IBA Newswatch 02Sep11

1. NEWSWATCH
2nd September 2011
Volume 11; Issue 33
In this Issue: Which is the best alliance fit for MAS?
Joining an airline alliance is a bit like joining an elite club
 Which is the best
alliance fit for
where members get lots of privileges.
MAS? Malaysia Airlines' (MAS) journey to joining an alliance has
been a trying one, starting with it being courted but it was
 Boeing Poised for
not interested, to a situation where it was in a dire need
Dreamliner Era
of a second chance. Now that it has it, it almost blew it.
 Mideast airline There are three global airline alliances: Star Alliance,
passenger traffic oneworld and the SkyTeam. Each is more than a decade
increases in July
old with its own history but, ironically, all had at one time
 IndiGo begins or another been interested in MAS.
international MAS was first approached to join Star Alliance in the late
operations
1990s but it did not see the need then. Had it taken the
 Kenya Airways opportunity, who knows what its fate would have been.
purchases 10 This was before Singapore Airlines (SIA) joined the
Embraer 190 with alliance. Even oneworld was keen then but somehow there
an option for
another 16 were issues and nothing materialised.
Star Alliance has 27 members, covers 181 countries where
 Boeing launches 21,000 departures take off daily, whereas SkyTeam has 14
new 737 'MAX' to
members and oneworld only 12 members.
take on A320neo
For an airline, alliances offer travellers a seamless flight
 IBA Group News experience from anywhere to everywhere.
They help airlines save costs and for the globe-trotting
high-fare paying corporate travellers who want the best
seats in the sky, they provide connectivity and frequency.
To be part of an alliance, an airline must be wanted, able
to add and extract value and vice versa for the alliance.
After the two courtships that did not go anywhere, MAS
became financially troubled and had to be rescued. In the
early 2000s, the desire to become part of an alliance
emerged and hence it was a situation of need rather than
being pursued.
IBA Group Ltd.
IBA House It set its eyes on SkyTeam as this alliance then did not
7 The Crescent
Leatherhead, Surrey have a network partner in South-East Asia. Little did MAS
KT22 8DY know that the major members of SkyTeam would not
United Kingdom
Tel: +44 (0) 1372 224488
welcome the national carrier. They did not see that MAS
Fax: +44 (0) 1372 224489 could add any value to the alliance.
www.ibagroup.com
Things turned better in June this year when the then
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2. NEWSWATCH
2nd September 2011
Volume 11; Issue 33
MAS MD, Tengku Datuk Azmil Zahruddin, and team surprised the
market place with its entry into oneworld.
It was a great moment for MAS as after nearly a decade of
searching, MAS finally got invited to an alliance with Qantas as
its sponsor.
Both Qantas and BA are part of oneworld and so is Cathay
IBA’s Comment:
Pacific.
“Airline alliances
That aside, early last month the aviation industry saw a major
change where two rivals MAS and AirAsia became partners to were useful tools
contain competition and the former's board was revamped. during the
What was really surprising was two weeks ago when the new recent downturn
team in a conference call to analysts said “MAS was now
reconsidering the decision to join oneworld as it now believes as operators
SkyTeam members have less over-lapping routes.'' wishing to
What all this seems to suggest is that there are opportunities reduce capacity
that can be exploited. However, in near to no time after all the
analysts reports were floating around, MAS had to come out to and streamline
clarify the situation and it “reiterated'' that it would stick to route networks
oneworld.
were able to
If it was that simple to get into an alliance, then MAS should
maintain a
have been part of an alliance years ago. For the benefit of
those who think it is easy, they should go ahead and explore. marketing
Incidentally, oneworld does not have a partner in the region presence in
and MAS fits best into the plan unlike SkyTeam which will have markets they
Garuda as a member soon, and Star Alliance has both SIA and
Thai Airways as members. had exited
Alliances have become increasingly important and most global through interline
players are part of an alliance. Now even the mid to small agreements with
players are being invited to join alliances.
other carriers.”
For a global carrier, MAS is pretty late in the game to enter
one. To rock the boat or, in this case, the flight, should be – David Rushe
unthinkable, unless of course there is an alternative plan.
Had there been widespread understanding of how alliances
work and what an arduous decade of long search it had been
for MAS to get into an alliance, perhaps all the repercussions
could have been avoided. It is really about a fine balancing act.
Source: B.K. Sidhu, biz.thestar.com.my – 2nd September 2011
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3. NEWSWATCH
2nd September 2011
Volume 11; Issue 33
Boeing Poised for Dreamliner Era
"The 787 is about to take the world by storm," said BB&T
analyst Carter Leake, in a recent report. "Boeing is about to
transition from what has been one of its darkest periods to
what we believe will be its best-ever decade."
Over the past few years, Boeing's newest aircraft has been
regularly described as a "game changer" in hundreds of
discussions about its potential, even as the wait for delivery
became longer and longer and even as pessimism regarding the
aircraft dominated. IBA’s Comment:
Today, concerns over how long it will take for Boeing to make “With a net total
money on the aircraft - a computation obscured by complex
of 11 orders
accounting - lingers. Some experts estimate that development
costs, once estimated at $5 billion, could in fact be triple that, placed since
meaning Boeing will probably have to sell hundreds of aircraft January 2011,
to cover them.
including 26
Originally scheduled for first delivery in May 2008 - this date
was announced in 2003 and remained operative until early cancellations in
2007, according to a Seattle Times timeline - the 787 2011, the key
Dreamliner at last has a firm date for first delivery. On Sept.
objective for
26, Boeing will hand over an aircraft to Japanese carrier ANA.
Boeing must be
Theoretically, the 787 news cycle will soon turn positive,
benefitting share prices. On the optimism scale, nothing beats to secure some
the introduction of a new aircraft, long awaited by the entire bulk orders for
world. Just recall how perceptions began to change when the
Airbus A380 made its first flight. the aircraft in
787 launch customer ANA, moving to extend the benefit, has the next year
scheduled a series of firsts with the plane. The first flight with and build on the
paying passengers will be a special charter between Tokyo
positive press
Narita and Hong Kong, scheduled for Oct. 26. The first
scheduled service will occur Nov. 1, with four domestic flights - the first flight
- a Haneda-Okayama round-trip followed by a Haneda- will bring.”
Hiroshima round-trip.
– David Rushe
Then comes service on the first international route, Haneda-
Beijing in December, followed by the first long-haul
international route, Haneda-Frankfurt in January 2012. That
flight will be operated as part of a joint venture with Star
Alliance partner Lufthansa, assuring connecting traffic at both
ends of the route.
Boeing shares began 2011 at $66.15 and are flat for the year,
after reaching a high of $80.65 in May. Leake has a target price
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4. NEWSWATCH
2nd September 2011
Volume 11; Issue 33
of $92.
"We encourage investors to view the 787's tortuous path to
today as a very wide, technological moat that Boeing has
crossed - and Airbus has not," Leake wrote. He challenged
suggestions that billions in unforeseen costs, combined with
deep discounts on early sales, will preclude Boeing from making
money on the program.
“We encourage
One reason, he said, is that many customers may switch from
the initial model, the 787-8, to later stretched models, the investors to view
787-9 and the 787-10. "In such a win-win transaction, the the 787's
customer gets a bigger airplane and Boeing makes a higher tortuous path to
margin; but more importantly, the deeply-discounted airplane
position can now be sold at a higher price to a new customer," today as a very
he said. wide,
Boeing has not identified its other 2011 deliveries. Early in technological
2012, United(UAL) will become the first U.S. airline to take
delivery of the 787. United and Continental, now merged, had moat that Boeing
each ordered 25 aircraft. has crossed - and
Before the merger, Continental announced that its first 787 Airbus has not”
would fly between Houston and Auckland, New Zealand, but it
- Carter Leake
is unclear whether that will be the first route for the combined
airline. Assembly of the first United 787 began in Everett last
month.
Avondale Partners airline analyst Bob McAdoo said the route
demonstrates the value of the 787. "It used to be that the rule
of thumb was that the farther you wanted to go, the bigger the
airplane had to be, because it had to carry more fuel," McAdoo
said.
"The 787 allows you to go a long way on a relatively thin route,
like Houston-New Zealand, or West Coast-Saigon," he said. "It
allows you to go non-stop to smaller destinations, without
having to connect in Japan."
Source: Ted Reed, thestreet.com – 1st September 2011
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5. NEWSWATCH
2nd September 2011
Volume 11; Issue 33
Mideast airline passenger traffic increases in
July
The Middle East carriers posted a 9.7 per cent increase in
passenger traffic in July, outstripping the 8.9 per cent capacity
increase, the International Air Transport Association (IATA) said
on Thursday in its latest analysis.
The Geneva-based aviation body added that the load factor for
the region's carriers for the month was 81.4 per cent. Summer
months of June and July are usually a busy travel period for
Middle East residents.
“International
Globally, the international air passenger traffic increased 5.9
per cent in July year-on-year, as freight traffic fell 0.4 per cent passenger
owing to weakness in the Asia-Pacific region following the markets,
earthquake and tsunami in Japan, according to the report.
according to the
"Passenger travel bucked the gloomy economic outlook with a
5.9 per cent increase in July. This increase was likely based on IATA statistics,
the much more optimistic economic outlook that marked the grew by 7.3 per
beginning of the year," Tony Tyler, IATA's newly-appointed
Director General and CEO, said in a statement. cent compared
He added that with business and consumer confidence now with July 2010,
tanking, sluggishness in international trade, and high fuel and remained
prices, the "expectation is for a weaker end to the year". "We
stronger on
are already seeing this in the shrinking air freight markets," he
said. average than
International passenger markets, according to the IATA domestic
statistics, grew by 7.3 per cent compared with July 2010, and markets which
remained stronger on average than domestic markets which
showed weaker growth of 3.5 per cent year over year. showed weaker
Latin American carriers were the strongest performers with a growth of 3.5
10.3 per cent increase over July 2010, supported by "strong per cent year
regional economies and liberalised markets".
over year.”
IATA said in its report that compared to pre-recession levels of
early 2008, international passenger traffic has "expanded by 12
per cent".
"Had the industry continued to grow at the pre-recession pace
of eight per cent, international markets would have been about
14 per cent higher than today's levels and a quarter higher than
pre-recession level. This confirms that the global financial crisis
has cost airlines about two full years of growth," the aviation
body stated.
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6. NEWSWATCH
2nd September 2011
Volume 11; Issue 33
"July is the peak in the annual cycle for passenger traffic. This
year was no exception. Even if the industry's performance could
be classified as stronger than expected, we do face headwinds
as we look towards the end of the year," said Tyler, adding that
some industry challenges are government related.
"Governments should not compromise aviation's role as an
economic catalyst for the short-term revenue gain of gratuitous
taxation — particularly when economies remain weak," said
Tyler, citing the recent downsizing of Air Berlin as an example
of the high cost of the German departure tax on the economy,
jobs and communities.
The Middle East carriers showed the strongest gains of 8.4 per
cent in July 2011's freight traffic performance compared to the
same period a year earlier, IATA said.
Asia-Pacific carriers continued to show the weakest freight
performance with a 3.6 per cent decline year-on-year.
Source: Shweta Jain, gulfnews.com – 1st September 2011
IndiGo begins international operations
Low-cost carrier IndiGo on Thursday launched its maiden
international flight from the national capital to Dubai,
becoming only the fourth Indian low-cost carrier to operate
overseas services. “The airline got
"Dubai is a key market for us and holds a lot of promise. We the permission
hope to provide the much needed avenue for countless Indians
and overseas travellers," IndiGo President Aditya Ghosh said. to fly overseas
"IndiGo will operate daily direct flight services between Dubai- after it fulfilled
Delhi and Delhi-Dubai at an affordable return fare of Rs 9,999 the regulatory
inclusive of all taxes," the firm said in a statement.
requirements of
The airline added that it plans to operate Mumbai-Dubai-
five years of
Mumbai flight from October 2.
operations and a
The airline got the permission to fly overseas after it fulfilled
the regulatory requirements of five years of operations and a fleet of at least
fleet of at least 20 aircraft. 20 aircraft.”
It is the fourth low-cost carrier after Air India Express, JetLite
and SpiceJet to be given the permission to run overseas
services.
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7. NEWSWATCH
2nd September 2011
Volume 11; Issue 33
According to officials of civil aviation watchdog, the
Directorate General for Civil Aviation (DGCA), IndiGo's
international rights will allow operations from many cities in
India to Singapore, Bangkok, Dubai and Muscat, to begin with.
The budget airline had stunned the Indian aviation space in
January when it announced a $15 billion deal with the
European aircraft manufacturer Airbus for buying 180 A320
aircraft.
Source: hindustantimes.com – 1st September 2011
Kenya Airways purchases 10 Embraer 190
with an option for another 16
Kenya’s Airways (KQ), the east African country national carrier
announced it has signed a contract for the acquisition of 10
Embraer 190 jets in a deal that includes the purchase rights for “The Embraer
16 jets from the company. 190 fleet will be
The new deal with the Brazilian giant manufacturer of in ensuring
commercial jets Embraer is expected to counter delays by
Kenya airways
Boeing that have seen the airline go slow on its expansion
program. becomes the
The deal is also expected to increase the airlines control of leading carrier
various routes in the continent as part of its 10 year plan that on the
will see KQ double its fleet and expand to more capital cities
continent,
around Africa.
interlinking
“The Embraer 190 fleet will be in ensuring Kenya airways
becomes the leading carrier on the continent, interlinking African cities,
African cities, and through our Nairobi hub, connecting Africa and through our
to the world,” said Titus Naikuni, Managing Director Kenya
Nairobi hub,
Airways.
connecting
The Embraer jet option could also be a cost cutting measure
especially with the volatility of oil prices with the cost per trip Africa to the
of the aeroplane 20-30% more efficient than the classic Boeing world”
737.
- Titus Naikuni
This is a factor that has made the Embraer a favourite of
developing countries which operate 130 aircraft on 17 African
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8. NEWSWATCH
2nd September 2011
Volume 11; Issue 33
countries among them Egypt, Libya, Kenya and Nigeria.
“The signing of this deal is our confirmation that our E-jets are
instrumental in the growth of the airline industry in Sub-
Saharan Africa” said Mathieu Duquesnoy, the Embraer Vice
president for Middle East and Africa markets.
The acquisition of the jets however come with challenges for
KQ such as the availability of pilots and accessibility of service
centres being that the only major centre in the continent is in
Egypt.
Although the deal value is unknown, it is estimated to be worth
between 3 and 4bn dollars going by the market value. The 10
Embraer 190 jets are expected in Q3 of 2012 ahead of the
delivery of 5 Boeing dreamliners set for Q4 of 2013.
Source: en.mercopress.com – 31st August 2011
Boeing launches new 737 'MAX' to take on
A320neo
Boeing on Tuesday launched an upgraded version of its popular
737 plane powered by a more fuel-efficient engine, citing
strong demand from airlines. “The re-engined
Boeing said the new line, dubbed the 737 MAX, will use CFM 737 will allow
International's LEAP-1B engines optimized for the single-aisle
737, the world's best-selling commercial aircraft. Boeing to
Boeing's board of directors has approved the new line based on continue to
order commitments for 496 airplanes from five airlines and "a deliver the most
strong business case," the company said in a statement.
fuel-efficient,
The first deliveries are scheduled in 2017.
most capable
"The re-engined 737 will allow Boeing to continue to deliver the
most fuel-efficient, most capable airplane with the lowest airplane with
operating costs in the single-aisle market," Jim Albaugh, the lowest
president and chief executive of Boeing Commercial Airplanes,
operating costs
said in the statement.
in the single-
"Customers tell us they want to improve profitability and fuel
efficiency while reducing their environmental footprint," said aisle market”
Albaugh. "This solution meets all three of those needs." - Jim Albaugh
Albaugh said that Boeing was working with its customers to
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9. NEWSWATCH
2nd September 2011
Volume 11; Issue 33
finalize sales agreements. The company did not identify the
five airlines.
Boeing last month announced it would build a re-engined 737
when American Airlines split a record order for 460 aircraft
between Boeing and Europe's Airbus, breaking the Boeing's
long-time monopoly on the AA fleet.
IBA’s Comment:
American Airlines parent AMR Corp. said on July 20 it would buy
200 Boeing 737s and 260 Airbus A320 jets. “It will be
Both the US aerospace and defence giant and France-based interesting to
Airbus are selling more fuel-efficient versions of their popular see which other
single-aisle passenger jets as part of the deal, valued at $US38
billion at list prices. carriers have
American said it planned to order 100 of the re-engined 737s committed to
and will buy 130 of the Airbus A320neos. the 496 aircraft
Boeing's decision to offer its best-selling 737 with a new engine, Boeing refers to.
rather than building an all-new aircraft, was seen as forced by
IBA would
the competition from the Airbus A320neo.
The A320neo also includes an option for its own version of the welcome any
LEAP-X engine from CFM International. suggestions from
Boeing, whose medium-haul 737 has won more than 9,000 Newswatch
orders since it was introduced in 1967, has been under intense
readers.”
pressure since Airbus launched the upgraded and more fuel-
efficient A320neo series in December 2010. – David Rushe
The A320neo, available from 2015, has chalked up more than
1,200 orders or options since then.
Still under development, the Leap-X engine is being made by
CFM International, a joint venture between General Electric of
the United States and France's Snecma.
Source: AFP, smh.com.au – 31st August 2011
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10. NEWSWATCH
2nd September 2011
Volume 11; Issue 33
IBA Group News
Press Releases & Presentations can be viewed in the News & Views section of our website, www.ibagroup.com
Conference Dates
18th – 20th September 2011 – ISTAT Europe 2011, 18th European Conference, Barcelona - Phil Seymour will be speaking,
James Uniacke and Adrian Lee will be attending
26th – 28th September 2011 – SpeedNews 12th Annual Aviation Industry Suppliers Conference in Toulouse - IBA is a
sponsor and Ben Jacques will be speaking
28th – 30th September 2011 – ERA General Assembly, Rome – Ben Jacques will be speaking and Adrian Lee will be
attending
5th – 6th October 2011 – UBM Aviation, Aircraft & Engine Finance & Leasing USA Conference, Chicago – Phil Seymour
will be speaking
31st October – 2nd November 2011 – Euromoney Asia Pacific School of International Aviation Finance, Hong Kong –
Stuart Hatcher will be presenting
3rd – 4th November – 12th Annual Asia Pacific AirFinance Conference – IBA will be speaking
1st – 2nd December 2011 – Aviation Investors Summit, London – Phil Seymour and Owen Geach will be speaking
24th – 26th January 2012 – Euromoney 14th Annual International Aviation Finance Conference, Dublin – IBA is sponsoring
and will be speaking
Country Visits
- Owen Geach and Steve Fisk will be in Tokyo from 25th to 30th September 2011 - Please contact Owen Geach if you
would like to arrange a meeting: owen.geach@ibagroup.com
Phil Seymour’s Notes on the Week
An array of news this week and it shows the wide range of activity in our global business.
- Some new airlines include Lead Air (Israel)and Jetisfaction (Germany), Helitt (Spain)
- Airlines losing money include Aegean (Greece), Turkish Airlines
- Airlines making money include Atlantic Airways (Faros), SkyWest (Australia)
In short it seems that the smaller regional operators are managing their markets better than those in the
international arena, perhaps that's obvious if there is less competition?
I have had to bear the brunt of many a joke this week about arsenal massive 8-2 loss to Manchester United. With my
positive spin I was of course quite pleased as it pushed Mr Wenger into buying some players.
Maybe Arsenal should play in a league of its own, less competition?
Phil
Publications – 2011 Editions
Please contact marketing@ibagroup.com for more information.
Aircraft Values Book Published in February 2011 & August 2011 £660 per year
Lease Rate Digest Published in February 2011 & August 2011 £360 per year
Engine Values Book Published in April 2011 £650 per year
Maintenance Cost Journal Published Quarterly £200 per year
“Newswatch” is a free weekly round-up collated by IBA Group Ltd.
Go to our website to find the last year editions of Newswatch archived.
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The items in this document do not necessarily represent the opinion of IBA, and is intended to be for information purposes only.
Therefore, IBA assumes no responsibility or legal liability for any action taken, or not taken, by the addressee, or by any other
party, with regard to the information and views contained.
As a leading independent aviation consultancy, IBA Group Ltd. offers technical advice, commercial business
solutions & asset valuations for our worldwide client base.
Compiled & Edited by Alice Gondry
www.ibagroup.com
Tel: +44 (0)1372 224488 Fax: +44 (0)1372 224489
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