Monday, October 27, 2014

Etihad, Lufthansa and EU Nationals Control

The LBA on 16 October 2014 reversed a decision to cancel 34 code share flights of Etihad and Airberlin that was taken a few days earlier. The reason for the earlier cancellation was that these code share flights violated the traffic rights agreement between Germany and the UAE. A meeting later in the month between both governments to discuss the bilateral will clarify things for the future. Lufthansa blames these code shares for the overcapacity on the Abu Dhabi route and called them unjustified.

Lufthansa has lobbied the EU to reexamine the control issues of foreign equity stakes in EU carriers and has lobbied for the courts to block Emirates Milan/JFK flights earlier in April 2014; those flights are now operated on a temporary authority pending an appeal's court decision.

Lufthansa has been more vociferous than most regarding the 3 Gulf carriers expansion into Europe. The EU now is examining whether Etihad controls Airberlin and Alitalia through its equity stakes and is also looking at the Delta/Virgin Atlantic deal. This has prompted the Swiss authorities to look at Etihad's control of Darwin Airlines now branded Etihad Regional.

The issue of foreign investors having control of EU carriers is  becoming a thorny issue. There is a needed balance required between control and the investment risk of bailing out a European carrier and preserving jobs and airline services to communities. The major EU legacy carriers are coming under pressure from EU LCCs and apparently from the Gulf carriers that they are not willing to invest more but are looking to cut costs and curtail services. Air France/KLM declined to increase its stake in Alitalia and Lufthansa was not interested in a minority stake. Etihad worked very hard to get the unions and the creditors to accept its terms for its USD 750 millions direct investment for a 49% equity stake in Alitalia. The problems of Lufthansa and AF/KL are compounded by the mega orders from the Gulf carriers for Airbus aircraft with the associated economic fallout of order cancellations.

Etihad will modify its agreements with its equity partners to comply with the EU and Swiss regulators control requirements. Etihad did the same in India when the regulators questioned its control of the Jet Airways board. Etihad will not jeopardize its strategy for expansion; one that is based on equity partnerships providing access to new markets, cost savings in aircraft acquisition, maintenance and other services and more traffic through its Abu Dhabi hub.

The airline industry is more global than ever; the EU has to balance its requirements and need of EU nationals control of its airlines and the foreign investment in these airlines. These investments preserve jobs and services in Europe at a time when its economies are under pressure and their own carriers are not willing to invest.

Friday, October 10, 2014

The Surplus Parts Market A Force Of Stability

In a recent article in AINonline "Surplus Parts Costs Forecast To Drop" it was suggested that prices will go down as more and more aircraft are parted out pushing "the current prices downwards making the already tense market even more competitive".

In principle, this is true to a certain extent.

Boeing and Airbus have both announced production rate increases on their current aircraft types.   Taking into consideration that as an aircraft type evolves and technology improvements are introduced; parts interchangeability is no longer maintained between the latest aircraft off the production line and an aircraft produced 2 or 4 years earlier. This is valid especially for avionics components, where software changes are the most common.

OEMs have to meet both the challenge of  supporting the production rate increases and that of supplying parts to support the industry with the latest and earlier component configurations; this will impose production pressures and supply difficulties.

As the number of retired aircraft increases to almost a 1000 aircraft per year in the next decade, so will the number of part-outs and the availability of surplus parts. However, these surplus components and parts will not support the latest and recent configurations of the active fleet, but will support the earlier and older configuration versions.

The availability of surplus parts for mature aircraft configurations of the popular fleets will tend to;

  • ease off the pressure for OEMs to support the earlier aircraft configurations; and
  • reduce prices in the aftermarket as a whole but remain competitive for avionics components and a variety of other parts.
The surplus market is detrimental in maintaining a stable components and parts supply for the mature aircraft.

Friday, October 3, 2014


Al Maktoum International Airport at Dubai World Center (DWC) is set for major expansion to eventually accommodate up to 240 million passengers. DWC currently handles a few low cost airlines but is the home of Emirates SkyCargo in addition to a few more cargo airlines, creating one of the largest cargo hubs in the region.

An investment of 32 Billion USDs has been set for this task, almost double the projected 18 Billion USDs projected earlier at the start of the decade.. The investment is to support the building of another 4 runways and 2 satellite buildings that will accommodate 120 million passengers annually and 100 A380s parked at any one time (click here for a look at the Master Plan). This phase will be completed in 6 to 8 years in time for Emirates to move out from Dubai International in the mid 2020s leaving Dubai International for the use of Flydubai and other operators. The airport design will allow Dubai Airports to add capacity in 20 million passengers increments to support the expansion plans of Emirates.

Dubai International is expected to handle 120 million passengers by 2020 in time for the 2020 Expo Trade Exhibition. The smooth expansion of Emirates depends on capacity at Dubai International. It is projected that Emirates will carry 93 million passengers by 2020.

Dubai sees the aviation sector as a major contributor to its economy and it is expected to generate 323,000 jobs and contribute 28% of GDP in 2020 compared to 250,000 jobs and 22% of GDP in 2011.

Thursday, September 25, 2014

The Pilot Shortage Myth, Maybe Not

Captain Lee Moak, President of ALPA, International in an Opinion titled The Pilot Shortage Myth  in the September 8, 2014 issue of Aviation Week & Space Technology argued that it is not a pilot shortage but a pay shortage. I agree with Captain Moak, that entry level pay for pilots at the lowest paying US airlines especially regionals is at the poverty level and this is driving young people from the profession among other factors. Airline management sometimes use the pilot shortage as an argument to roll back safety regulations (Pilot Fatigue and FO qualification and training rules) or cancel flights and curtail services.

I do not share the view that the shortage is a myth. It may be a myth today but it will be a reality in 15 to 20 years. US carriers are rolling over their older fleets and the capacity increases are derived more from larger aircraft than from fleet expansion, but that is now eventually the fleet will have to increase and so will pilot demand. The rapid expansion of airline fleets in Asia Pacific, MENA and Latin America, add to it the eventual recovery of European airlines and the industry will be looking at a global shortage.

As the fleet ages, so do pilots, in reality pilots aged 45 to 50 years now would be retired by then. Investment in human capital especially pilots, engineers and technicians is no longer a luxury it is a necessity for the survival of the industry. This has been a challenge a few years back (The New Challenges... Manpower and Training Oussama's Take 20 June 2011), still is and will be for a long time.  

Tuesday, September 16, 2014

Royal Jordanian, Uncertain Future

Royal Jordanian (RJA) is facing liquidation since its losses have exceeded 75% of its capital. For this reason, the airline has not issued its 2013 financial results or had its share holders general meeting yet. In reality, the government who is the major share holder will not allow its liquidation. It is a matter of national pride and to a certain extent national security. There are talks of restructuring and a government bail out, but this is a hot topic because of the economy and the deficit. It appears like a lot of political jockeying is going on.

The airline was listed in the Amman Stock Exchange in December 2007 and since then it had very mixed results. It sustained losses in 2008 (34.7 M USD), 2011 (81.6 M USD) and 2013 but had moderate profits in 2009 (40.3 M USD), 2010 (13.6 M USD) and 2012 (1.6 M USD).  

In all fairness to Royal Jordanian the geopolitical situation in MENA has not been very favorable and still is not; between fluctuating fuel prices, the Arab Spring, Libya and now ISIL, the airline had to indefinitely suspend lucrative routes like Damascus, Aleppo, Tripoli, Benghazi, Misrata and now Mosul; Cairo, Baghdad and Erbil were suspended on and off for security considerations. RJA also suspended flights over Syria which added almost an hour to an hour forty five minutes to the Beirut flight without an appreciable increase to fares. However, RJA has just announced a code share agreement with Middle East Airlines to start in mid October 2014, allowing RJA to cancel two of its four daily flights. But the most interesting reason cited is the aggressive competition from the Gulf three (Emirates, Etihad and Qatar Airways).

In an attempt to reduce its costs RJA inked code share agreements with Gulf Air, Oman Air and SriLankan to operate Amman to Bahrain, Muscat and Colombo  and has suspended or plan to suspend flights to what it terms as losing routes, like Delhi, Mumbai, Alexandria, Accra, Lagos, Brussels and Milan.

Not withstanding geopolitics, the airline did not react quickly enough. While canceling unprofitable routes is a good thing, overcapacity is not. It leaves part of the fleet idling while still incurring lease and loan payments. Rationalizing staff levels is not be the greatest option in a politically charged country with a very high unemployment rate. 

RJA has already returned 2 A321s and with the B787 deliveries it is planning to rationalize the fleet composition by the end of 2014 to include the following:
B787, 5 operating aircraft;
A340, completely phased out (4 aircraft) ;
A330, 2 operating aircraft down from 3;
A321, 2 operating aircraft down from 4;
A320, 6 operating aircraft down from 7;
A319, 4 operating aircraft, no change;
E195, 4 operating aircraft down from 5;
E175, 3 operating aircraft, and
A310F, 2 operating aircraft, no change.
A net change of 5 passenger aircraft all of them single aisle aircraft, but with a more fuel efficient and modern fleet.

In a nutshell, the airline board and management acted, just like in the old days, like a government entity. This has caused the share price to go down from a high of 4.09 JOD {5.76 US$} on 16 March 2008 to 0.38 JOD {0.53 US$} on 15 September 2014. RJA would have certainly benefited of the equivalent of a Chapter 11.

RJA needs to act in a more agile and proactive manner, after all that was the reason the airline was privatized. The plans for the fleet and route reductions were too late and too little. There is a need to come up with innovative solutions that increase revenue and not only reduce cost. After all, cost reduction is subject to the law of diminishing returns but with revenues, the sky is the limit. 

While RJA may have not lacked leadership, it requires a different kind of leadership. One that not only looks at fleet and routes but one that looks at the management structure and how management approaches risk assessment and especially mitigation. A management that looks at new opportunities for expansion amid the chaos. If this means replacing senior managers, then so be it.

Royal Jordanian has survived for 50 years among the geopolitical chaos; the dilemma today is how to survive and thrive in the same chaos as a publicly listed company. This is a totally different set of rules that RJ may not be yet equipped to handle.


1 Goal 2010 2012 2013 9/11 AA Abu Dhabi ADAC Air Arabia Air Canada Air India Airberlin aircraft airlines airports ambitions American Airlines Amman aviation AVOD AWST B707-300C B767 B777 B787 BA Bahrain Bahrain Air BangaloreAviation Boeing branding British Airways Business Aviation Cabin Crew Canada change chapter 11 CO Commercials communication community compliance contingency continuity Continuous Improvement cost effective creativity Culture curricula Customer Service Delta Detroit Metro DFW Doha DTW Dubai Dubai Air Show DWC efficiency emergency Emergency Response Emirates employees environment ET409 Etihad ETS EU FA FAA family Flight Attendants flight(s) Flightglobal flydubai GACA Galaxy Tablet GAMCO GCC globalisation GOL Greece Green Gulf Air Hala Hamburg happy health home Hopenhagen Human Resources IFE India Iran Iraq Iraqi Airways Jaffa Jazeera Airways Jet Airways Jordan Just Culture Kuwait Airways LA LCC leadership low cost maintenance management manpower MEA MEBAA MENA Michigan motivation MRO MROAM Oneworld Palestine passengers passion people Philadelphia planet earth Privatization professional QAIA Qantas Qatar Qatar Airways Quality Quick Service Restaurant Radio Repair Stations Risk road roots ROTANAJET Royal Jordanian Safety Sanctions. Sao Jose Dos campos SAT Saudi Arabia Saudi Arabian Airlines Security Sharjah Airport SimliFlying Simplicity SKYTEAM SMS social media Southern California Southwest Airlines Star Alliance Sudan Airways support target teachers Technology terrorism tolerance Toulouse tourism traffic Training transition travel TSA Turkey Twitter UA UAE UBM US Airways VIA Rail Violin Vision volcanic ash Wataniya Airways
Top Blogs
Powered By Invesp