IBA Newswatch Volume 11 issue 44 - november 18


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This week, more Mallya, more MAX, more easyJet profits.

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IBA Newswatch Volume 11 issue 44 - november 18

  1. 1. NEWSWATCH 18th November 2011 Volume 11; Issue 44In this Issue: Boeing says huge 737 order is companys biggest ever  Boeing says huge 737 order is The Boeing Co. announced a record-breaking deal on companys biggest Thursday as it amassed customers and commitments for its ever re-engined 737 Max.  US airlines sue Boeing signed an agreement with Jakarta-based Lion Air, Exim Bank over Air which committed to buy 201 of Boeings 737 Max aircraft India deal and 29 737-900 extended range jets. The deal is valued at $21.7 billion at list prices, though airlines rarely pay full  Airbus enjoys price. successful Dubai Air Show with 211 Lion Airs request is both Boeings largest in terms of the orders worth number of airplanes and its biggest by dollar value, Boeing £13billion said. The Lion Air order tops the dollar value of one announced earlier this week from Emirates. The airline  Can Vijay Mallya Keep Kingfisher ordered 50 777s in a deal valued at $18 billion. Flying? Boeing said Lion Air also took out options for an additional 150 airplanes.  Qatar drama ends in Airbus deal "This order is a big deal," RBC Capital Markets analyst Robert Stallard wrote in a research note to clients. The  First dividend for deal "gives a meaningful boost to Boeings backlog." easyJet as profits rise Boeing launched its re-engined 737 in August, saying it had commitments for 496 aircraft. Even before Boeings board  IBA Group News signed off on building the updated single-aisle 737 Max, American Airlines said it would take 100 aircraft. Over the past few months, Boeing officials have said interest in the 737 Max is growing. No customers beside American had come forward publicly until Thursday. In addition to Lion, Aviation Capital Group - a California-based leasing company - said on Thursday it plans to order 35 Max jets. The leasing group also signed an order for 20 737-800s. "These new 737NG and 737 Max airplanes will continue our long-standing strategy of providing our customers the most fuel-efficient, most capable airplanes with the lowest IBA Group Ltd. operating costs," R. Stephen Hannahs, Chief Executive of IBA House 7 The Crescent Aviation Capital Group, said in a statement. Leatherhead, Surrey KT22 8DY The Lion Air deal is not a certainty. The airline still has to United Kingdom complete the order, and its struggling. The Jakarta Post Tel: +44 (0) 1372 224488 reported in August that Lion Air was ordered to ground 13 Fax: +44 (0) 1372 224489 www.ibagroup.com planes so it would have more in reserve because it had too many late flights. Page 1
  2. 2. NEWSWATCH 18th November 2011 Volume 11; Issue 44Boeing introduced the 737 Max in answer to rival Airbus IBA’s Comment:updated A320. In late 2010, Airbus announced its plan to re-engine its single-aisle challenger to the 737. The aircraft is “Given thecalled the A320 new engine option, or A320neo. momentum thatBoth Boeing and Airbus have announced plans to ramp up Airbus hasproduction of their 737 and A320 jets to meet customer gathered withdemand. the A320Neo,Chicago-based Boeing hasnt said yet where it will build the 737Max. The jet maker has built its existing 737s at its Renton thefactory for decades. announcementOn Wednesday, consulting firm Accenture released a study of 2 more MAXexamining possible 737 Max sites, finding that Renton has agood chance. The study was paid for by government, industry customers isand labour groups in Washington state. Gov. Chris Gregoire crucial forcalled for $9.8 million to boost aerospace training and Boeing.”education in the state to win the 737 Max work.Source: Michelle Dunlop, heraldnet.com – 18th November 2011 – David Rushe US airlines sue Exim Bank over Air India dealIn a bid to prevent Air India from receiving a $3.4 billion loanfor the acquisition of 30 new aircraft, a trade body for leadingUS airlines has sued the US Export-Import (Exim) Bank.The loan comes at entirely too high a price and ‘puts us at acompetitive disadvantage, the Air Transport Association ofAmerica (ATA) President and CEO Nicholas E. Calio remarked.The ATA filed a suit with US District Court here, asking thecourt to deem the Ex-Im Banks loan-guarantee unlawful.According to ATA officials, the Ex-Im Bank has already approveda $1.3 billion loan for Air India, with an additional $2.1 millionpending consideration; the loans would support the carriersacquisition of 30 aircraft, including 27 Boeing 787s for deliverybetween 2011-2015.The lawsuit follows an ATA letter to the Ex-Im Bank earlier thismonth, which said that loan guarantees to Air India and otherforeign carriers fail to comply with specific statutory mandates Page 2
  3. 3. NEWSWATCH 18th November 2011 Volume 11; Issue 44and US taxpayers could be left to foot the bill for any defaultby a foreign carrier on its loans.With this lawsuit, ATA officials hope to prevent foreign carriersfrom receiving drastically lower - up to 50 percent - financing “loan guaranteesrates than US airlines. After all, an ATA spokesman said, the to Air India anddiscounts afforded to these carriers have certainly added up. other foreign"Having received more than $52 billion in US taxpayer-fundedloan guarantees over the last 10 years, foreign carriers have carriers fail toadded capacity and gained market share," he remarked. In fact, comply withsuch Ex-Im Bank guarantees have enabled these airlines to specificincrease their capacity on US routes by 12 percent, he said. statutoryThe overcapacity has also forced some American carriers toreduce their flight schedules and cut jobs, two actions Calio mandates and UShopes to prevent with this injunction. taxpayers could"ATA has no choice but to seek judicial intervention in order to be left to footprevent our members from suffering irreparable injury," he said the bill for anyin a statement. "While we support the goal of expanding USexports, it cannot come at [this] expense." default by a"Commercial aviation in the United States drives $1.2 trillion foreign carrierper year in economic activity and more than 10 million jobs; we on its loans.”cannot do that if we continue to face a harsh and punitive taxand regulatory environment that, along with this proposedaction, puts us at a competitive disadvantage," Calio said. "Itstime to level the playing field."Source: asianage.com – 18th November 2011Airbus enjoys successful Dubai Air Show with 211 orders worth £13billionAirbus enjoyed a successful Dubai Air Show, securing 211 ordersworth £13billionThere was outstanding demand for the A320neo, with wingsbuilt at the European plane-maker’s Broughton factory.Qatar Airways made the single largest firm order (50 A320neoand five A380s), while there were also contracts signed withALAFCO (50) and ACG (30) worth a combined £5billion. Page 3
  4. 4. NEWSWATCH 18th November 2011 Volume 11; Issue 44Spirit Airlines made the largest commitment at the show for 75A320 Family aircraft (30 A320 and 45 A320neo).Airbus boss John Leahy said: “The order intake at this airshowis the second best we’ve ever had at Dubai.“Our A320neo has again been the star of the show. IBA’s Comment:“Despite some storm clouds on the horizon there is still strong “Order levelsmarket demand for fuel-efficient aircraft from airlines andlessors.” across theBy end of the Dubai event sales of the neo reached 1,420 industryorders and commitments in less than a year after launch, continue to buildmaking it the fastest selling aircraft ever. rapidly, whichMeanwhile, it emerged on Wednesday that Brazil needs morethan 700 new passenger aircraft in the next 20 years. contradicts theAccording to the Airbus Global Market Forecast (GMF), the sense of cautionSouth American country will require 701 planes of more than and concern100 seats before 2030. The 501 single-aisle, 174 twin-aisleaircraft and 26 very large jets have an estimated value of across the global£52billion. financialBy 2030, Brazil, the largest and fastest growing passenger markets. Again,market for Airbus in Latin America, will become the fourth the Middle Eastlargest domestic air travel market in the world with an annualgrowth rate of 7.4%, following the USA, China and India. and the Pacific“Brazil has become one of the world’s top 10 markets for new Rim are wherepassenger aircraft in terms of aircraft deliveries over the next the bulk of20 years,” said Rafael Alonso, Executive Vice President ofAirbus for Latin America and the Caribbean. orders are“With international traffic to and from Brazil doubling over the coming from.”past decade and showing no signs of slowing, Brazilian carriers – David Rushehave a tremendous opportunity to gain greater market share.”In the past 10 years, tourism has contributed to Brazil’s GDP bynearly 200% and by 2020 it is expected to grow another 60%.Brazilian tourists are flying in some of the youngest aircraftfleet in the world. The average age of aircraft in Brazil withmore than 100 seats is seven years, which is three yearsyounger than the world and the regional average.Source: Martin Williams, dailypost.co.uk – 17th November 2011 Page 4
  5. 5. NEWSWATCH 18th November 2011 Volume 11; Issue 44 Can Vijay Mallya Keep Kingfisher Flying?Vijay Mallya, who calls himself "king of good times," is currentlyhaving a bad time as Kingfisher Airlines, owned by his UBGroup, is on the brink of collapse amid surging fuel costs andcash constraints.Kingfisher, which is Indias second-biggest airline by marketshare, lost 4.69 billion rupees ($93 million) for the secondquarter, compared to a loss of 2.31 billion rupees in the sameperiod last year. The airline has cancelled more than 200 flightsrecently, triggering fears about its financial viability.Many complained that Mallyas ruthless spending is responsiblefor the downfall of Kingfisher, which was named after the “Experts havefamous brand of Indian beer. said KingfisherMallya, 55, lives a flamboyant life and is often compared to needs at leastRichard Branson as they have diversified businesses, ownformula one teams and run airlines. Mallya, apart from owning $150 millionKingfisher, co-owns the Formula One team, Force India, and investment tothe Indian Premier League team, Bangalore Royal Challengers. continue itsThe king-size life of Mallya whose net worth, according to operationsForbes magazine, is more than $1 billion has mesmerized manyIndians. No wonder he has more than 706,000 followers on smoothly andTwitter. have warned ifNow, Mallya is in rough waters and needs some soul searching Mallya tried toabout his extravagance. The culprit is none other than theacquisition of Air Deccan that made Mallya a household name. divert fundsAir Deccan became Kingfisher Airlines and soared to popularity from hisdue to its good services including good food and personal profitable UBscreens on domestic flights.Kingfisher, which is yet to post profit on annual and total cost Group, it wouldbasis, became a prey to surging jet fuel costs, which as of affect thoseNovember 11 stood at $133.4 a barrel. The airline also bore the businesses.”brunt of a price war due to severe competition and a fallingrupee, which has made oil imports costlier.All these issues have been affecting the entire industry, whichis struggling to operate despite Indias rapidly expandingeconomic growth and 20 percent annual rise in air travel.Kingfishers woes have been tied to its low-cost airlineKingfisher Red, which it decided to end in September to focuson regular services.In addition, Kingfisher pays more than 15 percent of its revenuetowards interest payments due to its heavy debt load of $1.5 Page 5
  6. 6. NEWSWATCH 18th November 2011 Volume 11; Issue 44billion. Experts have said Kingfisher needs at least $150 millioninvestment to continue its operations smoothly and havewarned if Mallya tried to divert funds from his profitable UBGroup, it would affect those businesses.There were rumours of a government bailout. However, Mallyarebuffed the idea, saying he didnt need taxpayers money. TheIndian government shells out millions of dollar of money eachyear to Air India to keep it flying.Instead, he sought Foreign Direct Investment (FDI) in IndianAirlines, lower taxes and allowing airlines to import fueldirectly.On November 15, Mallya said he had been approached by a"large Indian investor" for a stake in the airline and the airlinehad appointed SBI Capital Markets to review the offer,according to Times of India.Amid all these, Mallya is confident and has rubbished reports ofshutting down the airline, saying it is "unfair to write itsepitaph."Source: Manikandan Raman, ibtimes.com – 17th November 2011 Qatar drama ends in Airbus dealQatar Airways booked a multibillion-dollar deal with Airbus for “He said theup to 88 aircraft only hours after the airlines chief executive,Akbar Al Baker, halted talks and ridiculed the aircraft deadlockmanufacturer for "still learning how to make airplanes". involvedThe deal - one of the biggest at this years Dubai Airshow - disagreementincludes a firm order for 50 A320neos and five A380 double- about "twodecker super jumbos, valued at US$6.4 billion (Dh23.5bn). sensitive issues"Qatar Airways also has an option for a further 30 A320neos andthree additional A380s. surrounding theTuesday’s afternoons unveiling of the order capped a dramatic A320neo,day of brinkmanship at the show after Qatar Airways had Airbuss morepreviously cancelled an earlier-arranged announcement of a fuel-efficientdeal. and quieterMr Al Baker told reporters who had turned up expecting a big single-aisleannouncement that negotiations with the Europeanmanufacturer had reached an impasse and he was not hopeful aircraft.”that the order could be reached during the show. Airbus was Page 6
  7. 7. NEWSWATCH 18th November 2011 Volume 11; Issue 44"still learning how to make airplanes", said the frequentlyoutspoken airline boss.At a hastily convened press conference later on, the deal wassigned, with Mr Al Baker saying the impasse had beenovercome."Always in contract negotiations there will be impasse where “The latestboth sides are entrenched in their positions," Mr Al Baker said. order means"If we are in [impasse] for just a few hours, its not a big deal." Qatar AirwaysHe said the deadlock involved disagreement about "twosensitive issues" surrounding the A320neo, Airbuss more fuel- will be theefficient and quieter single-aisle aircraft. The issues were not launch customerrelated to price, but he declined to be more specific. of the A320neo”The drama surrounding the deal overshadowed what was asecond big order by a Gulf carrier at the show, despite asoftening global economy. Emirates Airline kicked off the eventwith a bang on Sunday by booking an $18bn order for 50 Boeing777 aircraft.Qatar Airways operates a fleet of 102 aircraft and aims to have170 aircraft by 2016, Mr Al Baker said. Of its current fleet, 74are Airbus planes. “DespiteThe latest order means Qatar Airways will be the launch Tuesdayscustomer of the A320neo, which incorporates new engines and agreement,large wings tip devices known as sharklets, delivering 15 percent in fuel savings. Qatar AirwaysThe new A380s double the number of the airlines super jumbos and Airbusalready in the pipeline. Deliveries of A380s are due to begin in remain at oddstwo years. about design"Qatar Airways supported the development of the AirbusA320neo very early on," said John Leahy, the chief operating changes to theofficer of Airbus. "We appreciate having built a unique A350-1000, arelationship with our friends at Qatar Airways over the years." wide-bodyDespite Tuesdays agreement, Qatar Airways and Airbus remainat odds about design changes to the A350-1000, a wide-body aircraft theaircraft the airline has ordered. airline has"We are not happy and they know it," Mr Al Baker said. He said ordered.”Airbus was "aggressively" seeking to resolve the issue.The airline was willing to accept a delay of six months on theA350. Additional delays, however, would not be acceptable, MrAl Baker said.Earlier in the day, Qatar Airways signed an order with Airbus Page 7
  8. 8. NEWSWATCH 18th November 2011 Volume 11; Issue 44rival Boeing for two 777-200 freighters as part of its expansionof its cargo operations. The cargo fleet of the carrier based inDoha is currently made up of three 777s and three AirbusA300s. Its cargo fleet will increase to 11 freighters over thenext four years.Source: Tom Arnold, thenational.ae – 16th November 2011 First dividend for easyJet as profits riseBudget airline easyJet confirmed its first ever dividend payouton Tuesday, as it revealed a 31.5 per cent surge in annual pre-tax profits to £248m on the back of a rising number of lucrativebusiness passengers on its flights.easyJet, whose biggest shareholder Sir Stelios Haji-Ioannou haslong pushed for a dividend, will dole out £195m to itsshareholders, but warned the payment might be a one-off ifthe firm’s financial position worsens next year. Stelios himselfwill pocket £51m from the dividend, on top of more than £4m a “The companyyear from a deal to licence the “easy” brand name. Sources also said it wasclose to him said he was still worried about capitalexpenditure, and could still exert pressure. triallingChief executive Carolyn McCall tried to play down the dispute allocated seatingwith the firm’s founder, telling reporters: “The easyJet team... on some routesare ruthlessly focused on what we do to deliver. We would early next year,obviously listen to our largest shareholder and we would like todo that in private.” in response toThe firm’s revenues rose 16.1 per cent to £3.45bn in the year demand.”to the end of September, while ancillary revenues jumped 12.9per cent to £11.52 per seat.The firm said this was partly due to its campaign to attractmore business customers, leading to 1m more people usingeasyJet flights for business and taking the total to 9.5m for theyear.The company also said it was trialling allocated seating onsome routes early next year, in response to demand.The firm expects mid-single-digit revenue growth in the nexthalf on a “conservative and cautious” outlook.Source: Marion Dakers, cityam.com – 16th November 2011 Page 8
  9. 9. NEWSWATCH 18th November 2011 Volume 11; Issue 44 IBA Group News Press Releases & Presentations can be viewed in the News & Views section of our website, www.ibagroup.comConference Dates20th – 22nd November 2011 – 43rd African Airlines Association Annual General Assembly, Marrakech - Ben Jacques andAdrian Lee will attend7th – 8th December 2011 – Managing Aircraft Maintenance Costs Conference, London – Phil Seymour will be speaking24th – 26th January 2012 – Euromoney 14th Annual International Aviation Finance Conference, Dublin – IBA issponsoring and will be speaking - IBA’s Phil Seymour, Owen Geach, Steve Fisk and Dr Stuart Hatcher will attend7th - 8th February 2012 – 2nd Annual International Corporate Jet and Helicopter Finance Conferrence, London – PhilSeymour, Owen Geach, Ben Jacques and Mark Wooller will attend Phil Seymour’s Notes on the WeekToo much aviation tax?I pose the question because this week’s aviation news includes more fighting and threats of such regarding the EUEmissions Trading Scheme (ETS). In addition to the US, Russian and Chinese airlines taking a firm stand against theETS, there are other new domestic taxes that will only serve as negatives for the airlines. The UK has the potentialintroduction of Air Passenger Duty (APD) and we have seen a robust network of airlines that wouldn’t normally beseen agreeing on anything, coming together against APD. Air Berlin is blaming most of its reduction in profits on theGerman passenger departure tax which it says it cannot pass onto the passengers. However, defending our industryagainst taxes is one thing but come on - someone has to pay in order for us to bail out the Euro, don’t they/don’t we?Yours begrudgingly,Phil Publications – 2011 Editions Please contact marketing@ibagroup.com for more information.Aircraft Values Book Published in February 2011 & August 2011 £660 per yearLease Rate Digest Published in February 2011 & August 2011 £360 per yearEngine Values Book Published in April 2011 £650 per yearMaintenance 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. To either SUBSCRIBE or UNSUBSCRIBE to this newsletter, please send an email to marketing@ibagroup.com with your request.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 Page 9