AFM72: Airline Fleet Management

The business and financing of airline operations

CHINA’S AIR INDUSTRY: INSPECTING ITS UNDERBELLY PLUS: n IBA ON SELECTING THE RIGHT AIRCRAFT n INTERVIEWS WITH IRELAND’S LESSORS n ASIA FOCUS: WE LOOK AT FREIGHT AND LCCS n AIRPORT TECHNOLOGY: THE SELF-SERVICE GENERATION

March-April 2011 Issue 72

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AFM72 TOC _TOC 04/03/2011 12:09 Page 2

C O N T E N T S

The business and financing of airline operations

March-April 2011 • Issue 72 EDITOR Mary-Anne Baldwin: Mary-Anne.Baldwin@ubmaviation.com Tel: +44 (0) 207 579 4843

JOURNALIST Alex Derber: aderber@ubmaviation.com

CONTRIBUTORS Chris Kjelgaard, Bernard Fitzsimons, Scott Hamilton, Martin Roebuck, Philip Seymour and Richard Mumford.

DESIGN & PRODUCTION Kalven Davis: Kalven.Davis@ubmaviation.com Tel:+44 (0) 207 579 4851

DISPLAY ADVERTISING Simon Barker: Simon.Barker@ubmaviation.com Alan Samuel: Alan.Samuel@ubmaviation.com Tel: +44 (0) 207 579 4845/46

NEWS ROUND-UP 2 The latest on deals, mergers appointments and more

FOCUS: 14 Ireland: The leasing capital Ireland seems an unlikely hub for aviation leasing but, grown from the nucleus that is Guinness Peat Aviation, it is globally eminent. Mary-Anne Baldwin talks taxes and about the development and growth of Ireland’s leasing sector with Avolon, RBS, Fly Leasing and former GPA employee, Chris Brown.

GROUP PUBLISHER & SALES

FLEET OPERATIONS:

Anthony Smith: Anthony.Smith@ubmaviation.com Tel:+44 (0) 207 579 4875

20 Choosing the right aircraft for your operation

AIRLINE FLEET MANAGEMENT

Airline management spend a great deal of time deliberating their choice of aircraft.

The decision process should follow a logical path but there is little doubt that other commercial factors will have a bearing upon the final decision. Philip Seymour, president and COO of International Bureau of Aviation (IBA), the independent aviation consulting firm, walks us through the most important considerations.

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24 A climate of change Is commercial aviation doing enough to minimise its emissions of greenhouse gases given the industry’s expected growth in coming decades? Targets are pinned on technological advances, but are they enough to really make a difference, asks Chris Kjelgaard.

30 Cashing in on Asia-Pacific freight demand What the West considered to be a ‘global’ economic downturn in 2008-09 was more accurately a recession in North America and Europe. Asian economies, although briefly affected by loss of demand from key consumer markets, have raced back above their pre-crisis levels. Martin Roebuck reports.

40 The UK Bribery Act: Don’t get caught out Any global aviation business will be aware that in certain countries, in certain circumstances, payments help things happen. But the UK’s new Bribery Act will make what seems a normal course of action, an illegal one. Richard Mumford, partner and head of the dispute division at ASB Law, a specialist in aviation law, explains.

44 Deals News Catch up on the last month of aircraft deals

AIRPORTS AND ROUTES: 48 Airport technology: The self-service generation Modern advances such as self-service technologies and smartphones are contributing to major improvements and intriguing new possibilities in airport efficiency and passenger satisfaction.

Bernard Fitzsimons examines the progress.

52 Eastern promise: Asia’s low-cost carriers Low-cost carriers have only featured in Asia for a decade or so, but in that time they have transformed the competitive landscape.

Flag carriers have been shaken out of cosy monopolies and fares have plummeted. So far, so unremarkable, but, in other ways, the impact and innovation of budget operators in Asia could be profound enough to influence their peers the world over.

Alex Derber reports.

MAINTENANCE OPERATIONS:

TRADING, LEGAL AND FINANCE: 56 Sum of the parts: 36 Doing business with China: The risks and rewards China now has the largest world economy behind the US and it is using this growth to make its commercial aerospace industry a national priority. China is now a crucial aviation partner, yet it is also notoriously secretive and a potential threat to the West’s aerospace sector. Are we playing with the enemy, or allowing caution to hold us back?

Scott Hamilton reports.

Spare parts supply

As airlines return stored aircraft to service and increase frequencies, the demand for maintenance and spare parts rises commensurately. Alex Derber investigates how the industry will respond to the uptick in demand following a savage recession.

INDUSTRY DATA 60 Data including transactions and market, list and lease rates.

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NEWS ROUND-UP The latest on deals, mergers, appointments and more Amadeus sells Opodo to AXA, Permira Amadeus has sold online travel agency Opodo to AXA Private Equity and Permira Funds. The deal is worth approximately €450m; the value represents a multiple of 11.7 times Opodo’s earnings before interest, taxes depreciation and amortisation for 2010. The sale is still subject to approval from the Amadeus board of directors as well as the competition authorities. Other bidders in the auction included US buyout firm Carlyle Group. JP Morgan acted as Amadeus’ financial adviser for the transaction.

Six killed in Cork crash Six people died when a Manx2 commuter aircraft crashed at Cork airport, Ireland, on February 10. Flight 7100 crashed after three attempted landings. It is thought the pilot struggled with heavy fog and low-visibility (category 2) conditions. The aircraft – a 19 year-old Fairchild Swearingen Metroliner (BC-789B, regis-tration EC-ITP) – overturned, its wings broke off and it caught fire. Brian Cowen, Ireland’s prime minister said: “I want to send my best wishes and those of the government, to all of those who survived the crash and are being treated in hospital at present.”

Martin McGuiness, Northern Ireland’s deputy First Minister, was due to board the aircraft but unexpectedly changed his plans.

NEWS HIGHLIGHTS

Oil price hits two-year high on Middle East political unrest The price of oil has risen to its apex of more than two years as its supply is threatened by civil unrest in North Africa and the Middle East. Brent crude peaked at $119.79 per barrel (pb), climbing nearly $7 within 90 minutes on February 24, near the date of going to press. US crude for April delivery surged to $103.41, the highest since September 2009. Forecasts for this year put the price of Brent at $158pb and US crude oil at $159pb, according to Reuters.

Libya, which has Africa’s largest oil reserves, pumps about 1.6 million barrels per day and directs most of its exports to Europe. “Saudi Arabia would need to increase its production to cater to the European needs, failing which the economies in Western countries would be in a risk,” says a report

by Frost & Sullivan. However, Saudi is also under threat of political revolt and it is feared its rebels may use the country’s oil supply to their advantage. “The political turmoil in the Middle East is a good platform for the entry of radical groups which need to be addressed with utmost caution… The oil economy of this region would financially support the radical groups to procure advanced weaponry systems in large scale.”

IATA’s director general and CEO, Giovanni Bisignani, said the body is: “watching closely as events unfold” and as oil prices “skyrocket”. He noted that for every dollar increase in the cost of aviation fuel, the industry must incur $1.6bn in additional costs. “With $598bn in revenues, $9.1bn in profits and a profit margin of just 1.5 per cent, even with good news on traffic, 2011 is starting out as a very challenging year for airlines,” he said.

The Organisation of the Petroleum Exporting Countries (OPEC) has said it will increase production to ensure a stable supply of oil and the International

Energy Agency (IEA) said in a recent statement that it “stands ready, as always, to make oil available to the market in the event of a major supply disruption.”

However, fear is firmly set.

Airlines are readying for higher outlay and to accommodate this, higher airfare – but of course, demand will remain elastic: airlines should expect the slow rise in passenger numbers to take yet another stumble. However, “the key area that would feel its impact is the offset sector, foreign investors would be reluctant to procure from this region,” says Frost & Sullivan. Also, the risk of civil war “would lead to unstable airport infrastructure, airline operators and MRO markets apart from destabilising the entire economy of the region.”

Looking further at how it may impact airlines, International Airlines Group (IAG) has said it may curb all expansion plans amid the current instability in the Middle East. The group, formed after last year’s merger between British Airways and Iberia, achieved a combined year-on-year revenue increase of 10 per cent in 2010, to €14.79bn ($20.45). However, its results revealed that fuel accounts for a quarter of IAG’s costs – which is more or less in line with the rest of the industry. IAG is hedged for 53 per cent of its fuel requirements in 2011.

IAG CEO’s Willie Walsh believes it would be unwise to take too many risks in a time of uncertainty. He maintains, though, that the company has the “flexibility” to change its plans. The obvious problem is that if everyone takes the same approach, aviation’s recovery will be held back dramatically.

IAG can be considered to have served its intention to raise fare prices and reduce capacity, and it will not be alone in doing so.

Air India gains bailout and loses executive board Bombardier deliveries down but still in-line with targets Bombardier Aerospace delivered 244 aircraft during the fiscal year ending January 31, 2011, down from 302 aircraft deliveries the year before. The manufacturer received 201 orders, net of cancellations. Despite the decline in deliveries, the company said its results were “essentially in-line” with the previous guidance to deliver approximately 15 per cent fewer business aircraft and 20 per cent fewer commercial aircraft. Guy Hachey, president and chief operating officer, commented: “We believe our fundamentals are strong in the longterm for both the business and commercial aircraft markets.”

Flag carrying Air India is expected to receive only half the capital injection it had hoped for. Yet according to local news, India’s civil aviation ministry is still likely to hand the airline a whopping INR 1,200 crore ($250m), released in tranches on condition that it meets certain demands.

Newly appointed civil aviation minister, Vayalar Ravi, plans to increase Air India’s West Asian flights, which currently account for one-fourth of its total revenue.

Ravi also wishes to move Air India Express’ operational base to Kochi as more Keralites are flying to the Gulf.

At the same time, the airline’s chief operating officer, Gustav Baldauf, was asked to justify his comments to the government following an interview in which he complained the state was meddlesome and was preventing him from doing his job. Reports now suggest that Baldauf, former Austrian Airlines senior executive, has resigned. Pawan Arora, chief operating officer of Air India Express and Stefan Sukumar, Air India’s chief training officer were both recently fired following an investigation into the salaries of the airline’s executives.

TAM reveals $3.2bn orders for 34 aircraft

delivered between 2016 and 2018. The engine option will be announced at a later date. The two 777-300ERs will be delivered in 2014, bringing total orders with Boeing to eight; four of the eight aircraft will be delivered in 2012 and two in 2013. TAM’s total fleet currently comprises 152 aircraft with an average age of six to seven years, 140 of its aircraft are Airbus and seven Boeing. The airline plans to have 156 aircraft by the end of the year and 182 by the end of 2015.

TAM has announced an order of 32 aircraft from the A320 Family and two 777-300ER aircraft worth a combined $3.2bn at list prices. Of the 32 aircraft ordered from Airbus, 22 are the A320neo, making TAM its first customer in Latin America. Ten orders are for the A320 Family; these aircraft will be

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The latest on deals, mergers, appointments and more NEWS

NEWS HIGHLIGHTS

OAG: scheduled capacity up five per cent

Crisis-hit EgyptAir to lease one-third of its fleet What does an airline do when political protest brings tourism and travel to a standstill? EgyptAir, which has suffered a massive drop in revenue because of the current political situation in its home country, is to offer 25 of its aircraft for lease to other airlines.

This amounts to around a third of its entire fleet. The national carrier, which has cancelled nearly 75 per cent of its flights since January 25, when the unrest began, is also offering to fully staff the aircraft as it seeks to put inactive employees back to work.

EgyptAir has so far sent leasing proposals to Aviation Capital Group and GECAS, as well as to fellow members of the Star Alliance, though no details on the aircraft or prices involved have been released.

Airline chairman Hussein Massoud has stated that 40 per cent of EgyptAir’s fleet has already been grounded, while the company is currently losing out on about 80 per cent of its projected revenue. He is also looking at unconventional options in a bid to

AEA warns EU over emissions trading scheme implementation European airlines have warned that there are still serious issues to be resolved if aviation’s inclusion in the European Union Emissions Trading Scheme (EU ETS) in 2012 is to be effective. Virgin Atlantic’s CEO Steve Ridgway, who was chairing an Association of European Airlines (AEA) meeting for the first time, was particularly worried about the EU’s scheme “creating unfair market distortions or undermining its environmental effectiveness”.

Ridgway believes that it is vital for the ETS to be complimented by the use of “clean technology” for aviation to truly reduce its environmental impact.

mitigate the effects of the crisis, such as cutting working hours and offering leaves of absence without pay. Paid leave has already been cancelled, while all internal and external operations have been postponed, with the exception of urgent cases.

Tourism accounts for roughly five per cent of Egypt’s gross domestic product, and government statistics show that the country has lost some $825m in revenue since the unrest began. More than 200,000 tourists fled the country in the last week of January.

Massoud must be wondering when they will return.

“We call on the EU to stimulate the development of step-change technologies – putting Europe at the forefront of this new industrial revolution – critical amongst which are sustainable alternative fuels with their obvious potential to reduce aviation’s carbon footprint,” he stated.

The AEA said it was willing to fully co-operate with the European Commission in working out the necessary conditions for an effective transition to new-generation fuels. Ultimately, the revenues gained from the ETS should be directly invested “to further the aims of an environmental policy”, said Ridgway.

Such a policy would include funding for the SESAR air traffic management project, as well as research and development into alternative aviation fuels.

Stelios wins dispute over Harrison’s pay package

Skymark Airlines orders four A380s Skymark Airlines has signed for four new A380s following an MoU announced in November 2010. The airline, which is Japan’s third largest carrier, will become the country’s first airline to introduce the aircraft. Total firm orders for the A380 stand at 244 from 19 customers worldwide. So far, 43 aircraft have been delivered to five customers.

ROUND-UP

Sir Stelios Haji-Ioannou, the founder of easyJet, has won a shareholder’s dispute over the bonus of the airline’s former CEO, Andy Harrison. Commenting on the company’s annual meeting, Haji-Ioannou said the result “proves beyond doubt that I am not the only shareholder who feels that Andrew Harrison’s compensation package was undeserved and completely unjustified”. Approximately 55 per cent of shareholders – including Haji-Ioannou’s 38 per cent – voted against Harrison’s £2.5m ($4m) remuneration deal. “I sincerely hope that this is the last time in the life of this company that a bonus is paid without taking the company’s financial results into account…

No more rewards for failure, please!” said Stelios. The airline’s chairman, Sir Michael Rake, responded: “While it is clear from the operational issues last summer that the business had lost focus on some of the basics… pre-tax profit increased by £99m to £154m [$160-$250m].”

Scheduled airline capacity rose five per cent to a total of 286 million seats worldwide in February, according to aviation intelligence provider, OAG. The number of flights rose four per cent to 2.3 million departures worldwide during the month, the monthly Frequency and Capacity Trend Statistics (FACTS) report says. All regional markets grew during the month, bar Central and South America, which slipped three per cent.

The number of flights to and from the two fastest-growing markets in the world, the Middle East and Asia Pacific, rose 13 per cent to 49,014 flights and 13 per cent to 55,965 flights, respectively.

Which? requests OFT review of airline credit card charges Which?, the consumer review company, has lodged a ‘super complaint’ against airline credit card charges, and has invited the Office of Fair Trading (OFT) to conduct a review. The body estimates that the charges mount up to “hundreds of millions” of pounds every year. Which? also found discrepancies between charges across airlines, with Ryanair charging £40 ($65) for a family or four and easyJet just £5.50 ($8.80). “Low-cost airlines are some of the worst offenders,” says Peter Vicary-Smith, CEO of Which? “There’s simply no justification for excessive card charges – paying by card should cost the consumer the same amount that it costs the retailer. Companies shouldn’t be using card processing costs as an excuse for boosting their profits.”

Airbus’s corporate jet deliveries top records Airbus has delivered a record number of corporate jetliners including 13 A318 Elites, Airbus Corporate Jetliners (ACJs) and A320 Prestiges, plus two VIP widebody A330/A340s. The manufacturer also won eight orders for its corporate jets in 2010, taking total orders to over 170 aircraft. These included seven aircraft from the A318 Elite/ACJ/A320 Prestige Family, plus one widebody A330/A340.

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4 | AFM • ISSUE 72 March-April 2011

NEWS ROUND-UP The latest on deals, mergers, appointments and more

BA and S7 start codeshare British Airways (BA) and S7 have started codesharing following the Russian carrier’s entrance into Oneworld. Codes will be shared on flights between London Heathrow and Moscow and across Russian domestic routes. Destinations include: Moscow and Krasnodar, Rostov-on-Don, Samara, Ekaterinburg, Kazan, Chelyabinsk, Kaliningrad, Krasnoyarsk and Ufa, as well as all BA services between Moscow Domodedovo and Heathrow. Gavin Halliday, BA’s general manager Europe and Africa, said: “Russia is an important market for us and we are pleased that our relationship with S7 is developing well.

The codeshare with S7 will give our customers much better access to many more cities across Russia and help S7 customers take advantage of better links to Heathrow Terminal 5.”

Union: Qantas ‘trashing’ the brand

Qantas pilots will meet to discuss strike action as industrial relations at the airline sink to a new low. The Australian flag carrier is trying to restructure its international operations but the Australian and International Pilots Association (AIPA) fears its members will lose job security, and has warned that Qantas risks going the way of Ansett, the 66-year-old Australian airline that collapsed in 2002. The AIPA has said that it would be prepared to limit pay rises for long-haul pilots to 2.5 per cent per year, though Qantas has rubbished that claim. Another gripe for the union is the ‘offshoring’ of crew to foreign bases.

Cancellations rocket in Europe Europe’s air traffic manager, Eurocontrol, has reported that cancellations rose to 175,000 scheduled flights last year, which – even discounting volcanic disruption – was a 150 per cent increase on 2009.

Average delays also rose, from 1.6 minutes per flight in 2009 to 2.7 minutes the following year.

NEWS HIGHLIGHTS A mixed year for budget travel in the Middle East The Middle East is one of the least-developed low-cost markets in the world, so it was slightly surprising when “rising competition” was blamed (along with higher fuel prices) for a one-third decline in annual profit at the region’s first budget operator, Air Arabia.

In fact, only seven per cent of the region’s passengers fly on low-cost carriers (LCCs), compared with 35 per cent in Europe. That small percentage is split between just four airlines: Dubai’s flydubai; Sharjah, UAE-based Air Arabia; Kuwait’s Jazeera; and Nas Air from Saudi Arabia. While 2010 was a year of recovery for most airlines, Air Arabia saw profits tumble; Jazeera – whose results include those of its leasing arm – posted a $10m loss; and Sama, another Saudi LCC, went out of business. Neither Nas Air nor flydubai publish financials, but the latter, which started operations in 2009, expects to be profitable in 2012.

Is SAS turning a corner?

Scandinavian airline group SAS has had much on its plate in recent years: consecutive annual losses, truculent unions and divestment of non-core assets were just part of the story – in addition, the company has had to deal with fines for espionage, wheels-up landings, and wheels down on workers. A particularly malevolent god it was, then, that blew up a huge volcano in its back-garden. SAS puts the cost of the Eyjafjallajökull eruption at SEK700m, without which its full-year earnings for 2010 would have at last escaped the red and reached SEK265m ($41m).

The impact of litigation was even more pronounced, with fees, fines and settlements costing SAS SEK991m in 2010. But remove those one-off items and the picture is far rosier. The ‘Core SAS’ restructuring programme saw payroll expenses cut by a fifth in

Qantas blames fuel prices for rise in fares Qantas is to increase domestic, regional and Tasman air fares by up to five per cent, blaming high oil and jet fuel prices. The changes will apply to tickets issued on or after February 25. Qantas also announced increases to its international fuel surcharges for

It may be hard to reconcile those results with the “limitless growth” recently forecast by flydubai’s CEO Ghaith Al Ghaith, but LCCs in the Middle East can point to several mitigating factors. Chief among them are visa restrictions and a heavily regulated market unconducive to low-fare business models.

Sama had been operating for three years and was reporting rising sales before domestic rules forcing it to operate unprofitable public-service routes forced its closure.

Both flydubai and Air Arabia are optimistic about 2011 and both have ambitious expansion plans (flydubai operates 15 737-800s and has 42 on order; Air Arabia operates 21 A320s and has ordered 40 more). Unfortunately for Air Arabia, its regional operations in Morocco and Egypt are poorly located given current unrest. Flydubai is opening useful connections to India, but many of its destinations would also feature in a revolutionary’s handbook.

Anyone fancy a trip to Bahrain, Alexandria, Luxor, or Kabul right now?

2010, and fuel and leasing costs fall 10 per cent, leaving SAS with pre-tax earnings of SEK3.8bn ($590m) – SEK1.2bn more than in 2009 despite higher sales in that year.

With SEK6.7bn lopped off bills since early 2009, Core SAS is on track to deliver the planned SEK7.8bn ($1.2bn) of saving by 2012. The airline’s shareholders certainly back a turnaround, having signed up in droves to a SEK5bn rights issue in May last year. “We have succeeded in enhancing our competitiveness,” said outgoing CEO, John Dueholm. His successor, Rickard Gustafson, will be buoyed by those words and Dueholm’s forecast for this year: “Assuming continued recovery in the home market, as described above, and that no unexpected events occur, favourable conditions are in place for the SAS Group to achieve positive income before tax for the full-year 2011.” ($1 = SEK6.4) tickets issued on or after February 19. “While we have been absorbing higher fuel costs for some time, this increase is an appropriate response to this significant and additional cost to our business,” said Qantas’ CEO Alan Joyce. “After fuel hedging and this change to our fares, Qantas will still not fully recover these higher fuel costs. Nor can we rule out further increases in the future should they be necessary.”

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The latest on deals, mergers, appointments and more NEWS

ROUND-UP

NEWS HIGHLIGHTS Bisignani’s parting shot at UK government Giovanni Bisignani, head of the International Air Transport Association (IATA), has lambasted a UK government “intent on destroying” the competitiveness of its aviation industry. At his last public address as director general of IATA, at the Aviation Club, London, Bisignani described the past decade as having “the elements of a novel… death, destruction, pestilence, plague”. He then warned that the UK’s “potty” policies could be the death of British aviation’s “proud legacy”.

“Pillars of excessive taxes, inefficient airport regulation and limiting growth will destroy [the industry]… The UK has a long history of seeing its industries lose their competitive edge. It also has a great tradition of leadership in aviation. But any industry can only take so many knocks before the damage is permanent,” he cautioned.

European Commission investigates LufthansaTurkish codeshare The European Commission is to investigate two Star Alliance codeshares under concerns they breach competition rules.

The competition regulators will examine flight agreements between Lufthansa and Turkish Airlines, and Brussels Airlines and TAP Portugal, on the trunk routes of Frankfurt-Istanbul, Munich-Istanbul and Brussels-Lisbon.

The body is concerned that the operators ought to be competing against each other on these routes.

“This form of free-flow, parallel, hub-to-hub

Bisignani, who has spent close to a decade petitioning for the growth and profitability of the industry, called the UK’s air passenger duty (APD) a “burden to the industry”. He argued that passengers paid higher fees because of the government’s failure to regulate banks and similarly warned that environmental policy must not be “designed around paying the bills for the government’s failure to effectively regulate the financial sector”.

He further criticised the UK government as being “incredibly short-sighted” for not adding a third runway to London Heathrow airport. He contrasted the airport to Amsterdam’s Schiphol, which has five long runways, and said that Heathrow is becoming a secondary hub, adding that “numbers tell the story”.

On the suggestion that the nation’s transport needs could be serviced by rail, he quipped: “If building 2,000 metres of runway takes decades, building or upgrading 650km of rail will take several lifetimes.” codeshare agreement may distort competition leading to higher prices and less service quality for customers,” the commission said.

New codeshare agreements are introduced almost daily and they have become part of the fabric of international airline operations. But with so many airlines entering into this type of interline agreement, the flaws are becoming evermore apparent.

The well-honed argument is that codeshares offer a better service to flyers, streamlining connections between destinations and offering a wider choice of routes. But do airlines exaggerate the benefits of codesharing and would different interline arguments better suit the customer?

Virgin flirts with suitors: will it sell or team up?

Air France-KLM and Delta are attempting to woo Virgin Airlines into a deal that would bring it into the SkyTeam fold. Virgin has been forced into a corner by its rival British Airways’ merger with Iberia and their transatlantic pact with American Airlines, which created the International Airlines Group (IAG).

Entering an alliance would allow Virgin to share customers, flight schedules, revenue and costs with other airlines in the group – all of which would make it more competitive.

But it appears that SkyTeam is not the only option.

Although Lufthansa has not stated a formal interest, it might want shares in Virgin. Singapore Airlines, which owns 49 per cent of Virgin, has said it will sell its stake if the right deal can be brokered. If not, Sir Richard Branson, founder and CEO of the airline could be forced to sell his 51 per cent majority stake, thought to be worth between £500m-£1bn ($810$1.62bn).

However, Singapore is unlikely to sell its stake to Air France or Lufthansa as either would benefit from Virgin’s European slots. Of course, the airline has said it is open to offers ‘at the right price’, and it may be willing to sell to either airline at a premium. Etihad has already expressed an interest in buying Virgin,

Q300 in gear-up landing An Air Nelson Q300 landed nose down at Blenheim airport on New Zealand’s South island in February after the aircraft’s nose gear failed to deploy. No-one was hurt in the incident, which has evoked memories of the spate of gear problems to hit Bombardier Q400 turboprops last decade. Air Nelson is a subsidiary of Air New Zealand.

Next Gen ATC cleared as US passes aviation bill The US has passed an aviation bill to modernise the country’s air traffic control (ATC) system following a three-year battle by congress. Democrats estimate that the $8bn investment into airport construction will support 90,000 new and existing jobs and will positively affect a further 190,000 workers. Speaking on the need for next gen ATC, democrat senator Dick Durbin said: “There is more technology in my cellphone than in most aircraft…

We’re going to take that technology out of a cellphone and put it on aircraft and make it safer and more efficient.”

AA recalls cabin staff

and, according to reports, it has called in Bank of America Merrill Lynch and Deutsche Bank to advise it on the possible deal. Meanwhile, Air New Zealand must sell its shares in Virgin’s subsidiary Virgin Blue as its investment breaches foreign ownership rules.

Total foreign ownership must be below 49 per cent, but it is currently at 49.78 per cent following Air New Zealand’s purchase of 14.99 per cent in January 2011. Interestingly, Virgin Blue already has alliances with Etihad on European, central Asian, and Middle Eastern flights and it is formalising a deal with Delta on US routes, yet it has no partnership with Singapore, which could open up hubs in Asia and the Middle East, such as Changi and Abu Dhabi.

American Airlines (AA) will return 368 furloughed cabin crew to work from June after seven years away from the airline. All the crew are ex-TWA employees, who joined AA when the airline bought TWA in 2001. Recall letters will be sent out in February and March, giving AA time to retrain the flight attendants, all of whom will be based at New York LaGuardia. The news was welcomed by unions, although more than 400 cabin crew still remain on furlough.

Japan’s newest LCC named A&F Aviation All Nippon Airways (ANA) has formed A&F Aviation, its new low-cost carrier.

A&F is a joint venture between ANA and Hong Kong-based private equity firm First Eastern and will fly out of Kansai Inter-national Airport in western Japan.

The plan is for A&F to operate a fleet of 16 aircraft within five years and turn a profit in three. It is expected to launch services this year using an A320.

AFM72 News_AFM News 03/03/2011 14:51 Page 6

6 | AFM • ISSUE 72 March-April 2011

NEWS ROUND-UP The latest on deals, mergers, appointments and more

NEWS HIGHLIGHTS TSA grants airport screeners collective bargaining rights PIA codeshare sparks fury Employees of Pakistan International Airlines (PIA) punctured the tyres of aircraft at Islamabad airport, staged sit-ins on the runway and brought a swathe of PIA operations to a halt on February 8. Workers were protesting at a planned codeshare with Turkish Airlines and the sacking of eight pilots in January.

TUI reports $159m 1Q loss TUI Travel has reported a net loss of $159m for the 1Q ending December 31, 2010. Peter Long, CEO, said the 1Q improvement, which rose from a loss of $200m in the same period last year, was “primarily driven by continued delivery of our turnaround plan and final merger synergy benefits, as well as a better trading performance”.

Total revenue rose six per cent yearon-year to $4.3bn. Operating loss was $175m, narrowed from $225m. TUI, which comprises TUIfly, Thomson, Arkefly, Corsairfly and Jet4you, estimated that unrest in Egypt and Tunisia could impact 2Q results by about $45m.

The US Transportation Security Administration (TSA) has granted limited collective bargaining to more than 40,000 airport screeners. The decision comes after almost a decade of petitioning, yet it has stirred even more debate in its aftermath. Republican politicians have criticised the move saying it has the potential to make the nation more vulnerable to terrorist attack. Chairman of the House of Representatives Transportation and Infrastructure Committee, John Mica, said of the “unexpected” announcement: “Conceding collective bargaining rights and the ability to negotiate over workplace issues could further jeopardise the nation’s transportation and passenger security system.”

Yet John Pistole, TSA’s administrator, defended the

decision, stating: “The safety of the travelling public is our top priority and we will not negotiate on security.” He further argued that “morale and employee engagement cannot be separated from achieving superior security”. The new rights will not allow staff to strike or be involved in work ‘slowdowns’, nor will it allow staff to have a say on security policies, pay, pension, job qualifications or disciplinary standards.

Mica commented: “This turnover of airport screening to the Administration’s union cronies comes on the heels of [the] decision to kill the successful TSA contract screening programme, all bad news for the traveller, the taxpayer and aviation security. With the airport screening force mushrooming from 16,500 in 2001 to now nearly 63,000, this will be President Obama’s biggest gift to organised labour.”

Icelandair: volcano a blessing in disguise Despite the Eyjafjallajökull volcanic eruption, Icelandair boosted annual pre-tax profits by more than 50 per cent, posting EBITDA of ISK12.6bn ($107m) for 2010. The airline beat its last profit forecast by roughly ISK1bn due to strong passenger demand, especially on North Atlantic routes, which accounted for 38 per cent of its customers. A rights issue and debt-to-equity conversion has left the airline with a strong cash and liquidity position and CEO Björgólfur Jóhannsson released an optimistic statement, claiming that the volcano would be beneficial in the long-term for Icelandic tourism, though he did also highlight challenges for the coming year. “Higher fuel prices will cut into profits, and in addition we anticipate reductions in passenger yields. Also, it is likely that the expected rises in taxes and charges will have a negative impact on demand, and thereby the operations of the group. Wage contracts with all group employees have expired. Such circumstances certainly entail significant uncertainty, but I am hopeful that the conclusion of negotiations will be acceptable for all parties,” he said. ($1 = ISK117)

DOT imposes largest ever non-safety fine on Delta Delta Air Lines has been fined $2m for violating federal rules on passengers with disabilities. The Department of Transportation (DOT), imposing the largest-ever fine against an airline in a case not related to safety, said it had found many violations of the requirements, in 2007 and 2008, to provide assistance to passengers while getting on and off aircraft. It also found Delta frequently did not respond adequately to disability complaints from passengers. The airline agreed to settle the case without admitting wrongdoing.

Kenya Airways seeks capital raise Kenya Airways is seeking to raise capital to support its expansion plans.

The airline has already employed CFC Stanbic Bank as its financial adviser and is in the process of securing the services of other consultants. “At the moment we are unable to provide any additional information but the appropriate regulatory and shareholder approvals will be requested once decisions on the way forward are made,” said Kenya Airways group MD, Titus Naikuni.

Jetstar profits close on Qantas’ BAA slashes annual loss Qantas shares hit a five-year high on February 17 as the airline group posted a 54 per cent improvement in 1H underlying profit, which rose from 1H 2009/10 to A$417m ($417m). Jetstar, Qantas’ low-cost subsidiary, contributed to the growth, recording pre-tax earnings of A$143m on revenues of A$1.3bn.

In contrast, the Qantas brand recorded four times higher sales, but only posted a marginally higher profit of A$165m. The airline has put the cost of the engine failure on one of its A380s at A$80m, A$25m of which will be incurred in the ongoing second half, though the company expects full-year results to be “materially stronger” than last year’s profit of A$112m. ($1=A$1)

UK airport operator BAA has forecast healthy returns in 2011 after narrowing its annual loss in 2010 to £317m from £822m the year before. Total sales were lower for the year due to the sale of Gatwick (though higher when adjusted for the divestment), but higher turnover in 2009 was more than offset by the loss on that sale. In 2010 there was also an exceptional charge, albeit less serious, of £149m due to the ban on new runways in Southeast England. BAA also reported a £58m hit to profits because of volcanic disruption, BA cabin crew strikes and snow in 2010.

The operator said probable higher fees at Heathrow and improved retail performance would underpin higher profits this year. ($1=£0.61)

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AFM72 News_AFM News 03/03/2011 14:52 Page 8

8 | AFM • ISSUE 72 March-April 2011

NEWS ROUND-UP The latest on deals, mergers, appointments and more

Air Philippines restructures debt

NEWS HIGHLIGHTS

Low-cost airline Air Philippines is to restructure its equity to ensure long-term viability, according to local media. The airline, which is owned by beer and tobacco tycoon, Lucio Tan, and which also operates Airphil Express, will use PHP6.1bn ($140m) of the company’s capital to balance a deficit of PHP6.8bn, according to Manila Standard Today. Air Philippines lost PHP941m in the first nine months of 2010, up from a loss of PHP687m in the same period the year before. The carrier said it wishes to secure finance from the credit and capital markets in order to finance the equity restructuring and develop its fleet. ($1=PHP43.7)

Qantas details fleet strategy Aircell raises $35m financing

GECAS leases 737s to Garuda

Finnair has posted a loss of €33m before taxes for forced to disembark after a group of 100 Belgian 2010. It blamed the effects of a labour dispute and the students became embroiled in a dispute with the impact of the ash cloud for the performance, stating airline over outsized baggage fees. The incident that the two events resulted in an estimated €55m occurred at Lanzarote airport in the Canary Islands, profit weakening. However, the group reported that where the airline said the group of 100 passengers had turnover grew by 10 per cent, while the operational “become disruptive, and refused to comply with crew result was a loss of just under €5m. Passenger num- instructions after a number of their group were bers were slightly over seven million, which is four required to pay a gate bag fee for outsized luggage”. per cent fewer than in 2009. Finnair’s total capacity According to local newspaper reports, there were a declined by three per cent. ($1=€0.72) total of 120 students. Twenty had arrived at check-in when the flight was already closed but were allowed to board provided that they paid for their outsized baggage. However, an intense row ensued, with some Amid flat results for BAE Systems, the group’s of the group allegedly spitting at ground staff. When regional aircraft arm posted a pre-tax profit of £35m the 100 students already onboard the aircraft realised ($56m). Highlights included the long-term lease of six what was going on, they staged a “mutiny” and reRJ100s to Swiss International Airlines and a total fused to sit in their seats. Flight crew then involved placement of 52 aircraft during the year. “Whilst the local authorities and all the passengers were taken market conditions have continued to impact airline off the aircraft to be identified. Those not involved in profitability, the portfolio customer base remains the “mutiny” were eventually allowed to reboard but relatively robust and the business continues to closely were subject to a three-hour delay. The police ordered monitor operator performance against default risk,” that the students should be refused travel.

BAE said in a statement.

Garuda Indonesia has leased six 737-800s and three spare CFM56-7B engines from GECAS. The aircraft will arrive in 2013 and 2014, while the engines will be delivered in 2011 and 2012. Garuda also plans to receive 10 new 737-800s and one A330-200 this year.

Australia’s Qantas has said it will buy 10 regional aircraft and lease 18 narrow- and widebodies by the end of its 2012/13 financial year. It will also extend leases on 13 aircraft as it targets expansion and growth. Network Aviation, Qantas’ charter unit that supports Australia’s massive mining sector, will receive 10 Fokker 100 regional jets, while scheduled regional carrier QantasLink will benefit from two more leased 717s. Meanwhile, Jetstar will get 10 additional A320s and one A330 for its low-cost shortand long-haul operations.

In-flight connectivity provider Aircell has raised $35m in financing from its existing investors. The company, responsible for the ‘Gogo’ in-flight service, said proceeds of the financing will be used to fund growth in both commercial and business aviation markets.

Existing investors include Ripplewood Holdings, a major private equity group, Blumenstein/-Thorne Information Partners and other investment entities associated with investor/entrepreneur Oakleigh Thorne.

Students stage mutiny on Finnair blames €33m loss Ryanair flight on industrial action and ash All the passengers onboard a Ryanair flight were

BAE regional profits

Kingfisher reduces losses with Q3 performance Kingfisher Airlines has narrowed its losses by 39 per cent to INR254 crore ($56m)in Q3 2011. It generated an operating EBITDA profit of INR91 crore in the period, which was an improvement of INR183 crore over Q3 2010.

The carrier said it saw an 11 percentage point increase in domestic load factors to 87 per cent in Q3 2011.

This compares with 76 per cent in the same period last year. It also implemented a number of cost-saving initiatives. ($1=INR45)

Net income down at Copa Holdings Copa Holdings, parent company of Copa Airlines and Copa Airlines Colombia, saw an 11.9 per cent reduction in net income for 2010, down to $212m. Operating income for the year was up 8.3 per cent to $263m, resulting in an operating margin of 18.6 per cent compared with 19.4 per cent in the previous year. Total consolidated operating revenue for the year increased by 12.6 per cent to $1.4bn.

Consolidated load factor for 2010 was up 2.2 points to 76.9 on a 10.5 per cent increase in capacity.

Senate approves laser beam legislation The US Senate has approved an amendment that would make it easier for prosecutors to bring charges against anyone shining a laser beam at an aircraft.

The proposed measure would see offenders subjected to fines or imprisonment of up to five years, and was passed on a 96-to-1 vote. According to the FAA, the number of reports of lasers being pointed at aircraft nearly doubled in 2010, to more than 2,800.

China investigates airport graft

Chinese state auditors have unearthed CNY159m ($24m) of public funds lost to false accounting and tax avoidance during the construction of 10 airports. They also found almost CNY2bn-worth ($300m) of contracts that should have been put out to public tender. One airport cost twice what it should have due to inflated contracts. Several environmental breaches were also discovered, though the auditors did note the beneficial impact of new airports on local economies. The auditors stated: “Relevant government departments are investigating further in accordance with the law and will... find out who is responsible and hold them accountable.” ($1=CNY6.59)

Passenger milestone reached by easyJet easyJet says it is now carrying more than 50 million passengers each year. The carrier currently operates 196 aircraft on 552 routes, across 30 countries. To mark the milestone, the 50 millionth passenger in 2010 was presented with a bottle of champagne, and given a flight voucher for two people to travel anywhere on the easyJet network.

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AFM72 News_AFM News 03/03/2011 14:55 Page 10

10 | AFM • ISSUE 72 March-April 2011

NEWS ROUND-UP The latest on deals, mergers, appointments and more Chorus to maintain 2011 cash dividend Jazz Air parent Chorus Aviation says it expects to maintain its cash dividend of 60 Canadian cents per share per year in 2011. Investors had been concerned that Chorus would reduce its payout as it renews its fleet with the purchase of 15 Bombardier Q400 turboprops. Chorus announced a 4Q net income of C$85m ($85m), or 69 Canadian cents a share, and per-share adjusted earnings of 16 Canadian cents. Operating revenue rose by 12 per cent on the previous year to C$393m. ($1=C$1)

IATA: safety at all-time high Aviation accident rates in 2010 were the lowest in history, according to the International Air Transport Association (IATA). One in every 1.6 million Westernbuilt jet flights resulted in an accident, a significant improvement on 2009’s one in every 1.4 million flights. There were 94 accidents (on all Eastern- and Westernbuilt aircraft types), compared with 90 in 2009; 23 fatal accidents, compared with 18 in 2009; and 786 fatalities, compared with 685 in 2009. However there has been an increase in the number of flights. In the last decade the accident rate has fallen 42 per cent.

Air France fills out summer schedule Air France will return to 2008 seat volumes this summer as it ramps up capacity by 6.1 per cent from summer 2010. Long-haul capacity will see the biggest rise of 7.6 per cent, while short-haul and domestic flights will see 2.1 and 1.5 percent, respectively.

Strategic adds to AustraliaPhuket capacity glut Brisbane-based Strategic Airlines began flights between Melbourne and the Thai island of Phuket on February 22. Strategic plans to offer two non-stop weekly services to Phuket from both Brisbane and Melbourne as it enters a crowded market – fellow Antipodean carriers Jetstar, V Australia and Pacific Blue all already fly to the island. Strategic, which in January quit flying from Port Hedland to Bali, will use an A330-200 on the route.

PEOPLE IN THE NEWS Former GECAS chairman Henry Hubschman dies

Susan Donofrio moves to Hawaiian Airlines

Henry Hubschman, former chairman of GE Capital Aviation Services (GECAS), has died at the age of 63 after a battle with cancer. He began his career at GE in 1992 as general counsel of its Aircraft Engines division and by 1997 had become president and CEO of GECAS. During his tenure, the company’s fleet expanded to 1,800 aircraft at nearly 250 airlines in more than 75 countries and its assets grew from $10bn to $49bn. He guided GECAS to become the largest aircraft leasing company in the world, with offices in 25 countries. He was succeeded as CEO in 2009 by Norman Liu.

Hawaiian Airlines has appointed Susan Donofrio as its senior director of investor relations. Donofrio will report to Peter Ingram, CFO. Prior to joining Hawaiian Airlines, Donofrio was a director level analyst at Cathay Financial, she has also held roles at Fulcrum Global and Deutsche Bank.

Mahindra resigns from NACIL board Anand Mahindra, vice chairman of Mahindra & Mahindra, has offered to step down from his role on the executive board at National Aviation Company of India (NACIL), which runs the nation’s flag carrier, Air India. Mahindra resigned by letter to India’s new civil aviation minister, Vayalar Ravi, stating that his role at Mahindra & Mahindra created a conflict of interest with that at NACIL. Mahindra Aerospace, the aircraft and aero-structure manufacturing division, has announced it is looking for a strategic investor, including OEMs and tier 1 suppliers.

Finnair recruits Nokia exec; Hassinen departs Arja Suominenhas has moved to Finnair to become its SVP of corporate communications and responsibility. She will also become a member of the company’s executive board and board of management. Prior to this role, Suominenhas was VP of global media relations at Nokia. Meanwhile, Taneli Hassinen, Finnair’s VP of financial communications and investor relations, is to leave the airline in midMarch after almost 25 years at the company.

ATA promotes pair as part of shake-up The Air Transport Association of America (ATA) has made some personnel moves as part of a wider reorganisation. Sharon Pinkerton has been promoted to SVP, legislative and regulatory policy, a newly-created position. In this role she will lead policy development on legislative and regulatory matters. Tom Hendricks has been promoted to SVP of safety, security and operations, taking on responsibility for the technical and operational functions at the association. A new SVP of global government affairs is also set to be hired, and ATA plans to add other top-line lobbyists to its government affairs function. However, COO John Meenan and chief of staff Patty Higginbotham will both be leaving the association.

Tyler takes top IATA role Under recommendation from Giovanni Bisignani, head of the International Air Transport Association (IATA), Tony Tyler will become IATA director general on July 1, after which he will work alongside Bisignani for three months before the latter steps down.

Hamilton resigns from Alaska Air board Alaska Air Group’s board of directors has accepted the resignation of Mark Hamilton, who had been a director since 2001. His resignation from the board follows his retirement as president of the University of Alaska in June 2010. He had previously served for 31 years in the US Army, retiring from active service in 1998. Chairman and CEO of Alaska Air Group Bill Ayer said that Hamilton’s insights “helped Alaska Airlines and Horizon Air navigate one of the most challenging decades this industry has ever faced”.

Hamilton will maintain his ties with the company by serving on the community advisory board.

Air India’s executive board under review India’s new civil aviation minister, Vayalar Ravi, is reviewing the pay of Air India’s top-level executives.

Pawan Arora, chief operating officer of the airline’s subsidiary, Air India Express, has already had his contract terminated. Gustav Baldauf, chief operating officer is thought to have resigned following an interview in which he deemed India’s government meddlesome and prevented him from performing his role. Baldauf and Sukumar are paid over INR3 crore and INR1.5 crore in salaries respectively, yet the airline it is struggling to pay its flight crew. ($1=INR45.4, 1 crore=10 million)

Crandall joins Southern Air board Southern Air Holdings has appointed Robert Crandall, former chairman and CEO of AMR and American Airlines, to the company’s board of directors.

“Southern Air is one of the most experienced and fastest growing air cargo carriers in the world. The company has an exceptional record of performance and great potential in its markets,” said Crandall.

Brian Martin appointed director of ground operations, EAG Brian Martin has been appointed director of ground operations at Dubai-based Empire Aviation Group (EAG). Martin has 40 years’ experience in the industry, having worked as a director of operations; manager and quality operations; aircraft commander; chief pilot; flight operations manager; and director of flight operations.

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AFM72 News_AFM News 03/03/2011 14:56 Page 12

12 | AFM • ISSUE 72 March-April 2011

NEWS ROUND-UP The latest on deals, mergers, appointments and more Conviasa outlines expansion plans Venezuelan airline Conviasa has announced plans to significantly expand its activities in South America and the Caribbean. The carrier says it will inaugurate flights to Puerto Espana and Bogota in March; Grenada, St. Vincent, Dominica and Santo Domingo in April; and Lima and Quito in May. Meanwhile, the operator has adjusted its long-haul schedules and is splitting is weekly Caracas-Madrid-Damascus service. From immediate effect it is flying to Madrid twice weekly, and will now only serve Damascus on a bi-weekly basis, albeit with a direct service.

AirTran expands at Branson US carrier AirTran Airways is to expand its activities at Branson, Missouri in late May with the launch of four-times weekly flights to Chicago Midway and Houston Hobby and a weekly service to Baltimore. The airline already serves Atlanta and has a weekly link to Orlando from the airport.

Air Namibia boosts South Africa connections Air Namibia is to utilise its recently acquired ERJ 135 regional jets to expand its flights into neighbouring South Africa, as well as upgrading its domestic network. The carrier will launch a sixtimes weekly Walvis Bay-Johannesburg service from April 15 and will boost frequencies on its Walvis Bay-Cape Town route from three to nine services per week.

Senegal Airlines revises operations Senegal Airlines is to revise its African network just a month after launch.

The carrier has added new flights from Dakar to Bissau and Niamey and boosted frequencies to Conakry, but it has dropped plans to serve Abidjan and reduced flights to Bamako and Banjul.

Nice focus for BA CityFlyer British Airways regional arm BA CityFlyer is to increase frequencies on its London City-Nice route. The airline offered seven flights per week last summer but will offer nine per week between May 1 and September 30, increasing to 12 in July and August.

SunExpress launches Izmir-Bremen Turkish carrier SunExpress is to inaugurate a weekly flight between Izmir and the German city of Bremen.

The new link will be start on March 30 and will be operated by a 737-800.

ROUTES NEWS ANA and Lufthansa plan joint venture ALL NIPPON AIRWAYS (ANA) AND LUFTHANSA have filed an application with the Japanese and German Governments for antitrust immunity to launch a joint venture (JV) on routes between Japan and Europe, allowing the two carriers to bring what they describe as “substantial benefits to passengers” by creating a more efficient and comprehensive service across their networks. Subject to approval of the application by Japan’s Ministry of Land, Infrastructure, Transport and Tourism and Germany’s Transport Ministry, ANA and Lufthansa will be able to jointly manage their Japan-Europe operations in areas such as scheduling, pricing and sales.

Qatar Airways’ German capacity set to soar QATAR AIRWAYS IS PREPARING FOR SIGNIFICANT CAPACITY increases to Germany with additional flights to Frankfurt and Munich, together with the introduction of services to Stuttgart – its fourth German gateway.

With two new weekly flights to Frankfurt, four additional services to Munich and the introduction of thriceweekly flights to Stuttgart from March 6 , the airline’s German frequency rises from 24 to 33 flights a week - services to German capital Berlin remain daily. With the capacity increase on the Frankfurt route, up from 10 flights a week, effective March 27, selected services will be operated using the airline’s 777s configured with 42 business class and 293 economy seats. The existing daily Doha-Munich route will continue to be operated with an Airbus A330 with the increased capacity taking effect from March 9.

Kingfisher boosts domestic schedules INDIAN CARRIER KINGFISHER IS TO ENHANCE ITS DOMESTIC schedules. From May 1 it will introduce a daily Delhi-Ranchi-Patna-Delhi link and a third daily Delhi-Amritsar rotation, while from March 7 it will launch a second daily Delhi-Srinagar flight. Other adjustments will see flights on the Delhi-Guwahati-Imphal route increase to a daily schedule from four-times weekly, and the airline’s Delhi-Mumbai link being operated by Kingfisher First rather than Kingfisher Red.

Firefly opens new Malaysian base FIREFLY, THE LOW-COST SUBSIDIARY OF MALAYSIA AIRLINES, is to open a new regional base at Senai International Airport in Johor Bahru this summer. It will offer a twice-daily service to Kuching from May 19 and a twice-daily link to Kota Kinabalu from June 16, with plans to offer international connections to Indonesia – Jakarta, Surabaya and Bandung – before the end of the year. Further expansion will take place at its existing bases too. A thrice-weekly Kuala Terengganu-Singapore route will be launched from March 27, while from 15 May frequencies on its trunk Kuala Lumpur-Kota Kinabalu link will be increased from three-times daily to sixtimes daily. From June 1 it will serve Kuala Lumpur-Kuching seven times every day (up from four flights per day), while new flights from Kuala Lumpur to Miri and Sibu will be launched on July 1 and August 1 respectively.

easyJet expands in Scotland UK BUDGET CARRIER EASYJET IS TO EXPAND ITS NETWORK in Scotland by utilising an additional aircraft at its Edinburgh base and replacing one of its existing Glasgow-based aircraft with a larger 180-seat Airbus A320.

The new deployments will create over 60 additional jobs and will boost annual capacity by around 340,000 seats per year. The airline will launch flights from Edinburgh to Athens, Grenoble and Tenerife from September, as well as launching flights to Aberdeen from its London Gatwick base.

American and BA open Tokyo Haneda links ONEWORLD ALLIANCE PARTNERS AMERICAN AIRLINES and British Airways inaugurated long-haul flights from Tokyo’s newly expanded Haneda Airport gateway on February 20. American is offering a daily link to New York JFK, complementing Japan Airlines’ established service between Haneda and San Francisco.

Meanwhile, British Airways is operating Haneda’s only route to the UK, serving the airport an initial five times a week non-stop from its London Heathrow hub, in addition to its established daily Tokyo Narita schedule.

Volaris plots US blitz MEXICAN LOW-COST CARRIER VOLARIS HAS MADE A FORMAL application to the US Department of Transportation (DOT) to inaugurate flights on 23 routes between Mexico and the United States. The airline, formed in March 2006, already holds a 16 per cent share of the domestic market but is now targeting the US for growth following the collapse of Mexicana last year. Volaris already offers flights to Los Angeles (from GDL, MLM, TLC and ZCL) and to Chicago Midway, Oakland and San Jose from Guadalajara. From March it will add Las Vegas to its network and according to the DOT filing Volaris is now seeking to serve Dallas, Fresno, Miami and Sacremento.

Subject to approval, the first new route will be Guadalajara-Fresno, which will begin “immediately after approval of this application”, followed by Aguascalientes-Los Angeles, Guadalajara-San Francisco, Guadalajara-Sacramento, Mexico City-Oakland and Zacatecas-Chicago. Other routes included in the application comprise links from Cancun to Chicago, Los Angeles, Miami and New York; Leon/Bajio to Oakland, San Jose and Sacramento; Mazatlan to Los Angeles; Mexico City to Dallas; Oaxaca to Los Angeles; Puerto Vallarta to Chicago, Los Angeles and San Francisco; San Jose del Cabo to Los Angeles and Sacramento; and Zihuatanejo to Los Angeles.

AFM72_Irish leasing 3_AFM71 03/03/2011 15:46 Page 14

14 | AFM • ISSUE 72 March-April 2011

FOCUS: Irish leasing Ireland seems an unlikely hub for aviation leasing but, grown from the nucleus that is Guinness Peat Aviation, it is globally eminent. Mary-Anne Baldwin talks taxes and about the development and growth of Ireland’s leasing sector with Avolon, RBS, Fly Leasing and former GPA employee Chris Brown.

A

CCORDING TO ITS AIRCRAFT LEASING COMMUNITY, Ireland offers benefits far beyond its tax breaks including a pool of expertise, a web of supporting companies, easy access to other European countries and a time zone that allows its dwellers to communicate with associates in Tokyo, Europe, Seattle and LA in one day.

“If you look globally it would be very hard to find somewhere that can offer all of that,” says John Higgins, president and chief commercial officer of Avolon.

Perhaps most valued is Ireland’s community of aviation experts.

Peter Barrett, CEO of RBS Aviation, says: “There is a breadth and depth of knowledge… that makes honing and developing a business here that much easier.”

So it is unsurprising that new leasing companies are joining incumbent veterans in the healthy Irish leasing market. Higgins of the newly formed Avolon, says a primary driver of its location in Ireland was “the availability of experienced people who both have strong personal franchises and could work well together as a team.”

So how did Ireland – minor as it is on the scale of international trade – breed such a valued troop of professionals? If asked, they’ll each answer with three letters: G, P and A.

Founding father “GPA (Guinness Peat Aviation) was the biggest aircraft leasing company in the world at one time and they forced the pace of the development of tax treaties internationally… a lot of the momentum and the position Ireland currently enjoys in terms of aircraft leasing can be traced back to GPA,” says Higgins.

GPA, founded in 1975 by Tony Ryan who moved on to create the winged Goliath Ryanair, collapsed after placing overly ambitious aircraft orders (worth today about $30bn) and failing to muster any market interest in its initial public offering (IPO) in 1992.

Christopher Brown, a former employee of GPA and author of An inside account of the fall of GPA, believes that the company’s ambition was ill-placed and ill-timed. “I could see that on the horizon there were signs that the economic boom we’d had in the late 80s was potentially going to have another problem, and here we were, landed with this enormous amount of aircraft coming at us over the next few years.” That, he says, was when he decided to write a dairy, the content of the book, in which he charts the demise of the leasing pioneer.

AFM72_Irish leasing 3_AFM71 03/03/2011 15:47 Page 15

March-April 2011 AFM • ISSUE 72 | 15

FOCUS: Irish leasing

IRELAND: THE LEASING CAPITAL “GPA world

biggest aircraft leasing company in the at one time and they forced the pace of tax treaties internationally… a lot of the momentum and the position Ireland currently enjoys in terms of aircraft leasing can be traced back to GPA (Guinness Peat Aviation) was the

– John Higgins, president, Avolon

”

AFM72_Irish leasing 3_AFM71 03/03/2011 15:48 Page 16

16 | AFM • ISSUE 72 March-April 2011

FOCUS: Irish leasing

“

extensive suite of tax treaties negotiated with countries all around the world.

That makes it a good base to own assets and lease them internationally – because of the tax treaties and the withholding tax treatment of lease rentals.

Ireland has a very

– John Higgins, president, Avolon.

”

Brown recalls that given indications a recession would hit, GPA’s IPO came too late. “When it did, it polarised all of the problems into that single event – to the extent that the financial institutions said: ‘We really don’t want to get into this’.

“I worked in GPA as did many people of my vintage,” says RBS’ Barrett. “People who worked there clearly learned a lot and have gone on and contributed to the industry… It’s definitely an important part of the DNA of Ireland’s leasing community.”

“When the IPO failed, the roof pretty much fell in… it was a trumpet call to the world. ‘By the way, the financial institutions do not have faith in GPA.’ That was the case. We couldn’t finance another aircraft after that. We had all these aircraft coming at us and nothing to buy them with.”

Colm Barrington – who was with GPA from 1980-1993, then went onto GECAS and currently heads Fly Leasing – reminisces: “We got our feet wet at GPA and it got the aircraft leasing bug into our blood.”

Indeed Barrington was at the helm when the remnants of GPA The result was the death of an institution but from it bled the many rose like the metaphoric phoenix. In 1993 GECAS, already a Irish leasing companies trading today – including AWAS, RBS, major shareholder in the Ryan initiative, saw what Brown calls a GECAS and Avolon. Brown explains: “GPA collapsed, the guts of it “huge opportunity at bargain basement price” and soaked up went across to GECAS and also there was a diaspora of talent that GPA’s fleet and much of its staff. went on to found all these other Irish leasing companies.”

In his diarised account of the event Brown writes: ‘Monday 1 November 1993. GECAS starts… Colm is in the chair, flanked by Bob O’Reilly of GECC [GE Capital Corporation] and Phil Bolger…

Colm gives the big welcome speech. The message: le roi est mort; vive le Roi. We are all back in the big time courtesy of GECC.’

Peter Barrett, RBS Aviation

Team GPA eventually dispersed into a wider and wiser pool of specialists. Brown notes that its former employees learnt from the mistakes of their founding company. “Post-GPA, people are much more sensitive to the ups and downs and plan ahead.” He adds: “In fairness to the board we had no advice of any sort from any adviser that the offering was likely to fail until days before the thing was pulled, and at that stage we had no contingency, which was a mistake.”

Tax treats Cited in Brown’s book is an interview by an Irish newspaper the Sunday Tribune in which Sir John Harvey Jones, former GPA deputy chairman said: “If it wasn’t for Tony’s [Ryan Tony] vision the company wouldn’t exist. It wouldn’t have remained in Shannon, it would not have had the potential it looked as if it had.”

And similarly, were it not for GPA, Ireland’s pool of professional expertise in aviation leasing, trading, law, accountancy and tax would not be in place. Nor, indeed, would its tax benefits and treaties.

“It’s not an accident. Part of why we have these treaties goes back to GPA,” says Higgins of Avolon. “Ireland has a very extensive suite of tax treaties negotiated with countries all around the world. That makes it a good base to own assets and lease them internationally – because of the tax treaties and the withholding tax treatment of lease rentals.”

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AFM72_Irish leasing 3_AFM71 03/03/2011 15:49 Page 18

18 | AFM • ISSUE 72 March-April 2011

FOCUS: Irish leasing says that while from a personal perspective it makes Ireland a less attractive environment to live in, it does not impact the business.

“As an Irish tax payer I’m concerned about having to pay higher taxes to bail out people who are stupid enough to lend irresponsibly and I think that the whole government strategy has been a total disaster, however, it doesn’t affect our business.”

Explaining the relative claim, Barrett notes that the global nature of aviation leasing means that it is protected from financial dangers faced by any one country. For example, RBS has only two Ireland-based customers – Ryanair and Aer Lingus.

Since the heyday Brown explains the unique advantage that trading in Ireland offers: “Before GPA, it [Ireland] was not an offshore tax haven and therefore it had treaties in place. But other offshore islands that were known as tax havens [such as Jersey and Bermuda] weren’t able to negotiate double tax treaties with other countries because of their slightly dodgy status.”

Ireland has tax treaties with many countries, meaning that rents coming into Ireland from many jurisdictions and dividends going out are generally free of withholding taxes.

Ireland’s corporate tax regime allows the flexible depreciation of aircraft over eight years and that depreciation can be carried forward. If a company does have to pay corporation tax the rate is an attractively low 12.5 per cent.

For Fly, (formerly B&B Air) the 12.5 per cent corporate tax is particularly important. Barrington clarifies: “Even though you can defer taxes from a cash point of view you have to declare them on your P and L [profit and loss statement].”

Despite the popularity of these tax breaks and the undisputed business they create, there has been severe pressure to change.

Ireland’s heavy financial deficit forced it to take an €89bn bailout from the European Union (EU). Ireland has said its corporation tax is “non-negotiable” yet members of the eurozone want to ‘align’ its tax regime and argue that its dependence on the EU gives it reason to. The EU gave Ireland until 2015 to reduce its annual deficits to three per cent of GDP and radical measures, including tax changes, will be required to achieve this. EU leaders want to finalise agreements on Ireland’s tax regime during a summit on March 24-25 2011 at which non-Irish leaders will argue for paneurozone rules on corporate tax.

While lessors already established in Ireland would be reticent to leave should the tax benefits change, Barrington believes that an increase in taxes could stem new entrants. “If the tax rate made us [Fly] uncompetitive then obviously we’d have to think about going somewhere else.” Yet, he adds: “The fact that you have these flexible capital allowances which allow you to defer your taxes provided you’re in a growing company means that the tax rate isn’t the most important thing. But, obviously, it would influence people as to whether they would stay and certainly whether they would come.

“If there was another country with a low tax regime I’m sure over time they could build up the same level of tax treaties and the same level of people and experience – but obviously it wouldn’t happen over night.”

On the wider financial troubles faced by Ireland, its lessors appear concerned but not discouraged. Barrington confirms that the topic has naturally been of interest to Fly Leasing’s directors, but

“It’s now nearly 20 years since the heyday of GPA and the world has moved on,” affirms Barrett. “There are many other companies that have made a significant contribution to the leasing community.” Of course, his own is one. RBS has been trading for 10 years, BBAM (which manages and services Fly Leasing) has traded for 20 years and is expanding, and GECAS is vast and still hiring.

Barrett believes there is currently “pretty consistent growth”, not only in incumbent lessors, legal and accounting firms and other service providers, but in Ireland’s new lessors. Avolon has secured its second capital raising of $650m added to an initial raise of $1.4bn and Dublin-based Greenwich Kahala has just filed an offering memorandum with the New York stock exchange.

RBS appears to be increasingly active yet on this Barrett responds that the company is perhaps just more vocal about its activity.

Fly Leasing launched in October 2007 with 47 aircraft, it had an IPO at that time raising $700m. “Since then we’ve grown relatively modestly – we’ve now got 60 airplanes,” says Barrington. However, the company recently bought about 21 per cent of its shares at $7.70 a share and the shares are currently trading at close to $14.

There are numerous other leasing companies spread across Ireland. Pembroke has bases in Dublin and Limerick; Dublin also holds Orix Aviation, CIT and AWAS; and Shannon hosts AerCap, Genesis, ILFC as well as the engine leasing company ELFC. These companies trade in close proximity creating a hive of aviation professionals communicating across companies. Indeed, just visit a central pub or wine bar to experience it. The benefits of this are wide-ranging. Leasing companies can have insight on and stay reactive to their competitors’ business and foreign associates can communicate with numerous companies effectively and quickly during one trip.

Currently 1,000 people are employed in Ireland’s leasing industry and the Irish Aviation Authority (IAA) forecast in April 2010 that this would grow by 45 per cent, creating 500 jobs over the next three years. The authority predicts the new roles will be for highend professionals who have a financial, legal, engineering or aviation background.

“It’s a good industry to help build on and we think that we should be promoting Ireland as a centre of excellence in aviation generally and this in turn would help to promote industry, such as the leasing industry,” Philip Hughes, IAA technology and training director, believes.

While slightly suspect of the forecast numbers, RBS’ Barrett concludes: “I suspect there’s plenty of opportunity for incumbent and new lessors.” Fly’s Barrington agrees: “I think there’s definitely growth – whether it be 500 people, more or less.”

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AFM72_Selecting Aircraft_AFM71 03/03/2011 15:22 Page 20

20 | AFM • ISSUE 72 March-April 2011

FLEET OPERATIONS: Selecting aircraft Airline management spend a great deal of time deliberating their choice of aircraft. The decision process should follow a logical path but there is little doubt that other commercial factors will have a bearing upon the final decision – such as how the airframe and engine manufacturer view the transaction and an airline’s favouritism towards a manufacturer. Philip Seymour, president and COO of International Bureau of Aviation (IBA), the independent aviation consulting firm, walks us through the most important considerations.

CHOOSING THE RIGHT AIRCRAFT FOR YOUR OPERATION W

HEN SELECTING NEW AIRCRAFT, FLEET PLANNING committees will often optimistically assume that demand will increase and that there will be more passengers wishing to fly more often and/or further distances.

But the correct line of thinking will always account for worst case scenarios and will be flexible in its approach. It will consider all outcomes, including lower passenger numbers, lower revenues and higher costs, such as fuel and maintenance.

Considerable detailed analysis of the passenger ‘mix’ – such as the numbers of first, business and economy passengers – will also be required. However, manufacturers do have similar offerings.

For example, if the operator wishes to fly about 170 passengers around 3,000 miles, the obvious choice would be the 737-800 or A320 aircraft.

Understanding current routes and future route development plans, as well as forecasting range and payload – i.e. how far you want to fly and with how many passengers and/or how much freight – are essential to selecting the right aircraft. Once the range and payload requirements are defined, the choices of aircraft will follow.

This consideration may seem both obvious and simple but as aircraft will be in operation for many years, and as route structures and passenger demand will vary over time, is crucial to plot the range and payload curve with well considered analysis.

Route development will also be an important factor with regards to which airports the operator will serve. The characteristics of airports – both those used now and in the future – will be important: the length of the runway, landing weights and autoland features of the aircraft and the airport all need to be considered.

Variations in aircraft configuration may impact the turn-round process of the aircraft. For example, the 737-800 sits relatively low compared to the A320. As such, loading passenger bags is more ‘mechanical’ on the A320 and requires specialist lifting and loading devices. This can work both ways – in favour or against each type, depending upon the specific route structure and turnround time envisaged.

Little can be done to manage the cost of landing and navigation however, in Europe, the landing fees at most airports are based on maximum takeoff weight (MTOW). This has led to some airlines requesting the lowest MTOW from manufacturers if it does not negatively impact the payload or range capability on those specific routes.

Some airports impose restrictions or higher fees for noisier aircraft. Also, the introduction of emissions trading adds a further layer of decision-making for fleet managers.

Financing considerations Crucially, airlines will have to investigate how they should finance their aircraft. The options open to them are a cash purchase, operating lease, commercial debt (based on the airline’s balance sheet status and asset finance) or, (depending on the airline’s base and ownership structure) financial support – for example, from an Export Credit Agency (ECA). This can contribute to more than 30 per cent of an airline’s trip cost so appropriate time should be given to the decision and the advice of tax and legal experts should be taken.

By way of comparison, adjacent is a table using the list price of aircraft as at February 2011. There will be considerable variation from the list price to the negotiated delivery price, depending upon the final specification of a particular order.

AFM72_Selecting Aircraft_AFM71 03/03/2011 15:23 Page 21

March-April 2011 AFM • ISSUE 72 | 21

FLEET OPERATIONS: Selecting aircraft

Aircraft

Engine

Range (nm max)

Passengers (typical layout)

List price ($m)

737-800

CFM56-7B24-27

2940

162

80.8

A320-200

CFM56-5B/IAE V2500-A5

2650

185

85.0

777-300ER

GE90-115B

7880

355

284.1

A380

RR Trent 900/ GP7200

8000

555

375.3

AFM72_Selecting Aircraft_AFM71 03/03/2011 15:24 Page 22

22 | AFM • ISSUE 72 March-April 2011

FLEET OPERATIONS: Selecting aircraft

Timing is also an important issue in the acquisition of an aircraft.

If ordering new aircraft from the manufacturer, the operator would have to wait a minimum of two years before it can be used in service. However, the operator would have to wait less time were it to acquire the aircraft through the cancellation of an existing order, through a leasing company, or if it were to select an aircraft that was not part of mainstream demand. For example, the popular narrowbody types may have a longer waiting list than others.

their shorter and more robust construction means that their parts do not flex as much as other engines, and therefore they wear at a slower rate.

While optional specification upgrades such as winglets add weight, they improve takeoff performance and range. They have become almost standard on the 737-800, as fuel price drives down the break-even point at which they become economical.

However, airlines flying short distances may find the additional weight, as well as purchase and installation costs, uneconomical.

Operating cost analysis The issue of operating costs is an area in which manufacturers spend a great deal of time, effort and expense in order that they can show their product in a better light than their competitors.

Numerous factors, arguments and counter-arguments ebb and flow between the manufacturers and airlines as decision time looms closer. The airlines may use manufacturers’ competitive nature to squeeze the best deal in terms of pricing, escalation, buyer furnished equipment (BFE) options, delivery dates, customer support and other incentives and credits that may have to be assessed. However, the basic essentials of fuel, maintenance, crew, landing and finance, are always the main concerns.

The airframer and engine provider may make various guarantees and claims as to the fuel consumption of the aircraft but legally binding guarantees based on the airline’s key routes should also be in place.

Airframers make assumptions regarding various times and phases of flights, such as taxiing, time at takeoff, power, cruise, engine de-rate, noise abatement and air traffic control (ATC) holding.

Such generic data provided by the airframers must always be fully evaluated by the airline in relation to its specific routes. For example, wind data at cruise altitude and seasonal conditions will be based on assumed rates and could, if not checked and verified by the airline, lead to disappointment.

Also, the data provided by airframers usually relates to a new aircraft with new engines. As the combination ages, it is unlikely the fuel consumption data will remain accurate. For example, one recent claim made by Rolls-Royce was that their engines’ fuel consumption does not degrade as rapidly as competing engines – although their initial consumption may be higher. The claim is based upon the three shaft construction of the Rolls-Royce engines – they may be heavier and burn more fuel initially, but

Maintenance and cabin crew costs One of the most contentious issues when considering an aircraft acquisition is maintenance as it covers much of the cost. Also, airlines differ hugely in their handling of various costs. For example, some will list the cost of employing mechanics under their general overheads, others will use contract staff, others still will completely outsource the function. These variations may apply to all aspects of maintenance from line servicing through to heavier checks. Manufacturers will provide their estimate on annual costs and split them into hourly- and cycle-related costs.

Most lessors regard airframe heavy checks; engine performance restoration; engine life limited parts; landing gear overhaul; and APU overhaul as the most crucial high-cost elements to consider.

However, there are many more cost categories for an airline to contemplate such as: spares holding (is there any inter-changeability of the parts from one type to another?); staff training; tooling and equipment; and outsourcing versus in-house decisions.

Airlines will often prefer to order more of the same aircraft type that they already operate in order to retain cost savings such as maintenance or training. Airbus often uses the term ‘cross crew commonality’ to describe the ease with which a flight crew can move from the A318/319/320 and A321. This type of flexibility provides significant savings in terms of training costs and, if managed properly, will reduce the number of crew required.

Also, from a branding perspective, using a similar seat layout and type of seat between one aircraft type and another may offer familiarity – an important quality that other airlines with a mixed fleet do not have.

The location of the training facilities should also be considered as significant costs could be expended if crews need to travel across continents to reach a suitable training facility.

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AFM72_Climate_AFM71 03/03/2011 14:58 Page 24

24 | AFM • ISSUE 72 March-April 2011

FLEET OPERATIONS: Climate Is commercial aviation doing enough to minimise its emissions of greenhouse gases given the industry’s expected growth in coming decades? Targets are pinned on technological advances, but are they enough to really make a difference, asks Chris Kjelgaard.

A CLIMATE OF CHANGE T

HE AVIATION INDUSTRY HAS AN IMPRESSIVE RECORD of technological advance over the past 50 years. It has drastically reduced the impact of noise on communities close to airports, lowered its emissions of pollutants, and improved its fuel efficiency.

“We believe aviation has a strong track record in improvement,” says Paul Steele, executive director of the Geneva-based Air Transport Action Group (ATAG), the only association that represents the air transport industry globally. Steele says aviation has demonstrated a one per cent average annual rate of fuelefficiency improvement since 1960 – and adds: “I don’t see why that should change.”

According to Steele, aviation is the only industry to have presented specific targets to reduce carbon, plus a plan of how it will do this, to the industry’s global regulator – in this case the International Civil Aviation Organisation (ICAO). “The reality is that the industry is ahead of the regulator,” he notes. “ICAO made some progress at its [last] general assembly with aspirational goals.”Now ATAG is pushing ICAO to adopt specific measures regarding reductions in greenhouse gases and air pollutants.

Rolls-Royce’s Open Rotor engine offers a step change in emissions

AFM72_Climate_AFM71 03/03/2011 14:58 Page 25

March-April 2011 AFM • ISSUE 72 | 25

…

FLEET OPERATIONS: Climate

forecast that the industry’s CO2 emissions – much of which will be from traffic growth in developing countries – could quadruple by 2050. This is a period during which most scientists think we need to reduce developing countries’ emissions by 60 to 80 per cent.

ICAO has

…

As with the United Nations Framework Convention on Climate Change (UNFCCC), ICAO must enforce a global solution from separate and varied nations. “It’s only as powerful as each individual nation. If individual nations such as the US and Australia won’t agree, ICAO can’t [go ahead]” explains Nic Ferriday, UK case officer at the Aviation Environment Foundation (AEF).

For example, reaching a consensus on measures such as a global emissions trading scheme (ETS) is tremendously difficult. On this issue, Ferriday comments: “ICAO has basically procrastinated for more than 10 years – how long do you give them?”

However, IATA and ICAO now have targets for emission reduction in place. In ICAO’s case, the target is aspirational, but in IATA’s, the target represents an industry-wide goal shared by airlines, airports and manufacturers. “It didn’t come from nowhere,” says Steele. “We’ve built the targets from the

bottom up – we did a huge amount of work. To be able to talk with one voice is a huge achievement.”

CO2 emissions: targets and obstacles IATA believes the airline industry can achieve a 1.5 per cent average net reduction in CO2 emissions between 2010 and 2020 by introducing 12,000 new aircraft (6,500 for growth and 5,500 as replacements), adjusting operating procedures, reducing aircraft weight, increasing load factors and retrofitting existing aircraft with drag-reducing winglets.

ICAO’s meeting on climate change in 2009 produced a goal to reduce CO2 emissions by two per cent a year through 2020. “It is significant that ICAO got agreement from its member states, where the UNFCCC didn’t get that agreement,” he says. The UNFCCC is increasingly aware that “international aviation is a difficult beast to deal with.” Particularly when it comes to mandating CO2 emission reductions, and is increasingly willing to let ICAO oversee this specialist area of negotiation.

AFM72_Climate_AFM71 03/03/2011 14:59 Page 26

26 | AFM • ISSUE 72 March-April 2011

FLEET OPERATIONS: Climate

“Alternative fuels

overall reduction in CO2 emissions compared with conventional fuels. To this end, ATAG is working closely with the Round Table on Sustainable Biofuels on ways to grow rotation crops or other biofuel biomass in marginal land not suitable for food growth. may be able to deliver an 80 per cent

The 0.5 per cent difference between ICAO’s goal and that of IATA can only be achieved if governments improve air traffic management systems, particularly in Europe and the US. Beyond 2020, IATA has a much more ambitious goal – to stabilise its CO2 emissions at 2020 levels; and then to reduce them gradually, so that by 2050, emissions will be only half the amount produced by the industry in 2005 – even though ICAO forecasts air traffic will grow at five per cent a year on average through 2050.

“These [targets] form the backbone of the industry’s approach to climate change,” says Steele. He concedes that meeting IATA’s “challenge to de-couple projected traffic growth” is a significant request. Yet: “growing at four to five per cent per annum in the future, and having emissions that grow at the same rate, would be unacceptable.”

Alternative fuels

”

Another complex issue is the need for aviation to rely on the development and large-scale production of alternative fuels in order to realise the carbon-reduction targets set by IATA and ICAO. Unquestionably, the rapid development of lower-carbon fuels is creating excitement. “In the last three years, we have proven they are not only possible, but that they work,” says Steele, noting that anyone making such a claim as recently as 2008 would have been deemed eccentric.

According to Hileman, research shows such fuels will produce far less soot upon combustion than conventional jet fuels, because “they lack aromatic compounds”. But safety, certification and performance considerations mean that biofuels or other alternative fuels need to have combustion characteristics similar to those of jet fuels. Accordingly, they will emit only a few less per The industry’s goals are admirable but they are also problematic, cent of CO2 than conventional jet fuels at the point of combustion. a belief supported by Dan Rutherford, lead aviation researcher for the International Council on Clean Transportation (ICCT).

However, MIT’s research suggests that on a complete life-cycle Rutherford works closely with ICAO and is an observer to its basis – “from well to wake,” as the industry likes to say – Emissions and Technology Working Group (known internally as alternative fuels (particularly those potentially derived from algae) Working Group 3). may be able to deliver an 80 per cent overall reduction in CO2 emissions compared with conventional fuels. To this end, ATAG is ICAO has forecast that the industry’s CO2 emissions – much of working closely with the Round Table on Sustainable Biofuels on which will be from traffic growth in developing countries – could ways to grow rotation crops or other biofuel biomass in marginal quadruple by 2050. This is a period during which most scientists land not suitable for food growth, such as salt water tidal areas think we need to reduce developing countries’ emissions by 60 to or poor soil. “The holy grail is algae,” says Steele.

80 per cent, says Rutherford. “Quite simply, these numbers do not add up.”

But there will be major challenges in developing biofuels or other alternative fuels, certificating them and producing them in large According to Rutherford, IATA’s goals for carbon neutrality during enough quantities to reduce aviation’s CO2 emissions in order to 2020-2030 “assume the cost of mitigating emissions from achieve IATA’s ambitious carbon-reduction targets. ATAG recogaviation will be quite high and that they can buy carbon credits nises this, but says it would like to see six per cent of all commercial cheaper from other sectors.” However, he adds: “To date, we aviation jet fuel replaced by alternative fuels by 2020. It cites a have not encountered a sector that believes achieving its 2009 study by UK energy consultancy E4tech, which concluded reductions is any easier.” As such, the conundrum arises – who that biofuel production could potentially account for all global will sell their credits? demand for jet fuel by 2050, “provided that the risk of land use change from the production of feedstocks is managed effectively.”

There are also ethical and legal questions involved, notes Dr James Hileman, associate director and lead researcher for the However, “The devil is in the details,” says Rutherford. While it is Partnership for Air Transportation Noise and Emissions Reduction possible fuels produced from algae, plants or other sources will (PARTNER). Even if the sector can buy CO2 credits more have lower life-cycle emissions than does oil-based jet fuel, the economically than it can create them itself, Hileman asks whether actual levels achieved will depend on the refining processes used. ethically, all sectors should reduce emission equally. He adds: For instance, it’s “fairly easy”, says Rutherford, for fuels produced “You’d need legal [enforcement measures] to give it teeth – it’s an by converting coal or natural gas to liquid through the Fischerissue far larger than aviation,” he says.

Tropf process, to have life-cycle levels worse than conventional petroleum. And while there is logic in the use of crop rotation A further concern is the rate at which new, lower fuel-burning and the use of marginal land to grow biofuel plants, “It’s quite aircraft can be introduced to the world’s fleet. Ferriday believes possible they could be grown in unsustainable ways.” this is one per cent a year, not enough to reduce emissions as envisaged by IATA. “It’s very difficult to force the market,” he Land use is a critical issue. The moral and political implications of notes. So economic incentives may be needed to increase airgrowing biofuel crops on land that could be used to grow food craft replacement in order that CO2 goals can be met. “Nobody’s crops is serious enough for it not be considered on a large-scale going to introduce subsidies,” but, he says, “The converse is basis. How could we support biofuel production above the basic [true of] taxes.” need for food?

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AFM72_Climate_AFM71 03/03/2011 14:59 Page 28

28 | AFM • ISSUE 72 March-April 2011

FLEET OPERATIONS: Climate NASA’s N+2 and N+3 programmes, the FAA’s CLEEN programme, and the Clean Sky Joint Technology Initiative, have each funded studies into future commercial aircraft designs, which Hileman says, “could provide some real gains” in reducing emissions. One N+2 study, in which MIT and Hileman were involved, “could be a game-changer” in terms of fuel burn, he says.

A solution might be the creation of biofuels from the waste matter of food, whereby the land is used to cultivate food, and its waste is used to cultivate biofuel as a byproduct.

Another option is algae. According to Hileman, Biofuel produced from algae could offer life-cycle emissions just one-eighth of those produced by oil-derived jet fuels, yet – depending on how it is produced – those emissions could be twice that of today’s jet fuel.

“Algae is certainly interesting, [but] the problem with products like algae is that… we are not smart enough to know what is possible.

It is easy to be over-optimistic,” says Rutherford.

Regulation and taxation Another way to meet CO2 emission targets is to reduce the industry’s growth. However, Ferriday says the industry “only wants to talk about the technological component” of emission reduction. “It doesn’t want to talk about constraining demand and any sort of regulation.” While non-governmental organisations such as the AEF and ICCT are enthusiastic about the European Union’s adoption in 2012 of an emissions trading scheme, the airline industry is not.

There are valid arguments on both sides. “We’re positive about the European emissions trading scheme,” says Ferriday. “Others aren’t going to do anything, somebody has to take a stand… the EU is a big enough bloc to stand up.”

Even ATAG recognises that the EU “was very courageous” in unilaterally introducing its scheme, though, says Steele, it “has created a lot of bitterness” from other countries.

MIT’s Hileman notes the need for multiparty agreement. “Seeing that aircraft fly from A to B, A and B should have the same laws in place,” he says.

The disparity of these arguments reflect the complexities involved in meeting targets. Scientists outside the industry are pessimistic that they will even be met. “As a sector, based on their own predictions of where they will be in 2050, aviation is not doing enough,” says Rutherford.

Hileman notes that engine noise improvement “has been business as usual in the industry for a very long time”, and that engine manufacturers are continuing to develop quieter and more fuel-efficient engines, but he thinks further advances will be needed if the industry is to achieve its emissions goal. “We will likely need a step-change in noise and emissions. Down the road, there’s a probable need to change the thinking on aircraft design.”

Engine performance Where could such a step-change arise? Two areas of research look particularly promising. One is in airframe design.

The team’s design was based on a horizontally aligned doublebubble fuselage designed to cruise at altitudes of about 45,000 feet, slightly higher than today’s short-haul aircraft. Hileman says this architecture produced a short, fat fuselage that could easily be manufactured out of composites or aluminium. The MIT team also found the concept produced another, unexpected benefit.

Although the aircraft would cruise at a slower speed than today’s jets, the width of its fuselage would allow it to load and unload passengers much quicker than conventional aircraft.

Another step-change is Open Rotor engines, such as those studied by Rolls-Royce. Robert Nuttall, Roll-Royce’s VP of strategic marketing, says: “We still believe the Open Rotor is a genuine game-changer.” There have been three annual rounds of rigtesting, and there are two more to come in 2011 – one by midyear at Kawasaki Heavy Industries’ gearbox-testing rig in Japan, and one (early 3Q) in the UK to test further-optimised engine designs. With these, Rolls-Royce is confident it can by 2023-2025 offer a production engine that will burn some 30 per cent less fuel than today’s turbofans.

Nuttall says the engine will also burn 15 per cent less than any new turbofan due to enter service in the 2013-2016 timeframe, and 10 per cent less than any new turbofan entering service by 2025.

The Open Rotor’s unducted composite blades, huge fan diameter (170in, compared with GE90-115B’s 128in), twin blade rows and reverse-thrust pitch-change mechanism (which will need to be rugged to handle the high loads expected from the engine’s power gearbox) all present challenges. For instance, any aircraft bearing a wing-mounted, puller-configured Open Rotor will need to have a high wing. However, after three extensive rounds of rig tests, Rolls-Royce is confident noise will not be an issue.

“Our results so far give a comfortable margin to Stage 4 legislation,” says Nuttall. “It is substantially quieter than any aircraft flying today. It will be noisier than turbofans designed on the same day [in the 2020s] – that’s the trade.”

Nevertheless, because the Open Rotor will “in some regards” operate like a turboprop engine, rather than a turbofan, it develops its power differently. “It will deliver a 20 per cent lower level of NOx and lower CO2, compared to a turbofan with the same combustor,” says Nuttall. While the highest bypass ratio considered for any jet engine is 20 to one (forecast by Pratt & Whitney for a widebody version of its new PurePower gearedturbofan engine), the Open Rotor will have a bypass ratio of 50 to one.

Rolls-Royce regards the pusher as a more difficult version of the Open Rotor in terms of development, because in this configuration hot exhaust gas passes under the blades. In all other respects the pusher and puller versions will be nearly identical, so Rolls-Royce is devoting most of its efforts to the pusher configuration. The company continues to experiment with other variables such as blade size, numbers and airfoils – and continues to optimise the architecture of the engine. “Our basic philosophy, because of economic and environmental pressures, is that we need integration of optimised aircraft, engines and their systems,” says Nuttall.

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AFM72_Asia Pac_AFM71 03/03/2011 15:18 Page 30

30 | AFM • ISSUE 72 March-April 2011

FLEET OPERATIONS: Asia-Pacific What the West considered to be a “global” economic downturn in 2008-09 was more accurately a recession in North America and Europe. Asian economies, although briefly affected by loss of demand from key consumer markets, have raced back above their precrisis levels. Martin Roebuck reports.

Cathay Pacific’s new Hong Kong cargo terminal will open in 2013

W

ITH US AND EUROPEAN RECOVERY STILL FRAGILE, inventories now rebuilt and consumers remaining cautious, supply for regional consumption is powering Asia’s growth. The growing Chinese and Indian middle classes are demanding imports from the rest of Asia, and it is good news for air cargo, as road and rail infrastructure is failing to keep a pace and shipping lines cannot fully satisfy demand.

New data from Macquarie Research Economics reveals that between 3Q 2008 and 3Q 2010, Asian exports increased by 10 per cent and imports were 17 per cent higher. Strong demand from China in particular boosted the economies of Korea, Taiwan and south-east Asia.

This contrasts with a marked decrease in US purchases of electronic goods and appliances, which account for around half of Asian air exports there. Lingering concern over job prospects and household budgets means US consumer spending is now projected to grow three per cent this year, down from earlier forecasts. Similarly, the International Monetary Fund (IMF) believes European economic growth could be as low as 1.8 per cent this year.

In its World Air Cargo Forecast 2010-2011, Boeing agrees that Asia will continue to generate the most growth. The domestic Chinese market is predicted to grow at 9.2 per cent per year over the next 20 years and intra-Asian markets at 7.9 per cent, outpacing annual global growth of 5.9 per cent.

It is significant that two of Asia’s largest cargo carriers, Cathay Pacific and Singapore Airlines, are both investing in cargo joint ventures (JVs) with Chinese airlines. The strategy will underpin their traditional European and North American business streams as well as giving them greater access to, and a minority financial interest in, the burgeoning Chinese economy.

Cathay increased its cargo traffic by 23 per cent to 10.2 million FTKs last year, enough to overhaul Korean Air Lines and become the largest Asian carrier. Cathay launched a twiceweekly round-the-world freighter flight connecting Hong Kong, Anchorage, Chicago, Amsterdam and Dubai, as well as increasing freighter frequencies to Miami, Houston, Dubai, Delhi, Chennai, Dhaka, Tokyo, Osaka and Hanoi.

Despite a sluggish air cargo peak season in the run up to Christmas 2010, members of the Association of Asia Pacific Airlines (AAPA) saw volumes rebound by 24 per cent for the full year, reaching five billion freight tonne kilometres (FTKs). As capacity expanded more slowly at 15.5 per cent, this brought a welcome 4.9 point increase in international cargo load factor to 70 per cent.

Positive growth rates AAPA’s director general, Andrew Herdman, says: “Growth rates naturally moderated as the recovery phase was completed, but the outlook remains broadly positive. The prevailing shift of political influence and commercial dynamism towards Asia should result in players from the region playing an increasingly important role in shaping the future of the air transport industry.”

China’s overall air cargo volume for 2010 was estimated to reach 6.2 million tonnes, up from 5.6 million tonnes in 2009. In the UK, however, airfreight capacity increased by almost 20 per cent during the year. European carriers report that this is affecting their load factors and yields from the Far East.

Morgan Stanley warns that the recent exceptional growth in air cargo will not continue this year, even for Asia-Pacific airlines.

The analyst cites a maturing life cycle in technological products, which typically sees a shift to ocean freight as must-have items become better established in the market – a trend exacerbated by the widening gap between air and shipping rates.

Cathay Pacific will sell four freighters to the Air China Cargo JV

AFM72_Asia Pac_AFM71 03/03/2011 15:19 Page 31

March-April 2011 AFM • ISSUE 72 | 31

FLEET OPERATIONS: Asia-Pacific

CASHING IN ON ASIA-PACIFIC FREIGHT DEMAND

AFM72_Asia Pac_AFM71 03/03/2011 15:19 Page 32

32 | AFM • ISSUE 72 March-April 2011

FLEET OPERATIONS: Asia-Pacific

“

exceptional growth in air cargo will not continue this year, even for Asia-Pacific airlines. A maturing life cycle in technological products typically sees a shift to ocean freight as must-have items become better established in the market – a trend exacerbated by the widening gap between air and shipping rates.

The recent

”

Morgan Stanley

“The PRD remains the largest export-oriented manufacturing area in the world. This is the primary reason why HKIA is the world’s largest international cargo hub. But we believe the Yangtze River Delta will also continue to grow rapidly, and the JV’s primary operational focus will be northern and eastern China.

“This is not an either/or situation; both markets will grow and remain competitive relative to export zones elsewhere,” he adds.

“China is our second largest export market after our home market of Hong Kong. We expect the volumes out of Shanghai Pudong to remain strong.”

Increase in volume HKIA’s cargo volumes rose 23 per cent last year to 4.1 million tonnes. A new cargo terminal being built by Cathay will increase the airport’s cargo handling capacity by 50 per cent when completed in early 2013.

HACTL handles 70 per cent of Hong Kong airport’s cargo tonnage

Strong import demand from the Chinese market resulted in a better directional balance in Cathay’s traditionally export-led markets. James Woodrow, general manager of Cathay’s cargo sales and marketing, expects intra-Asia business to show the strongest growth this year and is no more than “moderately optimistic” about the trans-pacific market.

Chan: Hong Kong must diversify to protect its market in the long-term

“We expect Latin America and Mexico to continue to be strong and US exports should benefit from the weak dollar. For Europe, we have concerns about a number of markets although we expect Germany to continue to flourish and exports from the whole of Europe to continue to grow helped by the weak euro,” he says.

Cathay plans to increase its cargo capacity by eight per cent this year. It now expects to start taking delivery of the first six longdelayed 747-800Fs from this August. It will also receive nine passenger aircraft, including five 777-300ERs and three A330s.

Hong Kong Air Cargo Terminals Ltd (HACTL) handles about 70 per cent of the airport’s throughput and reached a record 2.9 million tonnes last year, up 25 per cent on 2009 and well ahead of its previous high of 2.6 million tonnes in 2007.

Lilian Chan, executive director of HACTL, said: “The growth in airfreight demand continued all the way throughout 2010, although we saw a milder growth in the 3Q and 4Q due to the higher base effect in the 2H of 2009.”

HACTL’s export tonnage grew 29 per cent to 1.59 million tonnes while imports grew 19 per cent to 742,000 tonnes due to strength early in the year. Imports however, were just one per cent up in the 4Q, and dipped year-on-year in December. Total transhipment volume for 2010 was 568,000 tonnes, an increase of 22 per cent.

Chan confirms that Asia is driving growth. “The slow recovery in the US and possible debt problems in the eurozone are causing uncertainty, but Asian carriers are in a better position as a result of the exploding demand in China, where consumer sentiment is relatively strong, as well as growing intra-Asia trade.

Air China Cargo, Cathay’s Shanghai-based JV with Air China, builds on a cross-shareholding structure between the carriers that dates back five years. Under the deal, Cathay Pacific has taken up a 25 per cent equity stake and a further 24 per cent economic “We have the excellent connectivity and transportation infrastructure to be the major gateway to China,” Chan says. But interest through an offshore trust. Including four 747-400BCFs she warns: “Hong Kong’s air cargo industry is highly dependent that Cathay is selling to it, the JV will see its freighter fleet on PRD’s development. The PRD region is faced with challenges increase from seven to 12 by the end of this year. arising from rising wages and growing factory set-up cost, which is pushing factories inland.

Despite the rapid growth of Shanghai and other mainland Chinese cities, Cathay Pacific is sure its home base of Hong Kong can maintain its hub status in future years, and is building a new “To protect its market in the long run, Hong Kong needs to diversify its cargo sources, while maintaining its competitive terminal there. efficiency edge against mainland counterparts.”

“Cathay Pacific Cargo derives the majority of its cargo and revenue Woodrow: Pearl River and Yangtze Hong Kong Ideas Centre, a local think tank, says HKIA is now from its HK [Hong Kong] home-based market, and through its manufacturers will operating at 93 per cent capacity, and will be at 100 per cent ability to work from Hong Kong International Airport [HKIA] to continue to lead the by 2017. It is calling for the government to approve a third provide the gateway of choice for importers to, and exporters world, generating big air cargo exports runway, and points out the risks of increased competition from from, its PRD [Pearl River Delta] hinterland,” Woodrow explains.

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AFM72_Asia Pac_AFM71 04/03/2011 11:24 Page 34

34 | AFM • ISSUE 72 March-April 2011

FLEET OPERATIONS: Asia Pacific neighbouring airports. Shanghai Pudong will open runways four and five in 2015, the firm’s report states. By 2020, Incheon in South Korea will have four runways, and Kuala Lumpur five. Bangkok, Singapore and Taipei airports are also scheduled to expand.

Singapore Airlines (SIA) saw cargo volumes improve by 10.4 per cent and yields by 33.2 per cent in the 1H of its 2010-11 financial year. Now, in line with its competitors, SIA observes “marked regional differences”, with weak European demand undermining a strong Asia-Pacific market.

Analyst Standard & Poor says it has been difficult to build a global-scale air cargo operation from a base in south-east Asia because of the limited manufacturing in Singapore, Malaysia and Indonesia, relative to China.

This prompted SIA Cargo’s decision to take a 16 per cent stake in China Cargo Airlines (CKK). Taiwan’s EVA Airways has done likewise, while a shipping line holds 17 per cent. Shanghai-based China Eastern Airlines retains a majority 51 per cent share and will continue to manage CKK’s operations.

The JV covers freighters only, unlike the Cathay Pacific-Air China agreement, but again develops an existing relationship. CKK will acquire core air cargo transport businesses and related assets from Shanghai Cargo Airlines International, formed as a venture between Shanghai Air and EVA, and from Great Wall Airlines, which was owned by China Eastern, SIA and Singapore government investment company Temasek.

Airport activity: on the up EVA and rival Taiwanese carrier China Airlines both profited from GDP growth of more than eight per cent in Taiwan last year, with sales of notebook computers and mobile phones buoyant. For many years, the airlines were unable to operate to mainland China, but now fly freighters to destinations including Shanghai, Guangzhou Nanjing, Xiamen and Fuzhou.

Singapore’s Changi Airport is developing an Air Cargo Express hub (ACE), supported by new airside infrastructure including two new aircraft parking bays. The first facility of its kind in the region, ACE is expected to be operational in the 1H of 2012. The airport has not revealed the name of the hub’s main tenant, but FedEx is considered a likely candidate.

Singapore Airport Terminal Services has meanwhile opened Coolport at Changi, hailed as the first dedicated on-airport perishables facility in Asia. Coolport is already claimed to be 60 per cent full and is expected to reach its 250,000 tonne capacity in two years. The unit is designed to handle meat, live seafood and fresh flowers, but its secure cool chain logistics process will enable it to handle more stringently controlled pharmaceutical and biomedical products.

Changi recorded an 11 per cent increase to 1.81 million tonnes of cargo last year, boosted by three new all-cargo carriers, Transmile, Tri-MG Airlines and CKK. Hong Kong Airlines followed in January, introducing four freighters a week.

In Japan, meanwhile, All Nippon Airways (ANA) has benefited from the restructuring at debt-ridden Japan Airlines (JAL), resulting in the sale of all its freighters. This has coincided with a sharp recovery in cargo demand, and the return of international traffic to Tokyo’s Haneda airport, which can offer more slots after opening a fourth runway.

ANA has added freighter services to Singapore and Vietnam from its cargo hub in Okinawa, and has responded to a liberalised aviation agreement with China by promising new passenger services there.

Okinawa, 1,500km southwest of Tokyo, opened in October 2009 and initially served Hong Kong, Bangkok, Taipei, Seoul and Shanghai, all within four hours’ flying range. The hub is free from the night restrictions that hamper operations in Tokyo.

Singapore’s Changi Airport is building an Air Cargo Express hub

“China is an important and strategic market. We believe that through this acquisition, we will gain a stronger foothold in the China market,” says an SIA Cargo spokeswoman.

CKK is based at Shanghai Hongqiao with a hub at Shanghai Pudong. It operates a mixed fleet of 13 freighters, comprising MD-11s, 747-400s, 777s and A300s and serves 26 destinations in China, Asia, Europe and the US, recently adding a scheduled Milan service.

China Southern Airlines, based in Guangzhou, has the largest fleet of China’s “big three”, China Southern, China Eastern and Air China, but unlike its rivals, has established no cargo JV with a foreign partner. The financial crisis put an end to a proposed deal with Air France-KLM in 2009, though the carrier joined the SkyTeam Cargo alliance.

China Southern Cargo operates freighters from Guangzhou and Shanghai to destinations including Amsterdam, Frankfurt, Vienna, Chicago and Los Angeles, and will receive a sixth 777-200F this year to take its fleet to nine.

ANA plans to integrate its network with the merged United Airlines/Continental entity in a JV launching on April 1. The only downside for the carrier, the launch customer for the 787, is that it has been forced to retain older aircraft and bring in short-term cover while it awaits its first Dreamliner deliveries.

Haneda has seen a five-fold increase in cargo traffic since it opened a new international terminal towards the end of 2010 and restarted scheduled overseas flights for the first time in more than 30 years. Users of Haneda’s Tokyo International Air Cargo Terminal (TIACT) are exporting fish, fruit and other fresh produce following the opening of a temperature-controlled holding facility.

A new US-Japan aviation bilateral agreement, signed in October, may encourage new carriers to consider Haneda. No freighter operators to and from the US have yet taken up the Haneda opportunity, however, because the annual number of cargo services is still tightly controlled and freighter flights are forced to land between 11pm and 6am.

The first of four A330-200 freighters is due to enter service with MASkargo in September. “We are confident the aircraft is set to become a game-changer in the mid-size freighter market, enabling us to efficiently match capacity closely to demand, especially on intra-Asia sectors,” says MASkargo MD, Shahari Sulaiman.

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AFM72_China_AFM71 03/03/2011 15:59 Page 36

36 | AFM • ISSUE 72 March-April 2011

TRADING, LEGAL & FINANCE: China

W

ESTERN AND EUROPEAN OEMS AND SUPPLIERS see the potential in China – and the profit it could deliver. But while business opportunities beyond the ‘big four’ airframe OEMs (Boeing, Airbus, Bombardier and Embraer) signal reward, they are also fraught with risk.

China’s AVIC is already flying the ARJ-21, a 70-90 seat regional jet that competes against the incumbent 70-90 seat E170/175/190, Bombardier’s CRJ-700/900 and Mitsubishi’s new MRJ. The ARJ-21 uses Western engines (GE’s CF34) and systems. It looks like a mini MD-80 (which was assembled by Shanghai Aviation Interests in the 1980s) but is heavier than its competitor and almost certainly not as economical.

Furthermore, the ARJ-21 is years beyond its original entry into service (EIS) date. It is now slated for late this year, yet critics question whether even this delayed timeline will be met.

COMAC, affiliated with AVIC, is developing the mainline C919, a 150-200 seat aircraft that bears a notable resemblance to the A320. Specifications are similar but, like the ARJ-21, the C919 appears (according to early data released by COMAC) to be heavier. Like the ARJ-21, Western systems are used extensively, but unlike the ARJ-21, the C919 has the next generation engine – the CFM LEAP-X, and the promise of 15 per cent lower fuel burn versus the venerable CFM56. The ultimate fuel efficiency improvement is unclear given the sketchy specifications that have been released about the C919 and the suggestion that it will be heavier than the A320.

Regardless of the commercial viability of the two aircraft, China’s goal to create a competitive aerospace industry means Western OEMs and suppliers are scrambling to take part in this emerging sector.

For example, Safran signed a joint venture (JV) in December 2009 with China to develop components and eventually an indigenous engine for the C919; GE formed a JV in January 2010 with AVIC for technology transfer for avionics; Airbus built its A320 assembly plant in Tianjin and contracted with China to provide composites for the new A350; Embraer has an E145 assembly plant in Harbin; and Bombardier uses Shenyang companies to build fuselage sections for the Q400 turboprop and the new CSeries.

AFM72_China_AFM71 03/03/2011 15:59 Page 37

March-April 2011 AFM • ISSUE 72 | 37

TRADING, LEGAL & FINANCE: China China now has the largest world economy behind the US and it is using this growth to make its commercial aerospace industry a national priority. Futhermore, its government is building airports at a pace so rapid, Western officials could only dream of matching it. China is now a crucial aviation partner, yet it is also notoriously secretive and a potential threat to the West’s aerospace sector. Are we playing with the enemy, or allowing caution to hold us back? Scott Hamilton reports.

DOING BUSINESS WITH CHINA: THE RISKS AND REWARDS

…

Members of the global supply chain are happy for new business but by assisting the Chinese aviation market, Western OEMs and suppliers are effectively supporting new competitors. Even more sensitive is the prospect of China applying its rivals’ pioneering technical knowledge to military projects.

…

AFM72_China_AFM71 03/03/2011 16:00 Page 38

38 | AFM • ISSUE 72 March-April 2011

TRADING, LEGAL & FINANCE: China

“Chinese

leverage to extract offsets — agreements to transfer some of the aircraft production along with related expertise and technology — as part of the deals. firms have used their

”

– Report to Congress of the US-China Economic and Security Review Commission, 2010.

The knowledge trade In a congressional hearing in May 2010, Daniel Elwell, VP for civil aviation of the Aerospace Industries Association (AIA), testified that China recognises its need to rely on the global supply chain in order to compete with international aircraft.

“To produce viable, domestically-produced aircraft, China needs to have access to these capabilities either within its own borders or through imports,” Elwell testified. But it added: “The Chinese government would, of course, prefer the former to the latter.”

Members of the global supply chain are happy for new business but by assisting the Chinese aviation market, Western OEMs and suppliers are effectively supporting new competitors. Even more sensitive is the prospect of China applying its rivals’ pioneering technical knowledge to military projects.

Chinese officials have been ambiguous about this, at times indignantly denying they would misuse this knowledge or engage in industrial espionage, and at others, talking openly about such technology’s dual use for civilian and military products.

The political and corporate ramifications of either making or admitting to these charges could be devastating. Yet The 2010 Report to Congress of the US-China Economic and Security Review Commission is unambivalent. It states unequivocally that China is taking civilian technology and applying it to military development, sometimes in the same building.

Mary Saunders, deputy assistant secretary for manufacturing at the US International Trade Administration (ITA), told a congressional hearing in May 2010 that: “China has increasingly required that joint ventures be established as a condition for awarding manufacturing contracts. These joint ventures typically involve some element of technology transfer by the US partner.

The intention seems to be for China to develop domestic capabilities in sub-systems in addition to airframes.”

“Chinese firms have used their leverage to extract offsets – agreements to transfer some of the aircraft production along with related expertise and technology – as part of the deals,” the report says.

“Priority will go to foreign suppliers that design and manufacturer products with domestic companies in China,” an unidentified deputy manager of COMAC said in 2008.

The Chinese government is unapologetic about demanding technology and JVs in exchange for the privilege of doing business in China. Western companies have little choice: comply or be cut out. In a meeting in December 2010, hosted by the department of commerce of one US state promoting its supply chain in China, companies present were told they had to provide Chinese JVs with the latest technology and they also had to

assume China was going to take their intellectual property regardless of contractual safeguards. This was the price of doing business. To stay ahead of the Chinese, the Western companies had to continually develop next generation technology, the companies were told.

Louis Gallois, EADS’ CEO, was quoted by London’s Financial Times (FT) in January about China’s spying. Within 24 hours, EADS strongly denied the report. (The FT characterised it as a Gallois retraction.) In an unusual spectacle, Tom Enders, CEO of Airbus (an EADS subsidiary), and a subordinate to Gallois, six days later defended China.

Yet not long after Airbus opened its A320 assembly plant in Tianjin, the press reported that Airbus had fended-off at least four major cyber attacks on the plant.

The transfer of knowledge is critical to the development of China’s aviation sector. Many consider both the ARJ-21 and C919 as concept aircraft with which the Chinese will learn all they need in order to build the next generation of commercially competitive aircraft.

The need for partnerships with the West “China currently lacks the technology and know-how for completing such a difficult project,” the congressional report says.

Engines are a particularly challenging area.

“Despite progress in other areas of aviation, China’s aviation engine sector remains an Achilles’ heel… A major obstacle is China’s inability to successfully develop and manufacturer an advanced turbofan engine… Without the ability to successfully produce a turbofan engine, China will remain dependent upon imported engines,” the report adds.

This makes the JV with Safran for the eventual development of an indigenous engine particularly significant.

The ARJ-21 has some 200 orders and options, including a handful with the US-based lessor GECAS, and regional airlines outside China. The C919 – still in its infancy with a planned first flight in 2014 and an EIS of 2016 – received its first orders at the Zhuhai Air Show last November — 55 firm and 45 options, a rather disappointing number given the pre-show expectations of hundreds, as was forecast by government officials.

Given the familial relationship between GECAS and GE Engines (supplier of the powerplants on the ARJ-21 and C919), the few orders from GECAS were not surprising. Its order also aids the certification of the aircraft by the US Federal Aviation Administration (FAA). US president Obama pledged in November 2009 “to try and expedite FAA certification of the ARJ21, potentially eliminating a key barrier to future international sales,” according to the congressional report of 2010.

AFM72_China_AFM71 04/03/2011 10:26 Page 39

March-April 2011 AFM • ISSUE 72 | 39

TRADING, LEGAL & FINANCE: China

COMAC’s C919: A concept aircraft with which the Chinese will learn all they need in order to build the next generation of commercially competitive aircraft.

Implications for Airbus and Boeing The decision by Airbus to set up an assembly plant in Tianjin was somewhat controversial. From Airbus’ perspective, the move was purely commercial: it supports Chinese sales. Airbus has not overtaken Boeing in orders for single-aisle aircraft – a market monopolised by Boeing.

Airbus’ Enders explained his company’s decision to co-operate with the Chinese in a typically candid remark during the Airbus Innovation Days media event in Hamburg, in 2009. To paraphrase, he remarked that the Chinese are going to develop a commercial aerospace industry and if Airbus did not help, somebody else would.

So far, the venture is far more successful than the MD-80/MD-90 assembly plant in Shanghai. The McDonell Douglas plant assembled, virtually by hand, only some 40 aircraft during its entire existence. When an AFM reporter visited the plant in December 1988, it was by Western standards extremely primitive and demanded so much power that during daylight hours, electricity to other parts of the city was rationed.

The A320 plant replicates the high-tech assembly line in Hamburg and it is moving toward producing 48 A320s a year, more than the MD-80/90 facility did in 10 years.

While Enders claims the skills needed to assemble an aircraft are quite different to those needed to design one, both are part of a large jigsaw.

Boeing has used the emerging competitors as a reason to seek cost controls. During 2008’s 58-day strike against Boeing by the International Association of Machinists (IAM), Boeing’s CEO, Jim McNerney, sent an email to his staff explaining why Boeing needed to lower costs. Among reasons was the emerging competition from Japan, Canada, Russia and China. What McNerney did not include in the email was that Boeing’s JVs in Japan, China and Russia helped to create these new competitors.

Japan designs and builds wings and wing boxes for the 787.

Boeing has a major engineering design centre in Russia and is China’s biggest aerospace customer, according to the 2010 report.

Among its Chinese suppliers are: BHA Aero Composites; Chengdu Aircraft Corp; Hafei; Shanghai Aviation Industries; Shanghai Commercial Aircraft and Xian Aircraft.

McNerney has ties to China that pre-date his tenure at Boeing.

During his long career at GE, he became president of GE AsiaPacific in Hong Kong in 1993 at a time when there were no operations in China. McNerney headed the effort to enter China and by April 2004, after he left GE, the company did $4bn in business there. After McNerney became CEO of 3M, a nonaviation company, he continued his interest in China, expanding 3M’s business relationships there.

Yet McNerney does not believe Boeing’s close ties with China are leading to the transfer of sensitive technological knowledge or that they threaten Western dominance in innovation.

During Boeing’s 2010 earnings call in January 2011, New York Times’ reporter, Christopher Drew, asked McNerney how he feels about GE and other suppliers transferring technology like the 787 core computing system to the C919, to which McNerney answered: “I don’t think that threatens the proprietary nature or innovativeness of our airplanes here. If I did, I would raise my hand, but I don’t see that. And we all have to strike a balance between protecting our IP and innovation. And I don’t know what’s going on in the minds of the GE folks. And I don’t want to try to represent it either.”

The 2010 Report to Congress of the US-China Economic and Security Review Commission perhaps sums up the current state of affairs best: “Building upon the knowledge gained from previous joint ventures with foreign aviation manufacturers, as well as the experience acquired during the development of the ARJ-21, the C919 is China’s premier commercial aviation project.”

“

progress in other areas of aviation, China’s aviation engine sector remains an Achilles’ heel… A major obstacle is China’s inability to successfully develop and manufacturer an advanced turbofan engine.

Despite

– Report to Congress of the US-China Economic and Security Review Commission, 2010.

”

AFM72_Bribes_AFM71 03/03/2011 15:52 Page 40

40 | AFM • ISSUE 72 March-April 2011

TRADING, LEGAL & FINANCE: Bribery Act Any global aviation business will be aware that in certain countries, in certain circumstances, payments help things happen. Sometimes, that is just the way things are done. But the UK’s new Bribery Act will make what seems a normal course of action, an illegal one. Richard Mumford, partner and head of the dispute division at ASB Law, a specialist in aviation law, explains.

THE UK BRIBERY ACT:

DON’T GET CAUGHT OUT T

HE UK’S NEW BRIBERY ACT 2010, DUE TO COME INTO force later this year, will instil a blanket ban on all forms of bribery, altering the way UK companies operate and potentially limiting their trade.

The new legislation will cast the US’ Foreign Corrupt Practices Act and the Alien Tort Statute, both of which only impair the ability of US citizens to pay bribes abroad, as its benign counterparts.

The tougher UK legislation covers all acts of bribery, whether fulfilled or not; it covers bribery both in the UK and abroad; and introduces criminal offences committed by companies.

The legislation in action To put this into context, consider the following example. An executive jet owned by a UK operator sits on the tarmac in a foreign country. It is hot and the important clients sitting on board are eager to return home. The aircraft needs fuel to takeoff, so the UK crew approach the local officials and ask to buy some. The sale of fuel in that country is heavily regulated and can only be purchased from a single official source. The official in charge of the fuel tells the crew that they can only buy fuel if they pay him $1,000 as a personal fee to send over a tanker and re-fuel the aircraft. This happens every time they land in this particular country and they have the cash ready. They pay the official; he sends over the tanker, re-fuels the aircraft and charges them for the fuel.

The crew see nothing wrong with this. In that country it is customary to pay the official (all the airlines do) and, after all, they are paying him to do his job, not to do something improper or illegal. None of this takes place in the UK. Surely this will not be affected by the Bribery Act? Unfortunately, they would be wrong. Under the act, it will be an offence to seek to influence any foreign official through the payment of a bribe. The crew who pay and/ or offer the bribe could be guilty of an offence that carries a sentence of up to 10 years in prison. If the aircraft operator has not taken adequate steps to prevent bribery in its business, then it too will be guilty of an offence and could face an unlimited fine. Its senior management could be prosecuted if they consent to, or connive in bribery. Only the foreign official who demanded the bribe remains unaffected.

Many aviation business managers reading this article can see the problem that arises from this example. What were the crew supposed to do? Had they refused to pay, they would have been unable to leave. This could have caused significant delay, claims for compensation and loss of future business from passengers, a

damaged reputation and difficulties next time the operator flies into this particular airport. Unfortunately, the Bribery Act has no defence of duress (i.e. it is not good enough to claim that the crew had no real option but to pay the bribe). Even if it did, this situation is precisely what the act is designed to tackle.

To understand why, some background to the act is required. In essence, bribery and corruption in developing countries is considered to distort and harm their legitimate growth into modern, free economies with opportunities for all. An Organisation for Economic Co-operation and Development (OECD) convention in 1997, which was signed by 38 countries, sought to outlaw the bribery of foreign officials but required implementation into local law. It has taken the UK 14 years to do so under significant external political pressure, chiefly from the US. But from a political (rather than commercial) perspective, it was worth the wait, because the Bribery Act appears to go significantly beyond our OECD commitment.

The act was drafted to catch every potential instance of bribery.

Indeed, no bribe need ever be paid; a mere offer of a bribe is sufficient and can be prosecuted, even if the bribe is never paid and the improper conduct never takes place. Politically, this is easy to understand – you cannot eradicate bribery by having legislation that essentially prohibits someone from paying bribes, unless they really feel they need to. Evidence of payment or improper conduct may also be hard to establish.

Commercially, the issue is much more blurred. Many businesses expect to occasionally pay to get things done in foreign countries. But the act applies to all companies, even charities that do business overseas – so the aviation industry, while hit hard because of its global reach, need not feel that it has been singled out for special treatment.

It is also easy to understand why those states that have implemented anti-bribery legislation might feel aggrieved at those that have not. Consider another scenario. A country has major oil reserves being exploited at a number of installations 400 miles up the coast from the capital. There is a steady flow of personnel and equipment from the main airport in the capital to a smaller landing strip at the oilfields.

The airports are controlled by the state and they put to tender a single contract for the operation of those routes by helicopter and aircraft. ‘Company A’ clearly puts in the best tender.

However, ‘Company B’ pays bribes to the officials making the decisions. The officials offer to award the contract to ‘Company

AFM72_Bribes_AFM71 03/03/2011 15:53 Page 41

March-April 2011 AFM • ISSUE 72 | 41

TRADING, LEGAL & FINANCE: Bribery Act

…new legislation

Foreign Corrupt Practices Act and the Alien Tort Statute, both of which only impair the ability of US citizens to pay bribes abroad, as its benign counterparts.

The

will cast the US’

…

AFM72_Bribes_AFM71 03/03/2011 15:53 Page 42

42 | AFM • ISSUE 72 March-April 2011

…

TRADING, LEGAL & FINANCE: Bribery Act

OECD convention… sought to outlaw the bribery of foreign officials but required implementation into local law.

It has taken the UK 14 years to do so [but]… it was worth the wait, because the Bribery Act appears to go significantly beyond our An

…

OECD commitment.

A’ if they will only match the bribes. ‘Company A’ is based in a country where it is an offence to pay bribes, so refuses.

‘Company B’ is not, so is awarded the contract.

Not fair, not right, but it happens all of the time. Even if ‘Company A’ had won the tender, it is quite possible that unless it was prepared to pay bribes to gain access to maintenance, fuel or other logistical needs, then its supply chain would have driedup, making the contract unworkable.

The only way to make this effective is to persuade everyone to refuse to pay bribes – but that ideal, could it ever to be reached, is a long-term goal. Neither Russia nor China are signatories. Nor is any country in the Middle East or Asia beyond Japan, South Korea and Israel. South Africa is the only signatory in Africa.

What constitutes a bribe?

Bribes do not only come in the form of cash-stuffed envelopes.

They can include administrative fees, commissions, grease payments and other forms of apparent charging. More than that, a bribe can be any ‘advantage’ given to another, so could include lavish hospitality, honours, political favours or other benefits without a strict monetary value.

The key to understanding whether something is, or is not, a bribe is the purpose for paying it. If the purpose is to persuade another person to do something ‘improper’, then it is a bribe. In the case of a foreign official, the test is even wider – it only has to be intended to ‘influence’ them in their role, whether it is to do something proper or not. That is why the crew in the first example committed the offence, even though they simply paid an official to do his job.

Whether something is ‘improper’ is crucially judged by how a reasonable person would consider that conduct, were it to take place in the UK. For these purposes, local foreign custom is irrelevant. The only exception is where a foreign country has written legislation expressly allowing bribery, but in the opinion of the Ministry of Justice (MOJ), no such country currently exists.

Adequate steps All this may seem a little gloomy, and unfortunately it is. A business will need to demonstrate that it has taken ‘adequate steps’ to prevent bribery within its organisation. There are a number of elements to this. First, it will need to enshrine antibribery into the framework and culture of its business.

Employment contracts should outlaw bribery and a robust antibribery policy should be put in place. But it needs to go further than this. Staff should be trained and monitored to ensure they

understand and comply with their obligations. This might be achieved through on-line training with testing that allows a business to demonstrate a basic level of understanding.

A business should also consider its interface with the outside world. Robust terms and conditions should demand compliance by any supplier or customer with the anti-bribery legislation; there should be warnings and disclaimers on its website and in its marketing literature; suppliers, agents and brokers should be kept under particular scrutiny and control to ensure that they do not cause the business to fall foul of the act.

Finally, senior management should be very careful not to derogate from the restrictions and procedures put in place. They should take a step back from their daily roles and pull apart the processes of the company to identify areas that are at particular risk of bribery, employing more resources to anticipate and minimise that risk.

None of this can prevent a member of staff finding themselves with an impossible choice to make – for example, the thirsty aircraft stuck on the tarmac. By law, they must decline to pay and take the consequences, hoping that eventually the errant official will relent.

In practice, this may take weeks and so be entirely unworkable. By paying the bribe, they, and quite likely the operator, will commit an offence. But will they be prosecuted for it?

It is dangerous to assume not, but in order for a prosecution to take place in the UK a number of things would need to happen. Firstly, someone would have to tell the UK authorities (the police). Who would do that in these circumstances? Probably not the official, though his government might if they wish to clamp down on corruption. It is also unlikely that the passengers would, as they are probably unaware that a bribe has been paid. The crew could, but would risk prosecution themselves. However – and this is the biggest area of risk – a disgruntled employee might. Departing and embittered employees are the biggest source of risk for this type of situation and it is therefore very dangerous for a company to assume that payment of bribes might never come to light.

Of course, even if they do, the police would need to establish an evidential case to a criminal standard of proof (beyond reasonable doubt), and persuade the Crown Prosecution Service (CPS) to take a prosecution. This would require them to consider it in the public interest and worth the use of resources. The latter point may depend on what message the police and the CPS are trying to promote at that time. Essentially, the higher profile the offender and the offence, the more likely it is to be prosecuted.

In the oilfields example, the risk is much greater because a spurned tenderer will be highly likely to report a winning bidder if bribery is suspected.

The government issued a consultation towards the end of last year.

It is due to publish guidance three months before the act comes into force, although that guidance is now late. It is imagined that they are wrestling with these issues, but in reality it is unlikely that anything will be done to substantially temper the effects of the act for businesses in the aviation industry. So now is the time to take the steps outlined above, particularly to consider the business and areas of risk, so that a strategy can be developed to minimise or remove those risks and protect the business.

However, high profile or more substantial businesses will be advised to look more closely at what they do and how they do it in order to demonstrate that they have taken adequate steps to comply. Whatever size of business, this should be part of a current agenda and not delayed for long.

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AFM72_Deals original_AF&NM Special Feature 03/03/2011 15:55 Page 44

44 | AFM • ISSUE 72 March-April 2011

AIRCRAFT DEALS REPORT

FLEET FINANCE – Deals report Aircraft transactions February 1 to February 25 2011 Equipment Model

New Owner/ Operator

Previous Owner/ Operator

Boeing 717-2k9 717-231 737-3s3 737-322 737-3y5 737-36m 737-3s3 737-4y0 737-4c9 737-405 737-524(W) 737-524(W) 737-524(W) 737-7bk 737-7h4(W) 737-8k5(W) 737-83n(W)(Etops) 737-8q8(W) 737-8q8(W) 737-86n(W) 737-8q8(W) 737-8q8(W) 737-83n(W)(Etops) 737-8as(W) 737-8as(W) 737-838(W) 737-838(W) 737-838(W) 737-838(W) 737-838(W) 737-838(W) 737-8as(W) 737-8as(W) 737-8as(W) 737-8as(W) 737-890(W) 737-8k5(W) 737-8k5(W) 737-8gj(W) 737-86j(W) 737-86j(W) 737-86j(W) 737-86n(W) 737-86n(W) 737-86n(W) 737-86n(W) 737-86n(W) 737-86n(W) 737-86n(W) 737-8k5(W) 737-8k5(W) 737-8jp(W) 737-81d(W) 737-81d(W) 737-8fe(W) 737-8fe(W) 737-8fe(W) 737-8kn(W) 737-8kn(W) 737-8as(W) 737-8as(W) 737-8as(W) 737-8as(W) 737-846(W) 737-9gper(W) 737-9gper(W) 757-21b 757-21b 757-204 757-28a 767-246 767-283er 767-3g5er

Blue1 Airtran Airways ACG Aircraft BCC Ames-Camo SAL Sky King Enter Air CIT Utair Aviation Utair Aviation Utair Aviation Aeromexico Southwest A/Lines Tui ILFC ILFC Caribbean A/Lines Yakutia Airlines ILFC Caribbean Airlines ILFC Wells Fargo Wells Fargo Qantas Airways Jetconnect Qantas Airways Jetconnect Qantas Airways Jetconnect Ryanair Ryanair Ryanair Ryanair Alaska Airlines Tui Tuifly Spicejet Pegasus Airlines Air Berlin Air Berlin GECAS China Eastern Shanghai Airlines GECAS Xiamen Airlines GECAS Shandong Airlines ACG Tuifly NAS AWAS NAS RBS RBS Virgin Blue Flydubai Flydubai Ryanair Ryanair Ryanair Ryanair JAL Lion Air Lion Air AACG ACG Jet2 Westjet Au7 ACG Wilmington Trust

Bavaria BCC Aerolineas Galapagos Gol NAS Central Connect A/Lines NAS Wells Fargo Volito SAA BLF BLF BLF CIT Boeing Tuifly Saga Airlines Yemenia ILFC OH Aircraft Yemenia ILFC Saga Airlines Ryanair Ryanair Boeing Qantas Airways Boeing Qantas Airways Boeing Qantas Airways Boeing Boeing Boeing Boeing Boeing Boeing Tui Boeing Air Berlin Boeing Avolon Boeing GECAS Boeing Company Boeing GECAS Boeing GECAS Boeing ACG Boeing Boeing AWAS Boeing Boeing Company RBS Boeing Fly Leasing Boeing Boeing Boeing Boeing Boeing Boeing Boeing China Southern China Southern Abbey National North American JAL Avianca ILFC

Serial No. or No. of (Orders)/(Options) 55053 55081 23787 23952 25613 28333 29245 23866 25429 25795 28905 28911 28912 30617 36669 27982 28249 28252 28252 28617 30661 30661 30706 33559 33560 34185 34185 34203 34203 34204 34204 35039 35040 35041 35042 35200 37252 37252 37365 37746 37760 37760 38011 38011 38011 38012 38012 38013 38013 38097 38097 39046 39412 39412 39921 39921 39921 40242 40242 40305 40306 40307 40308 40351 37277 37278 25083 25258 26967 28174 23214 24728 24257

Engine Model

Date of Manf or First Exp Deliv

Equipment

Br715a1-30 Br715a1-30 CFM56-3b2 CFM56-3b2 CFM56-3c1 CFM56-3c1 CFM56-3c1 CFM56-3c1 CFM56-3c1 CFM56-3c1 CFM56-3c1 CFM56-3c1 CFM56-3c1 CFM56-7b22 CFM56-7b24 CFM56-7b26 CFM56-7b27b1 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b27b1 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b27 CFM56-7b27b1 CFM56-7b27b1 CFM56-7b24 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b27 CFM56-7b27 RB211-535e4 RB211-535e4 RB211-535e4 RB211-535e4 Jt9d-7r4d PW4060 PW4060

1999-12 2000-12 1987-03 1988-03 1993-02 1996-07 1998-07 1988-07 1992-01 1997-03 1997-08 1997-11 1997-12 2001-03 2011-01 1997-06 2002-04 2002-07 2002-07 2000-02 2002-07 2002-07 2001-08 2004-01 2004-01 2011-01 2011-01 2010-12 2010-12 2011-01 2011-01 2011-01 2011-01 2011-01 2011-02 2011-01 2011-01 2011-01 2011-01 2009-11 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-02 2011-02 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-02 2011-01 2010-12 2011-01 1991-03 1991-07 1993-01 1999-04 1985-06 1990-04 1988-12

Leased Leased Returned Returned Returned Returned Returned Leased Leased Returned Leased Leased Leased Leased Delivered Returned Returned Returned Leased Leased Returned Leased Returned Sold Sold Delivered Leased Delivered Leased Delivered Leased Delivered Delivered Delivered Delivered Delivered Delivered Leased Delivered Sold Delivered Sale-Leaseback Delivered Leased Sub-Leased Delivered Leased Delivered Leased Delivered Leased Delivered Delivered Leased Delivered Sold Leased Delivered Sale-Leaseback Delivered Delivered Delivered Delivered Delivered Delivered Delivered Returned Returned Leased Sub-Leased Sold Returned Sold

Date 2011.02.19 2011.02.07 2011.02.17 2011.02.02 2011.02.19 2011.02.01 2011.02.12 2011.02.15 2011.02.04 2011.02.01 2011.02.01 2011.02.01 2011.02.01 2011.02.01 2011.02.10 2011.02.22 2011.02.09 2011.02.01 2011.02.02 2011.02.10 2011.02.01 2011.02.02 2011.02.09 2011.02.11 2011.02.22 2011.02.14 2011.02.14 2011.02.01 2011.02.01 2011.02.16 2011.02.16 2011.02.10 2011.02.09 2011.02.03 2011.02.24 2011.02.22 2011.02.17 2011.02.17 2011.02.04 2011.02.17 2011.02.15 2011.02.15 2011.02.01 2011.02.01 2011.02.01 2011.02.16 2011.02.16 2011.02.24 2011.02.24 2011.02.16 2011.02.16 2011.02.22 2011.02.22 2011.02.22 2011.02.02 2011.02.02 2011.02.02 2011.02.07 2011.02.07 2011.02.18 2011.02.17 2011.02.07 2011.02.24 2011.02.09 2011.02.08 2011.02.28 2011.02.01 2011.02.01 2011.02.11 2011.02.13 2011.02.03 2011.02.01 2011.02.03

AFM72_Deals original_AF&NM Special Feature 03/03/2011 15:55 Page 45

March-April 2011 AFM • ISSUE 72 | 45

AIRCRAFT DEALS REPORT Equipment Model

New Owner/ Operator

Previous Owner/ Operator

767-3g5er 767-33aer 767-346er 767-381er 767-316er 767-381f 777-222er 777-Fs2 777-36ner 777-36ner 777-319er 777-319er 777-319er 777-306er 777-306er 777-3f2er A319-112 A319-112 A319-132 A319-115x A319-115x A320-214 A320-232 A320-232 A320-214 A320-214 A320-231 A320-214 A320-214 A320-214 A320-216 A320-216 A320-214 A320-233 A320-232 A320-232 A320-232 A320-216 A320-216 A320-214 A320-214 A320-214 A320-214 A320-214 A320-214 A320-214 A320-233 A320-232 A321-231 A321-231 A321-231 A321-211 A321-231 A330-243 A330-243 A330-223(Hgw) A330-343e A330-343e A330-343e A340-313x A340-313x A380-800 A380-800

Hawaiian Airlines Aerosvit Airlines JAL ANA LAN Airlines Express Freighters Omni Air Federal Express GECAS Egyptair Air New Zealand DAE Air New Zealand Air France KLM Turk Hava Yollari Aerolineas Galapagos Brussels Airlines LAN Airlines Sonair White Airways Azerbaijan Airlines LAN Airlines LAN Airlines RBS Easyjet Global Principal Avianca Wells Fargo Avianca AirAsia Indonesia AirAsia Juneyao Airlines LAN Airlines Jetblue Airways Hainan Airlines Beijing Cap A/Lines AirAsia Indonesia AirAsia GECAS Spring Airlines Easyjet GECAS Aigle Azur Easyjet Niki Luftfahrt LAN Airlines Indigo Atlasjet TAM Linhas Aereas Lufthansa Saudi Arabian Airlines Lufthansa Aircastle South African Airways Korean Air Lines Saudi Arabian Airlines Swiss Edelweiss Air ILFC Finnair Skymark Airlines Skymark Airlines

Wilmington Trust Royal Brunei A/Lines Boeing Boeing Boeing Mercury US Bank Boeing Boeing GECAS Boeing Boeing DAE Boeing Air France Boeing ILFC Whitney Airbus China Sonangol Sonair Air Berlin Aeroasis Aeroasis Easyjet RBS Indian A/Lines Airbus Airbus Wells Fargo Airbus AirAsia Airbus Airbus Airbus Airbus Hainan Airlines Airbus AirAsia Airbus GECAS Airbus Airbus GECAS Airbus Airbus Airbus Airbus AWAS Airbus Airbus Airbus Airbus Airbus Aircastle Airbus Airbus Airbus Swiss Air France ILFC Airbus Airbus

January 25-31 717-2cm 737-3t0(W) 737-322 737-322 737-3k2 737-3k2 737-382 737-33a 737-3y5 737-36n 737-4s3 737-4s3 737-4s3

Blue1 Orient Thai Airlines Security Pacific Apollo Aviation Jetscape NAS Triton Aviation Webjet Linhas Aereas Boeing Blue Panorama A/Lines Transalpine Transaero Transalpine

SAS AS & L United Air Lines Wilmington Trust Jetscape – Airlift Service CIT Moscow A/Lines Aft Trust 1 Boeing Transalpine Boeing

Serial No. or No. of (Orders)/(Options)

Engine Model

Date of Manf or First Exp Deliv

24257 25533 40366 40567 (3) 33510 26935 37137 38290 38290 38406 38406 38406 39972 39972 40711 1882 3790 4605 2675 2675 2865 3264 3330 4157 4157 416 4567 4567 4567 4571 4571 4573 4576 4578 4580 4580 4582 4582 4586 4586 4588 4589 4589 4591 4594 4597 4603 1950 4570 4585 4590 4607 1191 1191 1200 1192 1193 1193 174 174 (4) [2]

PW4060 PW4056 CF6-80c2b7f CF6-80c2b6f CF6-80c2b7f CF6-80c2b6f PW4090 GE90-110b1l CFM56-7b26 CFM56-7b26 GE90-115b GE90-115b GE90-115b GE90-115b GE90-115b GE90-115b CFM56-5b6/P CFM56-5b6/3 V2524-A5 CFM56-5b7/P CFM56-5b7/P CFM56-5b4/P V2527-A5 V2527-A5 CFM56-5b4/3 CFM56-5b4/3 V2500-A1 CFM56-5b4/3 CFM56-5b4/3 CFM56-5b4/3 CFM56-5b6/3 CFM56-5b6/3 CFM56-5b4/3 V2527e-A5 V2527-A5 V2527-A5 V2527-A5 CFM56-5b6/3 CFM56-5b6/3 CFM56-5b4/3 CFM56-5b4/3 CFM56-5b4/3 CFM56-5b4/3 CFM56-5b4/3 CFM56-5b4/3 CFM56-5b4/3 V2527e-A5 V2527-A5 V2533-A5 V2533-A5 V2533-A5 CFM56-5b3/3 V2533-A5 Trent772b-60 Trent772b-60 PW4170 Trent772b-60 Trent772b-60 Trent772b-60 CFM56-5c4 CFM56-5c4 – –

1988-12 1992-08 2010-11 2011-01 2012-07 2006-01 1997-07 2011-01 2011-01 2011-01 2010-12 2010-12 2010-12 2011-01 2011-01 2011-01 2002-12 2009-02 2011-02 2006-02 2006-02 2006-07 2007-09 2007-11 2009-12 2009-12 1993-03 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-02 2011-02 2011-01 2003-03 2011-01 2011-01 2011-01 2011-02 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 1997-05 1997-05 2015-03 2016-10

Leased Sold Delivered Delivered Ordered Leased Leased Delivered Delivered Leased Delivered Sold Leased Delivered Leased Delivered Leased Leased Delivered Returned Sold Leased Returned Returned Returned Leased Sold Delivered Sold Leased Delivered Leased Delivered Delivered Delivered Delivered Leased Delivered Leased Delivered Leased Delivered Delivered Leased Delivered Delivered Delivered Delivered Leased Delivered Delivered Delivered Delivered Delivered Leased Delivered Delivered Delivered Leased Returned Leased Ordered Optioned

2011.02.03 2011.02.12 2011.02.03 2011.02.22 2011.02.01 2011.02.07 2011.02.10 2011.02.24 2011.02.22 2011.02.22 2011.02.15 2011.02.15 2011.02.15 2011.02.07 2011.02.07 2011.02.07 2011.02.03 2011.02.03 2011.02.01 2011.02.01 2011.02.02 2011.02.12 2011.02.02 2011.02.02 2011.02.08 2011.02.08 2011.02.01 2011.02.01 2011.02.01 2011.02.02 2011.02.01 2011.02.02 2011.02.01 2011.02.08 2011.02.01 2011.02.01 2011.02.02 2011.02.09 2011.02.09 2011.02.01 2011.02.02 2011.02.09 2011.02.01 2011.02.02 2011.02.01 2011.02.01 2011.02.01 2011.02.01 2011.02.11 2011.02.01 2011.02.08 2011.02.14 2011.02.01 2011.02.07 2011.02.07 2011.02.01 2011.02.07 2011.02.01 2011.02.02 2011.02.01 2011.02.02 2011.02.17 2011.02.17

55060 23374 24250 24250 24327 24327 24365 25033 25614 28563 24165 24165 24166

Br715a1-30 CFM56-3b1 CFM56-3c1 CFM56-3c1 CFM56-3b2 CFM56-3b2 CFM56-3b2 CFM56-3b2 CFM56-3c1 CFM56-3c1 CFM56-3c1 CFM56-3c1 CFM56-3c1

2000-06 1986-02 1988-11 1988-11 1989-04 1989-04 1989-02 1991-03 1993-04 1997-07 1989-04 1989-04 1989-04

Sub-Leased Sold Returned Sold Transferred Leased Returned Leased Returned Leased Sold Leased Sold

2011.01.31 2011.01.25 2011.01.27 2011.01.27 2011.01.25 2011.01.25 2011.01.28 2011.01.25 2011.01.31 2011.01.28 2011.01.27 2011.01.27 2011.01.25

Equipment

Date

AFM72_Deals original_AF&NM Special Feature 03/03/2011 15:56 Page 46

46 | AFM • ISSUE 72 March-April 2011

AIRCRAFT DEALS REPORT Equipment Model

New Owner/ Operator

Previous Owner/ Operator

737-4s3 737-476 737-548 737-548 737-548 737-548 737-524(W) 737-524(W) 737-524(W) 737-7bk 737-7bx(W) 737-7ct(W) 737-883 737-8q8(W) 737-8q8(W) 737-8q8(W) 737-8as(W) 737-86n(W) 737-8as(W) 737-8as(W) 737-8as(W) 737-890(W) 737-8k5(W) 737-8k5(W) 737-8q8(W) 737-8q8(W) 737-8jp(W) 737-8jp(W) 737-8jp(W) 737-89l(W) 737-8as(W) 737-8as(W) 737-846(W) 737-890(W) 737-800(W) 737-990er(W) 747-481 757-2q8(W)(Etops) 757-2q8(W)(Etops) 757-236 767-383er 767-383er 767-319er 777-260lr A319-112 A320-233 A320-233 A320-214 A320-232 A320-232 A320-212 A320-232 A320-232 A320-214 A320-214 A320-214 A320-214 A320-214 A320-214 A320-214 A320-214 A320-232 A320-232 A320-232 A320-214 A320-214 A320-214 A320-214 A321-231 A321-231 A321-231 A321-211 A321-211(W) A330-343 A330-343 A330-343 A330-300 A380-842 A380-842

Transaero Qantas Airways Jetscape Aviation Rossiya Airlines Jetscape Aviation Rossiya Airlines Continental Airlines Continental Airlines Wells Fargo CIT Southwest Airlines Westjet SAS Sunwing Airlines ILFC Wells Fargo Wells Fargo Neos Ryanair Ryanair Ryanair Alaska Airlines Tui Thomson Airways ILFC Xl Airways France NAS JSA International NAS Air China Ryanair Ryanair JAL Alaska Airlines Unknown Alaska Airlines MCap Wells Fargo Delta Air Lines Thomas Cook BCI Business Air Omni Air Ethiopian Airlines LAN Airlines Wells Fargo TAM Linhas Aereas ILFC Amentum Amentum Wells Fargo Air Lease Corporation Air New Zealand GECAS Star Flyer GECAS AFS Investments Virgin America GECAS Saudi Arabian Airlines Air Arabia Aerventure Hainan Airlines West Air Cebu Pacific Air BOC Aviation Aeroflot Niki Luftfahrt Asiana Airlines Wind Rose Wind Rose Saudi Arabian A/Lines Thomas Cook Air China HKIA Hainan Airlines Tui Travel Qantas Airways Qantas Airways

Transalpine Jetconnect Jetscape Jetscape Jetscape Jetscape Wells Fargo Continental Airlines Continental Airlines CIT ACG Boeing SAS Eurocypria Airlines Eurocypria Airlines ILFC Ryanair Celestial Boeing Boeing Boeing Boeing Boeing Tui Travel Boeing ILFC Boeing Boeing JSA Boeing Boeing Boeing Boeing Boeing Boeing Boeing ANA ACG Wells Fargo Wells Fargo Tui Airlines BCI Omni Boeing Airbus Wells Fargo Wells Fargo Turkuaz Airlines Mandala Airlines Mandala Airlines Aerco Airbus Air Lease Corp Airbus GECAS Airbus Airbus AFS Investments Airbus GECAS Airbus Airbus Aerventure Aerventure Airbus Airbus BOC Aviation Airbus Wells Fargo Easyjet Easyjet Airbus Airbus Airbus Airbus HKIA Airbus Airbus QF ECA

Serial No. or No. of (Orders)/(Options) 24166 28152 25737 25737 25739 25739 28913 28913 28913 30617 30745 40338 28318 30671 30671 30720 33557 34257 35036 35037 35038 35201 37248 37248 38819 38819 39045 39045 39045 40015 40302 40304 40350 (2) (10) (13) 25645 25624 25624 29946 24848 24848 24875 40772 4563 1339 1339 2048 3524 3543 391 4553 4553 4555 4555 4559 4559 4559 4564 4564 4568 4569 4569 4569 4574 4579 4579 4581 1174 2462 2682 4577 (12) 1187 1190 1190 (2) 050 050

Engine Model

Date of Manf or First Exp Deliv

CFM56-3c1 CFM56-3c1 CFM56-3b1 CFM56-3b1 CFM56-3b1 CFM56-3b1 CFM56-3c1 CFM56-3c1 CFM56-3c1 CFM56-7b22 CFM56-7b20 CFM56-7b22 CFM56-7b26 CFM56-7b27 CFM56-7b27 CFM56-7b26 CFM56-7b24 CFM56-7b26 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b27 CFM56-7b27b1 CFM56-7b27b1 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b26 CFM56-7b26 CFM56-7b27 CF6-80c2b1f PW2037 PW2037 RB211-535e4 PW4060 PW4060 CF6-80c2b6 GE90-110b1l CFM56-5b6/3 V2527e-A5 V2527e-A5 CFM56-5b4/P V2527-A5 V2527-A5 CFM56-5a3 V2527-A5 V2527-A5 CFM56-5b4/3 CFM56-5b4/3 CFM56-5b4/3 CFM56-5b4/3 CFM56-5b4/3 CFM56-5b4/3 CFM56-5b4/3 CFM56-5b4/3 V2527-A5 V2527-A5 V2527-A5 CFM56-5b4/3 CFM56-5b4/3 CFM56-5b4/3 CFM56-5b4/3 V2533-A5 V2533-A5 V2533-A5 CFM56-5b3/3 CFM56-5b3/3 Trent772c-60 Trent772b-60 Trent772b-60 – Trent972-84 Trent972-84

1989-04 1996-10 1992-02 1992-02 1992-03 1992-03 1997-12 1997-12 1997-12 2001-03 2001-11 2011-01 2000-03 2003-03 2003-03 2007-03 2003-12 2006-07 2011-01 2010-12 2010-12 2010-12 2011-01 2011-01 2010-12 2010-12 2011-01 2011-01 2011-01 2010-12 2011-01 2011-01 2010-12 2013-12 2012-06 2012-09 1993-04 1993-03 1993-03 1999-06 1990-07 1990-07 1991-05 2011-01 2011-01 2000-10 2000-10 2003-06 2008-06 2008-06 1992-12 2010-12 2010-12 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2011-01 2000-02 2005-04 2006-01 2011-01 2014-08 2010-12 2010-12 2010-12 2015-04 2009-08 2009-08

Equipment

Date

Leased 2011.01.25 Returned 2011.01.31 Transferred 2011.01.25 Leased 2011.01.25 Transferred 2011.01.25 Leased 2011.01.25 Lease-Buyout 2011.01.28 Sold 2011.01.28 Sold 2011.01.28 Sold 2011.01.28 Leased 2011.01.28 Delivered 2011.01.27 Sale-Leaseback 2011.01.27 Returned 2011.01.27 Returned 2011.01.27 Sold 2011.01.27 Sold 2011.01.26 Leased 2011.01.26 Delivered 2011.01.28 Delivered 2011.01.25 Delivered 2011.01.25 Delivered 2011.01.25 Delivered 2011.01.31 Leased 2011.01.31 Delivered 2011.01.28 Leased 2011.01.28 Delivered 2011.01.27 Sold 2011.01.27 Leased 2011.01.27 Delivered 2011.01.31 Delivered 2011.01.28 Delivered 2011.01.28 Delivered 2011.01.27 Ordered 2011.01.25 Ordered 2011.01.30 Ordered 2011.01.25 Returned 2011.01.25 Transferred 2011.01.28 Leased 2011.01.28 Leased 2011.01.27 Returned 2011.01.26 Leased 2011.01.27 Leased 2011.01.31 Delivered 2011.01.26 Delivered 2011.01.26 Transferred 2011.01.25 Leased 2011.01.25 Returned 2011.01.28 Sold 2011.01.31 Sold 2011.01.31 Sold 2011.01.26 Delivered 2011.01.27 Leased 2011.01.27 Delivered 2011.01.31 Leased 2011.01.31 Delivered 2011.01.25 Sold 2011.01.25 Leased 2011.01.25 Delivered 2011.01.31 Leased 2011.01.31 Delivered 2011.01.31 Delivered 2011.01.28 Leased 2011.01.28 Sub-Leased 2011.01.28 Delivered 2011.01.25 Delivered 2011.01.31 Leased 2011.01.31 Delivered 2011.01.27 Leased 2011.01.31 Leased 2011.01.27 Leased 2011.01.28 Delivered 2011.01.31 Ordered 2011.01.25 Delivered 2011.01.25 Delivered 2011.01.25 Leased 2011.01.25 Ordered 2011.01.27 Delivered 2011.01.31 Sale-Leaseback 2011.01.31 Source: OAG Fleet iNET, 2011

AFM72_Deals original_AF&NM Special Feature 03/03/2011 15:57 Page 47

March-April 2011 AFM • ISSUE 72 | 47

PASSENGER TRAVEL BY KEY REGIONS Key passenger regions

Worldwide To/from Africa Within Africa To/from Asia/Pacific Within Asia/Pacific To/from Central & South America Within Central & South America To/from Europe Within Europe To/from Middle East Within Middle East To/from North America Within North America

January 2010

Variance

Seats

Frequency

Seats

Frequency

%

Seats

%

2,370,027 36,074 60,906 55,642 562,909 64,344 206,569 94,862 500,369 48,034 43,940 87,336 802,188

294,636,429 7,060,551 6,438,742 13,648,221 86,101,670 10,544,451 21,504,825 21,491,795 60,939,855 10,397,649 6,734,422 16,889,439 72,900,862

2,481,326 40,319 68,335 62,399 613,805 61,765 217,700 104,811 521,850 53,771 45,312 87,731 808,926

311,227,683 7,913,115 6,987,786 15,189,100 93,425,905 10,271,480 22,630,389 23,852,290 63,533,153 11,677,601 6,995,854 17,447,294 74,479,156

111,299 4,245 7,429 6,757 50,896 -2,579 11,131 9,949 21,481 5,737 1,372 395 6,738

5% 12% 12% 12% 9% -4% 5% 10% 4% 12% 3% 0% 1%

16,591,254 852,564 549,044 1,540,879 7,324,235 -272,971 1,125,564 2,360,495 2,593,298 1,279,952 261,432 557,855 1,578,294

6% 12% 9% 11% 9% -3% 5% 11% 4% 12% 4% 3% 2%

Key passenger regions

Worldwide To/from Africa Within Africa To/from Asia/Pacific Within Asia/Pacific To/from Central & South America Within Central & South America To/from Europe Within Europe To/from Middle East Within Middle East To/from North America Within North America

January 2011

Frequency

February 2010

February 2011

Variance

Frequency

Seats

Frequency

Seats

Frequency

%

Seats

%

2,207,461 32,387 54,964 49,730 528,201 57,647 185,970 84,825 484,146 43,374 39,940 78,059 741,229

272,788,359 6,269,808 5,740,582 12,204,535 80,275,146 9,433,498 19,326,216 19,114,435 58,284,420 9,412,643 6,118,238 15,036,099 67,308,248

2,286,249 36,115 61,768 55,965 569,264 55,179 195,420 93,558 493,150 49,014 41,312 78,067 741,386

285,747,429 7,099,946 6,269,871 13,616,047 86,276,430 9,171,290 20,460,027 21,257,621 59,538,064 10,726,958 6,385,477 15,452,830 68,155,214

78,788 3,728 6,804 6,235 41,063 -2,468 9,450 8,733 9,004 5,640 1,372 8 157

4% 12% 12% 13% 8% -4% 5% 10% 2% 13% 3% 0% 0%

12,959,070 830,138 529,289 1,411,512 6,001,284 -262,208 1,133,811 2,143,186 1,253,644 1,314,315 267,239 416,731 846,966

5% 13% 9% 12% 7% -3% 6% 11% 2% 14% 4% 3% 1%

AFM72_Airport technology_AFM71 03/03/2011 15:43 Page 48

48 | AFM • ISSUE 72 March-April 2011

AIRPORTS & ROUTES: Airport technology A single swipe of the RFID Q Card at the airport is all that is required for checkin under Qantas’ next generation approach.

Modern advances such as self-service technologies and smartphones are contributing to major improvements and intriguing new possibilities in airport efficiency and passenger satisfaction. Bernard Fitzsimons examines the progress.

AIRPORT TECHNOLOGY:

THE SELF-SERVICE GENERATION T

HE AIR TRANSPORT INDUSTRY COULD SAVE $2.1BN each year by implementing self-service options in five areas of the passenger journey, calculates the International Air Transport Association (IATA), which represents most of the world’s international airlines.

Now that e-ticketing is virtually universal and self check-in via web, kiosk and mobile phone are becoming commonplace, IATA’s Fast Travel programme aims to encourage the introduction of self-service document checks, bag tagging, flight re-booking, boarding and baggage recovery. All have been implemented at one or more airports, but a crucial element of the bag-drop equation is that passengers typically have to queue, even after checking themselves in and printing their own bag tags.

In SITA’s latest poll published last October, nearly 2,500 passengers were quizzed on self-service. It found that 70 per cent of passengers would be willing to tag their own bags. At the same time, it found that nearly half of those who checked in at a desk, rather than on-line or through a kiosk, did so because they needed to check a bag.

Automated bag-drop One of the first airports to discard the bag-drop queue was Auckland, where Air New Zealand introduced a new check-in system for domestic flights in 2008. Extended in 2010 to cover flights to Australia, the process includes the familiar procedure of checking-in at a kiosk, which prints the boarding pass and baggage tag as well as allowing customers to change a flight, change seats and pay for any excess baggage. Once the bag is tagged, the customer places it on a baggage belt, which caries it airside.

The kiosks are supplied by IER of France, whose product range also embraces a full range of self-service hardware, middleware and software. Bruno Paganelli, head of IER’s self-services and systems business line, says the multi-step bag checking process, with passengers checking-in on-line, by mobile at the kiosk,

printing their bag tags at the kiosk then dropping their bags at the conveyor belt, is an application of lean techniques: “They recommend alleviating constraints on the bottleneck. Our bottleneck is the check-in process bag injection point.”

Many of IER’s customers are concerned about passengers preferring a one-step process, he says, with tagging and drop-off at a single point: “But this is because the wrong question was asked. Passengers should be asked, ‘do you prefer a one-step process with a 10 minute line at the bag injection point or a twostep process with no line?’ A vast majority of passengers then opt for the secure route: no waiting means no uncertainty.”

Common use facilities, like the common use self-service (CUSS) kiosks already in widespread use, are the ultimate goal. New Zealand-based automation and logistics specialist BCS – whose Airflow software reconciles the passengers and bags with intended flights once they are airside at airports with Air New Zealand’s new check-in – recently unveiled a self-service baggage check-in solution for common-use platforms.

AFM72_Airport technology_AFM71 03/03/2011 15:43 Page 49

March-April 2011 AFM • ISSUE 72 | 49

AIRPORTS & ROUTES: Airport technology

Developed in co-operation with SITA, BAGgate combines the issue of boarding passes and bag tags at the self-service check-in kiosk with fully automated acceptance of the bags. BAGgate automatically scans the baggage tag, reconciles the boarding pass and passenger, then weighs the bag, measures it and dispatches it for the flight without the need for agent intervention. The system is due to be deployed this year at an airport on Australia’s east coast.

RFID revolution In preparation for November 2010’s inauguration of its next generation check-in at Sydney after a trial at Perth, Qantas issued upper tier frequent flyers and Qantas Club members with radio frequency identification (RFID) cards that act as a permanent

boarding pass and reduce the check-in process to a simple swipe of the card on a reader. Confirmation of check-in comes in the form of a visual indication and audible tone on the reader, plus an SMS reference with confirmation of seat selection sent to the registered mobile phone associated with the card. At the boarding gate another swipe of the card generates a coupon with the flight details and seat number.

Complementing the card is a permanent RFID baggage tag.

“Instead of stickers and weigh-ins at the desk, you just scan your personal boarding pass and drop your bag with its permanent bag tag on the belt,” says Qantas’ CEO, Alan Joyce. “And while the process will be wonderfully simple, the technology behind it will ensure the full range of security checks remain solidly in place.”

AMOS

A STORY OF SUCCESS

–

“THE BEST FIT IN TERMS OF FUNCTIONALITY, PRICE AND MARKET STANDING,” STATES EASYJET READ MORE ABOUT THE WORLD-CLASS M&E SOFTWARE SYSTEM AT SWISS-AS.COM

AFM72_Airport technology_AFM71 03/03/2011 15:44 Page 50

50 | AFM • ISSUE 72 March-April 2011

AIRPORTS & ROUTES: Airport technology

“

growing number of people with Wi-Fi -enabled smartphones, we can triangulate their position from the Wi-Fi access points and determine where they’re spending their time, where they’re clustering and where they go from one area to another to better understand the flow and how we can facilitate it.

For the

– Kevin Peterson, product manager, SITA

”

In pursuit of its ‘intelligent airport’ vision, he says, SITA has been working with various airports to track passenger flows: “That’s brought in a whole new dimension in terms of doing anonymous passenger tracking so they can understand queues and flow and bottlenecks within the airport, and they can make process modifications to achieve better flow.”

The pilot studies have used several techniques to track passengers. One relies on bar-coded boarding passes: the tracking is initiated when the pass is printed at either an agent workstation or a CUSS kiosk, “and whenever it’s scanned – at security or immigration or retail or at boarding – we can capture that information to determine how long that passenger has been at the airport and where they spent a segment of their time.”

The Qantas system also accommodates mobile phone boarding passes.

Tracking passengers’ Bluetooth-enabled phones can help understand queues and their operation, says Peterson. “We’ve been involved in a project that will deploy Bluetooth throughout an airport for tracking purposes on a much more granular basis. And we recently did a pilot at a major European airport using Wi-Fi triangulation. For the growing number of people with Wi-Fi enabled smartphones, we can triangulate their position from the Wi-Fi access points and determine where they’re spending their time, where they’re clustering and where they go from one area to another to better understand the flow and how we can facilitate it.” Video analytics is another potential technique for queue management.

At the bag-drop the ‘Q Bag Tag’ is synchronised with the Qantas card and flight details, but no personal information is recorded.

The bag-drop produces heavy baggage tags if necessary, plus a baggage receipt; if the weight exceeds the passenger’s The goal, he says, is to combine the various methods of tracking: entitlement it will offer the choice of re-packing or paying for the excess, in the latter case issuing a printed coupon that can be “You could have the bar-coded boarding pass data, data related to Bluetooth tracking, or Wi-Fi tracking, all on an anonymous basis used to make payment at a kiosk or sales desk. The tags were and create a platform that’s technology-agnostic but still allows initially used only for domestic flights pending the resolution of you to understand where your passengers are or how you can security and document issues affecting international flights. facilitate their movement as you continue to deploy technology.”

Supplied by TAGSYS, the tags are claimed to be the industry’s first The Bluetooth tracking relies on some complicated algorithms. reusable RFID baggage tags, they can store details of up to four flights and are re-programable for subsequent flights. They can “When you’re doing queue analysis you want to understand things very granularly,” Peterson explains. “At a security area, for instance, also be interrogated by hand-held readers, making it easier to you could have 10 different lanes and you’d like the ability to locate items in the hold that need to be off-loaded. identify what’s happening in each of those lanes, so the algorithms get quite involved.” Wi-Fi is more useful for tracking people over a The ‘Q Bag Tags’ represent nothing less than a revolutionary broader area, and uses technology furnished by the Wi-Fi provider: approach to using RFID in airline applications, according to TAGSYS’ CEO, Alain Fanet. Where previous RFID-based baggage “They’ll already have triangulation platforms but they just haven’t really been implemented. So we’re helping to pioneer that.” tracking solutions relied on disposable tags and focused exclusively on improving the efficiency and accuracy of postcheck-in baggage sorting, he says, the Qantas approach achieves Security and smartphones those improvements while offering new customer service SITA’s own end-to-end self-service initiative covers the whole benefits at the front end of the process: “By expanding the value travel process from the purchase of the ticket to arrival, including proposition of RFID from the point the customer checks their E-gates to help automate the security checks that have become a baggage, throughout the handling and sorting process, Qantas major cause of bottlenecks. “Rather than having a security agent has positioned itself on the leading edge of RFID utilisation.” do your document inspection you can obtain your boarding pass, have that validated automatically along with your travel documentation and then you’re able to go through into the X-ray Know your airport area without talking to a security agent,” Peterson says.

The first step in implementing airport self-service, says SITA’s product manager, Kevin Peterson, is to better understand the existThe security screening itself is another focus for SITA’s self-service ing passenger flows within the airport and how that can be efforts. Passengers rate this the fourth priority for improvement, he facilitated through more self-service deployment.

AFM72_Airport technology_AFM71 03/03/2011 15:44 Page 51

March-April 2011 AFM • ISSUE 72 | 51

AIRPORTS & ROUTES: Airport technology says, “but when you talk to frequent flyers reducing the time through security screening is the first area they’d like to see improvements.” His recommended approach is to deploy some of the anonymous tracking technology to understand passengers’ behaviour and the queuing that happens as the basis for modelling the introduction of self-service facilities such as security e-gates in order to level the peaks. “A lot of frequent travellers will be willing to give up privacy and pre-register or whatever it takes to get through the process quicker,”he says.“Then that eases the load for those people who will still be manually processed by security agents.”

Some airports do not require a passport scan, he says: “You can go through just on the basis of your bar-coded boarding pass.” At border airports, however, passengers need to be able to present travel documents or identification as well as boarding documents: “Right now we have all the components, we’re just in the process of stitching them together, I would say by the end of this year we will have e-gate security at one or more airports.”

The various check-in methods will co-exist for some time, Peterson predicts. “Agent check-in will be around for quite some time.

Kiosks, on-line and mobile are all growing at different rates right now, but certainly mobile self-service technology is growing and going to grow in leaps and bounds.”

Smartphones in particular seem set to be a principal vehicle for future innovation. Knowing in advance how long the security process is likely to take would be a major benefit, he says. “One of the things we’re looking to do is to write an application that lets you use your iPhone to access the current situation at an airport. That’s valuable information we can provide passengers with.”

Flight alerts are already being sent to passengers’ mobile phones, but there are some intriguing additional possibilities. “If the passengers are willing to opt in, not to anonymous tracking but being tracked specifically, you can also help them in their journey through the airport. If it’s a relatively large airport and they’re supposed to be at gate E1 and they’re 20 minutes late, you can tell them that they had really better come straight to the gate and not stop off to shop in the retail area.”

The alert could come via SMS or voice to the passenger’s phone.

“If there’s a gate change, instead of listening to the announcer, which you don’t really do, they can drive down a message to you. And maybe if you don’t respond and you’re being tracked uniquely and your behaviour isn’t matching the information, they can push an SMS to you or even call your mobile to say, ‘Hey, Mr Peterson, you’re in the wrong concourse.’” That would SMS alerts can warn passengers happen only on an opt-in basis, he stresses: “If you’re not willing to proceed to their gate to be tracked then you just don’t opt in.”

Another possibility, already trialled at an airport where the Wi-Fi triangulation was being piloted, is augmented reality: “You can take your iPhone, put it in camera mode and hold it up, and on the basis of your Wi-Fi signal and the iPhone’s compass you can see through the camera where you are. Then there’s the ability to tag the shops you’ve indicated a preference for, so if you like Starbucks’ coffee you can walk in the airport, hold it up and it can show you the way to go.”

And the innovation is unlikely to stop there. “It’s a brave new world,” Peterson concludes. “All kinds of interesting things are going to become available in the coming months and years.”

AMOS

A STORY OF SUCCESS

–

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AFM72_Asia LCC_AFM71 03/03/2011 15:06 Page 52

52 | AFM • ISSUE 72 March-April 2011

AIRPORTS & ROUTES: Asia LCCs Low-cost carriers have only featured in Asia for a decade or so, but in that time they have transformed the competitive landscape. Flag carriers, protected for so long by friendly governments, have been shaken out of cosy monopolies and fares have plummeted. So far, so unremarkable, but, in other ways, the impact and innovation of budget operators in Asia could be profound enough to influence their peers the world over. Alex Derber reports.

I

N MANY WAYS, ASIA IS WELL-SUITED TO LOW-COST carriers (LCCs): its population centres are massive and separated either by sea or unreliable surface transport; the middle class is expanding rapidly; and operating costs benefit from cheap labour.

To a casual observer, then, it might surprise that most budget airlines only really emerged in the region this century, whereas they had been a force in the US since the 1970s and in Europe since the early-1990s. A key sticking point has been liberalisation, with Asian nations slow to open their markets to competition that would hurt their respective flag carriers.

EASTERN PROMISE:

The benefit of liberalisation has been immense. Skymark launched in Japan in 1998 on two domestic routes: TokyoFukuoka and Tokyo-Sapporo. With tickets priced 50 per cent lower than the competition, both routes saw double-digit passenger growth and legacy carriers All Nippon Airways and Japan Airlines slashed their fares in response. But though passengers revelled in the resulting fare war, it proved a brutal apprenticeship for Skymark, which only became profitable in 2004, six years after launch.

Indonesia and the Philippines

However, Cebu is still playing catch-up with Indonesia’s Lion Air, which launched later but exploited its huge domestic market (Indonesia is the world’s most populous Muslim nation) to record quicker growth. Its fleet now totals 56 aircraft, most of which – unusual for an LCC – are the biggest variant of the 737, the 212-seat 737-900ER. An IPO for 30 per cent of the airline is planned for 2012 and, at $1bn, would dwarf that of Cebu.

One of the first Asian states to deregulate was the Philippines.

This led to the launch of Cebu Pacific, arguably Asia’s first LCC, in 1996. Despite a rocky start, which saw the airline temporarily lose its operating licence after a crash, Cebu expanded throughout the last decade, culminating in a $542m initial public offering (IPO) in November 2010, claimed to be the largest LCC public offering in history.

For some time it seemed feasible that Indonesia could sustain two large, successful LCCs, Lion Air and Adam Air. The latter launched in 2003 and had become the country’s largest privately-owned airline by 2007. Just one year later, though, Adam Air collapsed following a string of safety incidents and financial mis-management.

Other Japanese LCCs, such as Air Do and Skynet Asia, to have entered the market since the country’s liberalising Civil Aeronautics Law in 1999, have also struggled to turn a profit. In other parts of Asia, though, the low-cost market has been far more successful.

As is often the case with new LCCs, Cebu’s rise was to the detriment of the incumbent national airline, Philippine Airlines (PAL). Three years after launch Cebu controlled a quarter of the domestic market, while PAL’s share had slipped to less than half.

Once Cebu completes its next round of aircraft acquisitions, taking its fleet to 53, it will boast more aircraft than the flag carrier.

Thailand, Malaysia and Singapore As two of the region’s most popular tourist destinations, Thailand and the Malay Peninsula had perhaps the most to gain from liberalisation. Keen to lure leisure and business passengers back after the financial crisis in the

AFM72_Asia LCC_AFM71 03/03/2011 15:06 Page 53

March-April 2011 AFM • ISSUE 72 | 53

AIRPORTS & ROUTES: Asia LCCs

ASIA’S LOW-COST CARRIERS late 1990s, these countries opened up their air markets soon after. The explosion of LCCs that followed included what has become one of the world’s most innovative and successful airlines.

Kuala Lumpur-based AirAsia has become the leading player in the region with a Ryanair-like focus on cost, married to a customer-friendly approach that stands in sharp contrast to the Irish carrier’s often confrontational attitude. Whereas every feature inside Ryanair aircraft reminds passengers they are travelling cheaply, interiors on AirAsia’s A320s resemble those of full-service airlines. Despite this, AirAsia’s unit costs, at 3.6 cents per available seat kilometre (ASK), are among the lowest in the world. Its current fleet matches that of Lion Air in Indonesia and both airlines each have orders or options for more than 100 new narrowbodies with Airbus and Boeing.

Founded in Malaysia in 2001, AirAsia was quick to spread its wings. When Thailand pushed through similar liberalisation to its southern neighbour, AirAsia was on hand to set up Thai AirAsia, which launched in 2004 as a joint venture (JV)

with AirAsia holding 49 per cent and Thai communications group Shin Corp controlling the rest.

Eighteen months later, AirAsia moved into the hotly contested Indonesian market, buying grounded operator AWAIR – which had folded following a pernicious fare war – and relaunching it as Indonesia AirAsia, a JV with a similar ownership structure to its Thai offshoot. Both Thai and Indonesia AirAsia plan to list on the Bangkok and Jakarta stock exchanges, respectively.

AirAsia was not alone in pursuing foreign partnerships.

In December 2004, shortly after the launch of Thai AirAsia, Qantas’ subsidiary Jetstar launched Jetstar Asia, a minorityowned JV based at Singapore’s Changi Airport. The airline entered a market in the grip of a fare war between recent entrants Tiger Airways and Valuair, the latest proponent of the ‘low-cost with frills’ model that had proved so unsuccessful in Europe and the US. Shortly after launch Jetstar Asia and Valuair merged under the Jetstar brand and four years later Jetstar moved into Vietnam, which was then taking tentative steps towards deregulation, with a minority stake in Jetstar Pacific.

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54 | AFM • ISSUE 72 March-April 2011

AIRPORTS & ROUTES: Asia LCCs Competing for Singapore’s low-cost crown is Tiger Airways, which is one-third-owned by flag carrier Singapore Airlines. The LCC became profitable in 2009 and plans to add around 70 more aircraft to its fleet in the next five years. Tiger was the first airline to move into Changi Airport’s new low-cost terminal in 2006, and it immediately reported cost benefits, though its rival, Jetstar Asia, shunned a move to the new terminal. Both airlines operate similarly-sized fleets, but, in 2009, Tiger’s profit of $19m was almost four times that of Jetstar Asia.

Pressured by budding LCCs to the north and south, the Malaysian government opened the lucrative Singapore-Kuala Lumpur route to AirAsia in 2007, prompting a reciprocal deal for Tiger. The benefit to customers was immediate and predictable: Malaysian Airlines, which had previously operated the route as a duopoly with Singapore Airlines, dropped its fares from S$220 to S$26 ($173 to $20).

India and China India’s low-cost market has developed rapidly since the launch of regional operator Air Deccan in 2003. As the country made longer strides towards liberalisation, carriers scrambled to service a burgeoning middle class keen to abandon unreliable surface transport.

Air India launched a low-cost subsidiary, Air India Express, in 2005 and other full-service airlines followed suit: Jet Airways established JetLite and Kingfisher bought Air Deccan in 2008, rebranding it as Kingfisher Red and tinkering with its operating model. Meanwhile, dedicated LCCs – SpiceJet, IndiGo and GoAir – had also sprung up.

By 2007, India’s air transport market had over-heated and airlines old and new were suffering from over-capacity and a race to the bottom on fares. Cost was key and dedicated LCCs such as Indigo and Spicejet emerged in the healthiest state, clawing their way into profit in the following years while their full-service counterparts posted major losses.

Although full-service carriers Kingfisher and Jet, both of whom now run the majority of their domestic operations through lowfare divisions, still hold the biggest shares of India’s domestic market, the dedicated LCCs are catching up. IndiGo leads with a 17 per cent share, compared with Jet’s 26 per cent, while Spicejet holds 13 per cent. However, both IndiGo and Spicejet lead on load factors and could go on to dominate a market where hybrid carriers such as Air India and Jet have seen their budget arms hit by big losses at their full-service operations.

Delhi-based IndiGo set such ambitions in January, signing an MoU for 150 A320neo aircraft, the re-engined upgrade of Airbus’ existing A320, and 30 A320s. The expansion will back the airline’s move into international operations after completion in 2010 of its mandatory five years serving the domestic market.

Indian majors will watch with interest; they made big orders in the mid-2000s, before the market over-heated and they were forced to offload excess capacity. It should also be noted that IndiGo made a similar headline-grabbing order for 100 A320s in 2005, only 37 of which had been received five years later.

The tightly regulated Chinese market has not been fertile ground for domestic LCCs. Rules on aircraft procurement, pilot hiring, route allocation and ticket pricing all implicitly favour the established state-owned airlines, three of which – Air China, China Eastern and China Southern – control 80 per cent of the domestic market.

Only one LCC has emerged, Spring Airlines. Yet, despite the myriad difficulties it faces, Spring has proved the resilience of the

low-cost model by returning small profits from 2006 to 2009. Its fleet now comprises 20 A320s and it hopes to add 100 more by 2015. It has also revived plans for an IPO and is eyeing international services to Japan and South Korea.

Asian innovation Although Asia came late to the low-cost party, the market now boasts some of the most forward-thinking LCCs in the world.

Carriers such as Skymark and AirAsia may have followed the Southwest and Ryanair models, but budget operators in the west may in the future take their lead from Asia.

Long-haul, low-cost operations are an obvious example. AirAsia spun a long-haul carrier, AirAsia X, in 2007, beginning with lowfare flights between Southeast Asia and Australia and moving on to a Kuala Lumpur-London connection two years later. Jetstar also offers cheap tickets between Australia and Asia and both airlines benefit from feeding long-haul passengers into their short-haul hubs in Malaysia and Singapore.

However, the biggest experiment – literally – in low-cost operations is being undertaken by Japan’s Skymark, which firmed an order for six A380s in February 2011. It will receive the superjumbo from 2014, when it plans to offer long-haul flights on major international routes.

In fact, Skymark’s order followed one by Air Austral for the A380, which will operate in a high-density 840-seat configuration between Paris and the French island of La Reunion in the Indian Ocean. Airbus has no doubt that the A380 is suited to low-cost operations and predicts that LCCs and full-service operators in Asia will eventually account for more than half the A380 backlog.

Asian LCCs are also busy behind the scenes, developing partnerships and co-operatives unheard of between Western budget rivals. In January 2010, Jetstar and AirAsia, Asia-Pacific’s two largest LCCs, announced a wide-ranging agreement covering joint aircraft procurement, spares provision and ground handling services. Nonetheless, the airlines still compete vigorously: AirAsia subsequently announced plans to move into Jetstar Pacific’s home market of Vietnam with a JV called Vietjet AirAsia; while Jetstar agreed to partner Thai Airways on a new LCC, Thai Tiger, to challenge Thai AirAsia out of Bangkok’s Suvarnabhumi airport from early 2011.

Despite these steps forward, Asia still lags the West in several respects. Liberalisation, while welcome, has been patchy and further developed in some areas than others. China, for example, could radically alter the competitive landscape, but will continue to host foreign LCCs rather than its own so long as regulations remain tight.

For the most part, Asia also lacks secondary airports that LCCs can utilise to lower costs and streamline their operations. Such airports have allowed budget operators to flourish in the West, but only Kuala Lumpur and Singapore Changi offer dedicated low-cost terminals in south-east Asia. Oddly, given its regulatory regime, China also hosts a couple of low-cost terminals, at Xiamen and Xinzheng. The latter is the base of Spring Airlines, which also utilises Xiamen along with Tiger and Cebu Pacific.

However, it may not even be necessary for Asia to ape the West on secondary airports. Its carriers have already adapted and refined their operations to fit the region, sometimes with seemingly contradictory decisions, and they may continue to do so successfully. As an example, neither Jetstar Asia nor AirAsia chose to use Changi’s new low-cost terminal, although AirAsia does use the more inconveniently located low-cost terminal at Kuala Lumpur.

FPA_check 107:ATEM

11/11/10

10:36

Page 3

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AFM72_MRO Spares_AFM71 04/03/2011 09:29 Page 56

56 | AFM • ISSUE 72 March-April 2011

MAINTENANCE OPERATIONS: Spare parts logistics As airlines return stored aircraft to service and increase frequencies, the demand for maintenance and spare parts rises commensurately. Alex Derber investigates how the industry will respond to the uptick in demand following a savage recession.

SUM OF THE PARTS:

SPARE PARTS SUPPLY T

HERE ARE ROUGHLY FOUR MILLION PARTS IN AN A380, and a good majority will be repaired or replaced during its lifetime – which gives some idea of the complexity of inventory management at airlines and maintenance shops.

Essentially, demand for spare parts correlates to the volume of flight activity, but there are always time lags and different approaches to stock-keeping. For instance, ‘Airline A’, despite ramping up frequencies, might turn to a full warehouse of spares; whereas ‘Airline B’ could be nearing the start of a maintenance cycle without that back-up.

Most airlines today take ‘Airline B’s’ approach, holding lean inventories and ordering parts to arrive ‘just in time’, thereby maximising cost efficiencies. This requires technical and bureaucratic sophistication all the way down the supply chain, to ensure that inventories at every level are properly monitored, and that the documents attesting to the airworthiness of each part are present and correct.

Forecasting At the top of the supply chain, lean inventories make sense, but further down, suppliers must keep themselves adequately stocked to respond to customer demand. Predicting which parts will be needed when and where is a tricky business, which can depend as much on the customer as on the part.

ongoing basis, but we struggle with how to find a steady stream of desirable material at attractive pricing.”

Then there are differing approaches to inventory management, which require suppliers to read their customers as well as prevailing economic conditions. During the global downturn, for instance, many airlines opted to conserve cash by burning through their spares provision. This created a demand spike after the recession that threatened to catch out any suppliers who had neglected their own inventories.

Fort Lauderdale-based GA Telesis is a global distributor of airframe and engine parts and components. It exploited favourable pricing in the recession to boost stock levels.

“Because we increased our inventory position during the downturn, once the economy began recovery we experienced an immediate positive impact comparing our inventory to airline demand. We have about $500m in our inventory pipeline for delivery to our customers. This is unprecedented as we are aggressively seeking to increase our customer base and product offerings,” says Russell Bonnell, SVP of global sales at GA Telesis.

Magellan, based in North Carolina, also boosted inventory during the downturn, acquiring several aircraft for disassembly and securing a consignment deal with Bombardier for CRJ regional aircraft. “In fact,” says Rob Fessler, SVP of sales and marketing, “Magellan’s most profound growth occurred during the downturn as a result of the diversification into other aircraft types at the Consumables, for example, are expendable items such as nuts right price.” and bolts where demand is calculated according to historic usage.

But parts that can be repaired and reused – so-called rotables and repairables – are stocked according to the importance of the item.

Pooling and PMA As airlines worldwide have looked to co-ordinate their front-end “The forecasting side of the business creates a little bit of an issue operations through alliances and codeshares, they have also refor us,” says Dennis Zalupski, CEO of Fort Lauderdale-based evaluated their aftermarket and maintenance structures. One Kellstrom, which supplies aftermarket parts for both commercial obvious way to lower investment in spares has been to pool parts and military application. “On the new parts side we have access between themselves. to and use the same of types of demand forecasting tools many others use, and we are constantly working to improve our Suppliers might be expected to be against such pooling, as it processes. The issue we struggle with is on the surplus side of the could reduce overall demand for spares, but their views are aftermarket: we can identify the parts we want to procure on an remarkably wide-ranging. GA Telesis partners its airline and

AFM72_MRO Spares_AFM71 04/03/2011 09:30 Page 57

March-April 2011 AFM • ISSUE 72 | 57

MAINTENANCE OPERATIONS: Spare parts logistics maintenance customers in pooling programmes, which allows it to monitor their likely future requirements. “Pooling is definitely an area where you will see increased activity,” says Bonnell.

At Magellan, however, Fessler says: “The most notable pooling programmes appear to have hit their limits on numbers of participants and not many copy-cat endeavours have materialised.

They have not had a significant impact on the spares market, as evident from the number of independent [spares] companies carving out their share of an ever-growing market. It appears that the concept is compelling to airlines yet the management and execution of such programmes are burdened with complexity.”

Zalupski offers alternative reasons why pooling has “minimal impact” on Kellstrom’s business. “Many of these inventory pools are focused on harder-to-procure, newer-generation assets and this is typically not where our sweet spot is in the aftermarket,” he says.

Airlines can also lower spares costs through the use of PMA parts. These parts are not approved by the original equipment manufacturer (OEM), but are still airworthy and, crucially, cheaper than OEM-branded components. Suppliers like Kellstrom that offer overhauled parts believe they can offer better cost savings than PMA, but third-party manufactured parts remains a touchy subject.

GA Telesis does not supply PMA parts at present, as end-users often don’t accept them. OEMs also dislike them, as Bonnell explains: “I find it interesting that Pratt & Whitney does not like the use of PMA parts in their engines, but they manufacture PMA parts for CFMI engines and feel it is acceptable. The truth is, OEMs don’t like the competition and therefore loss of business. I don’t think they truly feel that PMA parts are un-airworthy.”

GA Telesis’ decision not to stock PMA parts is backed by experience at Magellan. Fessler reports one engine at the company proved unacceptable even to leasing customers because it contained PMA parts. “The cost saving of PMA is the driver and that will always appeal to an operator. However, once the asset is transitioning from its first home to its next, the rest of the industry is flummoxed. The appraisers don’t really know how to value engines with PMA installed because the lessors are not altogether willing to take such an animal onto their balance sheets. The market has seen the operational performance and the obvious economic benefits of PMA, yet the subject is still considered taboo amongst the finance circles.”

Due to this intransigence, Fessler believes PMA “may never have the impact once envisioned by several luminaries”.

OEM influence and automation The travails of the PMA industry may not make economic sense to operators, but they are a boon to OEMs that can continue to supply branded parts at a premium. Manufacturers, especially on the engine side, see the aftermarket as a major source of growth.

Until recently, this has seen them sell products at significant discounts in deals that tie customers to the OEM for maintenance, which offers more attractive margins than new product sales.

The next step would be to move into spares provision as well. “We do see this trend,” says Bonnell at GA Telesis, noting that General Electric, Rolls-Royce and Pratt & Whitney have all entered the used serviceable parts market. Nonetheless, he remains unconcerned, stating: “A typical engine customer is interested in used serviceable parts after an engine has operated about 10 years and this is when many of the initial OEM support contracts expire. The market is more competitive than the OEM at this juncture.”

AFM72_MRO Spares_AFM71 04/03/2011 09:31 Page 58

58 | AFM • ISSUE 72 March-April 2011

MAINTENANCE OPERATIONS: Spare parts logistics Fessler is similarly unfazed. He believes the OEMs’ intrusion into the aftermarket has mostly been at the expense of one another and also points to the number of independent maintenance shops – themselves creating a demand for spares – that offer competitive pricing for airframes and engines some way through their operational lives.

Increasingly sophisticated IT solutions, such as electronic data interchange (EDI) are needed to track the movement of increasingly numerous parts. Zalupski says that an IT solution has become a “pre-requisite”, but he also points out that the usefulness of any system, be it on- or off-the-shelf, depends on its ability to interact with systems above and below it in the supply chain.

The flexibility of information transfer that IT provides, allows GA Telesis to ensure the right products are available to the right customer at the right time. The inter-operability of systems remains crucial, but matters are improving in this respect. “We have had to make sizable IT investments to better serve our customers’ growing needs for automated information transfer. We sometimes struggle internally to try and be everything for everyone technology-wise, but more of our customers are beginning to use the same or similar EDI and ERP platforms, which allow us to continue specialising our support programmes,” says Bonnell.

While technological progression does afford vendors and customers greater visibility, it also brings its own challenges. Fessler says: “Several airline operators are mandating EDI technologies to communicate with vendors but it is not entirely for the better… operators are not only demanding RFQ traffic [information on price and availability] but also automated purchasing conducted over an electronic data interchange. Purchasing transactions become

complicated enough due to the need to review supporting documentation, let alone the ability to negotiate price.”

Thankfully for luddites, technology has its limits, and will not be pushing warehouse workers out of a job any time soon. GA Telesis maintains a blue- to white-collar ratio of 2:1 and Bonnell says that the complexities of aviation supply, where each part has a unique history and paper trail, will always require a human input.

Fessler agrees. “There are too many variables in aftermarket parts.

With all the variances in values on like items it’s a statistician’s worst nightmare to come up with a functional program to correctly value products. We prefer to rely on the expertise of our staff to monitor product values on a real-time basis. It’s always been Magellan philosophy that our strengths are in our people and technology is just one of the tools available,” he says.

Independent suppliers, OEMs, PMA manufacturers and pooling programmes will shape aviation logistics in the future. The precise input of each will probably change according to needs of end-users – the airlines and MRO shops. Each has different requirements, but both look for cost savings driven by accurate forecasting and planning.

Kellstrom’s Zalupski offers his view on where the industry is headed: “I think the dramatic fleet changes that have occurred over the last few years, coupled with the changes that will occur in the near- to mid-term, is the biggest challenge facing the aviation supply chain industry today. Going forward, there will be an over-abundance of old- to mid-generation assets that will need to be absorbed by the marketplace. At the same time, airlines must fund the build-up of their inventory levels to support multiple new fleets being put into service.”

The Magellan Group provides integrated aftermarket aviation support services to the global airline industry.

We sell, lease, and manage aircraft, engines, and spare parts to over 250 customers in 50 countries.

Airframe Support

Engine & Parts Sales & Leasing

Professional Services

Regional Aircraft ATR 42 / 72 Dash 8 100 / 200 / 300 / 400 Embraer 120 CRJ 100 / 200

Regional Engines All PW100 series, including PW150 CF34 A1/B1 AE3007A1

Aircraft & Engine Management

Commercial Aircraft Airbus A300 / A310 / A320 / A340 / A330 Boeing 737 / 747 / 757 / 767

Commercial Engines CF6-50C2 / 80C2 PW4000 CFM56 V2500

Joint Ventures

Consignments & Purchasing of Surplus Inventory Aircraft & Engine Leasing & Trading

Asset Management Technical Advisory Services

Magellan Aircraft Services s #HARLOTTE .ORTH #AROLINA s \ -AGELLAN !VIATION 3ERVICES s 3HANNON )RELAND s

www.magellangroup.net

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AFM72_Data_AFNM 03/03/2011 16:34 Page 1

60 | AFM • ISSUE 72 March-April 2011

INDUSTRY DATA: FLEET FINANCE, FIRM ORDERS, AIRCRAFT TRANSACTIONS, LIST PRICES AND LEASE RATES AIRCRAFT TRANSACTIONS – Boeing, Airbus, ATR, and Bombardier. 19 Jan 2011 to 15 Feb 2011 Contract Date 19/1/2011 19/1/2011 19/1/2011 19/1/2011 19/1/2011 19/1/2011 19/1/2011 19/1/2011 19/1/2011 19/1/2011 19/1/2011 19/1/2011 20/1/2011 20/1/2011 20/1/2011 20/1/2011 20/1/2011 20/1/2011 21/1/2011 21/1/2011 21/1/2011 21/1/2011 21/1/2011 21/1/2011 21/1/2011 21/1/2011 21/1/2011 21/1/2011 21/1/2011 21/1/2011 21/1/2011 21/1/2011 21/1/2011 21/1/2011 21/1/2011 21/1/2011 21/1/2011 21/1/2011 24/1/2011 24/1/2011 24/1/2011 24/1/2011 25/1/2011 25/1/2011 25/1/2011 26/1/2011 26/1/2011 26/1/2011 26/1/2011 26/1/2011 26/1/2011 26/1/2011 27/1/2011 27/1/2011 27/1/2011 27/1/2011 27/1/2011 27/1/2011 27/1/2011 27/1/2011 27/1/2011 27/1/2011 27/1/2011 28/1/2011 28/1/2011 28/1/2011 28/1/2011 28/1/2011 28/1/2011 28/1/2011 28/1/2011 28/1/2011 28/1/2011 31/1/2011 31/1/2011 31/1/2011 31/1/2011 2/2/2011 2/2/2011 3/2/2011 3/2/2011 3/2/2011 3/2/2011 4/2/2011 4/2/2011 4/2/2011 4/2/2011 7/2/2011

S/N E2184 53523 53526 20919 28911 28911 40241 26344 AT-567 3160 11329 11329 641 4558 24529 37434 590 257 0759 0798 0804 1573 0613 0826 0834 1538 48446 53296 53468 28912 28912 28912 25867 25593 26938 275 314 AC-746B 26362 7114 7165 7165 4559 24166 25645 48006 33557 23197 23202 29946 14501025 845 4553 2462 941 24165 28318 30720 39045 40350 4119 145096 229 3790 2682 E3373 773 49965 28913 28913 28913 7717 7717 050 46051 456 UE-160 929 41074 087 121 154 11239 E2251 49632 UE-128 UE-138 49416

A/C Model BAE SYSTEMS (HS) 146 Boeing MD-90 Boeing MD-90 Boeing 707 Boeing 737 (CFMI) Boeing 737 (CFMI) Boeing 737 (NG) Boeing 747 Fairchild (Swearingen) Metro Fairchild/Dornier 328JET Fokker 100 Fokker 100 Airbus A300 Airbus A320 Boeing 737 (CFMI) Boeing 777 Bombardier (de Havilland) Dash Saab 340 Airbus A319 Airbus A319 Airbus A319 Airbus A319 Airbus A320 Airbus A320 Airbus A320 Airbus A320 Boeing MD-11 Boeing MD-80 Boeing MD-80 Boeing 737 (CFMI) Boeing 737 (CFMI) Boeing 737 (CFMI) Boeing 747 Boeing 757 Boeing 777 Bombardier (de Havilland) Dash Bombardier (de Havilland) Dash Fairchild (Swearingen) Metro Boeing 747 Bombardier (Canadair) CRJ RJ Bombardier (Canadair) CRJ RJ Bombardier (Canadair) CRJ RJ Airbus A320 Boeing 737 (CFMI) Boeing 747 Boeing MD-80 Boeing 737 (NG) Boeing 757 Boeing 757 Boeing 757 Embraer ERJ-135 Viking Air DHC-6 Twin Otter Airbus A320 Airbus A321 ATR ATR 72 Boeing 737 (CFMI) Boeing 737 (NG) Boeing 737 (NG) Boeing 737 (NG) Boeing 737 (NG) Bombardier (de Havilland) Dash Embraer ERJ-145 Saab 340 Airbus A319 Airbus A321 BAE SYSTEMS (Avro) RJ BAE SYSTEMS Jetstream 31 Boeing MD-80 Boeing 737 (CFMI) Boeing 737 (CFMI) Boeing 737 (CFMI) Bombardier (Canadair) CRJ RJ Bombardier (Canadair) CRJ RJ Airbus A380 Boeing DC-8 Bombardier (de Havilland) Dash Hawker Beechcraft 1900 BAE SYSTEMS Jetstream 31 BAE SYSTEMS Jetstream 41 ATR ATR 42 ATR ATR 42 ATR ATR 72 Fokker F.28 BAE SYSTEMS (Avro) RJ Boeing MD-80 Hawker Beechcraft 1900 Hawker Beechcraft 1900 Boeing MD-80

8

8 8

8

8

Variant 200 30 30 320C (Stage 2 Hk) 500 Winglets 500 Winglets 800 Winglets 400BCF (GE) Expediter l – – – 620R (P&W) 210 (CFM) 400 300ER (GE) 300 B 130 (IAE) 130 (IAE) 130 (IAE) 130 (IAE) 230 (IAE) 230 (IAE) 230 (IAE) 230 (IAE) Freighter (M) (P&W) 83 (MDC) 83 (MDC) 500 Winglets 500 Winglets 500 Winglets 400F (GE) 200 (RR) 200ER (P&W) 100MPA 100MPA III 400 (GE) 200LR 200LR 200LR 210 (CFM) 400 400 (GE) 81 800 Winglets 200 (P&W) 200 (P&W) 200 (RR) Legacy 600 400 230 (IAE) 230 (IAE) 500 400 800 800 Winglets 800 Winglets 800 Winglets 400 EP B 110 (CFM) 230 (IAE) RJ100 – 83 (MDC) 500 Winglets 500 Winglets 500 Winglets Challenger 800 Challenger 800 840 (RR) 73CF 200 D Super – 300F Bulk Freighter 300F Bulk Freighter 200F Bulk Freighter 4000 RJ85 83 (MDC) D D 82 (MDC)

Owner Name Star Peru Delta Air Lines Delta Air Lines Israel Air and Space Force N16650 Undisclosed N16650 Continental Airlines A6-FDN GECC N344NA B26344 N Sierra West Airlines N821MW Petra Aviation F-GPXK Aircraft International Renting EP-ATG Iran Aseman Airlines N5641 Aircraft Solutions N837VA Undisclosed VH-JWL Transpacific F-OREU Air Lease Corp C-GJTR Bombardier VH-EKX Rex - Regional Express N804UA United Airlines N807UA United Airlines N808UA United Airlines N843UA United Airlines N435UA United Airlines N445UA United Airlines N446UA United Airlines N479UA United Airlines N645FE FedEx N871GA Sunrise Asset Mgmt N875GA Sunrise Asset Mgmt N11651 Undisclosed N11651 Continental Airlines N11651 Continental Airlines N583UP UPS Airlines N960FD FedEx N786UA United Airlines C-GPAB PAL Aerospace C-GRNN PAL Aerospace N746KA Kolob Canyons Air Services N916UN SB Leasing C-GGDU Bombardier VQ-BGP UTair VQ-BGP PL Panorama N838VA AFS Investments EI-DNM Transalpine N596MS Undisclosed N812ME Olympia Aviation N594MS RBS N508US Kellstrom N514US Kellstrom G-TCBC Thomas Cook Airlines G-LEGC Delos Engineering HB-LUX Zimex Business Aviation ZK-OAB ALC A320 4553 UR-WRH Wind Rose Aviation 9M-FYJ Showa Leasing EI-DDK Transalpine Leasing LN-RCN SAS Struktur N364LF Undisclosed LN-DYJ JSA International JA335J Jackson Square Aviation HK-4726X Kirk Aviation N805HK Undisclosed VH-ZLR Rex - Regional Express N790MX Whitney UR-WRI Wind Rose Aviation G-POWF Titan Airways G-EIGG Bravo Leasing N410NV Sunrise Asset Mgmt N14652 Continental Airlines N14652 Undisclosed N14652 Continental Airlines N481ES Aviation Dynamics VP-BCC Bombardier VH-OQH QF ECA N851UP AerSale N456YV Undisclosed HKUnconf'd Colombian Operator C-GINL Alberta HKEasyfly HB-AFC OFSB HB-AFD OFSB HB-AFJ OFSB ZS-DRF AirQuarius Contracts ZSSA Airlink N632CT Jet Midwest C-FBPK Osprey Wings ZSUnconf'd South African Operator N528PT Sunrise Asset Mgmt Reg No OBB-2250 B-2253

Operator Name Star Peru Delta Air Lines Delta Air Lines Israel Air and Space Force Undisclosed Continental Airlines FlyDubai B26344 Sierra West Airlines Petra Aviation TAT Leasing Iran Aseman Airlines Universal Asset Mgmt Virgin America Transpacific ALC 777-3 37434 Bombardier Rex - Regional Express United Airlines United Airlines United Airlines United Airlines United Airlines United Airlines United Airlines United Airlines FedEx Allegiant Air Allegiant Air Undisclosed Continental Airlines Continental Airlines UPS Airlines FedEx United Airlines Nhrlands Antilles & Aruba Coast Guard Nhrlands Antilles & Aruba Coast Guard Kolob Canyons Air Services SB Leasing Bombardier UTair UTair Virgin America Transaero Deucalion Aviation Olympia Aviation RBS Kellstrom Kellstrom Thomas Cook Airlines London Executive Aviation Zimex Aviation Air New Zealand Wind Rose Aviation FireFly Airlines Transaero SAS Undisclosed Norwegian JAL Aires Colombia Trans States Airlines Rex - Regional Express ILFC Wind Rose Aviation Titan Airways Bravo Aviation Allegiant Air Continental Airlines Undisclosed Continental Airlines Aviation Dynamics Bombardier Qantas AerSale Bombardier Unconf'd Colombian Operator 1348401 Alberta Easyfly Farnair Switzerland Farnair Switzerland Farnair Switzerland AirQuarius Aviation Airlink - SA Airlink Jet Midwest Osprey Wings Unconf'd South African Operator Allegiant Air

Event Remarks Purch'd - parked Purch'd - parked Purch'd - parked Purch'd - parked Purch'd - parked Purch'd - parked Purch'd - sale & leaseback on del Purch'd - parked Purch'd - parked Purch'd - parked Purch'd - subject to lease - parked Purch'd Purch'd - parked Purch'd sale to SPC by lessor on del Purch'd - parked Purch'd Purch'd - parked Purch'd off lease / fin term comp Purch'd off lease / fin term comp Purch'd off lease / fin term comp Purch'd off lease / fin term comp Purch'd off lease / fin term comp Purch'd off lease / fin term comp Purch'd off lease / fin term comp Purch'd off lease / fin term comp Purch'd off lease / fin term comp Purch'd - parked Purch'd - sale & leaseback Purch'd - sale & leaseback Purch'd - parked Purch'd off lease / fin term comp Purch'd - parked Purch'd - parked Purch'd - parked Purch'd off lease / fin term comp Purch'd - subject to lease Purch'd - subject to lease Purch'd Purch'd - parked Purch'd - parked Purch'd - parked Purch'd - sale & leaseback - parked Purch'd sale to SPC by lessor on del Purch'd - subject to lease Purch'd - parked Purch'd - parked Purch'd - parked Purch'd - parked Purch'd - parked Purch'd - parked Purch'd Purch'd - sale & leaseback - parked Purch'd sale to SPC by lessor on del Purch'd Purch'd - sale & leaseback on del Purch'd - subject to lease Purch'd - sale & leaseback Purch'd - parked Purch'd - sale & leaseback on del Purch'd - sale & leaseback on del Purch'd - subject to lease Purch'd off lease / fin term comp Purch'd off lease / fin term comp Purch'd - parked Purch'd Purch'd - parked Purch'd - sale & leaseback - parked Purch'd - sale & leaseback Purch'd off lease / fin term comp Purch'd - parked Purch'd - parked Purch'd Purch'd Purch'd - sale & leaseback on del Purch'd - parked Purch'd - parked Purch'd - parked Purch'd - parked Purch'd - parked Purch'd - sale & leaseback Purch'd - sale & leaseback Purch'd - sale & leaseback Purch'd - subject to lease Purch'd - parked Purch'd - parked Purch'd Purch'd - parked Purch'd - parked

AFM72_Data_AFNM 03/03/2011 16:34 Page 2

March-April 2011 AFM • ISSUE 72 | 61

INDUSTRY DATA: FLEET FINANCE, FIRM ORDERS, AIRCRAFT TRANSACTIONS, LIST PRICES AND LEASE RATES AIRCRAFT TRANSACTIONS – Boeing, Airbus, ATR, and Bombardier 19 Jan 2011 to 15 Feb 2011 Contract Date 7/2/2011 7/2/2011 8/2/2011 9/2/2011 9/2/2011 9/2/2011 10/2/2011 11/2/2011

S/N 37365 23846 23214 22222 120296 3093 455 26967

A/C Model Boeing 737 (NG) Boeing 757 Boeing 767 Boeing 767 Embraer EMB-120 Brasilia Fairchild/Dornier 328 Bombardier (de Havilland) Dash 8 Boeing 757

Variant 800 Winglets 200 (P&W) 200 (P&W) 200SF (GE) ER 100 200 200 (RR)

Reg No VT-SGQ N531US N768DA N745AX N226SW N545EF N455YV N

Owner Name BBAM Delta Air Lines Dynamic JetLease Cargo Aircraft Mgmt Undisclosed Sierra Nevada Corp Dynamic AvLease Sunrise Asset Mgmt

Operator Name SpiceJet Delta Air Lines Dynamic Aviation JAL Undisclosed Sierra Nevada Dynamic Aviation Allegiant Air

Event Remarks Purch'd - sale & leaseback on del Purch'd off lease / fin term comp Purch'd - parked Purch'd - sale & leaseback Purch'd - parked Purch'd - parked Purch'd - parked Purch'd - parked

FIRM ORDERS – 19th January 2011 – 15th February 2011 Mfr & Type

Variant

Customer

Airbus A321 210 (CFM) Sharklets Thomas Cook Airlines Scandinavia Airbus A330 300HGW (Engines Unannounced) TUI Travel PLC Airbus A330 300HGW (Engines Unannounced) GECAS Boeing 737 (NG) 700/800/900 Unannounced commercial customer Boeing 737 (NG) 800 Winglets Unannounced commercial customer Boeing 737 (NG) 800 Winglets Alaska Airlines Boeing 737 (NG) 900ER Alaska Airlines Boeing 737 (NG) BBJ1 Unannounced non-commercial customer Boeing 737 (NG) 800 P-8 US Navy Boeing 777 Variant & Engines Unannounced Unannounced commercial customer Embraer 190 AR Dniproavia

Order date 25/01/2011 27/01/2011 24/01/2011 07/02/2011 30/01/2011 25/01/2011 25/01/2011 24/01/2011 21/01/2011 07/02/2011 31/01/2011

Order/ Number TypeSwap Order 12 Order 2 Order 12 Order 1 Order 10 Order 2 Order 13 Order 1 Order 6 Order 3 Order 10

Engines at Order

Variant at delivery

CFM56-5B3/3 Unannounced-Unannounced Unannounced-Unannounced CFM56-7B Series CFM56-7B26/3 CFM56-7B27/3 CFM56-7B26/3 CFM56-7B27/3 CFM56-7B27/3 Unannounced-Unannounced CF34-10E6

Engines at delivery

210 (CFM) Sharklets CFM56-5B3/3 300HGW (Engines Unannounced) Unannounced-Unannounced 300HGW (Engines Unannounced) Unannounced-Unannounced 700/800/900 CFM56-7B Series 800 Winglets CFM56-7B26/3 800 Winglets CFM56-7B27/3 900ER CFM56-7B26/3 BBJ1 CFM56-7B27/3 800 P-8 CFM56-7B27/3 Variant & Engines Unannounced Unannounced-Unannounced AR CF34-10E6

ENGINE DATA CHANGES 18th January 2011 to 15th February 2011 Type B737-300 B737-400 B737-300 B737-400 B737-500 A321-200 A319-100 A340-300 B737-600 B737-700 B737-800 B737-900ER CRJ-200 CRJ-700 E170 B767-200ER A300-600R MD-11 A330-200 B777-300ER A320-200 MD-82 B747-400 B767-300ER A310-300 B757-200 Fokker 100 A340-600 A330-300 B777-200ER ERJ-145 ER B717-200

Engine CFM56-3B1 CFM56-3B2 CFM56-3B1 CFM56-3B2 CFM56-3C1 CFM56-5B3/P CFM56-5B5/P CFM56-5C4/P CFM56-7B22 CFM56-7B24 CFM56-7B26 CFM56-7B27 CF34-3B1 CF34-8C1 CF34-8E5 CF6-80A2 CF6-80C2A5 CF6-80C2D1F CF6-80E1A3 GE90-115B V2527-A5 JT8D-217C PW4056 PW4060 PW4152 RB211-535E4 RB183 Tay 650-15 Trent 556-61 Trent 772B-60 Trent 895 AE3007-A1P BR715A

18 Jan 2011 15 Feb 2011 Full-life value Full-life value % mkt value mkt value change

18 Jan 2011 Current half-life rate

15 Feb 2011 Current half-life % rate change

18 Jan 2011 Mkt lease rate

15 Feb 2011 Mkt lease rate

$2.33m $2.53m $2.33m $2.53m $2.93m $8.19m $6.49m $7.25m $6.96m $7.51m $8.01m $8.46m $2.55m $3.85m $4.33m $4.69m $7.13m $7.91m $14.07m $26.77m $7.32m $1.70m $7.34m $7.69m $6.84m $7.52m $2.50m $13.38m $13.78m $20.29m $2.50m $3.33m

$0.80m $1.00m $0.80m $1.00m $1.40m $6.20m $4.50m $5.00m $5.05m $5.60m $6.05m $6.50m $1.50m $2.20m $2.68m $1.50m $3.75m $4.40m $9.35m $20.70m $5.20m $0.60m $3.75m $4.10m $2.80m $3.90m $1.40m $8.14m $8.60m $14.00m $1.40m $2.00m

$0.80m $1.00m $0.80m $1.00m $1.40m $6.20m $4.50m $5.00m $4.90m $5.20m $5.55m $6.00m $1.00m $2.20m $2.68m $1.50m $3.75m $4.40m $9.35m $20.70m $5.20m $0.60m $3.75m $4.10m $2.80m $3.90m $1.40m $8.14m $8.60m $14.00m $1.40m $2.00m

$0.030m $0.032m $0.030m $0.032m $0.035m $0.075m $0.055m $0.058m $0.059m $0.062m $0.065m $0.067m $0.020m $0.027m $0.033m n/a n/a $0.070m n/a $0.210m $0.058m $0.023m $0.060m $0.065m $0.055m $0.050m $0.026m $0.110m $0.120m $0.155m $0.030m $0.045m

$0.030m $0.032m $0.030m $0.032m $0.035m $0.075m $0.055m $0.058m $0.059m $0.062m $0.065m $0.067m $0.020m $0.027m $0.033m n/a n/a $0.070m n/a $0.210m $0.058m $0.023m $0.060m $0.065m $0.055m $0.050m $0.026m $0.110m $0.120m $0.155m $0.030m $0.045m

$2.33m $2.53m $2.33m $2.53m $2.93m $8.19m $6.49m $7.25m $6.81m $7.11m $7.51m $7.96m $2.05m $3.85m $4.33m $4.69m $7.13m $7.91m $14.07m $26.77m $7.32m $1.70m $7.34m $7.69m $6.84m $7.52m $2.50m $13.38m $13.78m $20.29m $2.50m $3.33m

0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -2.2% -5.4% -6.3% -6.0% -19.6% 0.0% 0.0% -0.1% 0.0% -0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -0.1% 0.0% 0.0% 0.0% 0.0% -0.2% -0.2%

0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -3.0% -7.1% -8.3% -7.7% -33.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

% change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% – – 0.0% – 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Data supplied courtesy of Ascend Online Fleets / Ascend V1 database.

AFM72_Data_AFNM 03/03/2011 16:36 Page 3

62 | AFM • ISSUE 72 March-April 2011

INDUSTRY DATA: FLEET FINANCE, FIRM ORDERS, AIRCRAFT TRANSACTIONS, LIST PRICES AND LEASE RATES STORED AIRCRAFT 15th February 2011 Mfr & type

Fleet Stored

Total Fleet

Fleet Stored %

Seats Stored

A.S.T.A. (GAF) Nomad ATR ATR 42 ATR ATR 72 Aerospatiale 262 Airbus A300 Airbus A310 Airbus A318 Airbus A319 Airbus A320 Airbus A321 Airbus A330 Airbus A340 Airbus A380 Avcraft 328JET BAE SYSTEMS (Avro) RJ Avroliner BAE SYSTEMS (BAC) One-Eleven BAE SYSTEMS (HS) 146 BAE SYSTEMS (HS) 748 BAE SYSTEMS (HS) ATP BAE SYSTEMS (Jetstream) Jetstream (HP/Scottish) BAE SYSTEMS (Jetstream) Jetstream 31 BAE SYSTEMS (Jetstream) Jetstream 41 Boeing 707 Boeing 717 Boeing 720 Boeing 727 Boeing 737 (CFMI) Boeing 737 (JT8D) Boeing 737 (NG) Boeing 747 Boeing 757 Boeing 767 Boeing 777 Boeing (McDonnell-Douglas) C-17 Boeing (McDonnell-Douglas) DC-10 Boeing (McDonnell-Douglas) DC-3 Boeing (McDonnell-Douglas) DC-8 Boeing (McDonnell-Douglas) DC-9 Boeing (McDonnell-Douglas) MD-11 Boeing (McDonnell-Douglas) MD-80 Boeing (McDonnell-Douglas) MD-90 Bombardier (Canadair) 580 Bombardier (Canadair) CL-415 Bombardier (Canadair) CL-44 Bombardier (Canadair) CRJ Regional Jet Bombardier (Canadair) CRJ700 Regional Jet Bombardier (Canadair) CRJ900 Regional Jet Bombardier (Shorts) 330 Bombardier (Shorts) 360 Bombardier (Shorts) SC.7 Skyvan Bombardier (de Havilland) DHC-5 Buffalo Bombardier (de Havilland) DHC-6 Twin Otter Bombardier (de Havilland) Dash 7 Bombardier (de Havilland) Dash 8 CASA 212 CASA C-295 CASA CN-235 Carstedt Aviation CJ600 Embraer 170 Embraer 190 Embraer 195 Embraer EMB-110 Bandeirante Embraer EMB-120 Brasilia Embraer ERJ-135 Embraer ERJ-145 Fairchild F-27 Fairchild (Swearingen) Metro Fairchild/Dornier 228 Fairchild/Dornier 328 Fairchild/Dornier 328JET Fokker 100 Fokker 50 Fokker 70 Fokker F.27 Fokker F.28 General Dynamics (Convair) 580 Gulfstream Aerospace Gulfstream I Handley Page Jetstream (HP/Scottish) Harbin Embraer Aircraft Industry ERJ-145 Hawker Beechcraft 1900 Hawker Beechcraft 99 Hindustan Aeronautics Saras Indonesian Aerospace 212 Indonesian Aerospace CN-235 Israel Aerospace Industries Arava Lockheed Galaxy Lockheed Hercules Lockheed L-1011 TriStar Lockheed L-188 Electra NAMC YS-11 Saab 2000 Saab 340

8 33 32 15 76 41 10 39 103 13 23 22 2 2 36 2 72 20 18 1 81 29 45 30 1 160 265 223 69 192 92 85 12 1 37 14 57 170 7 281 31 1 20 1 143 1 2 4 14 11 15 50 6 70 59 1 7 1 4 6 1 53 71 60 28 4 52 30 22 48 65 43 5 38 53 15 18 1 1 47 9 1 11 8 15 2 203 17 7 15 3 96

72 355 493 18 372 192 69 1271 2483 628 753 370 46 2 163 12 167 67 54 8 251 93 196 155 1 443 1770 494 3528 948 1007 931 913 227 204 75 98 299 192 940 108 2 70 1 1035 334 246 47 105 61 51 549 57 951 249 74 187 1 187 334 66 264 268 308 683 4 489 178 100 109 239 188 47 132 94 71 49 4 40 620 146 1 68 48 73 111 1563 34 19 40 58 405

11.11 9.30 6.49 83.33 20.43 21.35 14.49 3.07 4.15 2.07 3.05 5.95 4.35 100.00 22.09 16.67 43.11 29.85 33.33 12.50 32.27 31.18 22.96 19.35 100.00 36.12 14.97 45.14 1.96 20.25 9.14 9.13 1.31 0.44 18.14 18.67 58.16 56.86 3.65 29.89 28.70 50.00 28.57 100.00 13.82 0.30 0.81 8.51 13.33 18.03 29.41 9.11 10.53 7.36 23.69 1.35 3.74 100.00 2.14 1.80 1.52 20.08 26.49 19.48 4.10 100.00 10.63 16.85 22.00 44.04 27.20 22.87 10.64 28.79 56.38 21.13 36.73 25.00 2.50 7.58 6.16 100.00 16.18 16.67 20.55 1.80 12.99 50.00 36.84 37.50 5.17 23.70

15 1458 2086 53 14305 5409 833 3709 16085 2688 6322 4542 924 20 3306 50 6577 304 520 0 1354 834 1943 2999 0 8911 33955 23300 7101 44546 15738 13657 2879 0 3004 493 68 9946 100 40318 4444 0 0 0 6541 70 176 0 346 73 0 869 248 3666 990 – 80 0 224 592 108 741 2068 1921 1389 87 633 441 663 1345 6276 2052 354 1150 3375 43 127 18 50 871 43 14 221 254 19 0 0 4126 89 399 150 3127

Total Seats

Seats Stored%

139 10.79 13685 10.65 30445 6.85 53 100.00 41093 34.81 23451 23.07 6367 13.08 163943 2.26 394664 4.08 118283 2.27 204562 3.09 98310 4.62 21628 4.27 20 100.00 14878 22.22 315 15.87 12124 54.25 713 42.64 716 72.63 0 – 4338 31.21 2583 32.29 5584 34.80 17716 16.93 0 – 16433 54.23 223740 15.18 48846 47.70 542247 1.31 209010 21.31 155767 10.10 177736 7.68 269319 1.07 0 – 6884 43.64 2745 17.96 165 41.21 20469 48.59 5143 1.94 135047 29.85 15934 27.89 0 – 0 – 0 – 48394 13.52 22674 0.31 20006 0.88 60 0.00 1001 34.57 129 56.59 38 0.00 8243 10.54 2364 10.49 50088 7.32 3272 30.26 0 – 382 20.94 0 – 13566 1.65 32321 1.83 7673 1.41 1753 42.27 7186 28.78 7024 27.35 33390 4.16 87 100.00 5132 12.33 2025 21.78 3070 21.60 3029 44.40 23450 26.76 8416 24.38 3577 9.90 3473 33.11 5957 56.66 437 9.84 366 34.70 18 100.00 2000 2.50 9791 8.90 321 13.40 14 100.00 828 26.69 406 62.56 116 16.38 0 274 0.00 7057 58.47 89 100.00 399 100.00 2706 5.54 11745 26.62 Data supplied courtesy of Ascend Online Fleets / Ascend V1 database

AFM72_Data_AFNM 03/03/2011 16:38 Page 4

March-April 2011 AFM • ISSUE 72 | 63

INDUSTRY DATA: AIRCRAFT AVAILABLE FOR IMMEDIATE SALE/LEASE – BOEING 737 AND AIRBUS A320 Equipment Model

S/N

Engine Line No

Model

MTOW Mfd

Total (Lbs)

Total Hours

Event Cycles

737-2N7 737-2H3 737-248 737-248 737-282 737-236 737-241 737-241 737-291 737-25A 737-2H3 737-205 737-232 737-2H4 737-232 737-2H4 737-247 737-247 737-247 737-247 737-247 737-247 737-230 737-3Y0 737-322 737-3T0(W) 737-3T0(W) 737-3H4 737-329 737-3K2 737-322 737-322 737-322 737-322 737-322 737-322 737-322 737-322 737-332 737-347 737-347 737-329 737-4Q8 737-4Y0 737-436 737-524(W) 737-524(W) 737-524(W) 737-55S 737-55S 737-55S 737-529 737-528 737-522 737-7BD(W) 737-7JF(W) 737-7AW(W) A320-231 A320-233 A320-211 A320-211 A320-231 A320-231 A320-231 A320-231 A320-231 A320-231 A320-231 A320-231 A320-231 A320-231 A320-231 A320-231 A320-211 A320-231 A320-231 A320-211 A320-211 A320-211 A320-231 A320-214 A320-212 A320-231 A320-231 A320-231 A320-231

21226 22625 21714 21715 23045 23168 21000 21008 22743 23791 22624 22022 23105 22062 23086 23249 23606 23607 23516 23517 23519 23605 23156 23921 24320 23375 23582 23339 23773 24327 24245 24246 24250 24251 24540 24639 23958 24659 25996 23440 23441 23771 25168 24314 25851 27317 27329 27526 28469 28470 28471 25418 27424 26704 33920 37592 30031 376 1353 342 662 252 259 260 261 275 276 296 320 321 353 405 114 265 243 251 039 042 120 444 2569 283 180 256 295 347

458 776 565 579 978 1077 378 402 909 1486 758 616 1068 640 1012 1095 1379 1387 1257 1261 1299 1371 1082 1513 1670 1207 1383 1255 1441 1712 1619 1632 1644 1646 1780 1786 1568 1836 2488 1218 1220 1430 2210 1680 2387 2576 2641 2669 2849 2861 2885 2163 2720 2508 1753 2752 251 – – – – – – – – – – – – – – – – – – – – – – – – – – – – –

JT8D-17 JT8D-17 JT8D-9A JT8D-9A JT8D-9A JT8D-15A JT8D-17A JT8D-17A JT8D-17A JT8D-9A JT8D-17A JT8D-17A JT8D-15A JT8D-9A JT8D-15A JT8D-9A JT8D-15A JT8D-15A JT8D-15A JT8D-15A JT8D-15A JT8D-15A JT8D-15 CFM56-3B2 CFM56-3C1 CFM56-3B1 CFM56-3B1 CFM56-3B1 CFM56-3B2 CFM56-3B2 CFM56-3C1 CFM56-3C1 CFM56-3C1 CFM56-3C1 CFM56-3C1 CFM56-3C1 CFM56-3C1 CFM56-3B2 CFM56-3B1 CFM56-3B1 CFM56-3B1 CFM56-3B2 CFM56-3C1 CFM56-3C1 CFM56-3C1 CFM56-3C1 CFM56-3C1 CFM56-3C1 CFM56-3C1 CFM56-3C1 CFM56-3C1 CFM56-3C1 CFM56-3C1 CFM56-3C1 CFM56-7B20 CFM56-7B27 CFM56-7B27 V2500-A1 V2527E-A5 CFM56-5A1 CFM56-5A1 V2500-A1 V2500-A1 V2500-A1 V2500-A1 V2500-A1 V2500-A1 V2500-A1 V2500-A1 V2500-A1 V2500-A1 V2500-A1 V2500-A1 CFM56-5A1 V2500-A1 V2500-A1 CFM56-5A1 CFM56-5A1 CFM56-5A1 V2500-A1 CFM56-5B4/P CFM56-5A3 V2500-A1 V2500-A1 V2500-A1 V2500-A1

1976-04 1981-06 1979-03 1979-05 1983-06 1984-12 1974-09 1975-02 1982-08 1987-11 1981-04 1979-10 1984-11 1980-01 1984-02 1985-02 1987-04 1987-04 1986-07 1986-07 1986-10 1987-03 1985-01 1988-01 1989-01 1986-02 1987-04 1986-06 1987-08 1989-04 1988-09 1988-10 1988-11 1988-11 1989-08 1989-09 1988-05 1990-02 1993-05 1986-03 1986-03 1987-07 1992-01 1989-01 1992-10 1994-01 1994-07 1994-11 1997-01 1997-02 1997-04 1991-10 1995-04 1993-07 2005-06 2008-11 1999-03 1992-10 2000-10 1992-06 1997-02 1991-09 1991-10 1991-10 1991-10 1991-11 1991-11 1992-02 1992-03 1992-04 1992-07 1993-01 1990-07 1991-10 1991-08 1991-09 1989-03 1989-04 1990-08 1993-08 2005-09 1991-12 1991-02 1991-11 1992-01 1992-06

119500 128100 114640 114640 124500 119500 115500 115500 117000 119500 128100 128600 120000 115500 119500 118000 119500 119500 121500 121500 121500 121500 119500 124473 130000 135000 135000 139000 138500 136500 130000 130000 130000 130000 130000 130000 130000 131000 135000 130000 130000 135000 150000 143000 138500 129500 122500 129500 116843 116843 116843 115500 118800 122500 154500 171000 171000 166600 169756 169756 162039 162038 162038 162038 162038 162038 162038 162038 162038 162038 162038 162040 161700 166500 162039 162039 162040 162040 162040 169756 169756 169756 162037 162040 169754 162040

30716 55163 55004 53297 53895 42856 70007 73000 59474 47760 55516 68524 54666 69790 61956 59528 50244 49104 57657 58504 55518 50596 37863 55120 59729 73181 67487 66860 41914 67708 56160 57456 58363 60940 53391 54791 59778 57287 30743 54861 54678 47340 40682 51097 38651 44688 41281 43857 33291 32442 33688 26606 28800 42041 13256 47 7410 39080 31999 47668 27741 64918 62340 63332 57382 64738 63514 62424 64818 63716 62891 53053 48224 59369 45888 45544 38874 41174 39520 45836 16123 54544 52954 61330 61152 45024

35539 30953 51198 49789 58795 39974 71195 74000 53499 58860 31156 49702 42123 77739 46768 64052 40683 39602 41136 41078 42506 38020 30988 32525 34996 33358 30421 62880 31250 38000 30714 31130 32623 34373 36907 37629 32760 40114 23483 36960 37110 29710 20212 40668 31422 23581 21721 23396 22081 21704 22623 22529 26432 25160 6473 2505 17990 13636 21475 15010 30619 29575 30195 27302 30050 29855 29333 30231 29603 29267 23771 31616 25749 34438 33066 29039 30703 29490 20584 9016 20865 26540 23081 22237 27531

Configuration

Sale or Lease

Months On Market

Y110 Y126 C12Y89 C12Y89 Y130 Y127 Y109 Y109 Y130 C8Y112 C12Y108 C8Y101 Y119 or F8Y92 C27 F6Y92 Y122 F8Y92 F8Y92 Y130 C8Y112 C8Y112 C8Y112 Y123 Y136 Y136 F12Y112 F12Y112 Y137 C8Y127 Y148 Y131 Y131 F8Y112 F8Y112 F8Y120 F8Y120 F8Y112 Y148 Y148 Y136 Y136 Y131 Y170 Y170 Y162 F8Y106 Y122 F8Y106 C48Y72 Y108 Y108 Y126 C20Y85 Y112 Y148 VIP 19 Y148 Y146 Y180 C12Y156 C12Y156 C12Y138 C12Y138 C12Y138 C12Y138 C12Y138 C12Y138 C12Y138 C12Y138 C12Y138 C12Y138 C12Y138 Y162 C14Y132 Y174 Y174 Y155 Y155 Y155 Y180 Y165 Y180 C25Y131 C25Y131 C25Y131 C12Y138

Sale Sale/Lease Sale/Lease Sale/Lease Sale Sale Sale Sale Sale Sale Sale/Lease Sale/Wet Lease Sale Sale Sale Sale Sale Sale Sale Sale Sale Sale Sale Sale Sale Sale Sale Sale Sale/Dry Lease Sale Sale Sale Sale Sale Sale Sale Sale/Lease Sale/Dry Lease Sale Sale/Dry Lease Sale/Dry Lease Sale/Lease Sale Sale/Lease Sale/Lease Sale Sale Sale Sale Sale Sale Sale/Lease Sale Lease Sale/Lease Sale Sale Sale/Lease Sale/Dry Lease Sale/Lease Sale/Lease Sale/Lease Sale/Lease Sale/Lease Sale/Lease Sale/Lease Sale/Lease Sale/Lease Sale/Lease Sale/Lease Sale/Lease Sale Sale Sale Sale/Lease Sale/Lease Sale/Dry Lease Sale/Dry Lease Sale/Dry Lease Sale/Lease Lease Sale Sale Sale Sale Sale/Lease

110 29 57 57 3 12 6 6 2 2 2 37 19 11 14 58 4 4 2 2 2 2 13 20 20 13 29 33 16 7 13 13 15 15 15 15 16 4 4 4 4 23 7 14 3 34 24 34 16 16 16 13 31 19 1 6 4 3 3 35 35 19 19 19 19 17 17 17 17 17 17 7 16 4 17 17 15 15 14 17 0 34 14 1 14 5

Source: OAG Fleet iNet, 28th February 2011

AFM72_Data_AFNM 04/03/2011 11:35 Page 5

64 | AFM • ISSUE 72 March-April 2011

INDUSTRY DATA: FLEET FINANCE, FIRM ORDERS, AIRCRAFT TRANSACTIONS, LIST PRICES AND LEASE RATES LIST PRICES AND LEASE RATES Average List Price

Manufacturer Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing McDonnell Douglas Boeing McDonnell Douglas Boeing McDonnell Douglas Boeing McDonnell Douglas Boeing McDonnell Douglas Boeing McDonnell Douglas Boeing McDonnell Douglas Bombardier (Canadair) Bombardier (Canadair) Bombardier (Canadair) Bombardier Bombardier Bombardier Embraer Embraer Embraer Embraer Embraer Embraer Fokker Fokker ATR ATR

$62.50m $74.40m $81.40m $95.50m $191.40m $212.40m $228.00m $250.80m $263.80m $225.20m $254.50m $346.30m

$56.90m $67.90m $80.80m $85.80m $317.50m

$164.30m $232.30m $262.40m $284.10m $185.20m

$35.57m $40.81m

$28.85m

$34.18m $34.20m $38.00m $40.10m

$16.90m $20.50m

Type

Oldest

CMV Newest

A300-600R A310-200 A310-300 A318-100 A319-100 A320-200 A321-100 A321-200 A330-200 A330-300 A340-200 A340-300 A340-500 A340-600 A350-800 A350-900 A380-800 B717-200 B737-300 B737-400 B737-500 B737-600 B737-700 B737-800 B737-900 B737-900ER B747-400 B747-8 B757-200 B767-200ER B767-300ER B777-200 B777-200ER B777-200LR B777-300 B777-300ER B787-8 MD-11 MD-81 MD-82 MD-83 MD-87 MD-88 MD-90 CRJ-100/200 CRJ-700/705 CRJ-900 Q200 Q300 Q400 ERJ-135ER ERJ-145ER E170 LR E175 LR E190 LR E195 LR Fokker 70 Fokker 100 ATR42-500 ATR72-500

$7.00m $2.00m $4.50m $14.00m $11.80m $5.40m $11.95m $19.20m $43.00m $27.00m $18.00m $20.00m $56.00m $61.00m – – $146.00m $7.90m $2.50m $4.00m $2.70m $11.00m $15.30m $19.50m $18.90m $32.90m $19.00m – $6.00m $4.50m $9.50m $22.00m $47.50m $90.00m $44.00m $82.00m – $11.70m $0.50m $1.00m $1.60m $2.00m $1.70m $5.00m $3.00m $10.80m $14.30m $3.70m $3.70m $8.50m $4.00m $4.80m $13.80m $15.90m $19.50m $21.10m $3.50m $3.15m $5.20m $5.30m

$13.50m $2.00m $8.00m $27.10m $31.10m $38.90m $18.75m $43.10m $84.00m $92.75m $18.00m $59.75m $79.50m $91.00m – – $185.00m $11.45m $6.45m $7.55m $5.50m $19.50m $32.10m $40.50m $23.05m $44.40m $59.25m – $20.60m $14.50m $58.90m $38.25m $117.75m $135.00m $65.50m $140.00m – $13.10m $1.00m $2.30m $3.40m $2.00m $2.95m $5.00m $8.65m $22.05m $25.55m $8.50m $15.40m $18.80m $4.50m $8.70m $23.05m $24.75m $29.00m $30.60m $3.50m $4.00m $13.10m $18.25m

%Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% – – 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -6.1% 0.0% 0.0% – 0.0% 0.0% 3.6% 0.0% 0.0% 0.0% 0.0% 0.0% – 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -9.1% 0.0% 5.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.0%

Dry Lease Rate Oldest Newest $0.140m $0.070m $0.100m $0.140m $0.125m $0.070m $0.150m $0.195m $0.440m $0.330m $0.320m $0.275m $0.525m $0.575m – – $1.450m $0.105m $0.055m $0.090m $0.055m $0.150m $0.160m $0.235m $0.190m $0.310m $0.350m – $0.120m $0.160m $0.205m $0.350m $0.560m $0.810m $0.575m $0.860m – $0.190m $0.025m $0.025m $0.040m $0.030m $0.040m $0.090m $0.040m $0.110m $0.150m $0.055m $0.055m $0.130m $0.045m $0.060m $0.150m $0.165m $0.210m $0.215m $0.055m $0.060m $0.065m $0.070m

$0.180m $0.070m $0.120m $0.230m $0.265m $0.320m $0.180m $0.375m $0.755m $0.835m $0.320m $0.580m $0.760m $0.835m – – $1.745m $0.145m $0.090m $0.120m $0.075m $0.200m $0.280m $0.350m $0.220m $0.375m $0.670m – $0.230m $0.230m $0.520m $0.430m $0.995m $1.045m $0.705m $1.285m – $0.190m $0.030m $0.045m $0.060m $0.030m $0.050m $0.090m $0.080m $0.225m $0.245m $0.085m $0.130m $0.210m $0.045m $0.085m $0.230m $0.235m $0.260m $0.275m $0.055m $0.070m $0.120m $0.180m

Seating* %Change (Typical C+Y) 0.0% 0.0% -20.8% -7.9% -1.0% -10.3% -1.4% 1.4% 4.4% 2.8% -5.9% -20.2% -4.8% -6.5% – – 1.3% -3.9% 0.0% 0.0% -7.3% 0.0% -1.5% 1.5% -5.7% -4.3% -4.3% – 0.0% -4.0% 3.3% -7.1% -1.7% -0.1% -5.1% 2.0% – 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -2.9% -3.0% 1.0% 0.0% 0.0% 9.4% 0.0% 0.5% 1.1% 1.1% 2.0% -1.3% 0.0% 0.0% -5.6% 2.9%

267 210 210 108 124 150 185 185 250 300 280 295 280 350 270 314 525 117 134 144 104 103 134 160 180 215 412 467 188 158 190 313 313 313 382 350 243 285 144 144 144 109 144 144 50 70 86 37 50 70 37 50 70 82 98 108 79 108 48 70

Data supplied courtesy of Ascend Online

WORLDWIDE FLEET SUMMARY BY REGION — January to February 2011 Region

Net Orders

Undisclosed orders Africa Asia-Pacific Central America Europe Middle East North America South America

10 0 4 0 14 0 34 3

Delivered new 1 3 30 0 36 9 40 8

Leased 1 6 29 7 47 5 36 7

Purchased 2nd hand 4 7 13 1 32 2 121 10

Fleet as of February 2011 n/a n/a n/a n/a n/a n/a n/a n/a Source: OAG Fleet iNET, February 2011

FROM THE LARGEST FLEET TO THE SMALLEST DETAIL.

At Delta TechOps, we’re dedicated to keeping your fleet in the air longer so you can land better bottom line results. Whether it’s Complete Fleet™ services, engine and aircraft maintenance, or the over 200 000 component repairs we do annually, our focus is always on providing top-to-bottom attention to detail. It’s this clear vision and an ongoing commitment that sets us apart.

To discover why Delta TechOps is the 2010 Aviation Week MRO of the Year, visit TechOpsMRO.com or call +1-404-773-5192.

Agency: BKV Ad size: Color: CMYK

Client: Delta TechOps trim: 8.27 x 10.95

Publication: AF & NM bleed: 8.5 x 11.18

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8/12/10 1:07:20 PM