AFM75

The business and financing of airline operations

AIRBUS UPDATE: VIEW FROM ABOVE

PLUS: n DVB ON FINANCING THE A330 n TRENDS IN ROUTE DEVELOPMENT n APPRAISERS DISCUSS USED AIRCRAFT VALUES n GETTING THE BEST FROM YOUR FFP

September-October 2011 Issue 75

www.ubmaviationnews.com

There are lots of risky options in life.

Choosing the LEAP engine isn’t one of them.

LEAP Choosing CFM* to power the A320neo isn’t just playing safe, it’s playing smart. The CFM history of record-breaking reliability is legendary. Now, the LEAP engine with its proven architecture and ground-breaking technology, delivers 15% lower fuel consumption and 15% lower CO2 emissions than the engines it will replace. Don’t jump into the unknown.

Leap into the future.Visit www.cfm56.com/leap *CFM, LEAP and the CFM logo are all trademarks of CFM International, a 50/50 joint company of Snecma (Safran Group) and GE.

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17/08/2011 17:35

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C O N T E N T S

The business and financing of airline operations

September-October 2011 • Issue 75 EDITOR Mary-Anne Baldwin: Mary-Anne.Baldwin@ubmaviation.com Tel: +44 (0) 207 579 4843

NEWS ROUND-UP

JOURNALIST

2 The latest on deals, mergers appointments and more.

Alex Derber: aderber@ubmaviation.com

CONTRIBUTORS Chris Kjelgaard, Bernard Fitzsimons, and Martin Roebuck

DESIGN & PRODUCTION

FOCUS: 10 Airbus programme update

GROUP PUBLISHER & SALES

Despite a vicious recession, the after-effects of which are still distorting global economic activity, the pace of deliveries from Airbus’ final assembly lines has barely faltered.

Indeed, the biggest problem facing Airbus seems to be how to build aircraft fast enough to satisfy demand. Bernard Fitzsimons brings us an update on the manufacturer.

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

FLEET OPERATIONS:

AIRLINE FLEET MANAGEMENT

14 Getting the best from your frequent flyer programme

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

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Cover image: Jonathan Zaninger

The greatest asset for any airline is its customers, particularly the frequent, loyal and high-yielding business traveller. Billions spent on your fleet will mean nothing unless you can persuade the right customers to fly on them. Iain Webster, senior loyalty consultant at ICLP, explains how the right frequent flyer programme can help you do that.

18 Clearing the AIRE While complex to administer because of different organisational and contractual structures in the US and Europe, the Atlantic Interoperability Initiative to Reduce Emissions (AIRE) has produced encouraging results over the past four years and is expanding. Chris Kjelgaard reports on its progress.

24 The future of the LCC business model Perhaps surprisingly, Japan is one of the last countries on the map to nurture it low-cost airline industry, but that is about to change with no fewer than three start-ups planned for 2012. Will it follow where budget airlines in Europe and the US led, and how are these pioneers adapting their operations?

Martin Roebuck investigates.

TRADING, LEGAL AND FINANCE: 30 Appraisal panel: Values and the used aircraft market Across the market, the preference is for shiny new-build aircraft and it is leaving used aircraft with little place to go but to the scrappers. Mary-Anne Baldwin talks to the appraisal panel of UBMA’s up-coming Aircraft and Engine Finance and Leasing conference about aircraft values and the state of the used aircraft market.

34 Financing the A330 Next year will be the 20th anniversary of the A330’s first flight. With a competitor and successor taking shape, now seems a good time to review the fortunes of this popular aircraft and to ask what the future holds. Simon Finn, SVP of aviation at DVB Bank investigates.

40 Deals News Catch up on the last month of aircraft deals.

AIRPORTS AND ROUTES: 44 Airport ownership As a revenue-raising tool or just a quick fix to renovate ageing facilities, airport privatisation is a popular choice for governments the world over. Alex Derber investigates the investment potential of airports and considers what governments and private owners can do to ensure a balance between operational efficiency and financial stability.

48 Trends in Route Development Never has airline route development faced so many challenges; the turbulence of natural disasters, a long-term upward trend in oil prices and high taxes. Against this backdrop, the ability to make accurate decisions concerning sustainable route development is increasingly important.

John Strickland, director of JLS Consulting, explains why.

MAINTENANCE OPERATIONS: 54 Enhancing your MRO supply chain The maintenance, repair and overhaul (MRO) supply chain process needs to be slick, as an MRO company likes to hold the minimum amount of stock necessary to its job. Items are scheduled to arrive ‘just in time’, which means that even a small kink can result in grounded aircraft and stranded passengers further down the chain.

Alex Derber reports.

INDUSTRY DATA: 59 Data including transactions and market, list and lease rates.

AFM75 News_AFM News 06/09/2011 11:12 Page 2

2 | AFM • ISSUE 75 September-October 2011

NEWS ROUND-UP The latest on deals, mergers, appointments and more Air India plummets further into the red Air India has forecast a loss of INR69.9bn ($1.5bn) for the 2011 financial year, the country’s civil aviation minister has said.

The carrier is restructuring $4bn in working capital debt and India’s government is attempting to turn around the flag carrier’s finances, including a resolution of its hefty fuel bills. The airline has not posted a profit since its merger with Indian Airlines in 2007. ($1=INR44.5; 1 Crore = 10m).

NEWS HIGHLIGHTS

US aviation in 17-day freeze over aviation bill

IAG firms order for eight A330s

International Airlines Group has firmed an order for eight A330s following a MoU signed earlier in 2011. Iberia’s current long-haul fleet consists of 19 A340-300s and 17 A340600s. Willie Walsh, IAG’s CEO, noted that the A330 “can be easily assimilated into Iberia’s existing long-haul fleet, reducing the need for additional crew training and maintenance costs”. General Electric will provide its CF6-80E1 engines to power the aircraft in a deal worth more than $200m at list prices. IAG has also signed a 15-year agreement for the materials and services to be used in the maintenance, repair and overhaul of the engine.

Southwest to desert Boeing?

Southwest Airlines may join American Airlines (AA) in the switch from Boeing to Airbus, according to Reuters. “We are exchanging friendly correspondence which is a new dimension,” the news agency quoted an anonymous source close to Airbus as saying. Southwest has been a loyal Boeing customer, but it seems it may be tempted by Airbus’ new engine offering. AA recently placed an order for the A320neo but gave additional orders for Boeing’s newly promised re-engine option, which is believed to have clinched the deal for the US manufacturer.

Airport construction across America came to a 17-day standstill with thousands of workers downing tools because a routine aviation bill was not passed. The US Congress failed to clear an aviation bill that would reinstate aviation construction projects across the nation. Also affected was the government’s right to collect $30m in airline taxes a day.

The standard bill (which was passed 20 times since 2007 without a hitch) was held up because Republicans amended it so that $16.5m in subsidies to rural airports could be scrapped. The Democrats’ response was that such changes should be channelled through other means. The bill slipped its deadline of July 22 and was not reinstated until August 8.

Adding to the delay and to the injury, the US Congress adjourned for holiday during the last week in July without passing a clean reauthorisation extension. US transportation secretary Ray LaHood, chided Congress that it “should not get on a plane to fly home for vacation without passing a Federal Aviation Authority (FAA) bill and putting thousands of people back to work”.

The CEO and executive director of the US Conference of Mayors, Tom Cochran, said in a statement on July 25 that: “It is unthinkable that Congress adjourned without providing for a simple extension of FAA’s programmes.

“This senseless disruption to the nation’s economy comes on the heels of a bi-partisan leadership

Lufthansa doubles 1H loss

meeting of The United States Conference of Mayors last week, where 50 mayors unanimously resolved that Washington move promptly to act on the debt ceiling, continue to make progress on deficit reduction strategies, and act immediately on jobproducing measures, like increased infrastructure investment.”

Airport construction, Next Gen air traffic control (ATC) installation and runway modernisation projects were halted. As many as 70,000 workers were temporarily out of a job according to the Associated General Contractors of America. The FAA said it alone temporarily laid off almost 4,000 employees.

Additionally, the government lost an estimated $388m during the 17-day period as it could not collect taxes on ticket sales, take-off and landing, and US international flights. The Internal Revenue Service (IRS) has said that passengers will not be repaid these taxes.

The stand-off ended with the passing of the bill and the agreement that the Transportation Department could reduce rural flights in the shortterm, something that will severely hamper countryside communities in the US. Those in rural America are twice as reliant on federal grants than are those in cities. It is estimated that 150 of the US’ small airports are supported by US government subsides and that many services to rural destinations may close as a result of the cap on grants.

Lufthansa Group has posted an operating profit of €3m for 1H 2011, though its net loss was €206m, compared with €104m in 1H. Group revenues were €14.1bn, up 11 per cent year-on-year and traffic revenue was €11.6bn, up 14 per cent. Operating income increased by nine per cent to €15.4bn. However, operating expenses increased by seven per cent to €15.3bn, including fuel costs of €3bn, up 25 per cent and a growth-related increase in fees and charges of 18 per cent. Capital expenditure amounted to €1.4bn, €1.2bn for fleet expansion and modernisation. The passenger division, the highest earning segment, improved its operating result by €103m to €239m, owing to better sales, “robust” yields and fleet modernisation. Lufthansa Cargo posted an operating profit of €133m; the MRO segment recorded €106m; IT Services €6m; and LSG Sky Chefs €21m.

Lufthansa said events in Japan and North Africa, price pressure in Europe and high fuel costs all negatively impacted on results. ($1=€0.69)

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September-October 2011 AFM • ISSUE 75 | 3

The latest on deals, mergers, appointments and more NEWS

ROUND-UP

NEWS HIGHLIGHTS

Aeromexico celebrates first transatlantic biofuel flight

Lufthansa Systems acquisition draws near

Aeromexico has landed the first transatlantic commercial flight using biofuels. The 11-hour 777 flight touched down in Madrid on August 2.

The carrier used a mix of 70 per cent traditional kerosene and 30 per cent biofuel from jatropha curcas, a plant native to Mexico. Aeromexico said it hopes to begin flights to Costa Rica using jatropha biofuel from next year.

Lufthansa is close to selling its IT subsidiary Lufthansa Systems. IBM and Indian IT firm Tata Consultancy Services are the two contenders to purchase the 51 per cent stake which Lufthansa is seeking to divest, according to the German publication Manager Magazin.

The new investor would take over corporate management of Lufthansa Systems with the majority stake. The company, which provides consultation and IT services to aviation companies, generated about $850m in revenues in 2010 – about two per cent of the Lufthansa Group’s total revenue. However, revenues have steadily declined in the past three

years, and operating profit decreased 38 per cent in 2010. This explains Lufthansa’s willingness to sell.

Lufthansa Systems is already conducting a restructuring and cost-cutting programme, and the acquisition is likely to result in even more significant changes.

The potential value of the acquisition is not yet known, but the deal is nearing its endgame. “The decision will fall between the two remaining interested parties, the American IT giant IBM and Indian conglomerate Tata,” said the German report.

“The Asians have, according to informed sources, better chances of winning the contract.”

Qantas unveils five-year transformation plan Australia’s Qantas Airways is to launch two new airlines in Asia and has placed a $9bn fleet order with Airbus as it attempts to reverse the fortunes of its loss-making international business. Approximately 1,000 employees will be made redundant as the airline initiates a major restructuring programme.

“Right now 82 out of every 100 people flying out of Australia are choosing to fly with an airline other than Qantas, not including Jetstar. Competitors are piling in [and] large numbers of our routes, primarily to Asia and Europe, are loss-making, with no improvement in sight,” said CEO, Alan Joyce, stating the case for restructuring. “To do nothing, or tinker around the edges, would only guarantee the end of Qantas International in our home Australian market.

That would be a tragedy, so we must change. We

have a five-year plan and it starts today.”

Qantas International will now base operations in Asia, creating a hub in the world’s fastest growing aviation market. A new, as-yet-unnamed premium Asian airline will be launched next year but will not be majority-owned by Qantas. A low-cost carrier, Jetstar Japan, will launch domestic Japanese services by the end of next year, in partnership with Japan Airlines and Mitsubishi.

Both airlines will operate A320s – Qantas has announced an order to acquire up to 110 of the type – including 78 A320 neos – in a deal worth more than $9.4bn at list prices. The agreement includes 194 purchase rights and options, and Joyce called the fleet order a major investment in the company’s future, “in the right fleet for the next decade.”

Thai Airway to lease up to 10 aircraft from ILFC Thai Airways has signed a lease agreement with ILFC for six new 787-800 aircraft and two new 787-900 aircraft, plus options for two new 787-900s. ILFC has 74 787 aircraft on order, making it the aircraft’s largest customer. Each of the leases are on a 12-year term. The agreement calls for ILFC to lease eight 787-800/900s to Thai Airways between 2014 and 2017.

Transaero takes 747-400 from Singapore Transaero Airlines has taken delivery of a 747-400 aircraft, increasing its fleet to a total of 65 aircraft. The aircraft is the first of five that the Russian airline will acquire from Singapore Airlines. The 747-400 is configured with three classes: it has 12 seats in imperial-class, 50 seats in business class and 313 in economy.

Embraer tots up $96m in 2Q net income

JAL reports ¥12.7bn 1Q profit Japanese Airlines Group (JAL) has reported a net profit of ¥12.7bn ($165m) for 1Q 2011. JAL posted an operating profit of ¥17.2bn for the quarter ending June, this compares with ¥18bn in the year-before period. The airline underwent restructuring last year; it withdrew 19 destinations, suspended unprofitable routes and decommissioned large aircraft. Capacity in available seat kilometres (ASKs) shrank 29 per cent

in the international market and 27 per cent in the domestic segment. Revenue cargo ton-kilometre (RCTK) was down 54 per cent, despite a spike in transport needs for emergency relief items. The earthquake and tsunami led to a reduction in flights and passenger traffic, particularly affecting the leisure market. International revenue passenger kilometres (RPK) declined 40 per cent and load factor by 11 per cent. In the domestic market, RPK was down 29 per cent. ($1=¥79.8)

Embraer has announced a 2Q 2011 net income of $96m, compared with $57m in the year-before period. Net margins reached 7.1 per cent, up from the 2010 figure of 4.2 per cent. Net cash from operating activities reached $78m in the recent quarter, which helped offset a portion of its negative free cash flow totalling $37.6m, the company said.

During the period, Embraer delivered 25 jets to the commercial market and 23 to the executive aviation market.

ILFC pens deal to acquire AeroTurbine International Lease Finance Corporation (ILFC) has signed an agreement with AerCap to acquire its AeroTurbine subsidiary. ILFC says the acquisition will generate synergies and build the value of its fleet portfolio. ILFC will be able to maximise the value in the remaining life and ultimate disposition of aircraft as well as optimise its future aircraft portfolio and operational acquisitions.

ILFC said it would work closely with AerCap over the second half of 2011 in order to close the deal.

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4 | AFM • ISSUE 75 September-October 2011

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

NEWS HIGHLIGHTS AA releases Eagle into the wild

CASA warns against lithium batteries The Civil Aviation Safety Authority (CASA) has warned passengers not to put lithium batteries in checked luggage following a spate of fires.

The body has recorded a growing rate of incidents involving lithium power packs commonly found in laptops, mobile phones and music players.

Such batteries can short-circuit and catch fire during flight. The CASA has suggested that spare batteries be insulated and carried in the cabin. The US Federal Aviation Administration (FAA) noted 113 incidents involving batteries between 1991 and last year, including the crash of the UPS freighter in Dubai last September. The recent Asiana Airlines’ 747 crash is also suspected to have involved a battery fire.

Virgin slips out of red A 13 per cent rise in sales helped Virgin Atlantic return to profit in the 2010/11 financial year. Pre-tax profit rose to £18.5m ($30m) from -£132m the year before despite a £40m hit from volcanic disruption and severe winter weather. The good news was, however, tempered by a warning from CEO Steve Ridgeway of “more challenged trading in [2H 2011] due to increased capacity in the market and high fuel prices.” Even so, Virgin still plans to inject £100m into its business through the rest of the year as it adds A330s to its fleet and creates up to 1,000 jobs. The airline also recently reached a deal with its pilots who had been threatening to strike for the first time. (£1 = $1.64)

Korean orders two 737-900s Korean Air has announced an order for two additional 737-900s, which will be fitted with the new Boeing Sky Interior. The aircraft, valued at $171.6m at list prices, will join the airline’s existing fleet of more than 80 Boeing aircraft. The Korean flag carrier’s current fleet modernisation plan also includes a cabin refurbishment project for aircraft servicing midto long-haul flights early this year.

After finally biting the bullet and placing the largest order in history – 460 aircraft – to replace its creaking narrowbody fleet, American Airlines (AA) clearly has little stomach to do the same for its regional arm, American Eagle. AMR, AA’s parent, has confirmed its intension to spin off Eagle into a separate listed company, while guaranteeing flying contracts for the regional’s 281 aircraft over the next nine years.

“The spin-off would enable American over time to diversify its regional feed and to continue to procure the most competitive rates and service, while also enabling Eagle to more effectively compete for new business,” AMR’s chairman and CEO, Gerard Arpey said in a statement.

The move will guarantee a stable start to Eagle’s life as an independent, though the benefit to AA’s balance sheet is harder to fathom – tied in as it will be to a capacity purchase agreement with an airline that still relies on inefficient 50-seat jets, mainly the ERJ-135 and

ERJ-145. Many such agreements require the contracting network carrier to cover any fuel costs incurred.

Moreover, AA will retain Eagle’s elderly aircraft on its balance sheet, renting the rapidly depreciating assets back to the regional, while also guaranteeing its debts.

If all that was not enough, Eagle was one of the few areas of AA’s business that actually made money in recent months, albeit only a little. In the short-term, therefore, AA is taking all of the pain of the spin-off, while Eagle, which will also be able to apply for contracts with other majors, reaps the gain.

Further out, however, the situation could be reversed once AA opens tenders on its feeder networks to competition. From next year it can re-bid for contracts for 12 turboprops and from 2014 do the same for 40 jet aircraft per year. Eagle, however, must at some point re-new its fleet but will lack the leverage of its erstwhile parent when it comes to negotiating an order.

US bill to stop its airlines entering EU ETS

A group of US lawmakers has passed what has been called a “bipartisan” bill to prohibit US airlines being part of the European Union Emissions Trading Scheme (EU ETS). If unchanged, the new bill would bar US carriers from the controversial EU cap-and-trade programme, which is to become effective on January 1, 2012, and will ensure they incur no penalty for their exclusion.

A major objection to the scheme is that it would penalise non-EU airlines for parts of a flight that are outside the EU. The US and other countries argue that such proposals contradict the Chicago Convention, the Air Transport Agreement between the EU and US, and US sovereignty. A further concern is what the EU will do with its payments – it has not promised to spend the proceeds from fees on aviation. The US’ argument is that while financial penalties do not sit comfortably with recession-wounded airlines, they make convenient respite for debt-riddled governments.

It is estimated that the scheme would cost US airlines $1.3bn in its first year and as much as $3.5bn annually thereafter – it is certainly a sum worth fighting over.

German ATC strike shelved at eleventh hour A strike that was to close air traffic control (ATC) across Germany in early August was called off at the last minute. The six-hour nationwide walkout was cancelled just hours before it was scheduled to start.

The controller’s union, GDF, cancelled the strike following an injunction made by the German air traffic authority, DFS, which deemed it illegal. The union appealed the ruling but was still forced to suspend its planned action as it would not have received a final verdict in time.

It is believed that the body will find a new date for the strike if the injunction is overturned. CANSO, the Civil Air Navigation Services Organisation, called the plans “unacceptable”. It estimated that 3,000 flights would have been affected by the action that had been

planned to fall over the busy holiday period.

Germany’s airlines may take legal action against the country’s air traffic control union GDF over the cost of preparing for a strike that never happened.

There was, however, concern that taking legal action against the union might incite another strike.

Tiger Airways back in the game Tiger Airways Australia was free to fly again from August 10, having had its suspension lifted by the Civil Aviation Safety Authority (CASA). The body suspended the airline’s flights on July 2 due to safety concerns.

The number of sectors Tiger Airways may fly is initially limited to a maximum of 18 a day during August.

Increased operations after August will be subject to CASA approval. “CASA will be closely monitoring the operations of Tiger Airways through scheduled surveillance and regular spot checks,” said its director of aviation safety, John McCormick. The airline will continue to make improvements in pilot training and proficiency, pilot rostering and fatigue, revision of operational manuals and change-management processes.

It will also appoint additional qualified personnel in key positions.

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September-October 2011 AFM • ISSUE 75 | 5

The latest on deals, mergers, appointments and more NEWS

NEWS HIGHLIGHTS

DVB announces 1H success

IAG jumps on Atlantic traffic International Airlines Group (IAG), the merged British Airways-Iberia entity, has swung to a pre-tax profit of €39m ($56m) after losing almost half a billion euros in the year-ago period. Much of the improvement was down to BA, which recorded a €210m operating profit, while Spain’s Iberia suffered an operating loss of €78m.

Nonetheless, it was an encouraging result for IAG, especially compared with results at other European airline groups such as Air France-KLM, which posted a 2Q operating loss of €145m, and Lufthansa, which reported a €204m net loss for the half. The engine for

ROUND-UP

IAG’s success has been strong growth on northern transatlantic routes, with traffic up 16 per cent, and recovering premium ticket sales, which helped boost average yields by 7.5 per cent.

Traffic to Latin American and the Caribbean, markets in which Iberia and BA are respectively strong, was up 14 per cent. The increases were enough to offset a one-third rise in fuel costs and a $100m hit from events in the Middle East and Japan.

IAG reports that it will meet first-year targets of a five-year plan to achieve synergy-related savings of €400m. ($1 = €0.69)

Delta to buy stake in Aeromexico Delta is to purchase 3.5 per cent of Aeromexico as it announces a long-term alliance and a new MRO joint venture with the Mexican airline. Delta will invest $65m in the airline through the purchase of ordinary shares in its parent, Grupo Aeromexico. The shares were reserved during the airline’s initial public offering (IPO) in April. Under the MRO agreement, the pair will open a new maintenance facility in Mexico in 3Q 2013.

Each will invest an equal amount into the project, which will service both their own and third-party airlines.

Following the share purchase, Delta will win a seat on Aeromexico’s board of directors, and the two will share routes, flights codes, sales teams and other operations. The tentative deal, which was signed as a MoU, is subject to approval from Mexican regulators.

Southwest results for 2Q 2011

Two acquisitions for Airbus

Southwest Airlines has a posted 2Q net income of $161m (+$49m on 2Q, 2010) or $0.21 per diluted share (+$0.6). Operating income was $207m (-$156m). The 2011 results include those of AirTran, which was acquired on May 2, 2011. This incorporates $40m, net of taxes, to cover financial advisory fees and severance payments associated with the acquisition.

Total operating revenues increased 31 per cent to $4.1bn, following record load factors and passenger yields. However, Gary Kelly, chairman, president and CEO admitted that “with our economic fuel costs rising 72 per cent, our year-over-year revenue growth could not keep pace”. Operating expenses amounted to $3.9bn (+$1.1bn). While the company has incurred costs of $75m in acquiring AirTran, $58m of which fell in the quarter, with expected total acquisition and integration costs of $500m, it predicts net annual pre-tax synergies in excess of $400m by 2013.

Airbus is finalising two separate acquisitions. The first is for aviation aftermarket distributor Satair in a deal valued at $504m. The acquisition will be effected through a public voluntary conditional tender offer, which the Satair board will recommend that shareholders accept. Airbus will make the offer through a wholly owned special purpose entity, Airbus Denmark Holding. Satair, which specialises in expendables and components, expects $403m of revenues and $36m of EBITDA in the fiscal year ended June 30, 2011.

Airbus has also entered into a definitive agreement to acquire Metron Aviation, a provider of advanced air traffic management products and services to ANSPs, airlines and airports. The transaction is subject to customary regulatory approvals, and the acquisition is expected to be completed later this year. Financial terms of the deal were not disclosed.

DVB Bank’s consolidated net income before taxes rose 27 per cent to €75m ($107m) in 1H 2011 on a year-on-year basis. DVB struck 75 new transactions with an aggregate volume of €2.4bn, but reported a 1.6 per cent decrease in total assets to €19bn. Calculated in accordance with Basel II, DVB’s tier 1 ratio rose to 20.1 per cent from 18.9 per cent in December 31, 2010; the total capital ratio increased to 23.3 per cent from 22.4 per cent in December 31, 2010.”We maintained the momentum seen during the record year 2010 during the first six months of 2011… We anticipate a similar trend for the second half of the year, even though we are faced with manifold political and economic uncertainties,” Wolfgang Driese, CEO and chairman of the board of managing directors commented. ($1 = €0.7)

Continental pulls flights as pilots pull a sicky Continental Airlines was forced to cancel 24 flights on Wednesday (July 27) as a number of its pilots took sick leave. The absence was timed with union negotiations regarding the merger of Continental and United Airlines, due next year.

Continental has over 4,000 pilots and United over 5,500 – many of which are concerned about job losses following the merger. Newark Liberty Airport was most affected by the pilot absences.

CAA to save those stranded by Holidays 4U The UK Civil Aviation Authority (CAA) is organising rescue flights to transport the 12,800 travellers stranded abroad due to the collapse of tour operator Holidays 4U. As many as 50,000 customers have lost their holidays. However, they will be refunded under the Air Travel Organisers’ Licensing (ATOL) protection scheme. The Brighton-based holiday company sold flights to Turkey under the brand Aegean Flights.

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6 | AFM • ISSUE 75 September-October 2011

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

NEWS HIGHLIGHTS Heavyweight Heathrow

GECAS delivers 777F to China Cargo GE Capital Aviation Services (GECAS) has delivered a new 777F freighter aircraft to China Cargo Airlines. The aircraft comes from GECAS’ existing order book with Boeing. GECAS previously leased another new Boeing 777F to China Cargo Airlines in late 2010. The cargo operator, which is majority owned by China Eastern Airlines, currently operates a fleet of 18 freighters.

Volaris takes A320s from JSA Volaris has taken delivery of the first of seven A320s from the leasing company Jackson Square Aviation (JSA). The delivery, which is under a long-term operation lease, is supported with pre-delivery financing from JSA; DVB provided senior debt.

Alfredo Sarria, SVP of JSA’s marketing for Latin America said the company was pleased to finance the airline and that it was “extremely enthusiastic about Volaris and the Mexican market in general”.

No verdict on Airblue crash one year on An interim report on the Airblue crash that killed 154 people came no closer to the truth a full year from the incident. The Civil Aviation Authority (CAA) filed its report on the crash of July 28, 2010, stating the cause had not been identified and that no responsibility had been apportioned. All passengers and crew onboard were killed as the aircraft crashed into the Margalla Hills near Islamabad, Pakistan.

The operator of London’s Heathrow and Stansted airports, BAA, has posted an after-tax loss of £130m ($215m) for 1H 2011, roughly half that of the previous year. Part of the improvement was due to the poor trading conditions in 2010 caused by volcanic ash and industrial action at British Airways. Nonetheless, rises of almost eight per cent in longhaul and European traffic and increases to aeronautical charges at Heathrow also helped underpin a 16 per cent rise in aeronautical income, up to £588m ($970m) – the bulk of which was accounted for by Heathrow.

Retail sales were also up at both airports, accounting for £247m ($408m) of revenue. Despite the overall loss, it was a markedly strong financial performance, especially given the competition that

Heathrow faces from nearby hubs in France and Holland. Heathrow’s aircraft charges are more than double that of Paris CDG and are roughly a third more than Amsterdam Schiphol. Government charges, meanwhile, are more than seven times higher than in France, while in Amsterdam they do not exist.

Cathay orders 12 Boeing aircraft as it releases 1H results Cathay Pacific has reported a 1H 2011 net profit of HKD$2.8bn ($360m), down from last year’s HKD$6.8bn.

Revenue rose 13 per cent to HKD$47bn but the airline’s profit margin fell 10.5 percentage points, largely due to high fuel prices. Passenger revenue rose 16 per cent on 2010 on a capacity increase of 8.9 per cent. Load factors fell by 4.7 percentage points. Cargo revenue for 1H 2011 was up 7.7 per cent year-on-year. Cathay Pacific also announced its order for four new 777-300ER passenger aircraft and eight new 777-200 Freighters. The 12 aircraft have a collective list price of about HKD$25.6bn “but will be acquired at a considerable discount”, the airline said in a statement. The aircraft, expected to be delivered between 2013 and 2016, will be powered by GE90 engines. They will join the Cathay’s existing fleet of 22 777-300ERs and orders for a further 28. Cathay will retire 21 747-400s and 13 A340-300s before the end of the decade. ($1=HKD7.81)

IATA: traffic slowdown merely a speed bump The International Air Transport Association (IATA) said traffic results for June showed a “slight softening” in demand for both air travel and freight markets. Compared with the year-before period, passenger demand was up 4.4 per cent, while freight demand was three per cent lower. But compared to the previous month, May 2011, both passenger and cargo markets contracted by about one per cent. “For passenger traffic, this is a speed-bump in a gradual post recession improvement,” said Tony Tyler, IATA director general and CEO. “But air cargo continues in the doldrums at six per cent below the post-recession peak.” Worryingly, freight volumes have not grown since July-August 2010.

“The industry is living in several different realities.

With high load factors and an upward growth trend,

the passenger business is doing better than cargo. But regional growth patterns are shifting,” said Tyler. In the Middle East, expansion has levelled off to single digits, while tighter economic conditions have slowed China’s growth. According to the IATA figures, Latin America currently leads the industry expansion followed by Europe “which is growing strongly despite its currency crisis”, says Tyler. North America continues to underperform in terms of growth, yet leads the way on load factors.

Although the general trend for passenger travel remained positive in June, it was at a slower pace than the “post recession rebound” which was at an annual rate close to 10 per cent. The association believes the slowdown reflects slower economic growth and increased costs resulting from higher jet fuel prices, as well as increased taxation in some countries. IATA is forecasting an industry profit of $4bn for 2011, a dramatic 78 per cent decrease from the $18bn that airlines made in 2010.

Fly acquires $1.4bn in additional aircraft FLY Leasing is to boost its portfolio with $1.4bn worth of additional aircraft. The purchase, which was funded

by FLY’s unrestricted cash and the assumption of existing non-recourse debt, will grow the lessor’s portfolio by 80 per cent to 109 aircraft. The aircraft were previously managed by Global Aviation Asset Management, an Australian company, and are on lease to 23 airlines in 15 countries. “This is a very compelling acquisition for FLY,” said Steve Zissis, president and CEO of BBAM, the servicer for FLY Leasing. “The aircraft are leased to strong, well-run airlines around the world that will increase FLY’s annualised revenues by over 80 per cent to approximately $370m”.

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8/22/11 1:46 PM

AFM75 News_AFM News 06/09/2011 11:17 Page 8

8 | AFM • ISSUE 75 September-October 2011

NEWS ROUND-UP The latest on deals, mergers, appointments and more Singapore LCC to use 777-200s Singapore Airlines’ unnamed new low-cost, long-haul subsidiary will operate using an initial fleet of 777200s. The aircraft will in the first place be acquired from the parent company and will be reconfigured in a new seating layout. “The selection of the initial fleet marks another milestone in the establishment of the new airline,” said Campbell Wilson, CEO of the subsidiary. “The process is progressing well for our launch next year.” The new airline will operate using a “no-frills, low-fare” model serving medium and long-haul routes.

It will be operated independently and managed separately from Singapore Airlines. Details of its branding, services, and route network will be announced in the coming months.

Star stays out of reach for Air India Loss-making Air India has been prevented from joining the Star Alliance network.

Star Alliance said that the airline had “not met the minimum joining conditions that were contractually agreed in December 2007”. Air India had hoped that membership of the network would boost its sales by up to 15 per cent. The airline was expected to have fulfilled all necessary membership criteria by July 31, 2011, though confidentiality clauses prevent Star Alliance from stating exactly which conditions Air India failed to meet.

Ireland to keep €3 travel tax Ireland’s €3 ($4) travel tax will stay in place at least until the winter. Ireland’s airlines had proposed that the government scrap the travel tax in exchange for higher passenger traffic, but the proposal was deemed not to have been a “meaningful response”.

Ryanair said in a statement that it had carried eight million passengers in July – the most any European airline has carried in a single month. Transport Minister Leo Varadkar, whom Michael O’Leary judged “unfit for purpose”, said he was not prepared to “get involved in any kind of games.”

He added: “The next day they’d want airport charges reduced. The third day they’d want maybe even to be paid to land at the airports. That’s the kind of game this industry is in.”

PEOPLE IN THE NEWS Saunders becomes CCO at Air Malta

Goodridge becomes SVP at Werner Aero

Air Malta has appointed Philip Saunders as its new CCO. As part of a restructuring process, Air Malta’s cabin service and ground handling departments will now form part of the commercial department.

Saunders has been in the industry for more than 20 years, most recently holding the position of CEO at Caribbean Airlines. He has also served as commercial director at Star Alliance, and in several senior positions at British Airways.

Werner Aero Services has appointed Julie Goodridge to the position of SVP of sales. Goodridge has previously held leadership roles with FlightSafety International, CAE and Embry-Riddle. In her new position, she will oversee Werner Aero’s global sales and marketing operations.

AirAsia and MAS mingle boards Malaysia Airlines (MAS) and AirAsia have made numerous board changes following a share swap that gives AirAsia parent Tune Air 20.5 per cent of MAS. The most significant of the changes saw AirAsia’s CEO, Tony Fernandes, join the MAS board as a nonindependent, non-executive director, while Azman Yahya, a director at Malaysia Airlines’ largest shareholder Khazanah Nasional, mirrored that move onto the AirAsia board.

Malaysia Airlines chairman resigns Malaysia Airlines chairman, Mohamed Munir Abdul Majid, stepped down from his post on 31 July, 2011 when his contracted expired. The loss-making flag carrier is to set about restructuring its management personnel. Munir became chairman of the airline in August 2004. No reason was given for his resignation.

The airline’s senior general manager Bernard Francis has also stepped down from his post.

New Dragonair head Hong Kong’s Dragonair has named Patrick Yeung its new CEO, effective August 16. Yeung was formerly director, general manager and chief representative of John Swire & Sons, overseeing the group’s development and investment strategies in China. Swire Pacific is the principal shareholder of Dragonair parent Cathay Pacific. Yeung succeeds James Tong as head of Dragonair.

Falko names leadership team New aircraft asset manager, Falko, has unveiled its senior executive team, which includes the five members of the management buy-in group that acquired BAE Systems’ Asset Management business with the assistance of Fortress Investment. Jeremy Barnes is CEO; Paul Stirling is EVP, asset management; Martin Brennan is CFO; Mark Hughes is EVP, treasury; James Greenstreet is EVP, portfolio strategy; and Sarah Dichlian is chief general counsel.

Xuereb takes control of Air Malta finances Air Malta has named Nicholas Xuereb as CFO, reporting to CEO Peter Davies. The airline says the new appointment is part of a build-up at senior management level intended to turn around performance and create a sustainable national airline.

Air Malta has also appointed Philip Saunders as its new CCO.

Jewett joins JetBlue board JetBlue Airways has appointed Ellen Jewett, BMO capital markets MD, to its board of directors. Jewett has more than 20 years of experience in the field of airport infrastructure financing, including five years as head of airports and the public sector transportation group at Goldman Sachs. She has led numerous public-private partnerships and project financings over the course of her career.

Former Atlanta mayor joins Delta board Former mayor of Atlanta, Shirley Franklin, has become the newest member of Delta Air Lines’ board of directors, effective July. She served as Atlanta mayor for two terms, from 2002 to 2010. “Throughout her distinguished career, [Franklin] has demonstrated great leadership and tremendous knowledge of the region and the nation’s economy,” said Daniel Carp, Delta’s non-executive chairman of the board.

Scott retires as Bombardier president Gary Scott is retiring as president of Bombardier Commercial Aircraft, effective October 1, 2011. Guy Hachey, COO, will take the reins until a replacement is named. Scott, whose presidency began in 2008, has spent 30 years in the aerospace industry, at Boeing and CAE as well as Bombardier. He leaves to spend more time with his family.

Viggiano to lead Saab Sensis Marc Viggiano has taken over as president and CEO of Saab Sensis Corporation, he is responsible for growth in North American defence, civil security and air traffic management (ATM) markets. Jud Gostin, current president and CEO, will retire from his fulltime position but continue in an advisory role.

Bennett appointed to AMR board Former president and CEO of Intuit, Stephen Bennett, has been appointed to the board of directors of AMR Corporation and its wholly-owned subsidiary American Airlines. He will also serve as a member of the audit committee. Bennett was president and CEO at Intuit from 2000 until his retirement in 2007. He has also held leadership positions at GE for more than 23 years and is currently a non-executive director of Qualcomm and Symantec Corporation.

Airberlin appoints new manager of loyalty and partnerships Marcus Puffer will become Airberlin’s manager of loyalty and partnerships, effective November 1. Puffer is “an established expert in airline alliances”, says André Rahn, director of marketing, to whom Puffer will report. He has worked with Austrian Airlines and later Star Alliance where he was business project manager.

Project1_Layout 1 08/09/2011 10:18 Page 1

AFM75_AIRBUS_AFM71 06/09/2011 11:28 Page 10

10 | AFM • ISSUE 75 September-October 2011

FOCUS: Airbus update Despite a vicious recession, the after-effects of which are still distorting global economic activity, the pace of deliveries from Airbus’ final assembly lines in Toulouse, Hamburg and Tianjin has barely faltered. Indeed, the biggest problem facing Airbus seems to be how to build aircraft fast enough to satisfy demand. Bernard Fitzsimons brings us an update on the manufacturer.

AIRBUS One of six A320-300s ordered by Virgin Atlantic.

PROGRAMME UPDATE A

T CURRENT RATES OF DELIVERY, WHICH SAW 510 aircraft handed over last year and 298 in the first seven months of 2011, it is going to take Airbus the rest of the decade to clear its backlog of over 4,000 aircraft orders.

Delivery rates are set to increase and demand is such that the manufacturer was able to raise its list prices in January by 8.4 per cent for the A380 and 4.4 per cent for the rest of the range. But supply chain considerations make it hard to accelerate production much further, while the A350 and A320 neo programmes are demanding huge number of engineers. By mid2011 Airbus had 6,500 engineers working on the A350 and as many more with suppliers and partners. It expects its own A350 workforce to grow to 12,000 at peak production. Tom Enders, CEO, admitted last December when launching the new engine option for the single-aisle family; “finding the necessary resources for the A320 neo wasn’t exactly a walk in the park.”

Airbus is also moving to enhance the existing airframe with the optional drag-reducing wingtip devices it has dubbed ‘Sharklets’.

Built by Korean Air Aerospace, the 2.5m tall composite devices should reduce fuel burn by at least 3.5 per cent on longer sectors, while allowing an extra 500kg of payload or a 100nm range increase. Other benefits include higher available takeoff weights or reduced average takeoff thrust, lower noise, enhanced climb performance and higher initial cruise altitude.

Deliveries of Sharklet-equipped A320s are due to start late next year, when the production rate is due to reach 42 per month. The first A321s will follow in 2013. Airbus is also developing a retrofit option for the devices.

Exchange rates are another concern. Hans Peter Ring, CFO of Airbus’ parent, EADS, said in August that the company was negotiating with airlines in Europe and the Middle East to take payments in euros rather than dollars, while encouraging suppliers to move manufacturing to dollar-zone countries such as Mexico or low-cost areas outside Europe.

A320 and the neo With the re-engined version still four years away from entry into service (EIS) and traffic growing again, the standard A320 continues to attract sizable orders – a total of 452 last year and more than 200 so far in 2011. Monthly production for the aircraft was due to increase from 36 to 38 in August 2011, 40 in the 1Q of 2012 and 42 in the 4Q.

A319 neo in the colours of American Airlines, which has ordered 130 neos and optioned 280 more.

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September-October 2011 AFM • ISSUE 75 | 11

FOCUS: Airbus update Other A320 enhancements include a new modular galley and stowage from Zodiac Aerospace’s subsidiary, Driessen that will be supplied as seller-furnished equipment from mid-2012, a move that Daniel Baubil, EVP of the A320 family, says will “improve the robustness of the supply chain by developing a close partnership with one strong supplier.” The manufacturer has also shown a market research mock-up of a rear lavatory and galley concept called Space-Flex that would enable three more seats to be fitted or the seat pitch to be increased.

The 16.5m long, 1.2 tonne keel beam for the first A350-900 arrived at Airbus, St. Nazaire in August.

The success of the Sharklet-winged A320 neo has surprised even Airbus: “I didn’t think it would be such a best-seller,” admitted Enders after announcing Air Asia’s record-breaking order for 200 of the aircraft at the Paris Air Show (PAS) in June. In fact, the neo’s promise of a 15 per cent reduction in fuel burn attracted a total of more than 1,200 commitments in the first nine months following its December 2010 launch.

Powered by either CFM LEAP-X1A turbofans or Pratt & Whitney PurePower PW1100G geared turbofans, the A320 neo promises an extra 500nm range or two tonne payload while cutting NOx emissions by 50 per cent and reducing the noise footprint by up to 75 per cent, or 15 ENPdB. Indigo Airways, the first customer to be announced, signed a memorandum of understanding for an ample 150 neos and 30 A320s. The neos will be powered by the PW1100G, as will the 30 ordered by Lufthansa. Virgin America launched the LEAP-X1A with an order for engines to power 30 aircraft. SAS followed with its order for 30 aircraft, Frontier Airlines’ parent, Republic Airways, ordered 40 each of the A319 neo and A320 neo.

No engine was immediately specified for the biggest commitment so far – American Airlines’ order for 130 neos and no fewer than 280 options, plus the same number of A320s and a more modest 85 options. The airline expects the new aircraft to achieve 35 per cent lower seat costs than those of its elderly MD-80s, 15 per cent lower than the 767-20 and 12 per cent less than the 757-200. It plans to use both current and neo versions of the A321 to serve transcontinental markets, high-demand routes and slotconstrained airports alongside the 737-900ER, while A320s and 737-800s serve typical domestic, short-haul Latin American and Caribbean markets. American is also adding A319s and 737-700s for secondary domestic markets, some Latin American destinations and airports at high altitudes or with short runways.

With the exception of GECAS, whose 60 neos will have engines from CFM, lessors have gone for a combination of the two. ILFC, which has ordered 100 neos (80 A320s and 20 A321s) and optioned 50 more, was the first customer for the PW1100G. Of the firm orders, 60 will have the P&W engine and the other 40 will be LEAP X-powered, while options cover a further 20 aircraft for the Leap-X. CIT Aerospace, which has firm orders for 50 neos, PW1100Gs to power 30 of them, plus options for the other 20, has also ordered 30 LEAP-X1As with options for 20 more.

GTF-powered neos are scheduled to be the first in service, after the model’s enthusiastic reception prompted Airbus to bring forward the target date from spring 2016 to October 2015.

A320 nacelle supplier Goodrich is designing the nacelle and thrust reversers for the PW1100G and will carry out engine build-

A320 final assembly in Toulouse. Single-aisle Airbus production rate is due to hit 42 by late 2012.

up. The nacelle includes a variable area nozzle, which will help fuel efficiency by manipulating the flow of fan air from the nacelle. Safran’s subsidiary, Aircelle, which supplies thrust reversers for the A320, will build the nacelle for the LEAP-X1A and integrate the engine with the help of its Nexcelle partner, GE’s Middle River Systems. Both engines are scheduled for certification in 2014.

Airbus corporate jets and the A330/A340 Airbus has sold more than 170 aircraft to private, business and government owners. The majority are ACJ318s, ACJ319s and ACJ320s. These have reinforced structures and additional tanks for longer-range, built-in airstairs for greater autonomy and highthrust engines to boost takeoff performance.

Last year’s 15 deliveries also included two widebodies. This year the airframer has added TAECO in China and Comlux America to a list of approved cabin outfitters, which already included the manufacturer’s own Airbus Corporate Jet Centre and six other completion centres.

The A330 has been a major beneficiary of the delays to the Boeing 787 as airlines have sought to fill the resulting gaps in their planned fleets. A growing backlog, which had reached 139 A330-200s and 164 -300s by the end of July, has inspired Airbus to increase production rates from the current 2Q of 2013.

The A330-200 freighter programme has also flourished with seven aircraft delivered and 50 more on order. But the A340 appears to have reached the end of the line, with only four A340-500s listed as outstanding orders – two of them for private owners and the other two for Kingfisher, which dropped its plans to operate the type in 2008.

After multiple metamorphoses during the new model’s protracted definition phase, major assemblies for the extrawidebody A350 are taking concrete shape. And while the target for first flight has been pushed back to the end of 2012, EIS is still scheduled just one year after that.

The massive composite fuselage panels that are one of the design’s major innovations have been cured by suppliers, Premium Aerotech, in Germany. The company is supplying the complete section 13/14 forward fuselage and rear fuselage section 16/18 side shells. Spirit AeroSystems in the US, responsible for the section 15 centre fuselage and the aft fuselage crown panel.

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12 | AFM • ISSUE 75 September-October 2011

FOCUS: Airbus update

Delivery of Korean Air’s first A380 at Toulouse in May.

Messier-Bugatti-Dowty and Liebherr have delivered the first main and nose landing gears to the Airbus test facility in the UK, and Premium Aerotech has also completed the first titanium attachments for the main landing gear. They will be shipped to Airbus UK for attachment to the rear wing spar.

In Hamburg, a full-scale cabin and fuselage mock-up, dubbed Cabin 0, was powered up in May: it is being used to test electronic and electromechanical systems such as in-flight entertainment, air conditioning, the doors and slides control system and cabin intercommunication. In China, Airbus and its local partners have inaugurated the Hafei Airbus Composite Manufacturing Centre, which will make composite parts the A350.

June saw the first run of the 84,000lb thrust Trent XWB engine that will power the baseline 314 seat, 8.100nm range A350-900 and 270 seat, 8,500nm -800: flight testing should start later this year and Rolls-Royce expects to complete six further development engines by early 2012. In August, Airbus Nantes delivered the 40 per cent composite centre wing box and 50 per cent composite keel beam to the fuselage assembly facility at St. Nazaire, where they will be assembled before being flown to Toulouse. Wing covers are under construction at Illescas in Spain and Stade in Germany.

The A350-1000 programme, though, has been subject to further revision as Airbus attempts to match the performance of Boeing’s 777-300ER. In November 2010, Goodrich replaced its French rival as supplier for the main landing gear, whose bogies carry six wheels rather than the four carried on the smaller models. In June, Airbus revealed that it was responding to market calls for increased payload and range by increasing takeoff weight to 308 tonne and switching to a new 97,000lb thrust version of the Trent XWB. Other changes from the -900 are a more powerful air conditioning system and revised high lift controls and actuators on the wing trailing edge to optimise performance.

Rolls-Royce says the more powerful engine will use new high temperature turbine technology. The engine core will be bigger and advanced fan aerodynamics will also contribute to the

increased thrust. Together, the increased thrust and takeoff weight will boost the -900’s range with 350 passengers by 400nm or enable it to carry an extra 4.45 tonnes of payload over a given range. The greater payload range capability will make the aircraft a good match for new routes such as Shanghai-Boston and Paris-Santiago, Airbus says. The price of the enhanced performance, however, will be an 18-month delay taking it to mid-2017 in the -1000’s EIS and a $9m increase in the aircraft’s $299.7m price tag.

The A350-800 has also been pushed back as several early customers for the model switched to the higher capacity -900.

Patrice Brégier, COO, said at PAS, in June that first delivery would be in mid-2016 rather than 2014. By the end of July, Airbus had logged orders for 135 A350-8000s, 357 -900s and 75 -1000s.

Looking forward, Brégier admitted at the PAS that the programme remains very challenging. Assembly of major structural components is under way at Airbus plants in Broughton, Saint-Nazaire, Hamburg and Getafe. Installation of tubes pipes and wiring harnesses in fuselage sections and of stress gauges in the static test airframe should follow in the 4Q of this year in preparation for the start of final assembly in Toulouse at the beginning of 2012.

The A380 programme is continuing its recovery from early delays.

Airbus delivered 18 aircraft last year, handed over the 50th A380 to Singapore Airlines in July and has added six-aircraft orders from Asiana and Skymark Airlines this year. Despite ILFC dropping its order for 10 in favour of single-aisle neos, the backlog stood at 193 by the end of July.

The programme remains some way from profitability, however.

The manufacturer expected to deliver at least 20 A380s last year but the delivery schedule was affected by the engine failure suffered by a Qantas aircraft. Going forward, Airbus must tackle the challenges of improving the customisation process and increasing production rate with more heads of version (Airbus’ term for the first example of each different operator configuration) and with no increase in resources.

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14 | AFM • ISSUE 75 September-October 2011

FOCUS: Frequent Flyer The greatest asset for any airline is its customers, particularly the frequent, loyal and highyielding business traveller. Billions spent on your fleet will mean nothing unless you can persuade the right customers to keep flying on them. Iain Webster, senior loyalty consultant at ICLP, explains how frequent flyer programmes can do this.

GETTING THE BEST FROM YOUR FREQUENT FLYER PROGRAMME S

OMEWHERE DEEP IN THE ORGANISATION, MOST airlines have a small group of employees tasked with looking after their most valuable of assets. They are the frequent flyer team.

After three decades of frequent flyer prgrammes (FFPs) we have reached a plateau. At ICLP we hold data on over 200 programmes. Many are well run on a day-to-day basis, but too many loyalty managers do not know why they are churning out elite status cards, emails and mileage promotions. So what are traits of a highly effective FFP?

Focus on the customer Many airlines still award FFP points based on the number of miles a passenger has flown. But total miles flown is not a good proxy for revenue and it can be a worse measure of margin. At ICLP, we are seeing an increase in the number of airlines asking us to redesign their FFP to a value-based model. To start with, and airline should identify its most profitable customer segment and make sure its programme is right for them.

The number one bugbear of most FFP members is that the programme is too complicated. Dinner party conversation too often turns to; “Yes, I have all these points in such and such programme but I have no idea what they are worth or what to do with them.” For most people, loyalty programmes are a very small part of their daily life. So, keep it simple or you will lose them. Strip out the complex rules and propositions, even if it means some customers may play the system. JetBlue’s ‘True Blue’ programme is a good example of a reward system that is both value-based and simple.

Data is gold to the businessman. Analysing the right metrics and then taking action is the key to success. Before you decide to measure anything, make sure you know what actions you will take from understanding the result. If you cannot determine that, do not measure it. At ICLP, we often see airlines sitting on mountains of valuable data, spread across different parts of the organisation with no one taking any action as a result.

Understanding data enables you to build a portrait of your most profitable customers and then find more of them. One airline determined that their elite tier members had a very strong

preference for selecting forward aisle-seats. The action? Fast track a segment of new FFP members who have flown a designated number of times in a designated number of weeks in a forward-aisle seat, and offer them elite tier status. Think how loyal and special that makes the customer feel.

The world does not need another ‘me too’ FFP. Two hundred is quite enough. Keep things exciting, look for new ways to present promotions. Instead of double miles on a specific route for everyone, Air Berlin turned this on its head and asked commuters to name the route on which they would like to receive bonus miles.

Points appeal to greed, a pretty universal human trait. That is why they work so brilliantly in every market on the planet. Everyone likes something for nothing. But do not ignore one of the other deadly sins – pride. Elite tier benefits offer recognition that makes people feel special and proud to fly with you. For the jaded very frequent flyer, research consistently shows that recognition trumps free flights in terms of leveraging a customer’s loyalty. So make sure your elite tier structure and eligibility criteria mirrors the profitability of your business. It is essential that your FFP puts the right people in the right place and then delivers the right benefits to them. An example of this is Singapore Airlines’ PPS Club, in which eligibility is defined and restricted to dollar spend in the premium cabins only.

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September-October 2011 AFM • ISSUE 75 | 15

FOCUS: Frequent Flyer

Ancillary revenue An airline’s thinking should go way beyond charging for that checked bag. The term ‘ancillary’ applies to the potential to earn profitable revenue from a customer base from activities outside the core business of flying someone from A to B. Once your customer is on your FFP database you can start to mine rich seams of transactional, profile and lifestyle data to start truly understanding their needs and requirements. Presenting them with a paid bundle of year-round benefits that speak to their lifestyle can help you form a powerful bond. More importantly, it will continue to bring you revenue even when the individual is not flying with you. A global Wi-Fi roaming package and worldwide mobile phone insurance are good examples of appropriate benefits.

For the most part, the elite tiers of FFPs have done a pretty good job of looking after its members. But every business has a huge, often neglected ‘middle tail’, typically transacting between two to five or more times per year in the economy cabin, but staying below the radar of the loyalty programme. This is the rich target for ancillary revenue.

Let us assume you have already addressed all of the issues above.

Now it is time to look at the FFP cost base. Running an FFP is rather like owning a car. It is too easy to obsess over the price of gas and the costs of repairs and parking, when in fact the largest hidden motoring cost is vehicle depreciation. With an FFP the largest cost, without doubt, is the liability cost of unredeemed points. Depending on your accounting jurisdiction, you may treat this as a cost or, more likely, deferred revenue. Unexpired miles represent a goldmine of deferred revenue, which the airline can release as soon as the mile is redeemed. Some of the largest FFPs have billions of dollars locked up in their unexpired mileage bank.

One of the main reasons customers may not redeem them is simply that they do not have any prospect of earning sufficient miles to reach the threshold for a free flight. There are two solutions to this. One is to expand the earning opportunities to include purchases and transactions beyond the travel experience.

Many airlines have online mileage malls, which do this admirably.

The other is to offer non-air redemptions. Here it is too easy to get into a cost conundrum – how to fund and price non-air redemptions at a level which makes sense to your CFO but remains meaningful to the customer. A flight to an attractive leisure destination or a toaster? No contest.

customer database “rich seams transactional, lifestyle Once your

is on your FFP

of

start truly

you can start to mine

profile and

understanding their needs and requirements.

data to

”

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FOCUS: Frequent Flyer

“strategies attempts

brand awareness and support acquisition , using Facebook and Twitter as channels for direct sales.

What has been missing, however, is any real consensus on how to integrate social media into loyalty programmes.

There have been

to raise

”

Rather than hard merchandise, it helps to consider alternatives like services and software downloads in areas that share a huge gap between perceived value and true marginal cost. For inspiration, take a look at the type of services that Group On (the on-line discount provider) is able to successfully distribute at such hugely discounted rates.

Multiple communication channels Most airlines utilised the cost efficiencies of moving communications offline to online a long time ago. Now social media beckons, but many are perplexed about how to deal with it. It is easy just to direct people to Facebook or Twitter or an online community, but to what effect?

There have been attempts to raise brand awareness and support acquisition strategies, using Facebook and Twitter as channels for direct sales. What has been missing, however, is any real consensus on how to integrate social media into loyalty programmes.

Starwood Hotels & Resorts, however, is one brand that has really embedded social media as a core part of its ongoing loyalty strategy.

In an innovative application of this, Starwood created a global scavenger hunt for their Starwood Preferred Guest (SPG) members.

There was a prize, of course, but the crucial factor was that clues were delivered via Facebook and Twitter. This marked the competition as something aimed at a particular subset of SPG members.

Those members were fed information on a range of hotels across nearly 100 countries as they tried to uncover the clues in the game.

The next generation of reward programme must focus on generating more consumer emotion by encouraging rewarding engagement. This might include interactive games, which stretch a programme into other lifestyle areas. Brands such as United Airlines have successfully tapped into more emotional behaviour as part of their programme marketing initiatives. In 2010, they released their ‘Optathlon’ members-only interactive game, which enticed members to play online to win a variety of prizes.

Members were offered instant daily rewards, which included things like fast-track security line passes, seat upgrades and free business lounge access for a day.

Perhaps the most exciting trend is the growing use of smartphone technology which can provide data that builds insight into the customer. A passengers’ location can be used to target them effectively with relevant offers at every stage of the journey.

Airlines should starting thinking about how they switch their focus to offer to a more integrated customer approach.

Combining loyalty programmes with social media and new technology is not straightforward however, the rewards are significant for those who embrace the challenge.

Finally, think carefully about the position of your FFP in the organisational food chain. With the proper fine-tuning, a FFP can become more valuable than your cargo operation or any other subsidiary activity. With this in mind, those in charge of customer relationships should be higher up the organisational food chain to reflect the importance of the activity.

AFM75_AIRE_AFM71 06/09/2011 11:59 Page 18

18 | AFM • ISSUE 75 September-October 2011

FOCUS: AIRE While complex to administer because of different organisational and contractual structures in the US and Europe, the Atlantic Interoperability Initiative to Reduce Emissions (AIRE) has produced encouraging results over the past four years and is expanding.

Chris Kjelgaard reports on its progress.

CLEARING THE

AIRE

A

VITAL PART OF THE AVIATION INDUSTRY’S CONTINUING effort to reduce its environmental impact is to manage airspace more effectively, to reduce fuel, cut flight times and minimise delays. Airlines and aerospace manufacturers, the International Civil Aviation Organisation (ICAO), most national air navigation service providers (ANSPs) and governments – have long recognised that international co-operation is key to achieving better use of airspace, both over land and over the oceans.

Two major multinational initiatives, the Asia and Pacific Initiative to Reduce Emissions (ASPIRE) and the Atlantic Interoperability Initiative to Reduce Emissions (AIRE), have led the way in demonstrating how international co-operation can create tangible, substantial improvements in air traffic management (ATM) on long-haul routes. Both efforts involve the Federal Aviation Administration (FAA), the US government aviation regulatory agency which is also the ANSP for the US. But while the focus of ASPIRE has been on long-haul operations involving flights across the Pacific or the South China Sea, AIRE not only focuses on transatlantic airspace – by far the busiest oceanic airspace in the world – but also the intensive ATM environments in the skies above Europe, the US and Canada.

AIRE is the result of a memorandum of co-operation (MOC) signed by the European Commission and the US in June 2007. In its first two years of existence, AIRE produced results so compelling that they were adopted into 80 per cent of daily ATM procedures. AIRE’s programme partners expect this percentage to increase as the benefits to ANSPS and airlines become increasingly evident, says to Célia Alves Rodrigues, manager of SESAR JU’s environmental office and of the AIRE programme.

Because AIRE has expanded substantially since July 2010, SESAR JU and the FAA expect its benefits for the environment, as well as for airlines and ANSPs, to become increasingly pronounced.

How AIRE is organised and managed In Europe, AIRE is administered by the European Commission’s Single European Skies ATM Research Joint Undertaking (SESAR JU) programme. In the US it is administered by the FAA. Rodrigues says that in Europe, SESAR JU manages AIRE by means of collaborative contracts (issued after formal bids) for projects that involve one or more ANSPs, airlines and other AIRE stakeholders such as manufacturers. The contracts allow the EC to provide up to 50 per cent of the cost of each project. The other partners are required to fund the remaining 50 per cent.

In the US, the FAA manages its participation in Next Gen-related AIRE projects less formally, according to Donald Ward, an FAA international representative for Europe, the Middle East and Africa. Ward says that for AIRE operational-trial partnership work the FAA does not have to issue contracts – in part because the FAA does not have an easy way to deal with small, simple contracts. As a result, says Ward, the FAA usually asks for volunteers (usually airlines, but also the US military) to co-operate in trials uncompensated – the volunteers benefit from good publicity as well as cost-savings from ATM procedural improvements.

The original EC-US MOC was reinforced in March, 2011 by a new MOC which requires that both SESAR JU and the FAA regard overall management and development of AIRE as a high-priority activity. It allows the two ATM bodies to harmonise their respective SESAR and Next Gen work-group activities. Both say this will help ensure close co-operation and communication among ANSPs on both sides of the Atlantic, as well as improving the transatlantic interoperability of technologies, procedures

AFM75_AIRE_AFM71 06/09/2011 11:59 Page 19

September-October 2011 AFM • ISSUE 75 | 19

FOCUS: AIRE

Source: EUROCONTROL

If altitude Window XXXXFT YYYYFT

and standards. Importantly, it will also help validate the environmental improvements expected from, and achieved by, AIRE projects.

AIRE is governed by a strategic plan which divides projects into three ATM domains – surface, terminal and oceanic/en route operations. In Europe, SESAR JU awards contracts for projects in each of the three areas, while in the US the FAA acts in two ways.

On one hand, the FAA finds volunteers for AIRE-related Next Gen operational trials; and on the other, it acts as an individual ANSP participating in AIRE surface, terminal-airspace and oceanic/en route projects.

Rodrigues explains that because the FAA’s legal and contractual framework allows it to participate in AIRE projects only on an uncompensated basis, the FAA’s performance in these projects – which require formal contractual-performance obligations from other participants (are given only on a ‘best efforts’ basis). In Europe, co-financed AIRE projects typically have a duration of 12 to 15 months, but this can be extended to 18 months if there are compelling operational reasons to do so, according to Rodrigues.

In the US, AIRE-related Next Gen trials typically last 12 to 15 months too, according to Ward.

Célia Alves Rodrigues of SESAR JU

Within each of the three ATM domains, the AIRE strategic plan envisages several specific operational areas where trials can be conducted to improve fuel and airspace usage, thus

CDA Profiles

Glide path FAP acquisition point

2NM

Non-CDA Profile

Conceptual diagram of CDA

Area of maximum noise benefit

creating environmental savings of CO2, oxides of nitrogen and noise. According to the FAA, in the surface domain (that is, at the airport), operational improvements focus on reducing engine taxiing; minimising delays for taxiing to and from the gate; and reducing use of auxiliary power units.

In the terminal domain, one focus is on optimised-profile descents, including continuous-descent arrivals (CDA) and tailored arrivals.

(Given the proliferation of confusing terminology in this area, ICAO is now encouraging use of the blanket term ‘continuous descent operations’, or CDOs.) AIRE terminal-airspace projects also focus on continuous climbs and optimising climb profiles when wind and weather calculations make them relevant. For oceanic and en route operations, performance-improvement efforts include focusing on cruise climbs; lateral and vertical route optimisation; longitudinal optimisation in terms of separation time between aircraft and Mach number cruise speeds; and offering user-preferred routes to take winds and weather into account.

AFM75_AIRE_AFM71 06/09/2011 12:01 Page 20

20 | AFM • ISSUE 75 September-October 2011

FOCUS: AIRE

AIRE: A gate-to-gate view

Transatlantic and FAA trials Because it includes separate efforts on each side of the Atlantic to improve terminal and surface operations, as well as transatlantic co-operation for oceanic/en route optimisation and gate-to-gate ‘green’ flights, AIRE has seen progress both in the US and in Europe. (Progress is also being made in Canadiancontrolled airspace because of Nav Canada’s participation in AIRE.) AIRE-related Next Gen demonstrations in the US date to 2008, when the FAA handled six tailored arrivals into Miami; 21 optimised-profile descents to Atlanta and Miami; and oceanic route optimisation for eight flights from Madrid to the Americas.

In 2009, the FAA expanded its AIRE demonstrations to include surface operations and additional terminal operations. During the year, the FAA performed a three-month trial of improved departure-queue management procedures at Memphis.

This involved FedEx ramp controllers metered aircraft into the movement area to minimise queuing at the runway threshold.

The FAA also handled 70 tailored arrivals (19 full, 51 partial) at Miami, each of these flights on average produced a fuel reduction of nearly 400kg and a CO2-emissions reduction of approximately one tonne, according to Ward. In 2009, the FAA was also involved in 73 joint FAA/SESAR JU oceanic-optimisation demonstration flights. Including the Memphis departure-queue trial, the FAA was involved in nearly 1,200 AIRE procedural demonstrations in 2009.

Meanwhile, on the other side of the Atlantic, SESAR JU put out an initial call for AIRE-trial bids in 2008. This resulted in six projects going ahead with co-financing in 2009, resulting in a total of 1,152 trial flights involving 18 partners in five locations – Paris, Stockholm, Madrid, Santa Maria in Portugal, and Reykjavik.

The Santa Maria and Reykjavik locations were ATM facilities involved in 48 and 38 oceanic trial flights, respectively. As a location, Paris was involved in 353 surface trials and 82 terminalairspace trial flights. Stockholm saw 11 terminal-trial flights, while Madrid was the location for 620 terminal-airspace trials.

Rodrigues says the 2009 AIRE trials saw CO2 savings per flight ranging from 90kg to 1,250kg and the accumulated CO2 savings totalled 390 tonnes.

“Another positive aspect was the human dimension – the projects boosted crew and controller motivation to pioneer new ways of working together focusing on environmental aspects, and enabling co-operative decision-making towards a common goal,” says Rodrigues. “Already, at this early stage, EU and US partners worked jointly in the planning and execution for some of those projects, not only in the sharing of insights and exchange of best practices.”

Last year saw a substantial expansion of AIRE-related projects on each side of the Atlantic. In July 2010, SESAR JU launched a new call for tender, “and had a great response,” according to Rodrigues. SESAR JU selected 18 projects involving 40 airlines, airports, ANSPs and industry partners. Altogether, 13 European airlines are involved as formal partners in the 18 trials, and many informal partners such as Air Canada, Cathay Pacific and Delta

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AFM75_AIRE_AFM71 06/09/2011 12:02 Page 22

22 | AFM • ISSUE 75 September-October 2011

FOCUS: AIRE

(to name a few). SESAR JU expects more than 5,000 trial flights to result from the 18 contracts by the time they are all completed in November 2011.

In 2010, American Airlines and Air France each performed a gate-to-gate green flight from Paris to Miami. In addition to supporting these gate-to-gate efforts, the FAA handled 75 full and partial tailored arrivals at Miami and began trialling collaborative departure queue management at Memphis. This trial included initial evaluation with Delta and FedEx of the Flight Operator Surface Application (FOSA) interface, allowing data sharing between the two airlines and the FAA. During 2010, the FAA took part in 18 eastbound lateral-optimisation demonstration flights. Collectively, these trials produced savings in fuel and environmental emissions in all three ATM domains.

The 18 SESAR JU AIRE projects, which began in 2010, have included two surface trials, five terminal-airspace projects, four en route/oceanic trials (one, ONATAP, in Portuguese and Moroccan flight information regions) and seven gate-to-gate projects. The gate-to-gate projects include two different transatlantic green-flight trials which involve both Air France and the FAA. One is an eastbound programme of gate-to-gate green flights of A380s from New York John F. Kennedy (JFK) to Paris, Charles de Gaulle (CDG), using surface optimisation at JFK, CDOs and advanced arrivals at Paris and vertical and lateral flight-path optimisation en route. This trial began in December and has continued to this summer.

The second gate-to-gate Air France trial is of westbound and eastbound flights between Paris Orly and Pointe-à-Pitre in Guadeloupe, the flights using surface-optimisation and CDO procedures at Orly and employing lateral and vertical flight-path optimisation en route. The FAA is involved because the en route portions of the flights pass through New York-controlled oceanic airspace, according to Ward.

Rodrigues notes the FAA is involved in another of SESAR’s 20102011 oceanic trials. The US ANSP has been co-operating with Nav Portugal since February in the dynamic optimisation of the route in flight (DORIS) project to reduce lateral and longitudinal separations in order to allow airlines to fly routes that are as close as possible to their optimal trajectories.

Two other SESAR JU oceanic projects in 2011, RLongSM and ENGAGE, involve Nav Canada. RLongSM, or ‘Reduced Longitudinal Separation in the North Atlantic’, involves UK navigation services provider NATS and Nav Canada in reducing minimum longitudinal separation from 10 minutes to five minutes for pairs of FANS/GPS-equipped aircraft. This project makes use of Nav Canada’s ADS-B oceanic surveillance capabilities and two new radars on the east coast of Canada and on Greenland.

The same providers are also conducting the ENGAGE Corridor project, using altitude-changing and variable-Mach cruising to increase the number of cruise levels available on the North Atlantic’s busiest air routes, thus allowing flights to achieve more fuel-efficient trajectories. The trial is also assessing how expanded ADS-B surveillance can help operators implement flexible flight profiles in terms of altitude and cruise-speed changes.

In 2011, the FAA is conducting an AIRE-related trial of optimised profile descents into Charleston, South Carolina. This busy military area is the location chosen for the fuel efficiency and reduced engine emissions (FREE) programme, which Ward says will only involve transport aircraft operated by the US Air Force’s Air Mobility Command.

The benefits of AIRE According to Rodrigues and Ward, a key feature of AIRE’s success is that the programme focuses on operational and procedural techniques rather than new technologies. AIRE trials have almost entirely used technology that is already in place, but until the relevant AIRE project came along, air traffic controllers and other users had not all thought deeply about how to make the best operational use of that technology.

The mechanism for transforming a successfully trialled technique into daily usage is “very much project-dependent”, says Ward.

However, the key factor involved in most transformations is that they involve standard procedural techniques rather than advanced procedures which rely on new technologies and which have to be certified before they can be adopted for daily use.

For instance, says Ward, “One of the things we’re most proud of is New York oceanic airspace – now we do lateral [separation] optimisation for any flight that requests it,” and often the FAA can offer a flight in New York oceanic airspace vertical optimisation too. But the important point is that, on a day-to-day basis, pilots “are really just looking for better wind routes”. These procedural cases are much easier to deal with routinely than are optimised arrivals. In this case; “when you’re going from a trial, you need to go through the safety case [for the new technique] to be accepted.”

Throughout the AIRE programme, “All the projects are based on existing technology, which is not necessarily being used because the people are not yet trained,” says Rodrigues. “We’re forcing people to use it. It’s a question of culture change.”

That said, “Some of it is a real learning experience for us [too],” says Ward. For instance, when offering an optimised departure, FAA practice has been to require a continuous climb. However, during the FAA’s gate-to-gate, green-flight co-operation with Air France, the airline showed the FAA how, depending on wind conditions and other factors, step climbs could be more optimal in terms of fuel usage. Air France had learned this from working with Airbus and Boeing on operational techniques. “So part of it is just getting the stakeholders together to see what is possible,” says Ward. “Communication is important generally.”

AIRE is theoretically open-ended and a June meeting of the SESAR JU administrative board – encouraged by the MOC in March – agreed an interim continuation of the programme for up to two years. SESAR JU is now planning a new call for AIREproject contracts, possibly to be launched this year. Rodrigues says SESAR JU would like to extend AIRE to take into account other key performance areas (KPAs) beyond environmentalemissions reductions, which today represent almost the entire focus of AIRE. SESAR JU’s other major KPAs are safety, capacity, efficiency and security.

Ward says the FAA has agreed to continue participating in AIRE through SESAR JU’s third project call for as long as the programme continues to produce operational benefits that can be turned into ATM procedural and operational changes for routine use. Because most of the AIRE projects in which it has been involved have included en route flying and arrivals, the FAA is keen to extend its participation to additional cities and to projects involving surface situational awareness and departures. When one considers AIRE’s high trial-into-routineprocedure success rate, as well as the operational benefits that partners are getting from AIRE and the educational experiences that the FAA and SESAR JU are receiving, it seems the programme still has much to offer the commercial-aviation industry.

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AFM75_LCC_AFM75 06/09/2011 11:21 Page 24

24 | AFM • ISSUE 75 September-October 2011

FOCUS: LCC business model

O

F THE MANY START-UP AIRLINES SOON TO BLOOM in Japan Peach is one of the most talked about. The carrier has hired Ryanair’s former chairman, Patrick Murphy, as its corporate advisor and will operate on a “classic Ryanair” model, charging around half the price of full-service Japanese airlines. “Peach will operate ‘smart’,” asserts Murphy.

“There have been obstacles to start-ups in Japan, such as the highest airport charges in the world, but airports are being privatised and encouraged to do something about this. The government was protective of Japan Airlines (JAL) and All Nippon Airways (ANA) and blocked anyone who wanted to come in.

With the collapse of JAL and the recession, the policy now is to liberalise and facilitate LCCs.” Peach Aviation is a joint venture (JV) between ANA, the Hong Kong investment firm, Innovation Network Corp of Japan (INCJ), and Hong Kong’s First Investment Group. ANA acknowledged that it must progress to prevent foreign LCCs from cornering the market. At least eight of these now serve Japan, with South Korea’s Jeju Air, Qantas’ subsidiary, Jetstar, and Cebu Pacific of the Philippines each adding services to Kansai in the last year.

ANA is also tying up with AirAsia in a separate JV to form AirAsia Japan. The new LCC will operate out of Tokyo, Narita. ANA’s president, Shinichiro Ito, says Japan’s ageing population and increasing competition from high-speed rail are threatening the carrier’s traditional model. It appears the low-cost model may be the solution.

AirAsia’s CEO, Tony Fernandes, admits the carrier is moving out of its south-east Asian comfort zone by preparing to “take on the whole of Asia”, but he sees no conflict with Peach, despite ANA’s stake in both ventures. “The market is huge and never had low fares, so there is enough for all of us,” he says.

Meanwhile JAL has partnered with Mitsubishi and Qantas’ subsidiary, Jetstar, which is familiar with the Asian low-cost market through its subsidiaries in Vietnam and Singapore. The $39m JV, Jetstar Japan, plans to launch services in December 2012 with domestic and international flights from Narita airport.

Interestingly, JAL has until now steered clear of the LCC market, preferring to differentiate itself with a high level of service.

Murphy is not surprised by his rivals’ moves and sees long-haul feeder services as an essential component to their operations but, he says, Peach is different. “Peach will serve Hong Kong, mainland China, Korea, Taiwan and the Philippines after developing domestic services, but it’s not interested in the feeder market,” he says. “It will start with one base then add others on the Ryanair principle. Just imagine when the Chinese market opens up.”

AFM75_LCC_AFM75 06/09/2011 11:21 Page 25

September-October 2011 AFM • ISSUE 75 | 25

FOCUS: LCC business model Perhaps surprisingly, Japan is one of the last countries on the map to nurture it low-cost airline industry, but that is about to change with no fewer than three start-ups planned for 2012. Will it follow where budget airlines in Europe and the US led, and how are these pioneers adapting their operations? Martin Roebuck investigates.

It will launch its domestic services from Osaka’s Kansai airport to Fukuoka and Sapporo in March 2012, followed rapidly by its first overseas destination, Seoul. The carrier will operate a fleet of A320-200s in an all-economy 180-seat configuration with a seat pitch of 28in. It will run a day-night operation (Kansai has no curfew) with three rotations on flights of less than four hours. By implementing faster turnarounds between flights, utilisation will be 10 to 12 hours per day, this compares with seven to eight hours for full-service airlines. Murphy says; “The key to success is productivity.”

THE FUTURE OF THE LCC BUSINESS MODEL It seems the bosses at Japan’s airports keep the same principle.

Kansai is planning a dedicated low-cost terminal by the end of 2012. Seven stands will be walk-on, the rest will be served by bus, so there will be no airbridges. It is also thought that Narita is planning a low-cost terminal as LCCs finally gain momentum in Japan.

There are many theories regarding the origin of the name Peach.

“It was chosen to symbolise energy and happiness,” CEO, Shinichi Inoue, says – though at a press conference to announce the name, he joked that it in English it is an anagram of “cheap”.

AFM75_LCC_AFM75 06/09/2011 11:22 Page 26

26 | AFM • ISSUE 75 September-October 2011

FOCUS: LCC business model Prompted by the de-regulation of aviation in the 1990s, powerful low-fare operators rapidly emerged in Europe, led today by easyJet, Ryanair, Vueling, Norwegian and Wizzair. This superleague has developed multiple hubs, a model followed elsewhere by the likes of AirAsia and Air Arabia.

The soaring price of fuel has hurt LCCs, however, and their competitive advantage in Europe looks set to be further eroded by increasing passenger taxes and by the Emissions Trading Scheme (ETS). Their options are to increase prices across the board, chase higher-yielding business traffic or dip deeper into the well of ancillary fees; all three strategies are being applied.

UK package holiday airline, Monarch, in June announced plans to reposition itself as a scheduled carrier by allowing customers to make flight-only bookings on its website. In what looked like a calculated attempt to undermine low-cost competitors, Monarch said it would not charge for debit card bookings – a move welcomed by consumer groups that oppose the flat fee of £10 ($17) for credit card payments.

By offering customers a degree of choice, Monarch is taking a hybrid approach – falling somewhere between the domain of the legacy and the LCC. All passengers are offered allocated seats but additional chargeable options include extra legroom, additional baggage, business lounge access and hot meals on board.

But Monarch should be cautious. The hybrid model could start to get crowded as legacy carriers slash fares in a bid to retain traffic while LCCs nudge theirs higher. Ryanair will carry 75 million passengers this year, just four per cent up on 2010 – its lowest rate of growth in the last 20 years. It’s CEO Michael O’Leary warned in August that passengers could expect to pay up to 12 per cent more to cover fuel increases, though he pointed out that fares were still lower than in 2007. Yet Ryanair is also driving ancillary revenues, which now account for 22 per cent of income.

There is another way in which LCCs are adopting the traits of legacy carriers. José del Rio, investor relations director for Vueling in Spain, says European LCCs have scope to take over short- and medium-range flights currently operated by legacy carriers, thus attracting higher-yielding passengers that historically have not been accessible to them.

The website suggests that the name is a (rough) acronym for PanAsian, Energetic, Affordable, Cute and Cool, Happy. With these qualities no doubt in mind, the livery is a vivid pink, white and purple and the flight crew will wear notably trendy outfits. The airline has said that among its wide potential market, it is particularly targeting young women.

Alongside youth, leisure and price-conscious business travellers, Murphy points out that Japan also has a more mature market of visiting friends and relatives (VFR). The local catchment area contains 35 million people and distances between them are long.

It takes two or three hours to fly the length of the country and seven to eight hours by travel the length by train.

Why Europe led the way More than one in five flights worldwide is now operated by an LCC, according to the June issue of the Frequency and Capacity Trend Statistics (FACTS) report by the aviation analyst, OAG. Europe has the highest penetration – 28.2 per cent of its total flights are operated by LCCs. The European Low Fares Airline Association (ELFAA) expects the sector to increase its share from 38 per cent to 53 per cent by 2020 (measured in passenger numbers as LCCs generally have higher load factors.)

Vueling operated a number of tourist routes for Iberia and its codeshare partners through the summer. “By connecting our own passengers though our main Barcelona hub, we have proven that we can successfully act as feeders for long-haul carriers both in terms of service and operational excellence,” del Rio says.

Now marketing itself under “new generation” rather than lowcost, Vueling positions itself as a modern company. A keen advocate of social networking, Vueling has 10,644 followers on its main Twitter pages, while a special client site that gives the opportunity for suggestions and queries, has 2,016. The Spanish Facebook site has 130,518 fans and Vueling Europe, its international sister, accumulated 11,997 fans within a couple of months of its introduction. The airline also has a presence on YouTube and Flickr.

Vueling has seen sales through its mobile portal channel double in the last year and has developed an iPhone application that allows travellers to make or change bookings, select their seat, check-in online and download their boarding pass. The carrier is already adapting the App to be used with Google’s Android operating system and it is working to add flight status alerts. It claims to be the first European airline with a fully integrated search engine, available in nine languages, that users can incorporate into their profiles, use to book flights and share with friends or followers via blogs or websites.

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AFM75_LCC_AFM75 06/09/2011 11:22 Page 28

28 | AFM • ISSUE 75 September-October 2011

FOCUS: LCC business model ANCILLARY REVENUES – 2010

(based on all airlines worldwide that publish ancillary figures)

Top 10, $ per passenger

Top 10 as % of total revenue

AirAsia X Qantas Group United Continental Jet2.com Allegiant Spirit Aer Lingus Alaska Airlines Delta Flybe

Allegiant Spirit Ryanair Jet2.com Tiger Airways easyJet AirAsia Group AirAsia X Flybe United Continental

$41.60 $37.00 $34.32 $34.24 $32.86 $25.16 $24.91 $23.68 $22.75 $20.99

29.2% 22.6% 22.1% 21.0% 20.5% 19.2% 18.7% 18.1% 15.7% 14.7%

Source: The Amadeus Yearbook of Ancillary Revenue, by IdeaWorks

Vueling strives to offer the kind of value-added services, such as seat assignment, access to loyalty programmes and high frequencies to main airports, that may appeal to the business traveller without sacrificing the low-cost attributes of a simple operating model and a standard, highly utilised fleet.

The first three rows of the A320 aircraft are in offered in a 2+2 configuration and passengers pay €30 ($44) to have the centre seat left free. “If the plane is full and the middle seat is released, the passenger is reimbursed,” says del Rio. Vueling’s load factor for July increased by 3.7 points year-on-year to 78 per cent. “It’s harder to get 85 to 90 per cent load factors when you operate at higher frequencies,” he says, while noting “no other LCC carries 41 per cent business passengers.”

Many new routes launched by Spirit went into profit in their first month, but he does not hesitate to trim routes that do not meet their financial targets, a discipline that keeps load factor north of 85 per cent. “We wish the rest of the industry would do this,” Baldanza said at his first analysts’ call after the company went public.

The carrier has stayed profitable through the financial turmoil of the last four years despite – or perhaps because of – charging fares at around one-third lower than its competitors. Baldanza, claims his unit costs are lower than those of US rivals such as JetBlue and Southwest and is happy to charge for every amenity.

Even Spirit has ruled out some of the more extreme ideas Ryanair has allegedly considered, such as charging for the lavatory or forcing passengers to take their own hold baggage out to the aircraft. Yet Spirit’s non-ticket revenue is up 12 per cent this year.

Its ancillary revenue represents 22.6 per cent of its total revenue, second in the world behind fellow US ULCC Allegiant (see table).

From November, Spirit will charge a $5 fee for check-in staff to print boarding passes at the airport.

Baldanza says two-thirds of its customers book online but only 20 per cent check-in online, so he has no qualms about this. In a survey by Spirit, 94 per cent of respondents said they favoured lower fares in exchange for checking in online.

Spirit raised $187m in an initial public offering (IPO) earlier this year and the public now owns 22 per cent. A change of ethos is unlikely, however. “They don’t want to be loved. But nobody beats them pricewise, even with the fees,” a US travel website commented.

More reactive to customer expectations, Canada’s WestJet Airlines has also introduced a frequent flier programme. “It’s a simple scheme and doesn’t earn ‘miles’, which can often be unredeemable on your chosen flight,” explains Hugh Dunleavy, EVP of strategy and planning. “You earn dollars that go straight into your account and can thus be used on any available flight. It was a learning curve for customers, but has proved popular.”

Some external costs such as fuel are difficult to control and have a disproportionate impact on LCCs. Del Rio also points out that main airports’ fees are standard and public, reducing the opportunity for Ryanair-style fee negotiation and subsidy from WestJet Airlines is contemplating the idea of Vueling-style regional authorities. However, contracts with external suppliers are now re-negotiated every one or two years rather than five “premium economy” seats with extra legroom as part of a strategy to attract corporate customers and transfer passengers – though it years as was previously the case. “Our commitment to costwill retain a single-class cabin. The carrier has increased its presence cutting is continuous, and embedded in our personal objectives. in Canada’s Eastern Triangle – the business-driven cities, Toronto, We have a cost committee that continuously explores new Montreal and Ottawa. It offers several flights each weekday with initiatives, and ensures existing ones are captured. In 2011, we departures at peak business times from dedicated gates. will realise €14m ($20m) in savings from these initiatives.”

Vueling has terminated some under-performing routes in the local Spanish market where passenger growth is low, but has opened a new base in Toulouse and Amsterdam. The carrier was already serving these markets but wanted to “improve the quality of the product,” del Rio says.

New bases involve initial investment in marketing and training and it can take a year to amortise the cost. Yields can take a few months to reach the required level. “But we’re satisfied with the performance of the new routes and bases added this year, and [they] will continue to grow, mainly in France, Benelux and Italy,” del Rio says.

Ultra can still be profitable Florida-based ultra low-cost carrier (ULCC), Spirit Airlines, believes many medium-haul routes in the US are over-priced or under-served. Like Vueling and other hybrid carriers, it battles with legacy carriers on what are traditionally seen as business routes, such as Chicago and LA. “They are only business markets when they’re priced at a level where only business travellers can afford it. There is plenty of leisure and VFR business there,” its CEO, Ben Baldanza, says.

Bargain-hunting leisure travellers have not been forgotten, however.

Price increases in the early part of the year were not applied equally across all fare levels. “There would be demand disruption at the most price-sensitive end if we had,” Dunleavy says.

Price-sensitive customers tend to book earlier, and only blend in with full-fare payers on high demand leisure routes where WestJet can fill 85 to 90 per cent of seats at higher rates, he explains. “We re-adjusted our core structure and removed the last two increases, so this has reduced fares again. But through our revenue management controls we can change the mix of the passengers to offset the cost increase.”

Project1_Layout 1 08/09/2011 10:21 Page 1

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AFM75_Values and appraisal_AFM74 06/09/2011 11:48 Page 30

30 | AFM • ISSUE 75 September-October 2011

TRADING, LEGAL & FINANCE: Appraisal panel Across the market, the preference is for shiny newbuild aircraft and it is leaving used aircraft with little place to go but to the scrappers. Mary-Anne Baldwin talks to the appraisal panel of UBMA’s up-coming Aircraft and Engine Finance and Leasing conference – IBA’s Philip Seymour, Avitas’ Doug Kelly and Gueric Dechavanne at Collateral Verifications – about aircraft values and the state of the used aircraft market.

A

N INFLUX OF NEW AIRCRAFT, HIGH PRODUCTION rates and large orders will keep used aircraft values low, the silver lining however, is that the part-out market is booming and the cargo market has stabilised enough to warrant an increase in freighter conversions.

Aircraft most affected by the downturn were the high fuel burners such as older A320s, A330-200s, the 747-400 and the 777-300ER, but most notable are the 737 Classics. According to IBA’s figures, the base value of a 737-300 built in 1990 is now $6m, but its market value is considerably lower at $4m.

In terms of lease rates, IBA’s figures show that a 1990-built 737300 now leases at $50,000 to $80,000 per month, this compares with $135,000 to $155,000 per month for the same aircraft at the peak of the market in August 2007. An A320 of the same vintage now leases for $80,000 to $100,000 a month, compared with $165,000 to $210,000 per month back in August 2007.

According to Avitas, values declined by 20 to 34 per cent during 2008 to 2010. Doug Kelly, the company’s VP of assest valuation, notes that all aircraft are depreciating assets though normal depreciation is in the range of four to six per cent depending on the age and type of aircraft.

During the two years to 2010, out of production aircraft such as the 747-400, 737 Classics, or 50-seat regional jets declined by 50 to 60 per cent, says Kelly. Avitas’ exact figures for the A320 show its values declined 34 per cent from 2008 to 2010. However, the 737 started its decline before the financial crisis – due to high fuel prices airlines had already planned to phase them out.

In January 2008, 28 737-300s had been retired and seven were stored, today that figure is up to 186 in retirement and 97 in storage, according to Avitas. “That kind of tells a story on the 737 Classics of what happened over that two year period – it happened very quickly,” says Kelly. For the comparative A320, there were 14 retired aircraft and one in storage in January 2008, now 72 have been retired and 40 have been stored. “It’s been almost exclusively the V2500A1- or CFM56-5A-powered A320s, which makes sense because the market for that engine went away.”

Rate of recovery

“It’s tough to say if values will recover,” says Gueric Dechavanne, VP of commercial aviation and valuation services at Collateral Verifications. “Manufacturers are ramping up their production and there is still a lot of used aircraft availability. I think it will be difficult for values to jump back up though I can see more stability as the market recovers in the next one to two years.”

“Values may go up a little from the bottom nominally but they tend to hold relatively flat for a period of time,” says Kelly. “These are deprecating assets so the aircraft values are going down all other things being equal. Relative to its base value it’s increasing but it may not increase in nominal terms. They won’t recover to 2007 levels but they will recover relative to their base value.”

On when, or by how much these values may recover, the panel are unsure. Philip Seymour, COO of IBA believes “there could be room for these values to recover” but he notes that the 787-800 might replace the -300 before it recuperates fully. The first 737800s, now 12-years-old, came onto the market in 1998. More of The value of used aircraft has not only been impacted by the these will become available as they come off lease or are sold. downturn and more specifically by lower demand for freighter According to IBA, lease rates for a 2000-built 737-800 are now conversions, there is also less demand from developing markets. at $220,000-$250,000 a month making them notably more BRIC countries – Brazil, Russia, India and China – now have 10expensive than the 737-300. However, with a 10-15 per cent fuel to 15-year age limits on aircraft sold to operators in their country. burn reduction and lower maintenance costs they could be the “These restrictions will certainly have an affect,” says Dechavanne. option for many airlines.

AFM75_Values and appraisal_AFM74 06/09/2011 11:49 Page 31

September-October 2011 AFM • ISSUE 75 | 31

TRADING, LEGAL & FINANCE: Appraisal panel

APPRAISAL PANEL: VALUES AND THE USED AIRCRAFT MARKET These are growth areas with developing economies, thus they are places in which an operator or lessor would typically expect to sell used aircraft. “It will have an affect on aircraft of 10-15 years but there are other markets such as in the Middle East and Asia… You can find homes for these aircraft but it is more labour intensive.”

But Seymour advises, the younger start-up carriers should “cut their teeth” by operating used aircraft on a developing route programme – much like the grandfather of low-cost airlines, Ryanair. He suggests that the 737 Classics are a good fit for such operators and argues that buying new aircraft at the start of an airline’s operations does not allow it to grow organically.

Furthermore, used aircraft values have been affected by the While Dechavanne believes the order levels are to be expected, large number of orders for new, fuel efficient aircraft. With low Kelly believes aircraft are being over-ordered. “The world fleet is consumer spending and high government debt, one might expect much larger than it was in 1989 but the order backlog is roughly airlines to be conservative with their fleet renewal and expansion about 45 per cent today. In 1998, it was 30 per cent and in 1989, programmes. However, a number of sizable orders have been it was about 40 to 45 per cent, which was the peak… In 1989, placed by established airlines – such as American Airlines, which there was massive over-ordering. is renewing its fleet, and by start-up airlines building a fleet of new and fuel efficient aircraft.

“It certainly looks strange that orders have been so strong… The backlog has not gone down as much as we would have expected.

Dechavanne believes that the number of orders “make sense” If manufacturers do deliver these aircraft in large numbers, either and “was expected” due to the need for large carriers to renew the market will soften or retirements of these aircraft will increase. their fleets every 15 years or so. He notes that by placing large Or, airlines will cancel orders or – more likely – they will push orders these carriers have secured competitive pricing. them back.”

AFM75_Values and appraisal_AFM74 06/09/2011 13:34 Page 32

32 | AFM • ISSUE 75 September-October 2011

TRADING, LEGAL & FINANCE: Appraisal panel

Cargo and conversion With the decline in used values, an increasing number of aircraft have been available for passenger to freighter (P2F) conversion however a dramatic decline in the cargo market in 2008 meant this opportunity has largely gone to waste. Conversion slots were cancelled as the need for air cargo services plummeted. Now however, demand for cargo and therefore conversion is increasing.

“In the last downturn I think a couple of 757s were converted and that was about it – there really wasn’t much going on from a conversion perspective,” says Dechavanne. Now, there are more 757 conversions happening and there is still plenty of opportunity with other aircraft.

When asked which aircraft are prime for conversion, Seymour answered “the larger the better” and cited the 747-400 as a good candidate.

Part of the equation With some aircraft worth more as scrap, parting-out is increasing popular. Seymour notes that ILFC, which is the second biggest aircraft lessor by managed portfolio – bought Aeroturbine, which specialises in part-out. Similarly, GECAS has its Asset Management Services group (formerly Memphis Group) which specialises in distributing re-certified components for aircraft.

ILFC receives payments from operators to cover MRO, yet it will sometimes breakdown the aircraft rather than repair it. It will then sell the aircraft parts and retain the proceeds as well as the capital provided for MRO. According to Dechavanne, half market values for a 737-300 aircraft built in the mid to late 80s are between $2m to just under $3m, but today it would part-out for around $1.5m or less. Older A320s part-out for around $4-$5m and market values are $4$7m at half market rates.

The demand for part-out is largely due to the need for spares that can be fitted across different aircraft types. For example, parts from a 737-600 can be used on a 737-800 – an aircraft that is in higher demand.

Seymour recalls the recent sale and part-out of a 737-700 just seven-years-old. The aircraft was sold for $20-$22m. After teardown, its engines – which were used to service a 737-800 – were sold for $10m. The landing gear was worth $1m and avionics and other parts another $10m.

However, says Dechavanne, the part-out of very young aircraft is likely to be a temporary phenomenon. “You can only part-out a certain number of aircraft before the market gets saturated with spare parts for the aircraft type. That’s occurred over that last few years.”

However, he identifies: “there seems to be a renewed demand for engines that are in good condition and have some decent time remaining. A lot of operators would rather find an engine to lease or buy that has good time remaining rather than put their own through the shop… [But] as the good engines disappear operators will have to spend a little bit to get their engines overhauled and that will probably stabilise things.”

Seymour agrees with this long-term perspective and adds that the average age of a narrowbody entering part-out will not drastically change, instead airlines will operate their aircraft for longer.

“That’s basically the next airplane that’s going to replace the 747200 freighters. There’s a lot that need to be replaced and the 747-400 is the perfect aircraft to do that,” explains Dechavanne.

In 2007-2008, a 15-year-old 747-400 would have sold for $30m, says Seymour looking as IBA’s figures, $20m would then be spent on conversion and it would be leased for about $650,000 a month. Now it would sell for about $20m, cost about the same to convert, but it would lease for $450,000-$550,000 a month.

Kelly agrees that the 747 is a good conversion candidate and notes that the bankruptcy of JAL, a major operator of the 747400s, further decreased the aircraft’s value, in particular making them desirable to AerSale, which bought 19.

“The 767-300ER should be a prefect example of an airplane that makes a good freighter but due to the delays on the 787 there’s been more demand for it as a passenger aircraft… but with the 787 due any time now I think over the next three to five years you’ll probably see a lot more 767s being converted,” says Dechavanne.

“My expectation on the 737 Classics was that we’d see more conversions take place – whether it’s the -300 or -400 – I felt those were good aircraft to replace the 727-100s and -200s freighters or DC8s but we just haven’t seen that.”

Some also consider the A320 ripe for conversion, however Airbus cancelled its proposed A320 and A321 conversion programmes four months ago, choosing instead to focus on the A350 and neo. “Obviously they have resource issues but if there was strong demand for freighter conversion I can’t see why they would cancel that [A320] programme,” says Kelly. “That’s a good indication that there is not a strong market for narrowbody freight conversions. Although you have Fed-Ex out there still converting 757s, Fed-Ex and UPS’ needs are different to the rest of the industry.”

In the longer term, Seymour predicts demand for twin-engine freighters. The A330 freighter conversion programme will signal its beginning and the 777 and A320 will follow when values drop to about $15m, which Seymour estimates will be in about 10 years.

UBM Aviation’s Aircraft and Engine Finance and Leasing conference will take place in Chicago on October 5-6, 2011 www.usaaircraftfinanceandleasing.com or contact annelise.quinton@ubm.com

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AFM75_A330_AFM71 06/09/2011 11:31 Page 34

34 | AFM • ISSUE 75 September-October 2011

FOCUS: A330 Next year will be the 20th anniversary of the A330’s first flight. With a competitor and successor taking shape, now seems a good time to review the fortunes of this popular aircraft and to ask what the future holds.

Simon Finn, SVP of aviation at DVB Bank investigates

FINANCING THE A330 A

FTER IT SUCCESSFULLY INTRODUCED THE A300 IN THE 1970s, Airbus’ options for a new project included three separate designs: a single-aisle aircraft; a larger capacity derivative of the twin-aisle A300 (the TA9); and a long-range four-engine design (the TA11). Despite consortium partners’ support for the TA9 and a reluctance to compete head on with other manufacturers in the single-aisle market, Airbus forged the single-aisle, or what we now know to be the A320 Family.

However, studies for the twin-aisle projects continued and another TA12 design emerging that would offer less range than the TA11 but would also feature twin engines.

It became clear that developing the TA12 would negate the need for the TA11 and Airbus dropped the idea of the long-range twin-engine TA12. It began instead to examine ways to reduce programme costs by maximising the commonality of parts used on both the TA9 and TA11. It concluded that the two aircraft could share a common fuselage cross section with the A300/A310. They could also share a common wing, control systems (apart from the engines) and common avionics. These aircraft would put Airbus in the big league of commercial aircraft.

By June 1987, 10 airlines had placed orders for 41 TA9 and 89 of the larger TA11 aircraft – enough for Airbus to officially launch the two new aircraft types as the A330 and A340 respectively.

The A330-300 and -200 The A330 was initially offered as just one series – the A330-300.

It featured a range of 4,600nm with two-class seating for 335 passengers and a 204 tonne maximum take-off weight (MTOW).

By November 1995, the A330-300 was well established and was being flown by airlines including Air Inter, Aer Lingus, Cathay Pacific, Malaysia Airlines and Thai Airways. However, the A330-300 market appeared not to be developing as quickly as Airbus might have hoped and slow progress was being made in face of the twinengine 777. Like the A340, the new version offered transpacific range capability but with a twin-engine configuration. Another mid-range 777 version with transatlantic range was pitched directly against the A330-300 and had siphoned its orders.

Airbus launched a new series of the A330 with a shorter fuselage. The A330-M10 would carry 253 passengers in three classes around 6,400nm, putting it in direct competition with Boeing’s 767-300ER, which until then was very successful.

It would carry 293 passengers in a two-class layout, at much lower seat-mile costs, with better climb performance and greater payload and range than the 767-300ER. Improvements to A340300’s wing structure would be transferred to the new A330 giving it a 230 tonne MTOW. A new centre-section fuel tank would provide the additional range for the shortened twin-jet.

In August 1997, the A330-200 (formerly A330-M10) flew for the first time with GE CF6-80E1 engines. It entered service with Canada 3000 in April 1998. In December 1997, the first flight of a PW4000-100-powered A330-200 took place, followed by the first flight of Rolls-Royce’s Trent 700 version in June 1998.

Another 233 tonne MTOW option further enhanced the A330200 payload and range. A330-200 structural changes would also be incorporated into the production of the A330-300, allowing the 230 tonne version an extra 700nm range so that it could serve routes from Europe to the US west coast or Europe to Asia.

Competition and succession Boeing initially responded with the 767-400ER, stretched from the 767-300ER. The market did not respond well to another 767 variant without the performance now available from the A330-200.

It seemed the A330-200 would take the lion’s share of the market for the coming decade, but of course, Boeing would not let that happen. In 2004, it announced the 787. It would offer two series of 787 with greater range and efficiency than the A330s. The 242-seat (three class) 787-8 is smaller than the A330200. The 280-seat 787-9 is also smaller than the A330-300 but both 787s offer much lower trip and seat-mile costs and have superior all-round performance versus their larger A330 Family competitors. The all new twin-engine 787 design –

AFM75_A330_AFM71 07/09/2011 09:35 Page 35

September-October 2011 AFM • ISSUE 75 | 35

FOCUS: A330

with its clever use of advanced materials, all new engines and extensive application of new technology – sold rapidly until the global financial crisis of 2008.

Airbus’ response included a 238 tonne MTOW option that would take the A330-200 range to over 7,000nm. Sales of the 787 slowed as it became clear that Seattle had major supply chain issues and was struggling to meet its own programme schedule.

As the global economy slowly improved, orders for the A330 returned while demand for the 787 seems to have stalled pending clarity on its first delivery and the performance capability that early aircraft will achieve.

In light of the 787, Airbus predicted trouble for the A330 and took additional action to protect its share of the market. After some false starts, it offered the twin-engine A350 extra widebody (XWB) Family. This features a new fuselage cross section that is wider than the A330, extensive use of advanced materials, and payload/range capability with operating performance to rival the 787-9. The market responded positively to the lead A350XWB-900 series, which is due to enter service in 2013 – approximately the same time as the 787-9. Two other series; the shortened 270-seat -800 and the stretched 350-seat -1000 are planned to follow the -900 but the ultimate performance and capability of both series are still being defined. Airbus also took steps to shore up the A330 by offering a production freighter – traditionally a means of ‘bridging’ a new aircraft programme (the A350XWB) when orders are expected to diminish. It seems likely that the pricing of the passenger aircraft was slashed in 2005 to stimulate demand for the A330 in the face of the 787. The freighter also had synergies with the A330 multi-role tanker transport (MRTT) initiative, which helped keep production costs to a minimum.

AFM75_A330_AFM71 06/09/2011 11:32 Page 36

36 | AFM • ISSUE 75 September-October 2011

FOCUS: A330 Airbus has recently begun to offer a further increase for the A330-300’s MTOW of 235 tonnes and has aggressively marketed the efficiency of this series. It claims that the long-range designs for the new generation A350XWB or 787 aircraft will not result in a significant disadvantage to the A330, which has a lighter weight schedule optimised for the mid- to long-range mission rather than for transpacific range capability.

For many years, the thought of building a competitor to the 747 would be enough to cause Boeing’s rivals to weep as it contemplated the sheer size of the investment required. However, the passenger and airline reaction to twin-aisles had been enough to tempt Lockheed and McDonnell-Douglas into the market with their L-1011 and DC-10 aircraft – largely aimed at the US trans-continental and the transatlantic markets. The A300 and A310 achieved some success in Europe, Asia, the Middle East and even with Boeing’s favourite customer, American Airlines.

But, Boeing soon trumped the A300 and A310 with the 767, which sold in great volume. Hindsight will not treat the A340 kindly given its poor performance against those in the 777 Family with comparable range. But, the A330 was a different story.

Five years after entry into service, there were over 130 A330s in service with 25 airlines. Airlines in Asia were the biggest operators. Cathay Pacific, Philippine Airlines, Korean Air, Malaysia Airlines and Thai Airways all found the aircraft well suited to their networks. In Europe, Air Lingus, Swissair and Sabena were customers, though elsewhere demand seemed a little low.

Airlines were not convinced that the A330-300 offered the network flexibility they could achieve with the slightly larger and much longer range 777-200ER. Airline‘s held that 300-seat aircraft should be capable of serving transpacific routes but having a 250-seater in the form of the A330-200 was fine – airlines were used to aircraft of this size across the Atlantic or for intra-regional work on routes with too much traffic for a narrowbody.

“baseA330-300

quality operator and the breadth of appeal for the A330-200 makes up for the more variable nature of its operators. However, the tri-source engine supply for the A330 may complicate remarketing.

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Demand is cyclical with peaks and troughs along the way but the record shows that after an initial order flurry, A330-300 orders were averaging perhaps just 15 per annum from 1995 to 2000, while A330-200 orders were averaging from 25 to 35 per year.

Fast forward to the period of 2005 to 2010 and A330-300 annual orders are suddenly averaging 35 to 40 with A330-200 orders at an average of 60 per annum. It seems there was always underlying demand for the A330-200 but demand for the A330300 was initially patchy and the market has grown into the larger A330 as traffic has increased. The market seems also to have been reassured of Airbus’ efficiency. With long-term fuel prices climbing relentlessly, network flexibility now plays second fiddle to route efficiency. It’s true that you can not deploy the A330 as widely as the 777 but judging by orders there are plenty of routes on which it can be deployed more efficiently than existing competing aircraft.

Financing the A330 The A330-300 has a good quality operator base and the breadth of appeal for the A330-200 makes up for the more variable nature of its operators. However, the tri-source engine supply for the A330 may complicate remarketing as operators would have to incur the cost of introducing another OEM’s engine to its fleets. Within each basic engine type there are also some undesirable engine variants that fail to deliver sufficient performance and so impair value. Additionally, there are some doubts regarding the scrap values of older A330s as the market for the sale of engine material to MRO shops is small. In some cases, these shops are exclusively required to use new engine material at engine shop visits. This makes financing for some of the mid-to-old A330s unattractive.

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AFM75_A330_AFM71 06/09/2011 11:33 Page 38

38 | AFM • ISSUE 75 September-October 2011

FOCUS: A330 Some other widebodied aircraft have suffered similar issues but some more positive aspects of the A330 are not typical among its competitors. Fly-by-wire (FBW) cockpits make it easier for airlines to train and recruit pilots who have already qualified on other Airbus FBW types, this lowers the associated costs of adding A330s to an airline’s existing A320 fleet.

By far the biggest challenge however, is how to view the A330s future residual value. A basic undersupply of aircraft of this size means demand for the A330 will be high. Delays to the 787 have exacerbated the problem causing airlines such as Singapore to state that their orders for A330s were motivated by the need for an “interim fleet” until deliveries of the 787 and A350XWB arrive. Almost all of the aircraft delivered were placed on short-term five- or six-year operating leases with an option for Singapore to extend them. The airline has recently repeated this by adding another 15 A330-300 to its existing fleet of 19. Singapore is scheduled to receive 20 787-9 and 20 A350XWB with deliveries beginning in 2013.

The A330 fleet has an average age of less than seven years, so the majority of in-service aircraft are still with their original airline operators. Over 1,000 A330 passenger aircraft have been sold and more than 750 are in service with 95 operators. Ascend indicates that just 10 A330s are in storage today – a low proportion which reflects low supply.

The A330 has also been a very popular aircraft with the operating lessors who manage 44 per cent of the fleet currently in service.

This is a high percentage and carries the risk that airlines may choose to manage capacity in future downturns by simply not renewing leases as they expire. With so many airlines featuring on the order books of the 787 and A350XWB, the threat to A330

residual values is clear. For all the caution that these issues should encourage, the fact remains that for a great many routes, the A330s are the most efficient aircraft of their size available today (and more importantly for many years to come).

It will take a long time before sufficient numbers of newer competitors penetrate the market. The 787-8 is set to be the first new aircraft to threaten the A330 but it could be 2017 before sufficient numbers of them are in service (though this does not mean A330-200 values are immune to normal market forces).

The larger 787-9 and A350XWB-900 are not likely to reach critical mass until perhaps as late as 2020, meaning that the threat to A330-300 values are likely to be lower.

Ultimately, a financier has to finance whatever the market is buying. Markets are never wrong, they buy the best aircraft for the job (do not misunderstand this – individual buyers can easily be wrong and may wrongly purchase all kinds of ‘interesting’ stuff). At this time though, with a loan tenor potentially stretching up to 12 years ahead of us, it does not hurt to pay close attention to the implications to the residual values of any aircraft being financed today.

This places pressure on all parties in a transaction – especially those who want to continue using the same cookie cutter that served them so well in the past. Someone clever once said; ‘There is no such thing as bad weather, only poorly prepared people with inappropriate clothing.’ For now and for some years to come, the A330 will stand as the most popular widebodied aircraft available for financing – provided we dress appropriately.

For the full version of this extensive analysis, see our 2012 edition of the Aircraft Finance Guide, out September.

Engine Leasing Asset Management All Manufacturer Types Long, Medium & Short Term Leases • Operating Leases • Asset Management • Sales & Leasebacks All Manufacturer Types • Operating Leases Asset Management • Sales & Leasebacks All Manufacturer Types • Long, Medium & Short Term Leases • Operating Leases • Asset Management • Engine Trading • All Manufacturer Types • Sales & Leasebacks • Asset nagement • Long, Medium & Short Term Leases • Operating Leases • Asset Management • All Manufacturer Types • Sales & Leasebacks Operating Leases • Engine Trading • Long, Medium & Short Term Leases • All Manufacturer Types • Operating Leases • Asset Management Leases • Long, Medium & Short Term Leases • Operating Leases Manufacturer Types • Sales & Leasebacks • Engine Trading Long, Medium & Short Term Leases • Operating Leases • Sales & Leasebacks • Engine Trading • Asset Management • Long Medium & Short Term Leases • Engine Trading • Operating Leases • All Manufacturer Types • Asset Management um & Short Term Leases • Asset Management • Sales Leasebacks • All Manufacturer Types • Long, Medium and Short Term Leases • Operating Leases • Asset Management • Sales & Leasebacks • All Manufacturer Management • Long, Medium & Short Term Leases er Types • Operating Leases • Asset Management • S a l e s & Leasebacks • All Manufacturer Types • Long, Medium & Short Term Leases • Operating Leases • Asset Management • Sales Leasebacks ating Leases • All Manufacturer Types • Long Medium Short Term Leases • Operating Leases Asset Management • Engine Engine Trading • All Manufacturer Types Leasebacks • Engine Trading • Asset Management • Medium & Short Term Leases • Operating Leases • Asset Management • All Manufacturer Types Sales & Leasebacks • Operating Leases • Engine Trading • Long Medium & Short Term Leases eases • All Manufacturer Types ent • Asset Management Medium & Short Term Leases • Operating eases •Sales & Leasebacks g • Long, Medium & Short ases • Operating Leases & Leasebacks • Engine nagement • Operating & Short Term Leases Asset Management anufacturer Types hort Term Leases Management Term Leases Term

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AFM75_Deals _AF&NM Special Feature 06/09/2011 11:40 Page 40

40 | AFM • ISSUE 75 September-October 2011

AIRCRAFT DEALS REPORT

FLEET FINANCE – Deals report Aircraft Transactions August 2011 Equipment Model

New Owner/ Operator

Previous Owner/ Operator

Boeing 737-2a1 737-247 737-2y5 737-3g7 737-3k2 737-3w0 737-341 737-3w0 737-33a 737-3l9 737-31l 737-31l 737-33a 737-33a 737-33a 737-33a 737-33a 737-36m 737-36n 737-36n 737-36n 737-3w0 737-3w0 737-31s 737-31s 737-3w0 737-3w0 737-448 737-4q8 737-46j 737-530 737-528 737-528 737-5q8 737-524(W) 737-7w0 737-7w0 737-7w0 737-7w0 737-7k9 737-7k9 737-7k9 737-7k9 737-7k9 737-7k9 737-7h4(W) 737-7bd(W) 737-7bd(W) 737-79p(W) 737-79p(W) 737-79p(W) 737-79p(W) 737-79p(W) 737-79p(W) 737-79p(W) 737-7h4(W) 737-75c(W) 737-75c(W) 737-71b(W) 737-7bk(W) 737-7bk(W) 737-79p(W) 737-86j(W) 737-8q8(W) 737-8q8(W) 737-8fh(W) 737-8fh(W) 737-823(W) 737-824(W) 737-823(W) 737-86n(W) 737-86n(W) 737-86n(W)

Venezolana Linea Aerea Flying Mission Avior Airlines OH Capital Assets Somon Air China Eastern Yunnan China Eastern Yunnan China Eastern Yunnan AWMS Sriwijaya Air Wells Fargo Wells Fargo China Eastern Yunnan Boliviana De Aviacion Viva Aerobus China Eastern Yunnan China Eastern Yunnan Sriwijaya Air GECAS NBB Flight Company Precision Air Services China Eastern Yunnan China Eastern Yunnan Transaero Airlines Blue Panorama Airlines China Eastern Yunnan China Eastern Yunnan Mistral Air Air Nigeria Jetairfly Classic 500 European Aviation Skybus Yamal Airlines Utair Aviation China Eastern Yunnan China Eastern Yunnan China Eastern Yunnan China Eastern Yunnan ALC Ethiopian Airlines Asky Airlines ALC Ethiopian Airlines Asky Airlines Southwest Airlines Fifth Third Finance Bp America China Eastern Yunnan China Eastern Yunnan China Eastern Yunnan China Eastern Yunnan China Eastern Yunnan China Eastern Yunnan China Eastern Yunnan Southwest Airlines Xiamen Airlines Xiamen Airlines China Southern Airlines CIT KLM China Eastern T’way Air Caribbean Airlines Air Jamaica Air Lease Corp Travel Service Airlines American Airlines Continental Airlines American Airlines Tui Airlines Nederland Air Lease Corp Skymark Airlines

Air One Celtic Capital Belina Export Wells Fargo BCC Mafolie Hill China Eastern China Eastern China Eastern Norwegian Air Shuttle Celestial Shenzhen Airlines Shenzhen Airlines China Eastern AWMS AWMS China Eastern China Eastern Ames-Camo Thomson Airways GECAS NBB Flight Company China Eastern China Eastern Challey DSF AircraftLeasing China Eastern China Eastern Calima De Aviacion ILFC Jet4you Lufthansa Wells Fargo European Aviation ILFC BLF China Eastern China Eastern China Eastern China Eastern Bavaria International ALC Asky Airlines Bavaria International ALC Asky Airlines Boeing Fifth Third Leasing Fifth Third Finance China Eastern China Eastern China Eastern China Eastern China Eastern China Eastern China Eastern Boeing Boeing Boeing Boeing Boeing CIT Boeing Bank Of Utah ILFC ILFC RBS Air Lease Corp Boeing Boeing Boeing Celestial SC Air Air Lease Corp

Serial No. or No. of (Orders)/(Options) 21598 23520 23847 23776 24326 25090 26853 27127 27285 27336 27345 27346 27453 27455 27458 27462 27907 28333 28596 28596 28596 28972 28973 29056 29060 29068 29069 24474 25375 28867 25309 27425 27425 28201 28914 29912 29913 30074 30075 34401 34401 34401 34402 34402 34402 36676 36720 36720 36757 36758 36762 36766 36767 36768 36770 36965 38383 38385 38912 39446 39446 39719 28069 28252 28252 29669 29669 31127 31663 33219 35220 35228 35228

Engine Model

Date of Manf or First Exp Deliv

Equipment

Jt8d-17 Jt8d-15a Jt8d-15a CFM56-3b1 CFM56-3b2 CFM56-3b1 CFM56-3c1 CFM56-3c1 CFM56-3c1 CFM56-3c1 CFM56-3b1 CFM56-3b1 CFM56-3c1 CFM56-3c1 CFM56-3b1 CFM56-3c1 CFM56-3c1 CFM56-3c1 CFM56-3b2 CFM56-3b2 CFM56-3b2 CFM56-3c1 CFM56-3c1 CFM56-3c1 CFM56-3c1 CFM56-3c1 CFM56-3c1 CFM56-3b2 CFM56-3c1 CFM56-3c1 CFM56-3b1 CFM56-3c1 CFM56-3c1 CFM56-3c1 CFM56-3c1 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b20 CFM56-7b20 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b24 CFM56-7b20 CFM56-7b20 CFM56-7b24 CFM56-7b22 CFM56-7b22 CFM56-7b24 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26

1978-02 1986-12 1987-06 1987-06 1989-02 1991-04 1992-04 1992-09 1994-04 1994-02 1994-05 1994-06 1994-12 1995-03 1997-10 1995-12 1995-01 1996-07 1999-05 1999-05 1999-05 1997-07 1997-09 1997-08 1997-12 1997-09 1997-10 1989-06 1994-03 1997-04 1991-08 1995-05 1995-05 1998-01 1997-12 1998-10 1998-10 1999-05 1999-06 2007-03 2007-03 2007-03 2007-04 2007-04 2007-04 2011-07 2008-05 2008-05 2009-04 2009-06 2009-09 2009-10 2010-03 2010-04 2010-06 2011-08 2011-07 2011-08 2011-07 2011-08 2011-08 2011-07 1998-03 2002-07 2002-07 2005-03 2005-03 2011-07 2010-10 2011-07 2007-09 2008-05 2008-05

Sold Leased Sold Sold Leased Leased Leased Leased Returned Leased Sold Sold Sub-Leased Leased Leased Sub-Leased Sub-Leased Leased Returned Sold Leased Leased Leased Leased Lease-Buyout Leased Leased Sub-Leased Leased Returned Sold Sold Sold Leased Leased Leased Leased Leased Leased Sold Leased Sub-Leased Sold Leased Sub-Leased Delivered Sold Leased Leased Leased Leased Leased Leased Leased Leased Delivered Delivered Delivered Delivered Delivered Leased Delivered Leased Leased Sub-Leased Sold Leased Delivered Delivered Delivered Leased Sold Leased

Date 2011.08.18 2011.08.01 2011.08.10 2011.08.05 2011.08.15 2011.08.02 2011.08.02 2011.08.02 2011.08.25 2011.08.17 2011.08.11 2011.08.11 2011.08.02 2011.08.20 2011.08.13 2011.08.02 2011.08.02 2011.08.12 2011.08.24 2011.08.24 2011.08.24 2011.08.02 2011.08.02 2011.08.10 2011.08.16 2011.08.02 2011.08.02 2011.08.22 2011.08.03 2011.08.01 2011.08.11 2011.08.02 2011.08.02 2011.08.10 2011.08.08 2011.08.02 2011.08.02 2011.08.02 2011.08.02 2011.08.01 2011.08.01 2011.08.02 2011.08.01 2011.08.01 2011.08.02 2011.08.01 2011.08.11 2011.08.11 2011.08.02 2011.08.02 2011.08.02 2011.08.02 2011.08.02 2011.08.02 2011.08.02 2011.08.29 2011.08.10 2011.08.25 2011.08.08 2011.08.25 2011.08.25 2011.08.22 2011.08.09 2011.08.17 2011.08.17 2011.08.01 2011.08.02 2011.08.12 2011.08.17 2011.08.23 2011.08.19 2011.08.01 2011.08.02

AFM75_Deals _AF&NM Special Feature 06/09/2011 11:40 Page 42

42 | AFM • ISSUE 75 September-October 2011

AIRCRAFT DEALS REPORT Equipment Model

New Owner/ Operator

Previous Owner/ Operator

737-8eh(W) 737-8eh(W) 737-86j(W) 737-8gu(W) 737-8gu(W) 737-8gu(W) 737-8gu(W) 737-86n(W) 737-86n(W) 737-86n(W) 737-86n(W) 737-8hx 737-8hx 737-86j(W) 737-86j(W) 737-86d(W) 737-8v3(W) 737-8v3(W) 737-84p(W) 737-8jp(W) 737-85n(W) 737-87l(W) 737-87l(W) 737-838(W) 737-838(W) 737-89l(W) 737-89l(W) 737-8h6(W) 737-8kn(W) 737-8kn(W) 737-8kn(W) 737-8v3(W) 737-823(W) 737-8zq(W) 737-84y(W) 737-96ner(W) 737-96ner(W) 737-9gper(W) 737-932er(W) 737-7JV(W) 737-7JV(W) 737-7JV(W) 747-446 747-446 747-446 747-446 747-446 747-481(Sf) 757-25c 757-236 767-246 767-3s1er 767-33aer 767-38aer 767-38aer 767-343er(W) 767-346er 777-29mlr 777-35rer 777-31her 777-367er 777-39ler 777-367er 777-3f2er 777-367er 777-312er 777-3d7er 777-3lher Freighters 737-3J6(F) 757-236(F) 757-236(F) 767-281(F) 767-338ER(F) 767-381F 777-F1H 777-F1H 777-F67 A300B4-605R(F)

Gol Gol Air Berlin BLF Utair Aviation BLF Utair Aviation GECAS Skymark Airlines GECAS Royal Air Maroc Air Lease Corp Skymark Airlines Transaero Airlines Air Berlin Shanghai Airlines BOC Aviation Copa Airlines Hainan Airlines Norwegian Air Shuttle Shandong Airlines Shenzhen Airlines Shenzhen Airlines Qantas Airways Jetconnect Air China Air China MAS Flydubai Avolon Flydubai Copa Airlines American Airlines Tassili Airlines Rwandair Express Celestial Celestial Lion Air Delta Air Lines Boeing Business Jets Wells Fargo Essar Shipping Atlas Air Transaero Airlines Wells Fargo Pembroke Exchanges Transaero Airlines Act Airlines SF Airlines Federal Express Jet Asia Airways Atlas Air GMG Airlines AFT Bermuda Tuifly Condor Japan Airlines Air Austral Jet Airways Emirates Cathay Pacific Air China Cathay Pacific Turk Hava Yollari Cathay Pacific Singapore Airlines Thai Airways Air Lease Corp

Boeing Boeing Boeing Boeing BLF Boeing BLF Boeing GECAS Boeing GECAS SC Air Air Lease Corp SJK Boeing Boeing Boeing Boc Aviation Boeing Boeing Boeing Boeing Boeing Boeing Qantas Airways Boeing Boeing Boeing Boeing Boeing Company Avolon Boeing Boeing Boeing Boeing Lion Air Lion Air Boeing Boeing Boeing Boeing Wells Fargo Aersale SB Leasing Japan Airlines Wells Fargo Pembroke Exchanges Wells Fargo Xiamen Airlines British Airways Dynamic Jetlease AFT Trust Ansett Worldwide Aeroflot Wilmington Trust GECAS Boeing Boeing Turk Hava Yollari Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing

SF Airlines European Air Transport Tasman Airlines Rio Linhas Aereas Air Trans Intl Tampa Cargo Dubai Aerospace Emirates Cathay Pacific RUS Aviation

Air China DHLAir European Air Transport Cargo Aircraft Mgmt Cargo Aircraft Mgmt Wells Fargo Boeing Dubai Aerospace Boeing US Bank

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

Engine Model

Date of Manf or First Exp Deliv

35844 35851 36119 36386 36386 36387 36387 36821 36821 36822 36822 36845 36845 36883 36884 37906 37958 37958 38144 39008 39115 39148 39149 39357 39357 40016 40029 40132 40249 40249 40249 40362 40765 40886 40892 35223 35225 37284 (100) 38854 38854 38854 26341 27645 27648 27650 27650 25645 25899 28667 23214 25221 25535 29617 29617 30009 40368 40955 35164 35597 37897 38672 39234 40796 (4) (8) (6) (5)

CFM56-7b27 CFM56-7b27 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 CFM56-7b26 CFM56-7b24 CFM56-7b24 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b26 CFM56-7b27 CFM56-7b27 CFM56-7b27 CFM56-7b27 CFM56-7B27 CFM56-7B27 CFM56-7B27 CF6-80c2b1f CF6-80c2b1f CF6-80c2b1f CF6-80c2b1f CF6-80c2b1f CF6-80c2b1f RB211-535e4 RB211-535e4 Jt9d-7r4d CF6-80c2b6f PW4060 CF6-80c2b7f CF6-80c2b7f CF6-80c2b6f CF6-80c2b7f GE90-110b1l GE90-115b GE90-115b GE90-115bl2 GE90-115b GE90-115bl2 GE90-115b GE90-115bl2 GE90-115b GE90-115b GE90-115b

2011-07 2011-07 2011-07 2011-06 2011-06 2011-07 2011-07 2011-07 2011-07 2011-08 2011-08 2007-07 2007-07 2011-06 2011-07 2011-07 2011-07 2011-07 2011-07 2011-07 2011-07 2011-07 2011-08 2011-07 2011-07 2011-08 2011-08 2011-07 2011-07 2011-07 2011-07 2011-07 2011-07 2011-08 2011-07 2008-03 2008-04 2011-07 2013-07 2011-07 2011-07 2011-07 1992-01 2000-11 2000-07 1999-10 1999-10 1993-04 1993-06 1997-06 1985-06 1991-07 1993-03 1999-02 1999-02 1999-03 2011-07 2011-07 2007-08 2011-07 2011-08 2011-07 2011-08 2011-07 2016-01 2013-04 2013-08 2014-03

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

2011.08.04 2011.08.18 2011.08.23 2011.08.16 2011.08.16 2011.08.16 2011.08.16 2011.08.13 2011.08.13 2011.08.23 2011.08.23 2011.08.01 2011.08.02 2011.08.03 2011.08.08 2011.08.15 2011.08.12 2011.08.12 2011.08.18 2011.08.01 2011.08.16 2011.08.10 2011.08.29 2011.08.18 2011.08.18 2011.08.23 2011.08.29 2011.08.03 2011.08.08 2011.08.08 2011.08.08 2011.08.25 2011.08.26 2011.08.19 2011.08.24 2011.08.11 2011.08.11 2011.08.09 2011.08.01 2011.08.02 2011.08.02 2011.08.17 2011.08.19 2011.08.02 2011.08.04 2011.08.05 2011.08.05 2011.08.22 2011.08.01 2011.08.10 2011.08.01 2011.08.15 2011.08.03 2011.08.23 2011.08.23 2011.08.29 2011.08.23 2011.08.25 2011.08.01 2011.08.05 2011.08.26 2011.08.19 2011.08.29 2011.08.19 2011.08.01 2011.08.01 2011.08.01 2011.08.01

27128 25620 25620 23146 24407 33404 35612 35612 (8) 626

CFM56-3B1 RB211-535E4 RB211-535E4 CF6-80A CF6-80C2B6 CF6-80C2B6F GE90-110B1L GE90-110B1L GE90-110B1L CF6-80C2A5

1993-05 1992-03 1992-03 1985-06 1988-11 2002-07 2011-07 2011-07 2013-04 1991-12

Sold Returned Leased Leased Leased Leased Delivered Leased Ordered Sold

2011.08.01 2011.08.11 2011.08.14 2011.08.01 2011.08.12 2011.08.08 2011.08.25 2011.08.25 2011.08.01 2011.08.04

Equipment

Date

AFM75_Deals _AF&NM Special Feature 06/09/2011 11:41 Page 43

September-October 2011 AFM • ISSUE 75 | 43

AIRCRAFT DEALS REPORT Equipment Model

New Owner/ Operator

Previous Owner/ Operator

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

Engine Model

Date of Manf or First Exp Deliv

Equipment

Airbus A300b4-622r A300b4-622r A300b4-622r A300b4-622r A319-112 A319-112 A319-111 A319-132 A319-112 A319-115 Acj319-115 Acj319-115 A320-214 A320-214 A320-231 A320-231 A320-214 A320-214 A320-214 A320-214 A320-232 A320-214 A320-214 A320-232 A320-232 A320-232 A320-214 A320-214 A320-214 A320-232 A320-216 A320-216 A320-216 A320-214 A320-214 A320-232 A320-214 A320-214 A320-214 A320-214 A320-214 A320-214 A320-232 A320-232 A320-214 A320-212 A320-212 A320-212 A320-200neo(W) A320-200neo(W) A320-200 A320-200neo(W) A320-200 A321-231 A321-211 A321-231 A321-200neo(W) A321-200neo(W) A330-243 A330-223 A330-223 A330-342 A330-342 A330-342 A330-342 A330-342 A330-342 A330-342 A330-342 A330-323e A330-343e A330-342 A330-342 A330-343x A330-343x A350-900XWB A380-861

Wells Fargo Wells Fargo Wells Fargo Bank Of Utah Avianca Avianca Brussels Airlines Turk Hava Yollari Lufthansa Tibet Airlines Rossiya Airlines Airbus Yamal Airlines Senegal Airlines Evergreen Trade Evergreen Trade Air Arabia RAK Airways Wilmington Trust Virgin America Hainan Airlines China Eastern China Eastern Qatar Airways Qantas Airways Jetstar Asia Avianca Wells Fargo Avianca British Airways AirAsia AirAsia AirAsia Philippines Air France Air China Tiger Airways RBS Wells Fargo Virgin America Air Arabia Air Berlin China Southern Airlines Indigo Indigo Lan Airlines Lotus Airline Debis Leasing Nouvelair Tunisie CIT CIT Garuda Airways Garuda Airways Thai Airways Turk Hava Yollari Saudi Arabian Airlines Lufthansa Cebu Pacific Air Cebu Pacific Air MTAD Celestial Air Berlin Deucalion Capital Cathay Pacific Deucalion Capital Cathay Pacific Deucalion Capital Cathay Pacific Deucalion Capital Cathay Pacific MAS Etihad Airways Deucalion Capital Cathay Pacific Deucalion Capital Cathay Pacific Thai Airways Korean Air Lines

Japan Airlines Japan Airlines Japan Airlines SMBL Cygnus Wells Fargo Wells Fargo Celestial Airbus Airbus Airbus Rossiya Airlines Rossiya Airlines Unknown Celestial Wilmington Trust Wilmington Trust Air Arabia Maroc Whitney Bank Of Utah Wilmington Trust Airbus Airbus Airbus Airbus Airbus Qantas Airways Airbus Airbus Wells Fargo Airbus Airbus Airbus AirAsia Airbus Airbus Airbus Airbus Airbus Wells Fargo Airbus Airbus Air Berlin Airbus Avolon Airbus Koralblue Airlines Koralblue Airlines Debis Leasing Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Swiss Air Lines Celestial Unknown Deucalion Capital Unknown Deucalion Capital Unknown Deucalion Capital Unknown Deucalion Capital Airbus Airbus Unknown Deucalion Capital Unknown Deucalion Capital Airbus Airbus

602 617 737 838 1612 1634 2230 4790 4796 4801 4679 4679 1054 1390 291 292 3246 3907 4616 4616 4677 4685 4702 4784 4786 4786 4789 4789 4789 4791 4793 4797 4797 4800 4803 4804 4805 4805 4805 4806 4808 4808 4813 4813 4815 937 937 937 (35) (15) (15) (10) (5) 4788 4811 4819 (30) [10] 1248 288 288 071 071 083 083 099 099 102 102 1243 1245 244 244 393 393 (4) 059

PW4158 PW4158 PW4158 PW4158 CFM56-5b6/P CFM56-5b6/P CFM56-5b5/P V2524-A5 CFM56-5b6/3 CFM56-5b7/3 CFM56-5b7/3 CFM56-5b7/3 CFM56-5b4/2p CFM56-5b4/P V2500-A1 V2500-A1 CFM56-5b4/P CFM56-5b4/3 CFM56-5b4/3 CFM56-5b4/3 V2527-A5 CFM56-5b4/3 CFM56-5b4/3 V2527-A5 V2527-A5 V2527-A5 CFM56-5b4/3 CFM56-5b4/3 CFM56-5b4/3 V2527-A5 CFM56-5b6/3 CFM56-5b6/3 CFM56-5b6/3 CFM56-5b4/3 CFM56-5b4/3 V2527-A5 CFM56-5b4/3 CFM56-5b4/3 CFM56-5b4/3 CFM56-5b4/3 CFM56-5b4/3 CFM56-5b4/3 V2527-A5 V2527-A5 CFM56-5b4/3 CFM56-5a3 CFM56-5a3 CFM56-5a3 Leap-X1a V2533-A5 CFM56-5b3/3 V2533-A5 Trent772b-60 PW4168a PW4168a Trent772-60 Trent772-60 Trent772-60 Trent772-60 Trent772-60 Trent772-60 Trent772-60 Trent772-60 PW4168a Trent772b-60 Trent772-60 Trent772-60 Trent772b-60 Trent772b-60 TrentXWB-83 GP7270

1991-01 1991-08 1994-09 2002-08 2001-10 2001-12 2004-04 2011-07 2011-07 2011-07 2011-03 2011-03 1999-06 2000-12 1992-01 1992-01 2007-09 2009-05 2011-02 2011-02 2011-07 2011-08 2011-08 2011-07 2011-07 2011-07 2011-07 2011-07 2011-07 2011-07 2011-07 2011-07 2011-07 2011-07 2011-08 2011-07 2011-08 2011-08 2011-08 2011-08 2011-08 2011-08 2011-08 2011-08 2011-08 1998-12 1998-12 1998-12 2016-11 2016-12 2014-08 2016-07 2014-03 2011-07 2011-08 2011-08 2015-11 2021-07 2011-08 1999-06 1999-06 1994-08 1994-08 1995-02 1995-02 1995-05 1995-05 1995-06 1995-06 2011-07 2011-07 1998-11 1998-11 2001-03 2001-03 2016-11 2011-02

Sold Sold Sold Sold Leased Leased Leased Delivered Delivered Delivered Transferred Leased Leased Leased Sold Sold Returned Leased Sold Leased Delivered Delivered Delivered Delivered Delivered Leased Delivered Sold Leased Delivered Delivered Delivered Leased Delivered Delivered Delivered Delivered Sold Leased Delivered Delivered Sold Delivered Sale-Leaseback Delivered Returned Returned Leased Ordered Ordered Ordered Ordered Ordered Delivered Delivered Delivered Ordered Optioned Delivered Returned Leased Sold Leased Sold Leased Sold Leased Sold Leased Delivered Delivered Sold Leased Sold Leased Ordered Delivered

Date 2011.08.01 2011.08.05 2011.08.04 2011.08.01 2011.08.05 2011.08.25 2011.08.12 2011.08.04 2011.08.15 2011.08.04 2011.08.03 2011.08.03 2011.08.11 2011.08.01 2011.08.09 2011.08.01 2011.08.16 2011.08.02 2011.08.01 2011.08.02 2011.08.04 2011.08.16 2011.08.23 2011.08.08 2011.08.02 2011.08.02 2011.08.09 2011.08.09 2011.08.09 2011.08.05 2011.08.04 2011.08.12 2011.08.12 2011.08.25 2011.08.19 2011.08.11 2011.08.22 2011.08.22 2011.08.22 2011.08.12 2011.08.15 2011.08.19 2011.08.17 2011.08.17 2011.08.24 2011.08.09 2011.08.09 2011.08.09 2011.08.10 2011.08.10 2011.08.09 2011.08.09 2011.08.11 2011.08.03 2011.08.17 2011.08.23 2011.08.08 2011.08.08 2011.08.12 2011.08.11 2011.08.11 2011.08.01 2011.08.02 2011.08.01 2011.08.02 2011.08.01 2011.08.02 2011.08.01 2011.08.02 2011.08.03 2011.08.22 2011.08.01 2011.08.02 2011.08.01 2011.08.02 2011.08.11 2011.08.19

Source: OAG Fleet iNET, 2011

AFM75_Airport investment_AFM74 06/09/2011 12:09 Page 44

44 | AFM • ISSUE 75 September-October 2011

AIRPORTS & ROUTES: Airport ownership

R

UNNING AN AIRPORT REQUIRES THE ABILITY TO balance a horde of competing interests and responsibilities, far removed from the relatively simple concerns of other infrastructure assets such as toll roads and tunnels. Airlines want lower fees, passengers desire seamless connections, governments fret about security and local residents complain about noise.

It sounds like a task suited to experts, yet an array of different institutions – from private equity funds to investment banks to pension funds – are queuing up to invest in airports, which, despite their complexity, are generally thought to offer stable returns over a long period of time. Investments may be huge – German construction giant Hochtief paid $2.6bn for 75 per cent of Hungary’s Budapest Airport in 2007 – but, for some, they offer an appealing alternative to the volatility of the stock market and, more recently, the bond market.

State ownership Developing an airport from scratch is a costly, complicated affair and such large capital projects are often best suited to governments. However, most countries with a mature air transport market look to privatisation to drive further modernisation and development of capacity.

Brazil, which will host the 2014 football World Cup and 2016 Olympics, is auctioning three of its airports – Sao Paulo, Campinas and Brasilia – in order to guarantee the $1.6bn of investment they need prior to 2014 to add capacity and upgrade facilities. The country’s state-run airport operator, Infraero, owns almost every airport in Brazil and is part of the Ministry of Defence, an anomalous position that led ex-IATA president, Giovanni Bisignani, to describe the body as “broken” and its airports as “not up to standard”.

Nonetheless, state ownership of airports is sometimes desirable.

In a globalised economy they serve as vital national assets and most governments hold stakes in their major hubs. For instance, the French state has a majority holding in listed Aeroports de Paris, operator of Paris’ Charles de Gaulle airport.

In addition, non-private ownership frees an airport from commercial pressures and allows it to focus on social or political objectives. State-run airports might, for example, elect not to expand capacity in order to tackle national carbon emission targets. That said, final planning approval for such projects usually rests with governments anyway. In the UK, the private airport operator BAA has been refused permission to add a third runway at the near-capacity Heathrow, even though most airports experiencing similar traffic operate at least four runways.

Remote communities reliant on air services may also need a publicly financed airport in cases where private investment would be deterred by small traffic volumes. In the US, the Essential Air Services programme – a matter of fierce debate between Democrats and Republicans – was designed to subsidise infrastructure and airline services to rural communities.

Even in more densely populated areas, airports, or at least the airside services they provide, are often monopolistic and both airlines and passengers fear that private owners will exploit that position. Again, though, governments usually retain specific powers to regulate fees and charges at major hubs.

Finally, state ownership is often desirable in countries that regard airports – their gateway to the world – as prestige projects.

Economic realities that prompt private operators to prioritise function over form in the construction of new terminals can often – for good or ill – be ignored by government.

Running an airport means balancing a range of competing interests.

AFM75_Airport investment_AFM74 06/09/2011 12:09 Page 45

September-October 2011 AFM • ISSUE 75 | 45

AIRPORTS & ROUTES: Airport ownership As a revenue-raising tool or just a quick fix to renovate ageing facilities, airport privatisation is a popular choice for governments the world over. Fire-sales of national assets following the economic crisis has attracted investors outside of aviation into the airport sector, but airlines and passengers fear that service levels will fall while fees rise under owners who are motivated only by profit.

Alex Derber investigates the investment potential of airports and considers what governments and private owners can do to ensure a balance between operational efficiency and financial stability.

AIRPORT OWNERSHIP

Privatisation and public private partnerships The typical driver for governments to list, or partially list an airport is to raise capital for expansion. Other standard justifications for privatisation also apply and include: improving customer service; improving efficiency; and revenue raising, now a focus of Greece and other indebted eurozone countries.

Global Infrastructure Partners, a joint venture between Credit Suisse and GE, has built on it acquisition of london city airport with the purchase of London Gatwick.

For investors, a key attraction of airports is the opportunity to add value. This can be done through optimising its development; marketing; improving operations; and pushing ancillary revenues.

Global Infrastructure Partners (GIP) – a joint venture between Credit Suisse and General Electric – bought London City (LCY) airport in 2006 when it attracted less than 2.5 million passengers a year. Since then the airport has added flights to New York via a specially configured A318 (the largest aircraft able to land on LCY’s short runway; aggressively marketed its location a stone’s throw from London’s financial centre; and added ski season flights to its usual business services. Though the recession naturally hit the airport hard – the majority of its users travel for business – in 2008 it recorded 3.2 million passengers.

AFM75_Airport investment_AFM74 06/09/2011 12:10 Page 46

46 | AFM • ISSUE 75 September-October 2011

AIRPORTS & ROUTES: Airport ownership

Like many airports in the US, New York JFK is controlled by municipal authorities.

As mentioned above, airports also offer stable, long-term returns.

Airlines may come and go, but medium to large airports rarely fail and, given the inexorable trend towards passenger growth, they tend to bounce back robustly from recession or aviation-specific downturns.

These qualities make airports an attractive investment for pension funds. Ontario Teachers Pension Plan, a Canadian fund, is regarded as one of the leaders in this field; it owns more than $7bn of infrastructure assets, including half of the UK’s Birmingham airport. In 2010 the fund said that its infrastructure portfolio – which also includes high-speed rail, ports and pipelines – delivered a 13 per cent return compared with a benchmark of four per cent.

Though the investment-return horizons of private equity firms are shorter than those of pension funds, this has not stopped them also bidding for airports. Prior to the £1.5bn ($2.4bn) sale of London Gatwick to GIP, London-based buyout giant 3i teamed up with Ontario Teachers to submit its own bid for the airport. While that offer failed, there will be plenty more opportunities in the coming months as sovereign debt crises in Greece, Portugal and Spain force airport and airport operator privatisations. In the UK, meanwhile, BAA has been ordered to sell London Stansted and either Glasgow or Edinburgh airports in Scotland.

There are, of course, the usual concerns about private equity becoming involved in a complex industry with which it has little experience. There may be no magic formula for how run to airports, but all need a sound development masterplan. For private investors, the trick is to recognise that the operational aspects of the plan must stand up to the same scrutiny as its financial strategy. Investors should also recognise that airports are ill-suited to generating large returns in short periods of time.

An estimated $1tn will have to be invested in airports over the next two decades in order to keep pace with forecast passenger growth. It is unlikely that the private sector will generate this alone, so other options will need to be considered. Of the world’s 30 busiest airports, 19 are state-owned and most of the rest are public-private partnerships (PPPs). Though these vary in their details, PPPs typically see governments grant private ventures a concession to operate an airport provided they undertake

building and development work first. The consortium then pays concession fees to the government, which has the right to terminate the agreement if conditions are breached.

India has been one of the principal exponents of airport PPPs. Recognising that its dilapidated airports were not fit for purpose and that domestic air travel was increasing, Indian authorities looked to the private sector to improve capacity ahead of demand, modernise facilities and provide multi-mode transport connections. Bangalore and Hyderabad were two greenfield projects undertaken through PPPs while exisiting airports Mumbai and Delhi were handed over to a joint venture consortia in 2006.

At Delhi, a consortium including the Indian company GMR, Malaysia Airport Holdings and Germany’s Fraport were granted a 30-year concession to modernise the airport and expand capacity according to demand. Fraport was given a seven-year licence to manage the airport. Among the terms of the deal, the Indian government set a formula for charges at the airport and reserved the right to assume its control in the event of an emergency.

The dangers of privatisation The main fear of airlines and managers when airports go private is that fees and charges will rise. Governments respond to such concerns by promising tight regulation, but sometimes this is not enough. For example, Ryanair has said that BAA transfers costs from Heathrow to Stansted in order to justify increases to its charges. Admittedly, the budget carrier is a perennial whinger when it comes to airport fees, but UK competition authorities have also decided that BAA occupies an unfair monopoly position around London.

Following winter weather disruption at Heathrow in 2010 that saw the airport close for several days, there were also accusations that BAA had failed to invest properly in the airport since its takeover by the Spanish construction group, Ferrovial.

Oddly enough, the US – probably the world’s foremost proponent of privatisation – has never embraced the concept in relation to airports. Federal regulations make it difficult to buy or sell airports and local authorities usually hold majority stakes in their airports.

Quite why an airport is deemed too important to entrust to the private sector while healthcare is not, is a different question.

UBM AVIATION FUTURE EVENTS 2012 DATE

EVENT

LOCATION

8-9 February

Aero-Engine Conference USA

Miami Florida, USA

March

Airline Engineering & Maintenance India Conference

Mumbai, India

March

ap&m Online Europe

Virtual Event

1-3 May

ap&m Europe Expo & Conference

London

15-16 May

Airline Engineering & Maintenance Middle East Conference

Abu Dhabi

May

Airline Engineering & Maintenance China Conference

Bejing, China

23-24 May

Engine Leasing, Trading & Finance Europe Conference

London, UK

July

ap&m Online Alternate Parts

Virtual Event

12-13 September

Airline Engineering & Maintenance Asia Pacific Conference

Singapore

September

Airline Engineering & Maintenance Latin America & Caribbean Conference

Rio de Janeiro / Panama

September

ap&m Online USA

Virtual Event

3-4 October

Aircraft & Engine Financing & Leasing USA Conference

USA

17-18 October

Aero-Engine Conference Europe

London, UK

November

ap&m USA Expo & Conference

USA

14-15 November

Airline Engineering & Maintenance Central & Eastern Europe Conference

Istanbul, Turkey

December

Managing Aircraft Maintenance Costs Conference

London, UK

N.B. All events and dates are subject to possible change or omission.

For more information on sponsoring, speaking or exhibiting at any of the above events please contact: Michael A. Oakes, UBM Aviation Events, Tel: +44 (0)20 7579 8278, Email: michael.oakes@ubmaviation.com Colin Hall, UBM Aviation Events, Tel: +44 (0)20 7579 4864, Email: colin.hall@ubmaviation.com

Aviatio events list.indd 1

2/9/11 15:16:50

AFM75_Route trends_AFM74 06/09/2011 11:42 Page 48

48 | AFM • ISSUE 75 September-October 2011

AIRPORTS & ROUTES: Route trends Never has airline route development faced so many challenges. Along with a host of man-made economic problems in numerous parts of the globe, the industry has faced the turbulence of natural disasters, a long-term upward trend in oil prices and an inclination by governments to heap taxes onto the sector. Against this backdrop, the ability to make accurate decisions concerning sustainable route development is increasingly important. John Strickland, director of JLS Consulting, explains why.

TRENDS IN ROUTE DEVELOPMENT T

RADITIONAL METHODOLOGIES SUCH AS THE USE OF historic traffic, booking or ticketing data certainly have a place, but do not let the false belief that what worked in the past will necessarily work in the future. Sadly, it does not follow that beautifully produced analyses will yield equally beautiful results.

Along with the conventional considerations of market size, forecasted revenues, frequency, capacity and competition, there is a need for an of wider macro- and socio-economic trends.

Considering the on-going turbulence in many countries, route development executives must increasingly make and integrate assessments about consumer confidence, travel behavior and macro-economic trends into network planning. The good news is that while there have been multiple shocks to the industry of late, reference to previous events of comparable magnitude indicate the tendency for traffic to bounce back in the medium-term.

However, this uncertain business environment does require a

critical approach to traffic and revenue forecasting. Pre-empting negative scenarios, one should account for the chance that there might be some external negative impact on results.

Cost considerations have always been an important part of any evaluation, but the projected long-term upward trend in fuel prices means this is becoming a much greater influence in route development decisions, particularly in markets in which demand is very price elastic.

As fuel becomes a larger share of an airline’s overall costs, it is essential that they predict scenarios for the provision of oil at different prices and its impact on demand and revenue.

The issue of seasonality, so common to many markets, is likely to be more pronounced when fuel prices are high and managing this successfully will be crucial in achieving satisfactory productivity and optimal deployment of aircraft fleets while delivering acceptable financial returns.

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AFM75_Route trends_AFM74 06/09/2011 11:44 Page 50

50 | AFM • ISSUE 75 September-October 2011

AIRPORTS & ROUTES: Route trends

At a broader level, airlines need to build into their DNA the ability to control costs. On this they must be rigorous and focused, taking the same approach as low-cost carriers (LCCs).

Negotiating the cost base has to become a structural part of route development. It is no longer sufficient to prepare an overly optimistic business case, instead proactive efforts are needed to reduce the cost base and share risk with suppliers, notably airports.

As markets grow and airport capacity becomes constrained, it becomes increasingly difficult to operate ideal commercial schedules in established markets There is arguably a need for airlines to utilise the mobility of their aircraft assets, moving capacity to new and possibly unconsidered markets rather than sticking to tried and tested routes, which can lead to sub-optimal results.

Of course, there may be pitfalls and there are numerous logistical considerations but companies with a brave approach will reach new frontiers and greater successes.

Next-Gen aircraft and the new wave of alliances The entry into service (EIS) of next generation aircraft will also have a fundamental impact on the shape of route development.

Fortunately, they will help to address both the issue of rising fuel costs and in some cases, the shortage of airport capacity.

In the long-haul arena, the A380, and to a lesser extent the 7478, offer the potential to raise the number of passengers per flight on routes where demand is strong but slots are scarce. British Airways for example has indicated that it may operate two daily London-Hong Kong services using the A380 (once it is delivered in 2013) in place of the three currently operated by 747s. This will allow network planners to liberate scarce slots for use in another market. Equally, by using these aircraft to their maximum capacity

levels, significant progress can be made in containing or reducing unit seat costs, thus off-setting the rising price of fuel or greater consumer price sensitivity. This could facilitate the development of new markets, for example a more financially sound long-haul low-cost model.

At the other end of the spectrum, the smaller 787 and A350 will also deliver significantly reduced unit operating costs but equally may pose a challenge in airports with constrained slots unless network structures are reorganised due to their typically lower capacity levels compared with some aircraft they replace.

The economics of these aircraft will provide more opportunity for innovative thinking with respect to developing or opening up new smaller point-to-point markets, possibly from more regional airports, which until now were not feasible from either a range or economic perspective.

On the short-haul front, the impact of high fuel costs combined with economic weakness is having a major impact on route development. In mature markets faced by strong competition, many airlines are faced with little choice but to cut capacity. Next generation larger regional jets and turbo props are helping by providing better economics, but to make more progress airlines are eager to get their hands on the Airbus neo and Boeing’s recently announced re-engine option, the 737 Max. There is also an increasing trend to undertake route development across airlines that are merged, partnered or in an alliance of carriers.

Mergers and antitrust immunity deals are leading legacy carriers to rationalise their capacity and previously competing schedules have now become complimentary. For example, British Airways and American Airlines’ Heathrow-New York services offer an almost hourly service from 0800-2100, something that could not have been planned before.

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AFM75_Route trends_AFM74 06/09/2011 11:45 Page 52

52 | AFM • ISSUE 75 September-October 2011

AIRPORTS & ROUTES: Route trends

Showing the way Much has been written about the success of Ryanair as the leading European LCC. It has stuck clearly to its business model which has served it well through good and bad times and from which it still delivers stellar profits. It has put many routes and markets on the map that others would previously have laughed at, but 75 million passengers per year and consistently strong financial results are the proof of the pudding.

By a zealous focus on costs and a willingness to seek perhaps unimaginable new markets, Ryanair has proved the resilience of its approach. It is moving into some larger airports but still surprises itself with its ability to generate new traffic flows from often little-known airports. In a recent example, Ryanair added the Finnish city of Lappeenranta to its network and was surprised by the amount of Russian traffic using the services. It has made mistakes and routes have been withdrawn, but this has been a manageable part of an unconventional but successful approach to route development.

Alliances are also trying to improve schedules and increase codeshares where possible. An interesting example of crosscarrier route development is Aer Lingus and United Airlines, which operate a joint service between Madrid and Washington.

This takes advantage of the EU-US Open Skies framework while allowing Aer Lingus to re-deploy excess capacity away from the depressed Irish market.

As LCC’s become ever dominant in short-haul markets, legacy carriers battle with rising losses on their own short-haul services.

This is leading to reductions in non-feed critical parts of some legacy networks or efforts to use more elements of the LCC model. Air France, for example, is opening regional stand-alone bases in France with higher aircraft utilisation and improved crew productivity. The jury is out on whether this can work financially over the long-term.

Despite problems with short-haul, legacy carriers continue to need a feed of passengers and we are seeing some interesting partnerships with certain LCC’s to fulfill this requirement. Recent examples include Jet Blue, which offers a number of codeshares via its John F Kennedy hub, Air Berlin, which codeshares with British Airways at London Gatwick and Vueling, which (temporarily) operates some services on behalf of Iberia. This does raise issues regarding costs, revenue and processes but it also demonstrates a willingness to think creatively in addressing performance issues.

In drawing a conclusion about trends in route development during troubled times, it is fair to say that the smartest and most innovative airlines are still able to seek new opportunities from which markets can be developed and profits generated. This can apply across a variety of airline models; the key is a willingness to leave no stone unturned and to seek opportunities where others do not.

It requires a mixture of determination, sleuth-like or even maverick behavior. Examples of the outcome illustrate different results yet each show how entrepreneurial risk can pay real dividends.

At the other end of the spectrum, the global full-service carrier, Emirates, seen by some as the “elephant in the room”, has not been an overnight success but rather an airline that has steered a course from small beginnings in the 1980’s to a key position on the global stage today. It has done this by careful analysis of its position as a Gulf-based carrier with the potential to use Dubai not only as an origin and destination (O and D) market but also as a natural hub to an increasing number of gateways. It has been quick to spot new opportunities that did not exist and could not be found in typical historical traffic and booking data. For this, it received a high degree of skepticism.

It prefers to use its instincts and to track wider macro-economic trends as indicators for market creation and stimulation. The company readily acknowledges the frequency with which it has been surprised by the success of a service and the resulting uptake in customers, load factor and profits. One example was the launch of the Shanghai-Dubai service that saw load factors exceed 80 per cent within the space of a few months, this was not from O and D traffic, but Chinese travelers using Emirates’ onward network to Africa. Emirates saw the potential of the China-Africa market well before other competitors and used its geographic position to exploit it. It continues to take an innovative approach to route development, building on its established position and using the capabilities of its new aircraft to the full.

Little known outside the UK is the Humberside and Aberdeenbased regional carrier, Eastern Airways, which operates a fleet primarily of Jetstream 41 and SAAB 2000 turboprops. It too has carved a profitable business by a meticulous and determined approach in markets that have been ignored by others. In 2010, it established a base in the French regional city of Dijon from where it has now launched three domestic routes and one international. It saw a need for air services in a region with important business and tourism activity but lacking air services.

The market response yielded over 10,000 passengers in the first six months of operation with customers willing to pay a fare that reflected the convenience of direct flights.

These carriers are mould-breakers; they represent the leading edge of route development in challenging times. They demonstrate that by taking calculated risks, being innovative and never losing sight of cost control, it is possible to face the turmoil and not only to survive but prosper.

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AFM75_MRO Supply Chain_AFM71 06/09/2011 12:36 Page 54

54 | AFM • ISSUE 75 September-October 2011

MAINTENANCE OPERATIONS: Supply chain The maintenance, repair and overhaul (MRO) supply chain incorporates manufacturers, parts suppliers, maintenance companies and airlines. The process needs to be slick, as an MRO company likes to hold the minimum amount of stock necessary. Items are scheduled to arrive ‘just in time’, which means that even a small kink can result in grounded aircraft and stranded passengers further down the chain. Alex Derber reports.

ENHANCING YOUR MRO SUPPLY CHAIN A

VIATION INCORPORATES SOME OF THE MOST stringent safety standards of any industry. This is because of the potential for accidents to affect aircraft, passengers and people on the ground, and the attention and adverse publicity such incidents generate.

Aircraft, of course, are highly complex machines and even tiny failures can snowball into gravely serious problems. Take, for instance, Qantas flight QF32, an A380 that suffered a blowout to one of its Rolls-Royce engines in late 2010, forcing an emergency landing and the subsequent grounding of the airline’s superjumbo flight.

The Australian Transport Safety Bureau (ATSB) has said that the chain reaction ending in an uncontained engine failure was caused by a tiny manufacturing defect in an oil feed pipe. At the time of accident there were three standards of feed pipe installed on Qantas’ Trent 900 fleet; no records for the thickness of the walls of one standard of pipe could be found so Rolls-Royce recommended the removal of all 42 engines containing them.

In that case, problems arose from the original production process, but the maintenance and overhaul of parts requires equivalent attention to detail and thorough record-keeping. Many parts – and there are some four million in the A380 – come with their own paper trails, detailing origin, age, useage, and maintenance history among many other things. One can imagine, therefore,

the sheer volume of information that must be processed as these items move from in-service aircraft in one country to overhaul facilities in another and onwards again, often to an airline that did not operate the part originally.

However, before examining the maintenance supply chain in detail, it is worth noting the different categories of part.

Nuts, bolts and composite fan blades Machined to the most exacting standards, most aircraft parts are expensive, thus every effort is made to extend their service lives.

Repairables are those parts that can be repaired or overhauled back to optimum condition and include, for instance, engine fan blades.

Expendables, in contrast, are not valuable enough to justify repair and are thrown away at the end of their useful lives. Examples include hoses and switches. Items that can only be used once, such as o-rings and oil, are termed consumables and their supply is determined according to historic useage.

Finally, there are parts that require periodic replacement, such as tires, pumps and actuators. These are called rotables, a category that can be further sub-divided. Essential items are classified as ‘no-go’ parts – without which an aircraft cannot fly commercially ‘Go if’ parts, meanwhile, are still important but, if inoperative, their replacement can be deferred until the aircraft’s next maintenance event.

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AFI_MRO1_210x278_UK_AFM.indd 1

29/07/11 17:07

AFM75_MRO Supply Chain_AFM71 06/09/2011 12:37 Page 56

56 | AFM • ISSUE 75 September-October 2011

MAINTENANCE OPERATIONS: Supply chain

customers “deplete inventory Many

will opt to

their

before

replenishing which

creates an exaggerated, but temporary

demand, followed by a higher level of urgency.

decrease in

Forecasting demand

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Although many airlines today outsource their maintenance operations, there remain some advantages to retaining a dedicated MRO. Chief among them is the knowledge that a maintenance provider will have of the airline’s daily operations, enabling it to ensure a supply of rotables, consumables and expendables tailored to the carrier’s needs.

Parts suppliers face a much trickier task juggling demand from a multitude of airlines and repair shops around the world. As most of these hold lean inventories, keeping stocks of spares to a minimum and ordering parts to arrive only when needed, suppliers have little time to react when those orders come in.

“Many customers will opt to deplete their inventory before replenishing which creates an exaggerated, but temporary decrease in demand, followed by a higher level of urgency. That roller coaster demand curve is not for the faint of heart,” says Edward Dolanski, COO of Aviall, a subsidiary of Boeing.

But supply can be just as much of an issue for parts providers as demand. New parts, ordered directly from the manufacturer, are straightforward to procure, but it often makes better sense to acquire the more expensive parts second-hand and refurbish them.

Up to 70 per cent of an aircraft can be recovered and many older types are worth more for their parts than as a serviceable machine.

UK-based AJ Walter Aviation (AJW), for instance, has bought five 737 Classics to be dismantled. The CFM engines will go to its new facility in Cardiff to be overhauled and leased on, or parted out. Other items, such as landing gear and avionics, will feed AJW’s global supply business.

With air travel recovering and set to boom in the next decade, demand for second-hand parts will grow, so competition to buy older airframes has increased. Private equity became heavily involved in the sector in 2010 with the purchase of parts company Wencor by Odyssey Investment Partners, while AerSale raised $250m from Leonard Green & Partners to support the purchase of 19 747-400s from Japan Air Lines. Though some of the widebodies would continue to fly, AerSale’s COO, Robert Nichols, said at the time that his company would “disassemble a few of the aircraft and a good many of the 76 GE CF6-80 engines installed on wing so as to position AerSale to become the leading provider of aftermarket CF6-80C2 engines and material”.

Those monster purchases can create a headache for other parts suppliers. Fort Lauderdale-based Kellstrom is a major supplier of aftermarket parts for military and commercial applications yet even it “struggles to find a steady stream of desirable material at attractive pricing,” according to its CEO, Dennis Zalupski.

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AFM75_MRO Supply Chain_AFM71 06/09/2011 12:37 Page 58

58 | AFM • ISSUE 75 September-October 2011

MAINTENANCE OPERATIONS: Supply chain

To overcome that problem, many parts companies exploited the global economic slump to boost inventory levels. This was beneficial for two reasons: firstly, many airlines cut capacity and removed older aircraft from their fleets, increasing the supply of airframes and engines available for part-out; secondly, during the downturn many airline chose to burn through whatever stock of spares they held, creating a demand spike once recovery began which rewarded suppliers who had added to their inventories.

Charlotte, North Carolina-based Magellan, for instance, bought several aircraft for disassembly between 2007 and 2010 and secured a consignment deal with Bombardier for CRJ regional aircraft. Fort Lauderdale-headquartered GA Telesis, meanwhile, had built up $500 of inventory for delivery to customers through to 2017.

Technology “Our commitment to technology investment enables us to accurately forecast demand for an ever-growing portfolio of flight-critical products, many of which have very long production lead times, yet are expected to be in stock and ready to ship by our many customers,� Dolanski of Aviall says.

For any market to function efficiently, the availability of goods to trade needs to be clearly known. In the parts business this function is performed by websites such as Partsbase or Aeroxchange, which allow airlines and maintenance organisations to find the location and number of parts available for any given search.

For parts providers, IT solutions are a pre-requisite to track movements of the vast numbers of parts that enter and leave their inventories. Electronic Data Interchange (EDI), for example, replaces paper or faxed purchase orders with a standard electronic purchase form, speeding up transaction times. EDI can be used for the receipt and processing of orders and invoices; electronic invoicing and shipment notifications; and bar coding for the tracking and management of inventory.

Despite the obvious efficiency gains, there are drawbacks to systems such as EDI, chief among them is the requirement for

transacting companies to employ the same system. For parts companies, the inter-operability of technology platforms with those of their own suppliers and customers has been a worry, though many report increasing standardisation today.

Another useful technology is radio frequency identification (RFID).

This allows inventory items to be tagged electronically, which improves the monitoring of stock levels and, in principle, does away with the need for more laborious forms of stock checking.

Parts pools Aside from technology, there are two other value drivers in the MRO supply chain, one widespread across the industry, the other a source of much consternation.

The pooling of parts, especially high-value items, was originally conceived as a way for airlines to guarantee availability while lowering their overall investment in spares. Suppliers such as GA Telesis partner their customers in these pools, which allow them to gain a better insight into future requirements and thus improve demand forecasting models. Airlines like pooling because it allows them to focus on their core operations and transfer risk onto specialist supply managers.

Willingness to embrace the cost savings of pooling, however, does not generally extend to the reductions available on nonOEM-manufactured parts. Known as PMA parts, these items offer alternative supply chains to maintenance companies who might otherwise be wholly reliant on whatever supplier had locked in an exclusive distribution agreement with the branded manufacturer of a part.

Although the performance of PMA parts is at least equal to those of the originals, many suppliers refuse to stock them because of customer preference. Contracts for leased aircraft and engines, for instance, often stipulate that machines cannot be returned with any PMA parts inside due to the effects on residual value.

It seems, therefore, that there is still some slack in the MRO supply chain.

AFM75_Data_AFNM 06/09/2011 12:41 Page 59

September-October 2011 AFM • ISSUE 75 | 59

INDUSTRY DATA: FLEET FINANCE, FIRM ORDERS, AIRCRAFT TRANSACTIONS, LIST PRICES AND LEASE RATES AIRCRAFT TRANSACTIONS – Boeing, Airbus, ATR, and Bombardier. 27 Jun to 15 Aug 2011 Contract Date 27/06/2011 27/06/2011 27/06/2011 27/06/2011 28/06/2011 28/06/2011 28/06/2011 28/06/2011 28/06/2011 28/06/2011 28/06/2011 28/06/2011 28/06/2011 28/06/2011 28/06/2011 28/06/2011 29/06/2011 29/06/2011 29/06/2011 29/06/2011 29/06/2011 29/06/2011 29/06/2011 29/06/2011 29/06/2011 29/06/2011 29/06/2011 29/06/2011 29/06/2011 29/06/2011 29/06/2011 29/06/2011 29/06/2011 29/06/2011 29/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 01/07/2011 01/07/2011 01/07/2011 01/07/2011 01/07/2011 01/07/2011 01/07/2011 01/07/2011 01/07/2011 01/07/2011 01/07/2011 01/07/2011 04/07/2011 04/07/2011 04/07/2011 05/07/2011 05/07/2011 05/07/2011 05/07/2011 05/07/2011 05/07/2011 05/07/2011 06/07/2011 06/07/2011 07/07/2011 07/07/2011 07/07/2011 07/07/2011 07/07/2011 07/07/2011

S/N E2138 22384 180 064 4747 412 55001 55002 55125 55126 55128 55130 55151 24316 22 050 55118 55121 55122 55123 55124 55129 55131 55132 29575 20391 26342 27602 25258 7730 7730 477 553 120294 UE-42 529 557 4752 4757 950 48435 49259 49933 49942 53570 23636 30196 30413 30415 37748 37757 30233 22224 25132 7331 7337 8100 145775 101 5020 679 679 4766 49950 53531 24093 24097 29928 29929 36721 25899 22227 E3129 27648 3061 49344 49345 24438 24439 40764 28031 25042 4762 25989 0599 531 547 E3125 21249 34191

A/C Model BAE SYSTEMS (HS) 146 Boeing 737 (JT8D) CASA 212 Saab 340 Airbus A320 Airbus A330 Boeing 717 Boeing 717 Boeing 717 Boeing 717 Boeing 717 Boeing 717 Boeing 717 Boeing 767 Bombardier (de Havilland) DHC-6 TO Saab 2000 Boeing 717 Boeing 717 Boeing 717 Boeing 717 Boeing 717 Boeing 717 Boeing 717 Boeing 717 Boeing 737 (NG) Boeing 747 Boeing 747 Boeing 747 Boeing 757 Bombardier (Canadair) CRJ RJ Bombardier (Canadair) CRJ RJ Bombardier (de Havilland) Dash 8 Bombardier (de Havilland) Dash 8 Embraer EMB-120 Brasilia Hawker Beechcraft 1900 Airbus A300 Airbus A300 Airbus A320 Airbus A320 BAE SYSTEMSJetstream 31 Boeing (McDonnell-Douglas) MD-11 Boeing (McDonnell-Douglas) MD-80 Boeing (McDonnell-Douglas) MD-80 Boeing (McDonnell-Douglas) MD-80 Boeing (McDonnell-Douglas) MD-90 Boeing 737 (CFMI) Boeing 737 (NG) Boeing 737 (NG) Boeing 737 (NG) Boeing 737 (NG) Boeing 737 (NG) Boeing 757 Boeing 767 Boeing 767 Bombardier (Canadair) CRJ RJ Bombardier (Canadair) CRJ RJ Bombardier (Canadair) CRJ RJ Embraer ERJ-135 Indonesian Aerospace 212 Lockheed Hercules Airbus A300 Airbus A300 Airbus A319 Boeing (McDonnell-Douglas) MD-80 Boeing (McDonnell-Douglas) MD-90 Boeing 737 (CFMI) Boeing 737 (CFMI) Boeing 737 (NG) Boeing 737 (NG) Boeing 737 (NG) Boeing 757 Boeing 767 BAE SYSTEMS (HS) 146 Boeing 747 Fairchild/Dornier 328 Boeing (McDonnell-Douglas) MD-80 Boeing (McDonnell-Douglas) MD-80 Boeing 737 (CFMI) Boeing 737 (CFMI) Boeing 737 (NG) Boeing 747 Boeing 757 Airbus A320 Boeing 767 Airbus A321 ATR ATR 72 ATR ATR 72 BAE SYSTEMS (HS) 146 Boeing 727 Boeing 737 (NG)

Variant 200 200Adv.(Stge 3 Hk) 200 A Cargo 210 (CFM) 340HGW (RR) 200 200 200 200 200 200 200 300ER (GE) 100 AEW 200 200 200 200 200 200 200 200 800 Winglets 100F (M) 400 (GE) 400 (GE) 200 (RR) Hemisphere Hemisphere 200 300 ER D 620RF (M) (P&W) 620RF (M) (P&W) 230 (IAE) 230 (IAE) Super Freighter (M) (GE) 82 (MDC) 83 (MDC) 83 (MDC) 30 300 800 800 Winglets 800 Winglets 800 Winglets 800 Winglets 200 (RR) 200SF (GE) 300ER (GE) 200LR 200LR Challenger 850 Legacy 600 100 C-130H 620R (P&W) 620R (P&W) 110 (CFM) 83 (MDC) 30 300 300 800 Winglets 800 Winglets 700 Winglets 200 (RR) 200SF (GE) 300 400 (GE) 100 83 (MDC) 83 (MDC) 400 400 800 Winglets 400 (P&W) 200 (P&W) 230 (IAE) 300 (P&W) 110 (CFM) 500 500 300

Reg No CN600RN N437CA S5-SBB F-HBNG C-GHKX N488HA N489HA N480HA N481HA N483HA N485HA N490HA N362CM N100AP N476HA N475HA N477HA N478HA N479HA N484HA N486HA N487HA N847NN N677UP N352AS N469AC N852AG N488CA N488CA OY-GRI N839CA N224SW ZS-ORV TF-ELF TF-ELK VT-IEF VT-IEH HK-4772 N384WA N248AA SX-BLL N993JM PK-LIK N636AN LN-RCX D-AHFT D-AHFV D-ABKI D-ABKO N524AT N747AX N641GT N77331 N17337 B-3563 N905FL PK-DCP

N4679 N4679 B-6436 N347BF N961DN PK-YVX PK-YVU PK-GEM PK-GEN N660CP B-2828 N750AX URN920UN HBN562AA N563AA VH-TJM PKN869NN N747NP N531UA VT-IEG N1402A I-BIXS B-3023 B-3025 9G-SBA 200F(M)Adv(Raisbk.Stg3Sys) N76753 800 Winglets VH-VZO

Owner Name Tronosjet Maintenance Roberto Rossi Sentry Aircraft Leasing Bridges Worldwide JSA Air Canada Hawaiian Airlines Hawaiian Airlines Hawaiian Airlines Hawaiian Airlines Hawaiian Airlines Hawaiian Airlines Hawaiian Airlines Cargo Aircraft Mgmt TO Support Services Royal Saudi Arabian Air Force Hawaiian Airlines Hawaiian Airlines Hawaiian Airlines Hawaiian Airlines Hawaiian Airlines Hawaiian Airlines Hawaiian Airlines Hawaiian Airlines JSA Stewart Industries AerSale Deucalion Aviation Funds Aviation Capital Group ACASS Canada DD Aviation Air Greenland Global Principal Fin JPMorgan Chase Ringopro Aircraft Solutions Aircraft Solutions HKAC HKAC Aerolinea de Antioquia CIT Air Capital Group Undisclosed Swift AirCargo Lion Air Avioserv Volito CIT CIT CIT CIT Wings Aviation Cargo Aircraft Mgmt Atlas Air Bombardier Capital Bombardier Capital Asia United Business Nextant Aircraft Nusantara Buana Air Philippine Air Force European Air Transport Aircraft Solutions CDB Regency Aviation Delta Air Lines Batavia Air Batavia Air AWAS AWAS NorLease Undisclosed Cargo Aircraft Mgmt Undisclosed Undisclosed Unconfirmed Swiss Airline Jetran Jetran Sayegh Group Aviation Unconfirmed Indonesian Operator NAS Investments VEBL Cargo Aircraft Mgmt HKAC Delta Air Lines KV Aviation Avitra Aviation Avitra Aviation Starbow Airlines Flightstar Trading Pty Limited

Operator Name Tronos Roberto Rossi Sentry Aircraft Leasing Solinair Air France Air Canada Hawaiian Airlines Hawaiian Airlines Hawaiian Airlines Hawaiian Airlines Hawaiian Airlines Hawaiian Airlines Hawaiian Airlines Cargo Aircraft Mgmt TO International Royal Saudi Arabian Air Force Hawaiian Airlines Hawaiian Airlines Hawaiian Airlines Hawaiian Airlines Hawaiian Airlines Hawaiian Airlines Hawaiian Airlines Hawaiian Airlines American Airlines Stewart Industries AerSale Deucalion Aviation Funds Aviation Capital Group ACASS DD Aviation Air Greenland Commutair SkyWest Airlines Solenta Aviation TNT Airways TNT Airways IndiGo Airlines IndiGo Airlines Aerolinea de Antioquia Allied Air Cargo Air Capital Group Undisclosed Swift AirCargo Lion Air Avioserv SAS TUIFly Nordic TUIfly airberlin airberlin Air Guyana ABX Air Atlas Air Bombardier Capital Bombardier Capital Asia United Nextant Aircraft Nusantara Buana Air Philippine Air Force European Air Transport Universal Asset Mgmt Tibet Airlines Regency Aviation Delta Air Lines Batavia Air Batavia Air Garuda Indonesia Garuda Indonesia ConocoPhillips Undisclosed ABX Air UM Air Transaero Unconfirmed Swiss Airline Jetran Intl Jetran Intl Sayegh Unconfirmed Indonesian Operator American Airlines VEB-Leasing JSC Cargo Aircraft Mgmt IndiGo Airlines Delta Air Lines Alitalia Avitra Aviation Avitra Aviation Starbow Airlines Flightstar Trading Qantas

Event Remarks Pur'd - pkd Pur'd - pkd Pur'd Pur'd Pur'd - sale leaseback on del Pur'd off lease/fin term complete Pur'd off lease/fin term complete Pur'd off lease/fin term complete Pur'd off lease/fin term complete Pur'd off lease/fin term complete Pur'd off lease/fin term complete Pur'd off lease/fin term complete Pur'd off lease/fin term complete Pur'd - pkd Pur'd Pur'd - pkd Pur'd off lease/fin term complete Pur'd off lease/fin term complete Pur'd off lease/fin term complete Pur'd off lease/fin term complete Pur'd off lease/fin term complete Pur'd off lease/fin term complete Pur'd off lease/fin term complete Pur'd off lease/fin term complete Pur'd - subject to lease Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd off lease/fin term comp - pkd Pur'd Pur'd Pur'd Pur'd - pkd Pur'd - subject to lease Pur'd - subject to lease Pur'd - subject to lease Pur'd - sale leaseback Pur'd - sale leaseback on del Pur'd - sale leaseback Pur'd - pkd Pur'd - subject to lease Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd off lease/fin term comp - pkd Pur'd - pkd Pur'd - sale leaseback Pur'd - sale leaseback Pur'd - sale leaseback Pur'd - subject to lease Pur'd - subject to lease Pur'd - pkd Pur'd - sale leaseback Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd Pur'd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - sale leaseback on del Pur'd - pkd Pur'd - pkd Pur'd off lease/fin term complete Pur'd off lease/fin term complete Pur'd - subject to lease Pur'd - subject to lease Pur'd - subject to lease Pur'd - pkd Pur'd - sale leaseback Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - sale leaseback on del Pur'd - pkd Pur'd - pkd Pur'd - sale leaseback on del Pur'd off lease/fin term complete Pur'd - subject to lease Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - sale leaseback on del

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60 | AFM • ISSUE 75 September-October 2011

INDUSTRY DATA: FLEET FINANCE, FIRM ORDERS, AIRCRAFT TRANSACTIONS, LIST PRICES AND LEASE RATES AIRCRAFT TRANSACTIONS – Boeing, Airbus, ATR, and Bombardier. 27 Jun to 15 Aug 2011 Contract Date 07/07/2011 08/07/2011 08/07/2011 08/07/2011 09/07/2011 09/07/2011 09/07/2011 09/07/2011 09/07/2011 11/07/2011 11/07/2011 11/07/2011 11/07/2011 11/07/2011 12/07/2011 12/07/2011 12/07/2011 12/07/2011 12/07/2011 12/07/2011 12/07/2011 13/07/2011 13/07/2011 13/07/2011 13/07/2011 13/07/2011 14/07/2011 14/07/2011 14/07/2011 14/07/2011 14/07/2011 14/07/2011 15/07/2011 15/07/2011 15/07/2011 15/07/2011 15/07/2011 15/07/2011 15/07/2011 15/07/2011 15/07/2011 15/07/2011 15/07/2011 15/07/2011 15/07/2011 15/07/2011 15/07/2011 15/07/2011 15/07/2011 15/07/2011 15/07/2011 18/07/2011 18/07/2011 18/07/2011 18/07/2011 18/07/2011 18/07/2011 19/07/2011 19/07/2011 19/07/2011 19/07/2011 19/07/2011 19/07/2011 19/07/2011 19/07/2011 19/07/2011 19/07/2011 19/07/2011 19/07/2011 19/07/2011 19/07/2011 19/07/2011 19/07/2011 19/07/2011 19/07/2011 19/07/2011 19/07/2011 19/07/2011 20/07/2011 20/07/2011 20/07/2011 21/07/2011 21/07/2011 21/07/2011 21/07/2011 21/07/2011 21/07/2011 21/07/2011 21/07/2011 21/07/2011

S/N UE-138 2982 37867 145277 2675 531 547 30414 30414 1512 092 24439 10327 588 4758 080 47154 55054 55055 55057 DC-826B 53193 53194 21387 23375 26876 0361 4616 285 303 32860 35596 797 573 GOW32014 GOW32015 GOW32016 074 428 23555 23556 23558 25272 26539 26540 29669 26243 145277 126 137 86 3216 40247 30434 38988 11571 11575 4763 19484 19484 19971 19971 20180 20180 20186 20186 20667 20667 20668 20668 20996 20996 21157 21157 27421 311 3016 3016 4774 8052 AC-649 4767 581 49929 7567 7570 7573 7583 7607 7619

A/C Model Hawker Beechcraft 1900 Airbus A320 Boeing 767 Embraer ERJ-145 Airbus A319 ATR ATR 72 ATR ATR 72 Boeing 737 (NG) Boeing 737 (NG) Airbus A320 ATR ATR 42 Boeing 737 (CFMI) Bombardier (Canadair) CRJ700 RJ Bombardier (de Havilland) Dash 8 Airbus A320 Airbus A340 Boeing (McDonnell-Douglas) DC-9 Boeing 717 Boeing 717 Boeing 717 Fairchild (Swearingen) Metro Boeing (McDonnell-Douglas) MD-80 Boeing (McDonnell-Douglas) MD-80 Boeing 727 Boeing 737 (CFMI) Boeing 747 Airbus A320 Airbus A320 ATR ATR 72 ATR ATR 72 Boeing 777 Boeing 777 Airbus A300 Airbus A310 Airbus A320 Airbus A320 Airbus A320 Airbus A340 ATR ATR 72 Boeing 737 (CFMI) Boeing 737 (CFMI) Boeing 737 (CFMI) Boeing 737 (CFMI) Boeing 737 (CFMI) Boeing 737 (CFMI) Boeing 737 (NG) Boeing 757 Embraer ERJ-145 General Dynamics (Convair) 580 General Dynamics (Convair) 580 General Dynamics (Convair) 580 Airbus A318 Boeing 737 (NG) Boeing 767 Boeing 777 Fokker 70 Fokker 70 Airbus A320 Boeing 727 Boeing 727 Boeing 727 Boeing 727 Boeing 727 Boeing 727 Boeing 727 Boeing 727 Boeing 727 Boeing 727 Boeing 727 Boeing 727 Boeing 727 Boeing 727 Boeing 727 Boeing 727 Boeing 737 (CFMI) Bombardier (de Havilland) Dash 8 Fairchild/Dornier 328 Fairchild/Dornier 328 Airbus A319 Bombardier (Canadair) CRJ RJ Fairchild (Swearingen) Metro Airbus A320 ATR ATR 42 Boeing (McDonnell-Douglas) MD-80 Bombardier (Canadair) CRJ RJ Bombardier (Canadair) CRJ RJ Bombardier (Canadair) CRJ RJ Bombardier (Canadair) CRJ RJ Bombardier (Canadair) CRJ RJ Bombardier (Canadair) CRJ RJ

Variant Reg No D OB230 (IAE) VH-VNJ 300ERF (GE) N345UP LR N13990 ACJ (CFM) CS-TQJ 500 B-3023 500 N547NA 800 Winglets VQ-BNK 800 Winglets VQ-BNK 230 (IAE) LV-BHU 300 SP-KTR 400 N249SY 702ER NextGen JA07RJ 300 C-GLPG 210 (CFM) CC-BAN 210 (CFM) LV-ZPX 15RC (Stge 3 Hk) N197US 200 VH-NXI 200 VH-NXH 200 VH-NXG 23 VH-SWK 88 N824AG 88 N825AG 200Adv.(RaisbeckStg3Sys)N410BN 300 Winglets HS-BRB 400 (P&W) HS230 (IAE) UR-CFW 210 (CFM) N840VA 200 EC-LNP 200 EC-LNQ 200ER (GE) EI-ISD 300ER (GE) A6-EGC 620R (P&W) A6-NIN 300 (GE) CS-TDI 210 (CFM) VT210 (CFM) VT210 (CFM) VT210 (CFM) LV-ZPJ 210 EC-LNR 300 N 300 N 300 N 500 N 500 OK-XGA 500 OK-XGB 800 Winglets OK-TVF 200 Winglets (RR) TF-FIU LR ZS-BBJ (SCD) VH-PDX VH-PDL (SCD) VH-PDW 120 (P&W) PR-AVO 800 Winglets A6-FDT 200ER (GE) N68155 300ER (GE) A6-EGD VH-QQX VH-QQY 210 (CFM) N763AV 200F (M) (Stge 3 Hk) N6809 200F (M) (Stge 3 Hk) N6809 200F (M) (Stge 3 Hk) N252US 200F (M) (Stge 3 Hk) N252US 200F (M) (Stge 3 Hk) N6827 200F (M) (Stge 3 Hk) N6827 200F (M) (Stge 3 Hk) N6833 200F (M) (Stge 3 Hk) N6833 200F (M)Adv.(Stg3Hk) N69739 200F (M)Adv.(Stg3Hk) N69739 200F (M)Adv.(Stg3Hk) N69740 200F (M)Adv.(Stg3Hk) N69740 200F (M)Adv.(Stg3Hk) N855AA 200F (M)Adv.(Stg3Hk) N855AA 200F (M)Adv.(Stg3Hk) N278US 200F (M)Adv.(Stg3Hk) N278US 300 HB-JJB 300 C-GLWN 100 N 100 5N-SAG 130 (IAE) TC-JLY Challenger 850 OE-IZZ III N649KA 210 (CFM) CC-BAO 500 PR-TKG 88 N885DA 200LR D-ACRA 200LR D-ACRB 200LR D-ACRC 200LR D-ACRD 200LR D-ACRE 200LR D-ACRF

Owner Name Unconfirmed Peruvian Operator Mitsubishi UFJ SNC Heloise Finance General Aviation Services OMNI Aviacao & Tecnologia Nordic Aviation Nordic Aviation CIT Orenair LAN Airlines Jet Air ( Sayegh Group IBJ Leasing Bombardier Avolon Aerolineas Argentinas MAP Asset Preservation Australia&New Zealand Banking Australia&New Zealand Bank Australia&New Zealand Bank Aviation Services of Australia Thrust Leasing Thrust Leasing 410 Airframe Acquisition Grandmax Group Unconfirmed Thai Airline Airfinancial Mgmt SMBC Helitt Helitt Unknown JSA Maximus Air Cargo Universal Asset Mgmt GE Capital GE Capital GE Capital Aerolineas Argentinas Helitt JT Power JT Power JT Power Classic 500 CSA Czech Airlines CSA Czech Airlines ALC Airco Ehf Acia Vanguard Vanguard Vanguard Avianca Avolon Omni Aviation Pembroke Group Aircraft Leasing No.3 Aircraft Leasing No.3 Avolon AAR Services Steven P Fisher Steven P Fisher AAR Services Steven P Fisher AAR Services Steven P Fisher AAR Services AAR Services Steven P Fisher AAR Services Steven P Fisher Steven P Fisher AAR Services AAR Services Steven P Fisher PrivatAir Avmax Aviation Sierra Nevada Corp 328 Support Services Undisclosed Avcon Jet Kolob Canyons Avolon TRIP Dynamic JetLease AviaAM Leasing AviaAM Leasing AviaAM Leasing AviaAM Leasing AviaAM Leasing AviaAM Leasing

Operator Name Unconfirmed Peruvian Operator Tiger Airways Australia UPS Airlines General Aviation Services White Nordic Aviation Nordic Aviation Orenair Orenair LAN Argentina Jet Air Sayegh Ibex Airlines Bombardier LAN Airlines Aerolineas Argentinas MAP Asset Preservation Airlink - QantasLink Airlink - QantasLink Airlink - QantasLink Aviation Services of Australia Thrust Leasing Thrust Leasing 410 Airframe Acquisition Orient Thai Airlines Unconfirmed Thai Airline Airfinancial Mgmt Virgin America Helitt Helitt Alitalia Emirates Airline Maximus Air Cargo Universal Asset Mgmt Go Air Go Air Go Air Aerolineas Argentinas Helitt JT Power JT Power JT Power Automatic CSA Czech Airlines CSA Czech Airlines Travel Service Airlines Icelandair Solenta Aviation Pionair Australia Pionair Australia Pionair Australia Avianca FlyDubai Omni Air Emirates Airline Alliance Airlines Alliance Airlines Avianca AAR Services Steven P Fisher Steven P Fisher AAR Services Steven P Fisher AAR Services Steven P Fisher AAR Services AAR Services Steven P Fisher AAR Services Steven P Fisher Steven P Fisher AAR Services AAR Services Steven P Fisher PrivatAir Avmax Sierra Nevada Corp 328 Support Services Turkish Airlines Avcon Jet Kolob Canyons LAN Airlines TRIP Dynamic Airways Eurowings Eurowings Eurowings Eurowings Eurowings Eurowings

Event Remarks Pur'd - pkd Pur'd - subject to lease - pkd Pur'd - sale leaseback on del Pur'd - pkd Pur'd Pur'd - pkd Pur'd - pkd Pur'd - sale leaseback Pur'd Pur'd off lease/fin term complete Pur'd off lease/fin term complete Pur'd - pkd Pur'd - sale leaseback on del Pur'd - pkd Pur'd - sale leaseback on del Pur'd off lease/fin term complete Pur'd - pkd Pur'd - subject to lease Pur'd - subject to lease Pur'd - subject to lease Pur'd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd Pur'd - subject to lease Pur'd - pkd Pur'd - pkd Pur'd - sale leaseback Pur'd - sale leaseback on del Pur'd - pkd Pur'd - pkd On order - sale leaseback arranged On order - sale leaseback arranged On order - sale leaseback arranged Pur'd off lease/fin term complete Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd off lease/fin term complete Pur'd off lease/fin term complete Pur'd - subject to lease Pur'd - subject to lease Pur'd Pur'd - sale leaseback Pur'd - sale leaseback - pkd Pur'd - sale leaseback - pkd Pur'd Pur'd - sale leaseback on del Pur'd off lease/fin term complete - pkd Pur'd - sale leaseback on del Pur'd Pur'd Pur'd - sale leaseback on del Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - sale leaseback on del Pur'd Pur'd Pur'd - sale leaseback on del Pur'd Pur'd - pkd Pur'd - subject to lease Pur'd - subject to lease Pur'd - subject to lease - pkd Pur'd - subject to lease Pur'd - subject to lease Pur'd - subject to lease - pkd

AFM75_Data_AFNM 06/09/2011 12:41 Page 61

September-October 2011 AFM • ISSUE 75 | 61

INDUSTRY DATA: FLEET FINANCE, FIRM ORDERS, AIRCRAFT TRANSACTIONS, LIST PRICES AND LEASE RATES AIRCRAFT TRANSACTIONS – Boeing, Airbus, ATR, and Bombardier. 27 Jun to 15 Aug 2011 Contract Date 21/07/2011 21/07/2011 21/07/2011 21/07/2011 21/07/2011 22/07/2011 22/07/2011 22/07/2011 22/07/2011 22/07/2011 22/07/2011 22/07/2011 22/07/2011 22/07/2011 22/07/2011 22/07/2011 22/07/2011 25/07/2011 25/07/2011 26/07/2011 26/07/2011 26/07/2011 26/07/2011 27/07/2011 27/07/2011 27/07/2011 27/07/2011 27/07/2011 27/07/2011 27/07/2011 27/07/2011 27/07/2011 27/07/2011 27/07/2011 27/07/2011 27/07/2011 28/07/2011 28/07/2011 28/07/2011 28/07/2011 28/07/2011 29/07/2011 29/07/2011 29/07/2011 29/07/2011 01/08/2011 01/08/2011 01/08/2011 01/08/2011 01/08/2011 01/08/2011 02/08/2011 03/08/2011 03/08/2011 03/08/2011 03/08/2011 03/08/2011 03/08/2011 03/08/2011 03/08/2011 03/08/2011 03/08/2011 04/08/2011 04/08/2011 04/08/2011 04/08/2011 04/08/2011 05/08/2011 05/08/2011 05/08/2011 05/08/2011 05/08/2011 05/08/2011 08/08/2011 09/08/2011 09/08/2011 09/08/2011 09/08/2011 09/08/2011 10/08/2011 10/08/2011 10/08/2011 10/08/2011 10/08/2011 10/08/2011 10/08/2011 11/08/2011 11/08/2011 11/08/2011 11/08/2011

S/N 7630 7738 498 19000281 3029 53219 19484 19971 20180 20186 20667 20668 20996 21157 39362 496 120318 41098 60001 4169 1473 49343 49350 1480 4780 4794 22541 23623 7482 4142 4142 401 401 110447 3068 UE-171 838 4798 23153 23158 8099 058 20664 36883 8088 25964 27128 7499 10028 10039 556 7030 49559 23959 23960 40132 7457 7739 7740 451 120224 UE-244 297 49560 28914 588 850 617 865 40249 4371 4376 U-59 751 0937 4789 7561 7572 TC-274 23847 28667 7352 8095 10449 10634 108 085 27345 27346 145642

A/C Model Bombardier (Canadair) CRJ RJ Bombardier (Canadair) CRJ RJ Bombardier (de Havilland) Dash 8 Embraer 195 Fairchild/Dornier 328 Boeing (McDonnell-Douglas) MD-80 Boeing 727 Boeing 727 Boeing 727 Boeing 727 Boeing 727 Boeing 727 Boeing 727 Boeing 727 Boeing 737 (NG) Bombardier (de Havilland) Dash 8 Embraer EMB-120 Brasilia BAE SYSTEMS Jetstream 41 Boeing (McDonnell-Douglas) MD-90 Airbus A318 Airbus A320 Boeing (McDonnell-Douglas) MD-80 Boeing (McDonnell-Douglas) MD-80 Airbus A320 Airbus A320 Airbus A320 Boeing 727 Boeing 767 Bombardier (Canadair) CRJ RJ Bombardier (de Havilland) Dash 8 Bombardier (de Havilland) Dash 8 Bombardier (de Havilland) DHC-6 TO Bombardier (de Havilland) DHC-6 TO Embraer EMB-110 Bandeirante Fairchild/Dornier 328 Hawker Beechcraft 1900 Airbus A300 Airbus A320 Boeing 737 (JT8D) Boeing 737 (JT8D) Bombardier (Canadair) CRJ RJ Airbus A380 Boeing 727 Boeing 737 (NG) Bombardier (Canadair) CRJ RJ Boeing (McDonnell-Douglas) DC-3 Boeing 737 (CFMI) Bombardier (Canadair) CRJ RJ Bombardier (Canadair) CRJ700 RJ Bombardier (Canadair) CRJ700 RJ Bombardier (de Havilland) Dash 8 Bombardier (Canadair) CRJ RJ Boeing (McDonnell-Douglas) MD-80 Boeing 737 (CFMI) Boeing 737 (CFMI) Boeing 737 (NG) Bombardier (Canadair) CRJ RJ Bombardier (Canadair) CRJ RJ Bombardier (Canadair) CRJ RJ Bombardier (de Havilland) Dash 8 Embraer EMB-120 Brasilia Hawker Beechcraft 1900 ATR ATR 72 Boeing (McDonnell-Douglas) MD-80 Boeing 737 (CFMI) Bombardier (de Havilland) Dash 8 Viking Air DHC-6 TO Airbus A300 BAE SYSTEMS Jetstream 31 Boeing 737 (NG) Bombardier (de Havilland) Dash 8 Bombardier (de Havilland) Dash 8 Hawker Beechcraft 99 BAE SYSTEMS Jetstream 31 Airbus A320 Airbus A320 Bombardier (Canadair) CRJ RJ Bombardier (Canadair) CRJ RJ Fairchild (Swearingen) Metro Boeing 737 (JT8D) Boeing 757 Bombardier (Canadair) CRJ RJ Bombardier (Canadair) CRJ RJ Fokker F.27 Fokker F.27 Saab 340 Airbus A340 Boeing 737 (CFMI) Boeing 737 (CFMI) Embraer ERJ-135

Variant Reg No 200LR D-ACRG 200LR D-ACRH 200 CLR EC-KYP 100 N338PH 82 (MDC) G-CGUH 200F (M) (Stge 3 Hk) N6809 200F (M) (Stge 3 Hk) N252US 200F (M) (Stge 3 Hk) N6827 200F (M) (Stge 3 Hk) N6833 200F (M)Adv.(Stg3Hk) N69739 200F (M)Adv.(Stg3Hk) N69740 200F (M)Adv.(Stg3Hk) N855AA 200F (M)Adv(Stg3Hk) N278US 800 Winglets VH-VZP 200 CER N291SW HK-4786X 30 (SAIC) N964DN ACJ (CFM) OE-LUX 210 (CFM) EI-IKF 82 (MDC) N431AA 82 (MDC) N432AA 210 (CFM) EI-IKG 210 (CFM) A9C-AL 210 (CFM) B-6782 200RE Advanced N727M 200ER (GE) EI-CZD 100LR VQ-BNE 400 ZS-YBP 400 ZS-YBP 300 N540N 300 N540N P1 VH-MWF 100 N565EF D N171ZV 620R (P&W) N836AC 230 (IAE) N505VL 200Adv.(Stge 3 Hk) N126EA 200Adv.(Stge 3 Hk) N127EA Challenger 850 RA-67232 840 (RR) 9V-SKL 200F (M)Adv(Stg3Hk) PR-IOZ 800 Winglets D-ABKV Challenger 850 N288ZZ BT-67 N9923S 300SF B-2598 200LR EK-20018 701 ZS-NBF 701 ZS-NBG 300 PH-JHB 200LR N406SW 82 (MDC) N454AA 300 N337SW 300 N338SW 800 Winglets 9M-MXE 200LR N655BR 200ER N677SA 200ER N128MN 300 RAER N281AS D N244YV 200 SP-EFI 82 (MDC) N455AA 500 Winglets N14653 300 VH-XKJ 400 (Floats) 8Q620R (P&W) N2617 Super HK800 Winglets A6-FDU 400 NextGen VH-LQD 400 NextGen VH-LQG 99 N14MV N538PA 210 (CFM) TS-INF 210 (CFM) N789AV 200ER C-GRIA 200ER C-GRGD II N274FS 200Adv.(Stg3Hk) YV 200 (RR) N953FD 100ER N804CA Challenger 850 C-FUQY 500 N19XE 500 N19XG A Cargo N844KH 210 (CFM) LV-ZRA 300 N745TP 300 N746TP Legacy 600 N642AG

Owner Name AviaAM Leasing AviaAM Leasing Air Greenland GOAL Undisclosed IAP Group Australia Stewart Industries Stewart Industries Stewart Industries Stewart Industries Stewart Industries Stewart Industries Stewart Industries Stewart Industries Unknown Air Greenland FirstMerit Equipment Fin Easyfly Delta Air Lines Tyrolean Jet Service Unknown American Airlines American Airlines Unknown MC Aviation/Mitsubishi ICBC Kalitta Turbine Transalpine Rusline SA Express Rand Merchant Bank NewCal Aviation Viking Air Air Rarotonga Sierra Nevada The ServiCenter Undisclosed JSA Pacific Aerospace Pacific Aerospace AK Bars Aero Lloyd Fonds Rio Linhas Aereas SJK Aircraft Unconfirmed Alfred Wegener Institute Undisclosed Armavia Lighthouse Aviation Lighthouse Aviation SAMCO Aircraft Maintenance SkyWest Airlines American Airlines Southwest Airlines Southwest Airlines Undisclosed Air Wisconsin Trust N695BR Trust N695BR Sakhalin Regional Admin Air Investments The ServiCenter EuroLOT American Airlines BLF Skippers Aviation Trans Maldivian Airways Undisclosed Unconfirmed Colombian Airline Avolon QF Dash 8 Leasing QF Dash 8 Leasing Alpine Air Express Flight Source Intl Nouvelair Tunisie Avolon Avmax Aircraft Avmax Aircraft Caribe Rico Avior Airlines FedEx Undisclosed ACASS 19th Hole 19th Hole Aeko Kula Aerolineas Argentinas Undisclosed Undisclosed Fifth Third Equipment Fin

Operator Name Eurowings Eurowings Air Greenland Air Europa Katanga Express IAP Group Stewart Industries Stewart Industries Stewart Industries Stewart Industries Stewart Industries Stewart Industries Stewart Industries Stewart Industries Qantas Air Greenland SkyWest Airlines Easyfly Delta Air Lines Tyrolean Jet Service Alitalia American Airlines American Airlines Alitalia Gulf Air ICBC Kalitta Turbine Leasing Transaero Rusline SA Express SA Express NewCal Viking Air Air Rarotonga Sierra Nevada Corp The ServiCenter Undisclosed Volaris Pacific Aerospaces Pacific Aerospaces AK Bars Aero Singapore Airlines Rio Linhas Aereas JSA Unconfirmed Alfred Wegener Institute SF Airlines Armavia SA Express SA Express SAMCO SkyWest Airlines American Airlines Southwest Airlines Southwest Airlines Malaysia Airlines Air Wisconsin Trust N695BR GECAS SAT Airlines Air Investments The ServiCenter EuroLOT American Airlines BLF Skippers Aviation Trans Maldivian Airways Undisclosed Unconfirmed Colombian Airline FlyDubai Sunstate Airlines Sunstate Airlines Alpine Air Express Flight Source Intl Nouvelair Tunisie Avianca Avmax Avmax Caribe Rico Avior Airlines FedEx Undisclosed ACASS 19th Hole 19th Hole Aloha Air Cargo Aerolineas Argentinas Undisclosed Undisclosed Swift Air

Event Remarks Pur'd - subject to lease Pur'd - subject to lease Pur'd - pkd Pur'd - subject to lease Pur'd - subject to lease Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - sale leaseback on del Pur'd - pkd Pur'd - subject to lease Pur'd - pkd Pur'd - pkd Pur'd Pur'd - sale leaseback Pur'd off lease/fin term comp - pkd Pur'd off lease/fin term comp - pkd Pur'd - sale leaseback Pur'd - sale leaseback on del Pur'd Pur'd - pkd Pur'd - subject to lease Pur'd - pkd Pur'd - pkd Pur'd - sale leaseback - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd Pur'd - pkd Pur'd - sale leaseback on del Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - sale leaseback Pur'd - pkd Pur'd - pkd Pur'd Pur'd - pkd Pur'd - sale leaseback Pur'd Pur'd - subject to lease Pur'd - subject to lease Pur'd - pkd Pur'd off lease/fin term complete Pur'd off lease/fin term complete Pur'd off lease/fin term complete Pur'd off lease/fin term complete Pur'd - sale leaseback on del Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd Pur'd Pur'd off lease/fin term complete Pur'd - pkd Pur'd Pur'd off lease/fin term comp - pkd Purchased - parked Pur'd - pkd Pur'd - sale leaseback on del Pur'd - sale leaseback on del Pur'd - sale leaseback on del Pur'd off lease/fin term complete - pkd Pur'd - pkd Pur'd Pur'd - sale leaseback on del Pur'd - pkd Pur'd - pkd Pur'd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd - pkd Pur'd Pur'd off lease/fin term complete Pur'd - pkd Pur'd - pkd Pur'd - subject to lease

AFM75_Data_AFNM 06/09/2011 12:42 Page 62

62 | AFM • ISSUE 75 September-October 2011

INDUSTRY DATA: FLEET FINANCE, FIRM ORDERS, AIRCRAFT TRANSACTIONS, LIST PRICES AND LEASE RATES FIRM ORDERS – 27 Jun – 15 Aug 2011 Mfr & Type

Variant

Customer

Airbus A320 200 (Engines Unannounced) Thai Airways International Airbus A320 200 neo (CFM) CIT Aerospace Airbus A320 200 neo (PW) CIT Aerospace Airbus A320 200 neo (Engines Unannounced) CIT Aerospace Airbus A320 200 (Engines Unannounced) Garuda Indonesia Airbus A320 200 neo (Engines Unannounced) Garuda Indonesia Airbus A320 200 neo (PW) Lufthansa Airbus A321 200 neo (Engines Unannounced) Cebu Pacific Air Airbus A321 200 neo (PW) Lufthansa Airbus A321 200 neo (Engines Unannounced) American Airlines Airbus A330 300HGW (GE) Iberia Airbus A330 200 MRTT (Engines Unannounced) Airbus Military Airbus A330 340HGW (RR) Garuda Indonesia Airbus A350 900XWB (RR) Thai Airways International Alenia C-27J Spartan – Mexican Air Force Boeing 737 (NG) 900ER Korean Air Boeing 737 (NG) 800 Winglets American Airlines Boeing 737 (NG) BBJ2 Unannounced Boeing 737 (NG) 800 Winglets Unannounced Boeing 747 8F (GE) GECAS Boeing 747 8BBJ (GE) Unannounced Boeing 777 200LRF (GE) Cathay Pacific Boeing 777 300ER (GE) Cathay Pacific Boeing 777 Unannounced Unannounced Boeing 777 300ER (GE) GECAS Boeing 777 300ER (GE) Unannounced Boeing 777 200LRF (GE) Unannounced Bombardier (Canadair) CSeries CS300 Korean Air CASA C-295 – Ghana Air Force CASA CN-235 300 US Coast Guard Embraer 170 AR AirNorth Kawasaki Heavy Industries C-2 (C-X) Japan Air Self Defence Force RUAG 228 200NG Bangladesh Navy

Order date 11/08/2011 10/08/2011 10/08/2011 10/08/2011 09/08/2011 09/08/2011 05/08/2011 08/08/2011 05/08/2011 20/07/2011 26/07/2011 25/07/2011 01/07/2011 11/08/2011 06/07/2011 28/07/2011 27/07/2011 12/07/2011 30/06/2011 29/07/2011 11/07/2011 10/08/2011 10/08/2011 10/08/2011 29/07/2011 29/07/2011 30/06/2011 29/07/2011 04/08/2011 12/08/2011 30/06/2011 15/07/2011 20/07/2011

Order/ Number Type Swap Order Order Order Order Order Order Order Order Order Order Order Order Order Order Order Order Order Order Order Order Order Order Order Order Order Order Order Order Order Order Order Order Order

5 15 30 5 15 10 25 30 5 130 8 3 4 4 4 2 100 1 14 2 1 8 4 7 8 1 6 10 2 1 1 20 2

Engines at Order

Variant at delivery

Engines at delivery

Unannounced-Unannounced

200 (Engines Unannounced)

Unannounced-Unannounced

LEAP-X-1A PW1000G-1100G

200 neo (CFM) 200 neo (PW)

LEAP-X-1A PW1000G-1100G

Unannounced-Unannounced Unannounced-Unannounced Unannounced-Unannounced

200 neo (Engines Unannounced) 200 (Engines Unannounced) 200 neo (Engines Unannounced)

Unannounced-Unannounced Unannounced-Unannounced Unannounced-Unannounced

PW1000G-1100G

200 neo (PW)

PW1000G-1100G

Unannounced-Unannounced

200 neo (Engines Unannounced)

Unannounced-Unannounced

PW1000G-1100G

200 neo (PW)

PW1000G-1100G

Unannounced-Unannounced

200 neo (Engines Unannounced)

Unannounced-Unannounced

CF6-80E1A4B

300HGW (GE)

CF6-80E1A4B

Unannounced-Unannounced

200 MRTT (Engines Unannounced) Unannounced-Unannounced

Trent-772B-60EP Trent-XWB AE 2100-D2 CFM56-7B26E CFM56-7B24E CFM56-7B27E CFM56-7B26E GEnx-2B67 GEnx-2B67 GE90-110B1L GE90-115BL1

340HGW (RR) 900XWB (RR) – 900ER 800 Winglets BBJ2 800 Winglets 8F (GE) 8BBJ (GE) 200LRF (GE) 300ER (GE)

Trent-772B-60EP Trent-XWB AE 2100-D2 CFM56-7B26E CFM56-7B24E CFM56-7B27E CFM56-7B26E GEnx-2B67 GEnx-2B67 GE90-110B1L GE90-115BL1

Unannounced-Unannounced

Variant & Engines Unannounced

Unannounced-Unannounced

GE90-115B GE90-115B GE90-110B1L PW1000G-1521G PW100-127G CT7-9C3 CF34-8E5 CF6-80C2L1F TPE331-10

300ER (GE) 300ER (GE) 200LRF (GE) CS300 – 300 AR – 200NG

GE90-115B GE90-115B GE90-110B1L PW1000G-1521G PW100-127G CT7-9C3 CF34-8E5 CF6-80C2L1F TPE331-10

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

ENGINE DATA CHANGES 27 Jun to 15 Aug 2011 Type 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 CFM56-3C1 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

27 Jun 2011 15 Aug 2011 Full-life value Full-life value % mkt value mkt value change

27 Jun 2011 Current half-life rate

15 Aug 2011 Current half-life % rate change

$2.18m $2.38m $2.58m $7.94m $6.24m $6.60m $6.81m $7.11m $7.51m $7.96m $2.05m $3.85m $4.33m $4.69m $7.13m $7.91m $14.07m $26.77m $7.12m $1.70m $7.34m $7.69m $6.84m $7.52m $2.50m $13.38m $13.78m $20.29m $2.50m $3.33m

$0.70m $0.90m $1.10m $5.85m $4.15m $4.35m $4.90m $5.20m $5.55m $6.00m $1.00m $2.20m $2.68m $1.50m $3.75m $4.40m $9.35m $20.70m $5.00m $0.60m $3.75m $4.10m $2.80m $3.90m $1.40m $8.14m $8.60m $14.00m $1.40m $2.00m

$0.70m $0.90m $1.50m $5.85m $4.15m $4.35m $4.90m $5.20m $5.55m $6.00m $1.00m $2.20m $2.68m $1.00m $3.50m $3.75m $9.35m $20.70m $5.00m $0.60m $3.00m $3.50m $2.50m $3.90m $1.40m $7.80m $8.60m $14.00m $1.40m $2.00m

$2.18m $2.38m $2.98m $7.94m $6.24m $6.60m $7.01m $7.36m $7.76m $8.21m $2.05m $3.67m $4.15m $4.19m $6.88m $7.26m $14.07m $26.82m $7.23m $1.70m $6.59m $7.09m $6.54m $7.60m $2.50m $13.29m $14.06m $20.61m $2.50m $3.33m

0.0% 0.0% 15.5% 0.0% 0.0% 0.0% 2.9% 3.5% 3.3% 3.1% 0.0% -4.6% -4.1% -10.7% -3.5% -8.2% 0.0% 0.2% 1.5% 0.0% -10.2% -7.8% -4.4% 1.1% 0.0% -0.7% 2.1% 1.6% 0.0% 0.0%

27 Jun 2011 Mkt lease rate

15 Aug 2011 Mkt lease rate

% change

0.0% $0.030m $0.025m -16.7% 0.0% $0.032m $0.027m -15.6% 36.4% $0.035m $0.030m -14.3% 0.0% $0.070m $0.070m 0.0% 0.0% $0.050m $0.050m 0.0% 0.0% $0.052m $0.052m 0.0% 0.0% $0.059m $0.059m 0.0% 0.0% $0.062m $0.062m 0.0% 0.0% $0.065m $0.065m 0.0% 0.0% $0.067m $0.067m 0.0% 0.0% $0.020m $0.020m 0.0% 0.0% $0.027m $0.027m 0.0% 0.0% $0.033m $0.033m 0.0% -33.3% n/a n/a n/a -6.7% $0.050m $0.050m 0.0% -14.8% $0.070m $0.070m 0.0% 0.0% n/a n/a n/a 0.0% $0.210m $0.210m 0.0% 0.0% $0.058m $0.058m 0.0% 0.0% $0.023m $0.023m 0.0% -20.0% $0.060m $0.060m 0.0% -14.6% $0.065m $0.065m 0.0% -10.7% $0.055m $0.055m 0.0% 0.0% $0.050m $0.050m 0.0% 0.0% $0.026m $0.026m 0.0% -4.2% $0.110m $0.110m 0.0% 0.0% $0.120m $0.120m 0.0% 0.0% $0.155m $0.155m 0.0% 0.0% $0.030m $0.030m 0.0% 0.0% $0.045m $0.045m 0.0% Data supplied courtesy of Ascend Online Fleets / Ascend V1 database

AFM75_Data_AFNM 06/09/2011 12:42 Page 63

September-October 2011 AFM • ISSUE 75 | 63

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

Fleet Stored

Total Fleet

Fleet Stored %

Seats Stored

Total Seats

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 Alenia C-27J Spartan 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 727 Boeing 737 (CFMI) Boeing 737 (JT8D) Boeing 737 (NG) Boeing 747 Boeing 757 Boeing 767 Boeing 777 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.5 Belfast 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 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 General Dynamics (Convair) 600 Gulfstream Aerospace Gulfstream I Handley Page Jetstream (HP/Scottish) Hawker Beechcraft 1900 Hawker Beechcraft 99 Hindustan Aeronautics 748 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 Viking Air DHC-6 Twin Otter

8 37 36 11 81 45 2 33 79 10 20 26 2 1 2 35 2 67 20 16 2 75 24 41 26 125 252 212 50 162 71 74 10 28 13 36 169 5 269 58 1 11 1 128 1 13 3 14 1 11 13 64 8 64 58 9 1 8 6 1 63 63 56 63 2 46 33 24 60 56 43 1 30 51 13 1 16 2 45 3 1 1 9 8 15 7 195 14 8 19 3 100 1

71 357 507 14 362 187 68 1,306 2,619 658 798 367 56 44 2 163 12 162 65 54 2 244 92 190 155 393 1,745 454 3,716 916 1,001 932 947 191 76 77 281 192 915 108 2 72 1 1,027 342 254 45 105 1 61 51 547 56 977 250 187 1 187 366 77 261 265 314 683 2 484 180 100 109 227 188 47 125 91 69 1 44 2 618 144 65 1 68 49 71 111 1,545 28 20 39 58 402 6

11.27 10.36 7.10 78.57 22.38 24.06 2.94 2.53 3.02 1.52 2.51 7.08 3.57 2.27 100.00 21.47 16.67 41.36 30.77 29.63 100.00 30.74 26.09 21.58 16.77 31.81 14.44 46.70 1.35 17.69 7.09 7.94 1.06 14.66 17.11 46.75 60.14 2.60 29.40 53.70 50.00 15.28 100.00 12.46 0.29 5.12 6.67 13.33 100.00 18.03 25.49 11.70 14.29 6.55 23.20 4.81 100.00 4.28 1.64 1.30 24.14 23.77 17.83 9.22 100.00 9.50 18.33 24.00 55.05 24.67 22.87 2.13 24.00 56.04 18.84 100.00 36.36 100.00 7.28 2.08 1.54 100.00 13.24 16.33 21.13 6.31 12.62 50.00 40.00 48.72 5.17 24.88 16.67

15 139 10.79 1,608 13,745 11.70 2,224 31,007 7.17 53 105 50.48 16,166 38,626 41.85 5,936 22,461 26.43 234 6,348 3.69 3,238 168,654 1.92 11,927 416,745 2.86 1,906 124,099 1.54 5,122 216,014 2.37 5,305 97,380 5.45 924 26,481 3.49 0 0 20 20 100.00 3,211 14,810 21.68 50 315 15.87 5,825 11,728 49.67 344 669 51.42 456 716 63.69 0 0 1,257 4,246 29.60 662 2,517 26.30 1,329 5,010 26.53 2,539 17,700 14.34 6,468 12,827 50.42 32,221 219,536 14.68 22,180 44,450 49.90 3,773 574,846 0.66 38,774 200,631 19.33 11,221 152,516 7.36 12,410 176,840 7.02 2,349 278,601 0.84 1,425 5,515 25.84 432 2,727 15.84 32 161 19.88 11,012 19,567 56.28 100 5,143 1.94 38,613 131,628 29.33 8,557 16,221 52.75 0 0 0 0 0 0 5,909 48,149 12.27 70 23,150 0.30 1,020 20,714 4.92 0 30 0.00 346 1,001 34.57 0 0 54 129 41.86 0 38 0.00 1,115 8,278 13.47 342 2,310 14.81 3,268 51,834 6.30 953 3,298 28.90 128 430 29.77 0 0 532 13,542 3.93 588 35,638 1.65 108 8,961 1.21 779 1,716 45.40 1,828 7,098 25.75 1,799 7,093 25.36 3,131 33,379 9.38 44 44 100.00 555 5,027 11.04 518 2,159 23.99 730 3,070 23.78 1,745 3,029 57.61 5,230 22,246 23.51 2,060 8,416 24.48 70 3,593 1.95 926 3,205 28.89 3,240 5,743 56.42 95 437 21.74 0 0 151 386 39.12 18 18 100.00 836 9,693 8.62 15 335 4.48 0 96 0.00 14 14 100.00 187 828 22.58 255 371 68.73 19 116 16.38 0 0 100 244 40.98 2,834 5,196 54.54 89 89 100.00 399 399 100.00 150 2,712 5.53 3,280 11,581 28.32 19 114 of Ascend Online Fleets 16.67 Data supplied courtesy / Ascend V1 database

AFM75_Data_AFNM 06/09/2011 13:00 Page 64

64 | AFM • ISSUE 75 September-October 2011

INDUSTRY DATA: FLEET FINANCE, FIRM ORDERS, AIRCRAFT TRANSACTIONS, LIST PRICES AND LEASE RATES LIST PRICES AND LEASE RATES Manufacturer

Average List Price

Type

Oldest

CMV Newest

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

$120.15m $57.00m $81.50m $62.50m $77.70m $85.00m $56.00m $99.70m $200.80m $222.50m $127.50m $228.00m $261.80m $275.40m $236.60m $267.60m $375.30m $40.00m $40.00m $44.00m $34.50m $56.90m $67.90m $80.80m $71.75m $85.80m $250.00m $317.50m $79.80m $144.10m $164.30m $186.50m $232.30m $262.40m $222.00m $284.10m $185.20m $119.10m $34.25m $37.80m $39.80m $30.25m $38.60m $39.40m $24.20m $35.57m $40.81m $15.70m $15.70m $28.85m $17.14m $22.25m $34.18m $34.20m $38.00m $40.10m $24.50m $31.60m $16.90m $20.50m

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 $12.00m $11.80m $5.00m $11.95m $19.30m $43.00m $25.00m $15.00m $20.00m $55.45m $60.40m $146.00m $7.90m $2.50m $4.00m $2.70m $11.00m $15.30m $19.70m $18.90m $32.90m $19.00m $6.50m $4.50m $9.50m $21.80m $42.00m $90.00m $43.50m $86.00m $10.00m $0.50m $1.00m $1.50m $2.00m $1.60m $5.00m $2.25m $10.00m $13.80m $3.70m $3.70m $8.50m $4.70m $4.80m $14.00m $16.20m $19.80m $21.10m $3.50m $3.00m $5.30m $5.60m

$12.50m $2.00m $8.00m $24.50m $31.10m $39.30m $18.75m $43.40m $84.00m $97.25m $15.00m $59.75m $78.45m $90.40m $185.00m $11.45m $6.45m $7.55m $5.50m $19.50m $32.10m $40.75m $23.05m $44.40m $57.50m $20.60m $14.50m $58.90m $37.05m $117.75m $135.00m $64.00m $147.00m $10.00m $0.90m $2.00m $2.90m $2.00m $2.40m $5.00m $6.60m $21.20m $23.55m $8.50m $15.40m $18.80m $5.25m $8.70m $23.25m $25.05m $29.30m $30.60m $3.50m $3.70m $14.60m $18.50m

%Change -3.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -1.6% -16.7% 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% -1.5% 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% -18.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.3% 0.0% 0.0% 0.0% 0.0% 0.0%

Dry Lease Rate Oldest Newest $0.140m $0.070m $0.100m $0.125m $0.125m $0.070m $0.150m $0.195m $0.450m $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 $0.150m $0.025m $0.025m $0.040m $0.030m $0.040m $0.090m $0.040m $0.110m $0.150m $0.055m $0.055m $0.130m $0.050m $0.060m $0.150m $0.165m $0.210m $0.215m $0.055m $0.060m $0.065m $0.070m

$0.180m $0.070m $0.120m $0.185m $0.265m $0.320m $0.180m $0.375m $0.765m $0.870m $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 $0.150m $0.030m $0.045m $0.060m $0.030m $0.050m $0.090m $0.080m $0.225m $0.245m $0.085m $0.130m $0.210m $0.050m $0.085m $0.230m $0.235m $0.260m $0.275m $0.055m $0.070m $0.130m $0.180m

Seating* %Change (Typical C+Y) 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% 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%

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 — July to August 2011 Region Undisclosed Africa Asia-Pacific Central America Europe Middle East North America South America

Net Orders 0 2 74 4 41 0 382 0

Delivered new 1 2 47 3 19 16 33 7

Leased 0 12 58 6 99 10 39 14

Purchased 2nd hand 10 4 33 3 132 7 167 23

Fleet as of 12 August 2011 NA 2572 7539 1281 8189 2039 17624 3245 Source: OAG Fleet iNET, August 2011

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It’s about a lease that lasts five years and a relationship with no expiration date.

It’s about more than the plane.

To us, each transaction builds a relationship. And it’s these long relationships that provide stability and predictable performance for our customers, financial partners and suppliers.

After all, if we make the deal work for everyone today, we’ll all look forward to doing the next one tomorrow. Learn more at www.aviationcapital.com Operating Leases • Asset Management • Aviation Investment Main Office: Newport Beach +1 949 219 4600 • Regional Offices: London, Santiago, Seattle, Shanghai, Singapore

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