Brown Air Ltd

Clickair

Securitized

400

G-ECOE

Rand Merchant Bank

Flybe

Purchased - sale & lease-back on delivery

200

N353PH

Win Win Services LLC

Horizon Air

Purchased - subject to existing lease

AR

VH-ZPH

VBNC9 Pty Ltd

Virgin Blue Airlines

Purchased - sale & lease-back on delivery

210 (CFM)

VT-WAG

RBS Aviation Capital

Go Air

Purchased - sale & lease-back on delivery

AR

VH-ZPI

VBNC9 Pty Ltd

Virgin Blue Airlines

Purchased - sale & lease-back on delivery

300

HS-AAN

Spirit Leasing

Thai AirAsia

Purchased - subject to existing lease

400

G-ECOF

HEH Aviation Manchester Beteiligungs Gmbh & Co KG

Flybe

Purchased - sale & lease-back on delivery

110 (CFM)

N948FR

AFS Investments 59 LLC

Frontier Airlines

Purchased - sale & lease-back

LR

G-FBEM

SkyClass 52 GmbH & Co KG

Flybe

Purchased - sale & lease-back on delivery

200 Advanced (Stage 3 Hushkits)

N835AL

Skybus LLC

Skybus LLC

Purchased - parked

Storage Summary 8 Sep 2008 Mfr & Type

Fleet Stored

Total Fleet

Fleet Stored %

Seats Stored

Total Seats

Seats Stored %

Airbus A300

46

416

11.06

10116

51352

19.7

Airbus A310

23

221

10.41

4867

28553

17.05

Airbus A318

5

63

7.94

87

6577

1.32

Airbus A319

12

1098

1.09

1018

141680

0.72

Airbus A320

21

1930

1.09

3406

306017

1.11

Airbus A321

2

468

0.43

370

88100

0.42

ATR ATR 42

27

352

7.67

1222

13768

8.88

ATR ATR 72

3

379

0.79

84

23248

0.36

Avcraft 328JET

1

1

100

15

15

100

BAE SYSTEMS (Avro) RJ Avroliner

17

164

10.37

1408

14993

9.39

BAE SYSTEMS (HS) 146

69

191

36.13

6161

14679

41.97

BAE SYSTEMS (HS) 748

36

95

37.89

654

1227

53.3

Boeing 737 (CFMI)

129

1915

6.74

16298

246437

6.61

Boeing 737 (JT8D)

280

665

42.11

29887

67467

44.3

Boeing 737 (NG)

34

2711

1.25

2719

409171

0.66

Bombardier (Canadair) CRJ Regional Jet

56

1040

5.38

2454

49966

4.91

Bombardier (Canadair) CRJ1000 Regional Jet

-

1

0

0

15

0

Bombardier (Canadair) CRJ700 Regional Jet

1

280

0.36

70

19095

0.37

Bombardier (Canadair) CRJ900 Regional Jet

2

175

1.14

176

14116

1.25

Embraer 170

-

144

0

0

10324

0

Embraer 175

-

96

0

0

7604

0

Embraer 190

1

177

0.56

19

17089

0.11

Embraer 195

1

23

4.35

122

2616

4.66

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FACTS & FIGURES

63

List Prices,CMV’s Lease Rates Manufacturer

Type

Average List Price

CMV Newest

Oldest

% Change

Oldest

Dry Lease Rate Newest

% Change

Seating* (Typical C+Y)

Boeing

B737-300

$5.00m

$14.30m

0.0%

$0.130m

$0.190m

0.0%

134

Boeing

B737-400

$8.80m

$15.05m

0.0%

$0.175m

$0.220m

0.0%

144

Boeing

B737-500

$7.25m

$11.60m

0.0%

$0.125m

$0.160m

0.0%

104

Boeing

B737-600

$53.50m

$16.70m

$27.20m

0.0%

$0.185m

$0.250m

0.0%

103

Boeing

B737-700

$62.30m

$23.10m

$36.35m

0.0%

$0.250m

$0.370m

0.0%

134

Boeing

B737-800

$74.50m

$28.00m

$44.00m

-1.6%

$0.285m

$0.400m

-3.8%

154

Boeing

B737-900

$28.00m

$34.25m

-1.3%

$0.230m

$0.280m

-4.6%

172

Bombardier (Canadair)

CRJ-100/200

$4.90m

$12.23m

0.0%

$0.060m

$0.140m

0.0%

50

Bombardier (Canadair)

CRJ-700/705

$29.50m

$13.65m

$23.10m

0.0%

$0.150m

$0.220m

0.0%

70

Bombardier (Canadair)

CRJ-900

$33.90m

$18.30m

$27.25m

0.0%

$0.185m

$0.250m

0.0%

86

Bombardier

Q200

$14.70m

$4.90m

$9.35m

0.0%

$0.055m

$0.090m

0.0%

37

Bombardier

Q300

$15.70m

$4.00m

$15.60m

0.6%

$0.060m

$0.135m

0.0%

50

Bombardier

Q400

$25.00m

$10.70m

$19.65m

0.0%

$0.130m

$0.195m

0.0%

70

Embraer

ERJ-135

$17.67m

$5.50m

$8.30m

0.0%

$0.070m

$0.095m

0.0%

37

Embraer

ERJ-145

$25.04m

$7.35m

$14.30m

0.0%

$0.085m

$0.140m

0.0%

50

Embraer

E170 LR

$29.47m

$18.25m

$25.05m

0.0%

$0.165m

$0.230m

0.0%

70

Embraer

E175 LR

$31.71m

$20.35m

$26.30m

0.0%

$0.180m

$0.235m

0.0%

82

Embraer

E190 LR

$35.12m

$24.25m

$29.90m

0.0%

$0.225m

$0.255m

0.0%

100

Embraer

E195 LR

$37.09m

$25.60m

$31.60m

0.0%

$0.240m

$0.270m

0.0%

108

ATR

72-500

$18.80m

$6.30m

$18.95m

0.0%

$0.080m

$0.175m

0.0%

70

Engine data Manufacturer

Type

Engine

Full-life value

% change

Current Half-life Market Value

% change

Market Lease Rate

Airbus

A319-100

CFM56-5B5/P

$6.35m

0.0%

$4.50m

0.0%

$0.070m

0.0%

Airbus

A320-200

V2527-A5

$7.36m

1.4%

$5.40m

1.9%

$0.082m

0.0%

Airbus

A321-200

CFM56-5B3/P

$8.05m

0.0%

$6.10m

0.0%

$0.090m

0.0%

Boeing

B737-300

CFM56-3B1

$3.48m

0.0%

$2.00m

0.0%

$0.035m

0.0%

Boeing

B737-400

CFM56-3B2

$3.68m

-9.8%

$2.20m

-15.4%

$0.040m

0.0%

Boeing

B737-500

CFM56-3C1

$4.53m

-5.1%

$3.00m

-7.7%

$0.045m

0.0%

Boeing

B737-600

CFM56-7B22

$6.95m

6.9%

$5.20m

9.5%

$0.076m

0.0%

Boeing

B737-700

CFM56-7B24

$7.50m

6.5%

$5.70m

8.6%

$0.080m

0.0%

CFM56-7B26

$7.95m

6.0%

$6.10m

8.0%

$0.084m

0.0%

PageCFM56-7B27 1

$8.45m

5.7%

$6.60m

7.3%

$0.086m

0.0%

CF34-3B1

$2.55m

-8.9%

$1.50m

-14.3%

$0.025m

0.0%

Boeing Boeing Project2:Layout 1

B737-800 B737-900ER 23/2/09 16:45

% change

Bombardier (Canadair)

CRJ-200

Bombardier (Canadair)

CRJ-700

CF34-8C1

$3.50m

-5.4%

$2.30m

-8.0%

$0.032m

0.0%

Embraer

ERJ-145 ER

AE3007-A1P

$2.48m

-2.0%

$1.85m

-2.6%

$0.030m

0.0%

Embraer

E170

CF34-8E5

$3.91m

0.0%

$2.80m

0.0%

N/A

Kerosene type jet fuel – Spot prices January 2008 to January 2009 450.00 Spot Price (Cents per gallon)

400.00 350.00 300.00 250.00 200.00 150.00

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

263.83 280.84 312.90 342.48 395.15 396.21 403.74 341.73 310.42 236.58 193.42 143.18 143.56 253.07 264.32 299.02 330.43 377.84 392.49 396.39 327.37 286.89 213.71 179.60 139.53 141.71 266.59 276.85 326.47 355.55 378.13 392.21 397.09 330.79 329.54 243.39 195.23 147.41 153.89 260.47 272.82 312.45 336.46 373.76 387.82 388.63 327.06 337.49 231.47 187.96 137.51 146.92

Amsterdam-Rotterdam-Antwerp (ARA) Singapore New York Harbor U.S. Gulf Coast Los Angeles

260.35 276.70 318.00 337.94 383.82 395.59 387.42 326.03 294.25 222.29 184.47 137.46 144.34

100.00 50.00

Jan March/April 2009

LCAW Issue 1 April 09.indd 63

Feb

Mar

Apr

May

Jun

Jul Month

Aug

Sep

Oct

Nov

Dec

Jan LOW COST AIRLINE WORLD

26/2/09 16:42:46

FPA_c

FACTS & FIGURES

64

Top 17 Low Cost Airlines by Number of Flights for w/c 23/02/09 Ranking

Airline Code

Airline Name

Frequency

1

WN

SOUTHWEST AIRLINES

21,651

2

FR

RYANAIR

7,404

3

U2

EASYJET

5,212

4

FL

AIRTRAN AIRWAYS

4,766

5

B6

JETBLUE AIRWAYS CORPORATION

4,327

6

AB

AIR BERLIN

3,187

7

BE

FLYBE

2,960

8

DJ

VIRGIN BLUE

2,954

9

ZH

SHENZHEN AIRLINES

2,492

10

F9

FRONTIER AIRLINES INC.

2,214

11

AK

AIRASIA

1,916

12

AP

AIR ONE

1,486

13

EI

AER LINGUS

1,316

14

JT

LION AIR

1,313

15

JQ

JETSTAR AIRWAYS

1,279

16

NK

SPIRIT AIRLINES

1,040

17

4U

GERMANWINGS

982

Top 17 Airports by Seat Capacity Available on International Departing Flights for w/c 23/02/09

Carrier Share at Singapore Changi Airport for w/c 23/02/09 Airline Code

Airline Name

Frequency

Frequency Share

SQ

SINGAPORE AIRLINES

672

31.76%

MI

SILK AIR

192

9.07%

TR

TIGER AIRWAYS

150

7.09%

GA

GARUDA INDONESIA

84

3.97%

3K

JETSTAR ASIA

80

3.78%

565,862

MH

MALAYSIA AIRLINES

69

3.26%

DUBAI

517,618

QF

QANTAS AIRWAYS

64

3.02%

SIN

SINGAPORE CHANGI APT

478,123

AK

AIRASIA

63

2.98%

CX

CATHAY PACIFIC AIRWAYS

52

2.46%

7

AMS

AMSTERDAM

477,797

EK

EMIRATES

35

1.65%

8

BKK

BANGKOK SUVARNABHUMI INTERNATIONAL

425,636

FD

THAI AIRASIA

35

1.65%

9

ICN

SEOUL INCHEON INTERNATIONAL AIRPORT

390,076

JL

JAPAN AIRLINES INTERNATIONAL

33

1.56%

10

NRT

TOKYO NARITA APT

389,086

PR

PHILIPPINE AIRLINES

32

1.51%

VF

VALUAIR

32

1.51%

11

MAD

MADRID BARAJAS APT

353,807 JT

LION AIR

28

1.32%

12

TPE

TAIPEI TAIWAN TAOYUAN INTERNATIONAL AP

295,378

5J

CEBU PACIFIC AIR

27

1.28%

13

MUC

MUNICH INTERNATIONAL AIRPORT

291,972

CA

AIR CHINA

24

1.13%

14

JFK

NEW YORK J F KENNEDY INTERNATIONAL APT

276,996

LH

LUFTHANSA GERMAN AIRLINES

22

1.04%

15

ZRH

ZURICH AIRPORT

264,810

9W

JET AIRWAYS INDIA

21

0.99%

BA

BRITISH AIRWAYS

21

0.99%

16

KUL

KUALA LUMPUR INTERNATIONAL AIRPORT

263,717

OTHERS

380

17.96%

17

DUB

DUBLIN

247,326

Total Weekly Departures

2,116

100.00%

Ranking

Departure Airport Code

Departure Airport Name

Total Number

1

LHR

LONDON HEATHROW APT

794,472

2

CDG

PARIS CHARLES DE GAULLE APT 666,697

3

HKG

HONG KONG INTERNATIONAL APT

603,797

4

FRA

FRANKFURT INTERNATIONAL APT

5

DXB

6

LOW COST AIRLINE WORLD

LCAW Issue 1 April 09.indd 64

SIN

March/April 2009

26/2/09 16:44:37

FPA_check:ATEM

13/2/09

14:44

Page 3

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26/2/09 16:45:19