Oussama's Take

MROs

2012-05-21T18:04:00.000+04:00

In the UBM Aviation, Airline E&M: Middle East Conference held on 15 and 16 May 2012, the discussion centred on the future of the MROs, Engine/Component support and the impact of New Technology Aircraft on maintenance costs. Three topics that are interrelated and very relevant.

The new technology aircraft are increasing the involvement of OEMs in the MRO market, potentially squeezing out the medium and smaller MROs from the Global and MENA markets in particular.

Why would OEMs get into the MRO business; their short answer is The Customers Wants Us to Provide Support.

Boeing has Gold Care which integrates support with designated MROs, Suppliers and Boeing services while Airbus has the Airbus MRO Network of leading MROs capable of supporting the Airbus fleet.

While both major manufacturers rely on Independent MROs for the support, Engine and Component OEMs have a different view. Engine OEMs wanted the business and they had the means; they controlled data and supply of parts and hence who can and cannot maintain engines. Their approach varied from wholly owned MROs, Joint Ventures with MROs and Airlines to licensing arrangements. Component OEMs followed the same path.

OEMs do not necessarily make good repairers, it is a different mind set.

The third element is Component Support. Operators are very reluctant to invest in components and parts inventories. The initial investment is high and with the current economic conditions financing is at best difficult. OEMs have provided operators with support plans for their specific components, how comprehensive these plans are, depends on the operator and the size of the fleet. Nevertheless, that means operators have to deal with multiple OEMs when they prefer dealing with a single entity that provides total support including components availability, repairs and warranty application in support of an agreed aircraft dispatch reliability and component availability. Such arrangements include Base Consignments, Pool Access, Repair Services and Line Support.

The industry is looking at a concentration of work with a few "GLOBAL" MROs for airframe and engines squeezing out the smaller MROs specially those not affiliated with an airline. As for components OEMs need to look at how operators want to be supported and take steps towards meeting these requirements.

The new technology aircraft promise a 25% reduction in maintenance costs due to new materials and better designs in the airframe and engines. However, the concentration of work and the involvement of OEMs is going to reduce competition resulting in higher rates and costs and lesser choices.

Airline E&M: Middle East Conference

2012-05-18T12:08:00.000+04:00

UBM Aviation, Airline E&M: Middle East Conference was held at Yas Island, Abu Dhabi UAE from 14 through 16 May 2012. This year's conference is probably one of the most important because it brought together major players in the region to discuss the future of the industry in view of the ever changing threats both regionally and globally: from the ever rising price of oil, the Arab Spring and the situation in Syria, Iran and the West, Greece, Spain and the Euro Zone crisis.

This year UBM Aiation invited people from outside the industry to provide their analysis of the ever changing world scene; Richard Thompson, Editorial Director, MEED and Mr. Riad Kahwaji, CEO, INEGMA.
Mr. Thompson discussed the economic outlook and the challenges facing the region while Mr. Kahwaji discussed the security implications of regional and global threats. The final analysis was; economically optimistic about the economic environment and short term pessimism but long term optimism as far as security goes.

The conference as usual discussed the future of MROs regionally and globally and the prospects of the smaller MROs as OEMs expand into the Repair and Overhaul field (more in future blogs). It also discussed Component Support, Engine Support, Leasing and Airworthiness issues.

This year's discussions were relatively more important, not only because of the prevailing global economy but because of the introduction of new technology aircraft and their impact on costs, support and operation.

Overall, the conference was a success and the introduction of speakers who are not aviation professionals to discuss issues affecting aviation from their perspective, I think is a great idea and should be repeated at later conferences

Kudos UBM Aviation

Balance A Commodity in Short Supply

2012-05-07T22:27:00.000+04:00

As Europe falls into a double dip recession the debate of austerity vs. growth is raging. The argument that austerity measures do not create growth and jobs is gaining credibility. The answer does not lie in uncontrolled government spending but rather in an approach of cost savings and measured spending to spur growth.

On a micro economic level, this is similar to the approach taken by airlines globally. This tends to explain the resilience of the airlines in MENA/GCC when compared to those of Europe and North America.

With every crisis in the last two decades western airlines have cut costs and tightly controlled growth. The best example is US carriers post 9/11, that instituted deep cost cuts and throttled growth to the point it took more than a decade for the sector to recover and barely just. It took a major shake up with consolidation and bankruptcies to energize the industry.

In this region, similar things happen. Airlines start by cutting costs and canceling unprofitable routes and flights to stem losses. Productivity drives and cost cutting becomes the battle cry of the season, just as conventional wisdom dictates. But then common sense or folly prevail depending on your point view. Aircraft are not grounded in mass and orders are not canceled, maybe deferred.

The airlines of the region continue their growth either by increased frequencies to popular and new regional destinations or by expanding into new regions such as Asia, Africa, CIS and South America, the emerging and frontier markets of the global economy. Markets that are totally ignored by Western European and North American carriers. Instead, we hear the criticism of how airlines are subsidized by their governments, as if western carriers are not protected by their respective governments.

This balanced approach to regional and global crises is what have saved the airline industry of the region, over and over.

MENA and GCC Airlines Upbeat But...

2012-05-07T22:17:00.000+04:00

This year's Arab Travel Market (ATM), the most prestigious regional event in travel and tourism in the MENA and GCC regions, was the most successful in many years. Attendance was 10% more than last year's. African and Asian countries attended to market their countries, even Europeans attended despite the Eurozone crisis. The mood was upbeat. Airlines in the countries of the Arab Spring showed Q1 traffic growth of around 25% higher than last year and airlines in the GCC had around a 10% growth (the difference being the lower base for each region).

Political instability is still a factor in the prosperity and financial performance of tourism and the airlines in the region, but things are stabilizing as political and hopefully economic reforms take hold.

However, oil prices are by far a larger threat, almost every airline has indicated fuel costs constituting around 40% of its total cost in spite of fuel hedging ( 25% to 30% of their annual fuel needs are hedged on average). This has prompted Qatar Airways CEO to declare that if oil prices persist or increase we are bound to see higher ticket prices. An increase that might derail a fragile recovery.

Of course, the Eurozone crisis is another problem and the recent elections in France and Greece are not very encouraging. If the economies of the Eurozone enter into a deeper recession, a further reduction in European visitors to the region will occur with negative consequences to tourism and airlines.

Airlines in the region are again discussing growth plans and expansion into new markets and destinations, exhibiting the vibrancy and resilience of the sector.

Sanctions and Safety

2012-04-26T17:22:00.001+04:00

During a recent conference about Aviation Insurance, Risk Management, Safety and other Legal Requirements and Regimes. The issue of Sanctioned countries came up and the associated difficulties of operating within these countries.

Sanctions are a political reality. The rationale behind them is to make life for the ruling regime and the people so difficult that the people will get rid of the government and install, for want of a better word, a "GOOD" one. Do sanctions work? sometimes but not very well. After all, there is a disconnect between a repressive regime and its people, so don't expect elections or violent uprisings. All the countries of the Arab Spring/Awakening, with the exception of Syria, did not have any sanctions imposed on them. While countries like Iran, Cuba and North Korea are still there and getting more radical.

Sanctions do affect Civil Aviation and in the worst way; no access to components, maintenance and other services, training, manuals and even insurance. USA and EU sanctions are being enforced more vigorously these days. Service providers are being warned and pushed into compliance.

In 1989 Syria was under a USA embargo, and still is So when the time for their B727 D Checks came due, the question was put to Boeing by the service provider, Royal Jordanian, on how would the sanctions affect the maintenance work. Boeing's answer was, safety and airworthiness issues are exempt but we decide what is a safety or airworthiness issue. The same treatment was not accorded to Libya.

One of the discussion papers in the conference was about the difficulty for a western entity to perform incident and/or safety investigations in sanctioned countries (basically Iran) and how the sanctions were taking their toll on the airlines in terms of Safety and Airworthiness.

During one of the round table discussions, sanctions were criticised because of their effect on the movement of people, trade and how they rendered civil aviation unsafe. The call was for the insurance community to stand up and oppose sanctions. I don't think this is likely to happen, but hopefully to work with governments to soften the effects of sanctions. Interestingly, it was brought up during the discussion that Syrian Air is one of the safest airlines if not the safest in the world despite the sanctions. The inference was that Iran's aviation safety record deteriorated because of sanctions.

That maybe the case, but to blame sanctions for the actions or inactions of airlines management and their regulatory authorities is hiding behind politics. Sanctions do have an effect, this why they were imposed in the first place. Why is Syrian Air safe? because their management acts responsibly and grounds aircraft when they cannot be maintained properly. However, most of Iran's aviation incidents are on Russian built aircraft.

Royal Jordanian What Next

2012-04-19T12:55:00.000+04:00

On 17 April 2012 it was announced that the CEO of Royal Jordanian will be stepping down on 1 June 2012. The reason cited, that "the move came out of his conviction that the time had come to implement “new ideas” to develop the Jordanian carrier." RJ like the rest of the industry in the region and to a certain extent globally has suffered from the effects of the Arab Spring and spiraling fuel cost. The carrier has reported a loss for 2011 of around 80 million USD, not necessarily through the fault of management, in all probability the loss could have been higher if the problems were handled differently.

RJ implemented several improvements to its product and systems to meet the requirements of joining Oneworld. The on board product offered is good, of course there is scope for improvement. The idea of a merger similar to AF/KLM or BA/IB was floated again.

The reason for the CEO's departure is not the most significant issue. The real issue is the new CEO, who will be
appointed by the Board after the General Assembly in June. Whether the new CEO will be tapped from within the airline, the industry or is a political appointee remains to be seen. Regardless of his background, he will influence the future development of the airline and how the "new ideas" will be implemented. It may be a reflection on how the privatisation process in the country is being viewed.

I wish Mr. Hussain Dabbas, a friend and a colleague, the best in his new endeavors.

The Liberalisation of Saudi Aviation

2012-04-17T08:34:00.000+04:00

Earlier this year, GACA (Saudi Arabia's aviation regulator) announced its intention to allow foreign carriers, mostly from the GCC, to invest in and operate domestic routes and within the scope of existing bilaterals allow them some international flights. April 2012 is supposed to be the month when all conditions and interested parties will be announced.

So far very little real interest, other than press releases has been expressed by airlines. Emirates, who said that they are interested in investing outside the UAE, are not interested in Saudi Arabia mainly because of the cap on domestic airfares. This makes it very hard to compete. Several airlines including domestic carriers have requested a review of airfares to offset losses and make it more attractive to new entrants.

SAMA's failure and bankruptcy in 2010 was attributed to the cap on airfares.

April 2012 is proving to be still an important milestone. It is reported that GACA recommended to the government to raise the airfares cap, citing that ticket prices in the kingdom are 50% less than those in other Arab Countries. They also felt that the raising of the cap would attract local and foreign investors.

The extent of the increase is still unknown, but it reflects a more realistic view to airline economics in the Kingdom and that subsidies to the national carrier to maintain artificially low ticket prices is unsustainable.

Definitely a step in the right direction.

Royal Jordanian .... Merger Again

2012-04-04T09:46:00.000+04:00

In an interview with Bloomberg Royal Jordanian's CEO indicated "a merger with a larger carrier is inevitable as high fuel prices, competition from local rivals and a sluggish economy squeeze earnings" (Click here for the full story).

Ever since the idea of privatising Royal Jordanian started in the 1986, the original intention was to sell 49% of the airline to a strategic partner (BA was mentioned) or a foreign investor. Subsequently BA sponsored Royal Jordanian to join Oneworld in 2007.

Eventually Royal Jordanian was privatised in 2007and its shares listed in the Amman Stock Exchange.

The idea of a merger with another airline was brought up by the CEO in June 2010 "There is room for airlines like RJ to merge with another carrier," he said. "I think consolidation will happen, but not now and it will be like Air France KLM, British Airways and Iberia, Lufthansa-Swiss…Airlines will maintain their national identity." (Click here)

At one time it was thought the airline will merge with Gulf Air, currently a remote possibility given GF's financial conditions. Another possibility is Etihad Airways which already owns 29.2% of Airberlin another Oneworld airline.

One thing is certain the airline requires a cash injection to cope with the oil prices and to finance its B787s to be delivered starting 2014.

Only time will tell how things will develop in the highly volatile political and economical climate in Jordan and the MENA region in general.

We are the UK

2012-03-26T00:03:00.000+04:00

Travelling, from London Heathrow to Abu Dhabi, out of Terminal 4 is not a stellar travel experience.
T4 has very little to offer passengers. Seating areas are not comfortable, connectivity is not the greatest, restaurant options are limited and shopping is lackluster.

I am all for thorough security checks, but when the line of people waiting for additional inspection of their bags exceeds 5 at any one time I start to wonder about the validity of the extra effort.

I went through security, as usual laptop out in a bin and my iPad stayed in my carry on bag. It seems the person manning the x-ray machine had problems with what he saw, which is good; much better than the usual slouching sleepy eyed operators. My bag got flagged and was side tracked to the side for special additional security checks.

I had to empty it, well most of it. It got swabbed, multiple repeated swabs of different items and the inside of my bag and then one test. Finally, my bag and its contents went back through the x-ray, the discussion seemed to center around the cases I keep my glasses in.

Finally, I was thanked for my patience and asked to pack my stuff. It is your iPad, she volunteered, it should have been out in the bin. Oh, but nobody requires an iPad in a bin for x-ray not even the States. We are not the States, we are the UK.

Forgive me my mistake, but couldn't we just have taken the iPad out and run it again with the bag through the x-ray like everyone else in the world, instead of keeping me and others waiting for 15 minutes and in some cases even more to find nothing at the end, maybe the guy at the x-ray requires more training.

The Airline Scene in Bahrain

2012-03-14T10:27:00.000+04:00

I was in Bahrain at the beginning of the month after almost 9 years. The place has changed, malls, highways and newly developed areas reclaimed from the sea in the usual Bahrain way. I had a good time, doing business and meeting friends and relatives and did not feel unsafe at any time during my stay.

However, some things never change in Bahrain and that is stories about Gulf Air. Well, there are several stories being bandied around one of them is that the CEO will be leaving by the end of the month and the other is that some business interests have aligned with some political figures in the government to promote Bahrain Air as a replacement of Gulf Air.

Both Gulf Air and Bahrain Air had a hard 2011; in addition to the Arab Spring in key markets and problems in Bahrain, the rising fuel costs and Eurozone woes; the government banned flights to Lebanon, Iraq and Iran for a few months, all key markets for the airlines.

The future of Gulf air is being debated by a Parliamentary ad hoc committee that is reviewing options (keeping the status quo, dissolving the airline, selling it off to a strategic partner or downsizing it) presented by the government. Downsizing seems to be the preferred option provided it does not affect Bahrain nationals, a prime objective at all times. The Labor Union representing Gulf Air employees is very powerful and nothing will move forward without their express or tacit approval, a fact that should always be remembered.

Bahrain Air, a privately held airline, has the same woes as Gulf Air and could probably do with some government support.

Whether Bahrain Air can replace Gulf Air, the short answer is no; Gulf Air has a greater international
presence and operates far more international routes to Europe, Middle East, Africa and the Far East.

Another option is to merge both airlines?!

Only time will tell what the outcome will be, but as everything else in the region, never a dull moment.

In any case, it was an enjoyable visit and I look forward to visiting again soon.

Canada's Aviation Competitiveness Revisited

2012-03-11T16:36:00.001+04:00

In a recent development, the United Arab Emirates and Canada entered into nuclear cooperation talks that could see Canada become the main supplier of the UAE's nuclear reactors. A sign of thawing relations that went sour last year over additional flights for Emirates and Etihad to Canada. Canada in an attempt to protect Air Canada refused the UAE carriers additional flights in October 2010.

On a different tack, last week IATA called upon Canada's policy makers to improve the country's aviation competitiveness including the reduction of the tax burden (read story here). This time the comparison is between Canada and Australia
- Direct GDP contribution 2.2% Canada vs 2.6% Australia
- Indirect GDP contribution (tourism and other activities) 2.8% Canada vs 6.1% Australia
- Passengers travelling to Canada 71 million vs 78 million to Australia in 2011 taking into account that Canada's
population is 50% larger than that of Australia.
- The contribution to tax revenues is 19% higher in Canada than Australia not including the effect of the fuel tax
which is double in Canada

However, there is a silver lining, British Columbia is removing the provincial tax on international jet fuel starting in April. This is a sign that Canada is starting to view aviation as a strategic asset and not just a tax revenue stream. Clearly the promotion of a competitive aviation sector will yield better results for the economy is terms of contribution to the GDP and employment. The protection of Air Canada at all costs against all competitors whether national or international has been the mainstay of the government's policy. This is similar to the Indian government's aviation policy that is based on the protection of Air India, and we can see the state of the aviation sector these days. It is approaching a melt down.

However, business considerations do come into the decision making process related to aviation matters. On the basis of the possibility that Qatar Airways may purchase the Bombardier C Series aircraft, Qatar Airways was awarded traffic rights 3 weeks after they were rejected for Emirates, Etihad and Qatar Airways.

So, at the end UAE carriers may still get their traffic rights, but Canada still lacks a vision for its aviation sector.

Related Blogs
Government Policy and The Airlines
Politics and The Airlines
Canada's Air Transport Competitiveness

Abu Dhabi Air Expo

2012-03-09T09:52:00.000+04:00

Abu Dhabi Air Expo otherwise known as the 1st Middle East General Aviation Exhibition was launched by Abu Dhabi Airport Company (ADAC) and held at Al Bateen Executive Airport on 6 to 8 March 2012.
This exhibition, as stated on the website, is "mainly intended for owners, pilots, enthusiasts and professionals in the general aviation field, who come from all over the Middle East,.." Logically, this exhibition rounds up aviation expos in the UAE; Dubai Air Show an all encompassing international air show, MEBA the Middle East Business Aviation show and finally this General Aviation Exhibition.

General Aviation in this region is slightly different to that in the USA, Europe or Australia; it is restricted here to flying schools, aero and sky diving clubs. There are not the thousands of pilots/owners of small aircraft used for personal use; mostly due to the cost, regulations and regional security concerns.
Business and Corporate aviation is sometimes referred to as General Aviation. MEBA was not exactly very happy with this Air Expo and that explains their lack of presence and participation.

Did we need the Air Expo? does it really matter it has come and gone. ADAC has done a great job at organizing the exhibition, of course there were the usual teething problems associated with doing something for the first time.

But to answer the question above; YES we do need such an exhibition and it should not only be aimed at professionals but at the general public especially the younger generation. There is a massive global shortage of aviation professionals in the coming decade and unless we start rekindling the enthusiasm for aviation in an upcoming generation, the industry and especially in the region will suffer.

Kudos to ADAC for taking up the task and I actually look forward to the next one.

EU ETS At a Crossroads

2012-02-27T06:54:00.000+04:00

The rhetoric has subsided and the EU have softened their stance and agreed to a discussion of the Carbon Tax within an ICAO framework. However, the EU still insisted that airlines that do not participate and pay up may face a ban into operating into Europe. At least we are all moving in the right direction.

The EU's position is based on the fact that climate change and the environment have been the subject of a lot of discussions with no actions taken. So the EU decided to take this unilateral action to force a change. Well it kind of worked.

The whole idea behind the ETS it is to force airlines to get rid of their older aircraft and purchase newer technology aircraft which are more efficient and more ecofriendly. MENA and the GCC airlines operate on the whole some of the newest and most advanced aircraft, but under the ETS they still have to pay the tax as the rules tighten with time; after all technology does not evolve in terms of months but rather years and sometimes decades. Airlines have started adding surcharges to the tickets to provision for the payments under ETS. At this time, Etihad added $3 to their tickets to Europe and others will follow soon. A $3 increase to a ticket to Europe is not going to stop people from travelling. However, the tax will dampen the expansion of airlines as they balance fares against additional payments under ETS, which looks somewhat protectionist.

What is really annoying as well as disturbing, that after all this rhetoric about carbon emissions and the airlines having to pay their fair share to offset the effect on the environment. None of that money has to go
towards improving aviation infrastructure or research to improve technology or even projects that improve the environment. Europe will still face the same flow control problems and the same shortage of runways facing the same delays that will keep aircraft unnecessarily burning fuel in the air and on the ground, producing more carbon emissions. The collected monies will go to the general budgets and probably be used to offset deficits or support popular programs that otherwise may have to be curtailed.

Government Policy and the Airlines

2012-02-14T04:28:00.000+04:00

Mr. Tony Tyler, IATA's DG and CEO, in an address in Singapore urged governments to use airlines as strategic assets (read full story here). He cited two examples of how government policy towards their airlines affects their contribution to the country's overall economy, Singapore and India. Singapore support of aviation as a strategic industry contributed 119,000 jobs and a 5.4% contribution to GDP. While India's policy of high taxes, blind support for Air India is driving the airline industry towards a potential meltdown and a contribution to GDP of no more than 0.5%. Another example is Emirates in Dubai where the airline contributes 22% to GDP and 19% of the total employment (around 250,000 jobs) and is profitable.

Airlines have always been an instrument of government economic policy and national security especially in smaller countries. Government owned airlines were allowed operational losses because their contribution to the GDP in terms of employment, investment and tourism related businesses far outweighed any losses they may have incurred. The other issue is the ability to stay connected when so called bad times hit and most international airlines stopped operating; something countries like Egypt, Tunis and Jordan experienced and are still experiencing during the Arab Spring, regardless of how good or bad the security situation was.

Of course, aviation policy is not about state owned airlines only. It is about a policy framework for aviation that includes an open sky regime that promotes and facilitates bilateral and multilateral traffic rights similar to what Singapore, UAE and Jordan have and does not institute protectionist policies. It also includes a tax regime that does not view aviation as a luxury product and tax it accordingly, but as a vital component of the economy. There are several countries that have imposed taxes and fees that are rendering their industry uncompetitive like Germany, India and Canada.

RJ Clips Its Wings

2012-02-11T21:46:00.001+04:00

This is the gist of a news item in Zawya.com; a tad harsh. MENA is a tough neighborhood but Royal Jordanian is a tough airline. This is not the first time or the last time RJ will have to retrench. The airline has survived worse crisis in its 49 years history; the Arab Israeli war in 1967, the 1982 Israeli invasion of Lebanon, the 1987 financial meltdown in Jordan which saw the currency devalued by 50%, the first Gulf War in 1990 and the list goes on and on.

RJ was transformed from a losing government owned airline to become the first Arab airline to join a global alliance, Oneworld in 2007 and the first Arab privatized airline later in the same year. It also embarked on a fleet renewal program replacing its older A310 and A320s with new A319, A320, A321 and A330s. The A340 fleet was refurbished and new seats and AVOD system installed. The airline has 12 B787s on order.

2011 was a particularly tough year; oil prices hovered around $110 a barrel, a deepening Eurozone debt crisis which is still unfolding and political upheaval in the region, the Arab Spring which affected some of the most profitable destinations in the network and caused a drop in incoming tourists.

According to Mr. Hussein Dabbas, RJ's CEO "Despite all the difficulties, the company was able to achieve positive operational results during 2011, as it increased the number of passengers by 6.5 per cent, the operational revenues by 6 per cent, the flying hours and departures by 3 per cent, the seat factor reached 70 per cent." however, fuel prices increased to JOD 293 millions in 2011 from JOD 203 millions in 2010. My estimate is a net loss of $100 millions on a turnover of $1 billion.

The airline is axing 5 destinations and reducing flights during the year as traffic develops. The airline is looking at the fleet requirements. Probably a reduction in the short and medium range fleet by terminating a couple of leases.
There is nothing new in the recovery plan it has been used several times in earlier situations and seems to work. RJ will still be looking at new destinations and opportunities and leveraging its Oneworld membership to its advantage.

MENA is not for the faint hearted but Royal Jordanian is a resilient airline and has been through worse situations before and emerged a stronger organization, I see no reason that they will not this time.

Airlines and the Law of Diminishing Returns

2012-02-10T07:30:00.000+04:00

Etihad Airways announced a modest net profit of 14 million USD over a turnover of 4.1 billioon USD. No mean achievement in a global recession and a region experiencing massive political upheaval ranging from quiet and peaceful political reform to the other end of the spectrum, civil war and everything in between. What is interesting it was a profit made through expansion; efficient, steady and productive. The type of expansion that adds value and jobs which is typical to the region (MENA/GCC).

This is so unlike the USA market that can only achieve profit by a tight control of capacity coupled with a reduction in staff and network. The type that is great for shareholder equity but bad for communities. It does not create value or jobs, on the contrary it reduces service and increases unemployment. For some reason airlines in the USA have very seldom achieved profitability through expansion. They tend to expand through mergers and acquisitions which are always at the expense of the staff and the community.

Airlines in the USA followed by legacy airlines in Europe and elsewhere have unbundled services, kept the original ticket price and convinced us all that we are only paying for what we need or use. Of course, we are paying twice.

So, when the DOT issued a ruling that passengers should know the fare inclusive of all services and taxes, the airlines went up in arms claiming this will only increase the cost and now a few Republicans in Congress are trying to overturn the DOT ruling.

Airlines have not been very good neighbors, of course there are a few exceptions, they like austerity but then the answer to today's problems is job creation. After all cost cutting is subject to the laws of diminishing returns while for revenue the sky is the limit.

Failure To Communicate

2012-02-01T15:42:00.000+04:00

The weather has not been very good in Abu Dhabi in the last few days and it wreaked havoc with Etihad Airway's schedule with delays and cancellations.Happens, mother nature can be capricious if not outright bitchy sometimes.

Airlines do their best to cope. These days the use everything they can get their hands on to ease the impact of the disruption on their passengers. Not Etihad, it seems they never heard of the word "COMMUNICATE".

They can figure out ways to expand their network or provide additional services on board or on the ground. What they have failed to grasp is the need to advise their passengers of how their flights have been affected.

A quick look at their Facebook page shows several comments by passengers complaining about extensive delays but not a single entry by Etihad explaining or apologizing. These comments were later deleted. Their website is business as usual. I tried to check in on the website for my Jeddah flight back to Abu Dhabi and all I got was a message "your flight is not open for check in".

I never got a message from them informing me there is a delay and the website did not have any message regarding these disruptions. Basically a massive failure to communicate coupled with an inadequate Emergency Response Plan (ERP). ERP is not about crashes and accidents it is also about massive disruptions and how to recover.

In all fairness the airport staff in Jeddah, were at hand and interlined some connecting passengers with other airlines to their final destinations and offered the remaining passengers food and refreshments.

However, Etihad as an organization did not rise to the occasion and failed dismally. If you want to be credible you have to perform. All these awards don't mean a thing to passengers stranded for 9 or 10 or 11 hours. They only prove that when you have good PR you can get any award you want.

Etihad should look at their Response Planning and how to embrace the available means to minimize disruptions and keep passengers engaged and happy.

Expansion by Acquisition, A New GCC/MENA Trend

2012-01-26T09:51:00.001+04:00

Etihad Airways just announce its acquisition of a 40% stake in Air Seychelles for US$ 20 Millions. As a result the flights to Mahe will increase from four (4) weekly to daily and several European flights out of Abu Dhabi will carry a joint flight numbers in addition to the presence of Air Seychelles in Etihad sales offices. This follows Etihad's 29.2% stake in Airberlin a month ago.

Not to be left out Qatar Airways has announced that they have selected a target airline in Europe for a major equity stake to be announced in due time. Qatar Airways already has a 35% share of Cargolux.

THY Turkish airlines is interested in LOT polish airlines.

It is worth remembering that Emirates had a 40% stake in Air Lanka for 10 years with a management contract which was terminated in 2008 and Emirates subsequently sold its shares back to the government.

2012 An Exciting Beginning

2012-01-24T17:49:00.000+04:00

The Chinese New Year is upon us and the Year of the Dragon is supposed to be much better than last year.
Well, it looks like it maybe so. January has been an interesting month with lots of exciting news for the region.

The opening of the Saudi Domestic and International market tops the list. The Kingdom of Saudi Arabia is a large market with a population of 27 Millions and 27 domestic airports, effectively served domestically by two airlines; Saudi Arabian Airlines, the national carrier and NAS Air a low cost carrier. As early as April 2011 General Authority of Civil Aviation (GACA) has declared its intention to liberalise the market in order to better serve the consumers by allowing foreign airlines especially those from the GCC to operate domestically and internationally subject to bilaterals. This January GACA declared that by April 2012 they will issue an RFP for interested airlines wishing to participate. In the meantime airlines like Emirates and Gulf Air among others have shown interest and are in discussion with the authority.

Qatar Airways has indicated that they have identified a European take over target, but they are not saying which airline (maybe Czech Airlines). keeping in mind that the airline has acquired 35% of Cargolux last year and right after Etihad's 29.21% in AirBerlin, who by the way inaugurated their first flight into Abu Dhabi on 16 January 2012. It appears that THY Turkish Airlines maybe interested in acquiring LOT Polish Airlines.
That will make a total of five (5) airlines in Europe that have been bought (BA/BMI) or a large stake acquired in them (Qatar Airways/Cargolux and Etihad/Airberlin) or are targeted.

On a more sobering note, Gulf Air ruled out its privatisation effort for the time being due to the events in Bahrain and it will probably be looking for the Saudi market to improve its financial position. This is a reversal of the trend of privatising airlines in the region, keeping in mind that Kuwait Airways privatisation was put on hold in October 2011pending restructuring of the airline.

2012 maybe a tough a year but for sure it is going to be an interesting one.

2012 ... A Tough Year

2012-01-21T19:39:00.001+04:00

Is 2012 going to be a repeat of 2011? The chances are yes. Not much has changed except a lot of issues of 2011 are going to be resolved one way or another. The uncertainty that prevailed in 2011 is still with us and in some cases it is getting worse.

2012 is full of geopolitical issues affecting the region
- Tunis, Egypt, Morocco and Libya will be governed by Islamists, who for decades were in the opposition.
They will face the test of governing, the realities of the world and the well being of their people and
economies. With the exception of Libya the other three depend heavily on tourism and the test will be the
balancing act between beliefs and pragmatism.
- Syria remains a problem with no apparent solution in sight in the mean time casting shadows on Lebanon.
- Yemen is still the same with very little movement in spite of the accords signed in Riyadh.
- Iraq seems destined to even more political instability that may end up in its break up.
- Iran's threats to close the Straits of Hormuz could lead to a major conflict coupled with the nuclear
capability problem with Israel threatening to bomb Iran's nuclear installations.
- The Palestinian Israeli conflict that keeps worsening with the intransigent position of Israel relative to the
Peace Process and Palestinian Statehood.
- The Euro zone debt crisis deepens with the downgrading of France, Austria and others including the
European Financial Stability Facility (ESFS) leading Europe into recession and potential country defaults
affecting tourism to the region.

On the other hand there are some good news
- Dubai and Abu Dhabi are developing into destinations of their own attracting more and more visitors.
- Saudi Arabia is embarking on an interesting experiment in airline liberalization by allowing GCC and other
foreign airlines to operate domestic and international flights from the Kingdom.
- The airlines of the region are still expanding into new markets mainly South America, Africa and the CIS.
- Cargo operations are on the rise and with the reconstruction in Libya and hopefully Iraq will cause an
increase in regional cargo operations.
- GCC airlines are expanding by acquisition with Etihad and Airberlin following Qatar Airways and Cargolux
in 2011. Qatar Airways indicated that they have identified a target airline in Europe for acquisition. Who
knows, Royal Jordanian may revive the plans of a merger with an airline a la Air France/KLM model.
- India is allowing Foreign Direct Investments (FDI) in its ailing airlines and hopefully more restructuring
of the industry. India remains a large and expanding market that attracts not only Oneworld and Star
Alliance but every GCC airline.

In a nutshell nothing changed from 2011.
- The capacity of the MENA/GCC airlines will increase and so would their networks through additional
aircraft deliveries and mergers and acquisitions.
- Kuwait Airways will hopefully restructure.
- Saudi Arabia will launch its new initiative allowing regional airlines to expand within the Kingdom by
operating domestically and internationally and allowing carriers to serve more and more destinations.
- Cargo is assuming a higher importance with airlines like Emirates, Etihad, Qatar Airways and Royal
Jordanian.

Will the airlines of the region make profits, probably if everyone in the neighborhood behaves.
"Plus ca change, plus c'est la meme chose" (The more things change, the more they remain the same).

Wishing you all a prosperous and safe 2012.

EU ETS .... Is It Worth It

2012-01-13T13:34:00.000+04:00

The EU seems ready to bring the airline industry to a stand still over the Emission Trading Scheme (ETS).

ETS is not a bad idea and the airline industry should share the burden, nobody objects to that. The airline industry along with aircraft and engine manufacturers have always striven to produce more fuel efficient aircraft to meet invariably the ever fluctuating and rising oil prices and the effort is still going on with aircraft like the B787 and A350 producing efficiencies and reduction of emissions approaching 20%.

The EU has introduced an ETS that affects all airlines operating within Europe and in and out of Europe regardless of nationality or country of registry, and to add to the problem the funds levied by the EU governments do not have to be used to fund research or projects related to aviation or even the environment. It is only recommended that governments fund these projects, and with the euro zone debt crisis and a looming recession we all know where the funds will go to the general budget.

Several countries during the last ICAO meeting requested the EU to suspend its ETS and look at a global ETS that is more equitable. The EU rejected that proposal and insisted that it will go ahead with its planned scheme. The European Court of Justice rejected a law suit, that ETS infringes on the sovereignty of other nations and contravenes the Chicago Convention in regards to the taxation of international aviation, on the basis that the EU is not a signatory to the Chicago Convention, as if the EU member states are not.

Countries (China, India, Brazil, USA, Russia, Japan and the list goes on and on) opposing the EU ETS have prohibited their airlines from participating and the EU declared that they will ban any airline, not participating, from operating into Europe.

Really, and the EU thinks that the rest of the world will turn the other cheek and accept. There will be a reciprocal ban against all EU airlines., and Europe will be the biggest loser.

I am sure things will not get to that point and cooler heads will prevail and an acceptable solution will be reached, hopefully.

Airlines In India An Industry In Crisis

2012-01-09T12:40:00.000+04:00

I am not an expert on Indian aviation but I have learnt a lot following Bangalore Aviation. Two news items attracted my attention last week;

The first is Star Alliance asking Air India again to join and BA initiating procedures for Kingfisher to join
Oneworld. Considering that both airlines are financial disasters only shows the importance of the Indian market
to airline alliances. This is not surprising considering the growth rate of the Indian economy in the last few
years. The Indian economy is slowing down but it is still growing at a respectable 7% annually.

The second is the report of the DG of the Civil Aviation Authority on the state of Kingfisher and his statement that there is a reasonable case for withdrawing their AOC. Also sited in the report for safety problems are Air India Express, Indigo, SpiceJet, GoAir, Jet Airways and JetLite. In essence this is an indication of failed government policies.

The government has failed to date, to resolve the financial problems of Air India. Air India is operating at levels well below its costs while resisting all efforts of restructuring while still incurring high losses. Air India has been offering low fares driving the competition. Further, the government has failed to improve the aviation infrastructure to meet the demand of a more affluent middle class for air travel, in spite of the high taxes levied on tickets.

What is most worrying is when the top regulator in the country cites almost all the airlines in India of a "patchy track record on passenger safety"; this begs the question of the level of safety oversight the DGCA has been exercising on a day to day basis.

It is great that the CEOs of Kingfisher and Air India Express and indeed all the other CEOs to be hauled in front of the DG to be admonished for their failings and to explain their recovery plans. What is needed is for the DGCA to step up the oversight over the airlines and for the government to resolve the issue of Air India.

The Joys Of Flying With Etihad

2012-01-05T20:40:00.000+04:00

I have travelled with Etihad Airways before, they were short trips and in Business. This time I travelled to Chicago, a 15 hours plus flight going and a 13 hours plus coming back on an AA code share ticket. Of course being an AA frequent flyer did not mean anything in this case.

It is one thing calling your passengers "GUESTS" another thing meaning it. The flight to Chicago started all wrong, the itinerary said Terminal 1, but it really was Terminal 3, meaning a nice walk across the airport pulling luggage, a good exercise before a long flight.

Check in at Abu Dhabi was slow and in Chicago extremely slow with only 3 agents at check in, granted it was basically for connecting passengers, it took almost an hour before things started moving along. The staff in Abu Dhabi were "Firm" almost to the point of rudeness.

In Chicago I had the dubious honourof having my boarding pass endorsed with "SSSS". This means that the airline is asking the TSA to perform extra security checks on yours truly; probably because I asked if it was possible to change seats. In all fairness to the TSA, the extra security check went smoothly, I had an extra pat down, not very invasive, and my laptop and carry on luggage were tested for explosive traces. Needless to say, I passed with flying colors.

The boarding, both times was long. Hand luggage which was weighed prior to check in at Chicago was reweighed at boarding, or so it was announced.

The cabin crew did not smile much but were courteous but not very approachable.

This has not been my worst experience but definitely not the best. Would I do it again, probably not.

Adieu 2011

2011-12-30T17:33:00.000+04:00

2011 is coming to an end and it has been a rocky year regionally and globally.

Politically, The Arab Spring has resulted in regime changes and more uncertainty. Europe is in turmoil over the Euro debt and the USA goes from one funding crisis to another. Rating agencies have been downgrading major economies deepening the Euro Zone crisis. India is facing a weakening of its currency and a relative slow down in its GDP same as China.

In MENA/GCC 2011 has been an interesting and challenging year for the airlines and aviation.
Most airlines managed to expand and no aircraft orders were cancelled or deferred. Most of the MENA carriers managed to recover from the Arab Spring effects. Passenger numbers were comparable to 2010 if not better but yields suffered. Fuel amounted to 40% to 60% of the airlines cost however ticket prices remained at the same level in fear of losing passengers. Mega aircraft orders were made during the Dubai Air Show. Emirates became the largest B777 operator same as the A380. Etihad ordered additional B787s to become the largest operator. Qatar Airways will be the launch customer for the A320NEO after browbeating Airbus and ordering 50 firm and 30 options. Oman Air ordered B787s keeping Boeing happy.

The airlines of the region expanded into Africa, the CIS and South America in addition to the traditional markets in Europe, India and Saudi Arabia. Relatively new markets, in order to sustain their capacity growth in face of increasing global and regional political and economic turmoil.

There has been several major events during the year that will have an impact on 2012 and beyond:

Etihad increased its stake in Airberlin to 29% providing much needed cash to the European carrier and providing access to Etihad's network, just as Airberlin will provide Etihad with access to Germany and Europe.

The second event is the announcement by GACA of the completion of their proposals to allow foreign investment and regional carriers to operate domestic flights within Saudi Arabia and international flights from any point in the Kingdom. GACA does not know how successful this will be, but are willing to wait and see and then adjust depending on the response.

There has been other events such as the privatization of Kuwait Airways after its restructuring and the code share agreement between Royal Jordanian and Airberlin.

As 2011 passes away, I wish you all a Happy and Prosperous 2012

Etihad and Airberlin More Than a Partnership

2011-12-20T16:46:00.000+04:00

Etihad Airways has boosted its stake in Air Berlin from 2.9% to 29.21% and signed an extensive code share partnership that covers all Airberlin's extensive European operation and Etihad's extensive global network.

The deal provides Airberlin with needed cash and Etihad access to Germany and Europe.

Not wanting to read too much into this, one cannot but wonder about a few things:

- Etihad already code shares with AA, Malev and S7 who are Oneworld partners and now Airberlin who

will join Oneworld in early 2012, an interesting alignment with the alliance.

- This arrangement will place Etihad in the backyard of Lufthansa, Air Canada's partner in Star Alliance and

one of the greatest critics of the GCC global carriers (Emirates, Etihad and Qatar Airways). Remember the

spat between the UAE and Canada over additional traffic rights to Canada; well, maybe just maybe, this is

Etihad's quiet way of paying back. Between Emirates A380 services to Hamburg and Munich and this

partnership, Lufthansa is surely uncomfortable, to say the least.

Regardless of all the speculation, this is a win win deal with both partners benefiting and almost

makes Oneworld the preferred alliance in case Etihad is interested in joining.