Japan Airlines - Orient Aviation

COMMENTAre the barriers ready to fall?The move by a consortium of internationalinvestors to buy out Qantas Airways for US$8.7billion provoked the expected response frommany Australians. The national icon airlinewould be lost to foreign control. Jobs would gooffshore. The Qantas Group would be broken up. None of thisis happening.The airline will remain under majority Australianownership and the leadership of current management. Some46% of shareholders are already offshore. That will drop toaround 40% if the deal is completed.Yet the wave of indignation that erupted over the buyoutis typical of the barriers that impede rationalizationand consolidation of the global airline industry. Nationalownership rules and government attitudes, as well as publicperceptions, toward national flag carriers are a restraint on theability of the industry to properly develop as a global businessin an international market place.Given that Airline Partners Australia, the consortium thatincludes Macquarie Bank and high-flying U.S. investor DavidBonderman’s Texas Pacific Group, is successful in winningcontrol of Qantas, it may well become a blueprint for similardeals in the Asia-Pacific.It brings the airline fresh equity for expansion anddevelopment, allows offshore interests to become involved,yet keeps the carrier in majority local hands.Hopefully, this type of deal will eventually ease concernsamong the various governments in the region aboutallowing their airlines to fully participate in the commercialmarketplace without losing their identity or diluting theirstatus as national symbols.Anyone who believes Qantas is going to become lessAustralian or lose its Flying Kangaroo image because of achange of ownership is living in dreamland. The brand hasbecome too important for any owner to endanger it.In conjunction with the interest of major global equityinvestment firms in the Asia-Pacific, there are also signsconsolidation is gathering pace. We have already seen JapanAirlines and Japan Air System merge. And Dragonair withCathay Pacific Airways. Soon, Air India and Indian Airlineswill be a single unit.Let us hope these linkages, along with a move towardsmore investment in the region’s airlines from internationalinvestors, will continue to erode the barriers holding theindustry back from adopting global operating standards.TOM BALLANTYNEChief CorrespondentThe Association of Asia Pacific Airlines’ members and contact listAir New ZealandChief Executive, Mr Rob FyfeVP Public Affairs and Group Communications,Mr Mike TodTel: (64 9) 336 2770 Fax: (64 9) 336 2759All Nippon AirwaysPresident and CEO, Mr Mineo YamamotoDep. Director, Public Relations, Mr Kaz IwakataTel: (81 3) 6735 1111Fax: (81 3) 6735 1115Asiana AirlinesPresident & Chief Executive,Mr Park Chan-bupManaging Director, PR, Mr Hong Lae KimTel: (822) 758 8161 Fax: (822) 758 8008Cathay Pacific AirwaysChief Executive Officer, Mr Philip ChenCorporate Communications General Manager,Mr Dane ChengTel: (852) 2747 8868 Fax: (852) 2810 6563China AirlinesPresident, Mr Ringo ChaoVP, Corp Comms, Mr Johnson SunTel: (8862) 2514 5750Fax: (8862) 2514 5754DragonairChief Executive Officer, Mr Kenny TangGeneral Manager, Corp. CommunicationsMrs Laura CramptonTel: (852) 3193 3193 Fax: (852) 3193 3194EVA AirChairman, Mr Steve LinExecutive VP, Group Public Relations,Mr K. W. NiehTel: (8862) 2500 1122 Fax: (8862) 2500 1523Garuda IndonesiaPresident & CEO, Mr Emirsyah SatarVP Corporate Communications, Mr PujobrotoTel: (6221) 231 2612Fax: (6221) 381 1486Japan AirlinesPresident, Mr Haruka NishimatsuDirector, International Public Relations,Mr Geoffrey TudorTel: (813) 5460 3109 Fax: (813) 5460 5910Korean AirChairman and CEO, Mr Yang Ho ChoManaging VP, Corporate Communications,Mr Nam Il ParkTel: (822) 2656 7065 Fax: (822) 2656 7288/89Malaysia AirlinesManaging Director, Idris JalaGen Mgr, Int’l Affairs, Germal Singh KheraTel: (603) 2165 5137Fax: (603) 2161 0558Philippine AirlinesPresident, Mr Jaime BautistaVP Corporate Communications,Mr Rolando EstabilioTel: (632) 817 1234 Fax: (632) 817 8689Qantas AirwaysManaging Director and CEO, Mr Geoff DixonHead of Corporate Communications,Belinda de RomeTel: (612) 9691 4773 Fax: (612) 9691 4187Royal Brunei AirlinesChairman, Pengiran Dato Hamid YassinActing CEO, Pengiran Yusof JeludinTel: (673 2) 229 799Fax: (673 2) 221 230Singapore AirlinesChief Executive Officer,Mr Chew Choon SengVP Public Affairs, Mr Stephen ForshawTel: (65) 6541 5880 Fax: (65) 6545 6083Thai Airways InternationalPresident, Flying Officer Apinan SumanaseniDirector, PR,Mrs Sunathee IsvarphornchaiTel: (662) 513 3364 Fax: (662) 545 3891Vietnam AirlinesPresident and CEO, Mr Nguyen Xuan HienDep Director, Corp Affairs,Mr Nguyen Huy HieuTel: (84-4) 873 0928 Fax: (84-4) 872 1161February 2007 ORIENT AVIATION 3

February 2007CONTENTSO R I E N T A V I AT I O N V O L U M E 1 4 , I S S U E 0 3COVER STORY26 PAL pulls out all the stopsAlso:Once-troubled Philippine Airlines is clearing itsdebt and gearing up for a bright future32 Cebu Pacific turns up the heatMAIN STORY12 The real deal.Encouraged bybuy-out plans forQantas, globalequity firms arelooking hardat the region’saviation sectorNEWS BACKGROUNDER20 Hope for Garuda Indonesia as searchfor equity partner nears completionENVIRONMENT22 IATA’s fuel busters help airlines cutemissions and save moneyCARGO UPDATE36 KAL keeps up the pressure38 Chinese JVs plan expansion38 Regional carriers in e-freight trialsCOMMUTER AVIATION50 Australia’s Rex is on a roll51 Hong Kong boss wants merger6 ORIENT AVIATION February 2007

SPECIAL REPORTMAINTENANCE, REPAIR ANDOVERHAUL IN THE ASIA- PACIFICPUBLISHED BYWILSON PRESS HK LTDGPO Box 11435 Hong KongTel: Editorial (852) 2865 1013Fax: Editorial (852) 2865 3966E-mail: orientav@netvigator.comWebsite: www.orientaviation.comChief ExecutiveBarry GrindrodE-mail: orientav@netvigator.comPublisherChristine McGeeE-mail: cmcgee@netvigator.com40 Heavy work in demand, but engines fall short42 Conversions pick up the pace44 China is key in push for PMA acceptance46 Component suppliers take the strain47 Boeing, Airbus differ on regional focus48 Boom times for Singapore MROsNEWS8 JAL restructures to hit profit target8 AirAsia plans to go global, doubles orders8 Cross Strait flights increase9 Oasis fleet to quadruple34 TravelSky misses Olympic deadlineREGULAR FEATURES3 Comment: Are the barriers ready to fall?52 Business Digest: Strong PAX growthAssociation of Asia Pacific Airlines SecretariatSuite 9.01, 9/F, Kompleks AntarabangsaJalan Sultan Ismail, 50250 Kuala Lumpur, MalaysiaTel: (603) 2145 5600 Fax: (603) 2145 2500E-mail: info@aapa.org.myDirector General: Andrew HerdmanCommercial Director: Beatrice LimTechnical Director: Martin Eran-TaskerChief CorrespondentTom BallantyneTel: (612) 9638 6895Fax: (612) 9684 2776E-mail: tomball@orientaviation.comSpecial CorrespondentCharles AndersonTel: (852) 2809 2209E-mail: charlesanderson@orientaviation.comChinaSophie YuTel: (852) 2865 1013Japan & KoreaJulian RyallTel/Fax: (81) 45 663 2501Email: jmryall@orientaviation.comPhotographersRob Finlayson, Graham Uden, Andrew HuntDesign & ProductionWilson Press HK Ltd.Colour SeparationsTwinstar Graphic Arts Co.PrintingHop Sze Printing Company Ltd.ADVERTISINGSouth East Asia and PacificShirley HoTel: (852) 2865 1013Fax: (852) 2865 3966E-mail: shirley@orientaviation.comThe Americas / CanadaBarnes Media AssociatesRay BarnesTel: (1 434) 927 5122Fax: (1 434) 927 5101E-mail: barnesrv@charter.netEurope & the Middle EastREM InternationalStephane de RémusatTel: (33 5) 34 27 01 30Fax: (33 5) 34 27 01 31E-mail: sremusat@aol.comNew Media & Circulation ManagerLeona Wong Wing LamTel: (852) 2865 1013Fax: (852) 2865 3966E-mail: leonawong@orientaviation.com© All rights reservedWilson Press HK Ltd., Hong Kong, 2006The views expressed in this magazine are not necessarilythose of the Association of Asia Pacific Airlines.February 2007 ORIENT AVIATION 7

Oasis fleet to quadrupleSteve Miller, chief executive of longhaullow-fare carrier, Oasis HongKong Airlines, told the South ChinaMorning Post in January that the carrierwas in talks with airlines and private equityfunds about investment in the carrier as itmoved towards its planned initial publicoffering in 2009.Miller said the carrier, launched in thefourth quarter of 2006 and now operatingdaily services to Gatwick London from HongKong, was in the market for funds to acquireanother three B747-400s by October andintended to have a fleet of 25 aircraft by 2010.To date, despite a tumultuous start-upthat saw the carrier’s launch flight delayedby a day because it was initially refusedpermission to fly through Russian airspace,Miller said the airline had carried 250,000passengers in nine weeks of operations (tomid-January) and planned to soon launchits second route, a daily service to Oakland,across the bay from San Francisco, in June.Oasis has also applied to fly to Vancouver.Miller said he planned fares startingat HK$1,000 (US$128) one way to bothOakland and Vancouver. He expectedapproval for the Hong Kong-Vancouverservice, a route opened up by Canada’s newopen skies regime, in three to four monthsbecause it was under-served.In a recent press release, Miller saidthe carrier, which was granted long-termapproval to fly through Russian airspacelast November, planned to expand by fiveaircraft a year to achieve its 25-aircrafttarget in four years. Apart from the servicesto Vancouver and Oakland, the carrier’sstrategy includes flying to Cologne/Bonn,Milan, Berlin and Chicago.Steve Miller: talking to potentialinvestorsSHORTTAKESAIRPORTS>> Singapore ChangiAirport recorded 8% traffic growth in2006, its 25th year of operations, with athroughput of 35.03 million passengers.In December, 3.42 million passengerswere processed at the facility, a 10.1%rise over the same period in 2005.CARGO>> China Airlines hasl a u n c h e d t w i c e a we e k s e r v i c e sto Stockholm via A b u D habi a ndL u x e m b o u r g a n d A b u D h a b i a n dBangkok, returning to Taipei. Korean Air(KAL) is now flying cargo services fourtimes a week to Qingdao in Shandongprovince, bringing KAL’s Seoul-GreaterChina services to seven cities. India’sFlyington Freighters Ltd, based inHyderabad, is the first airline to committo purchasing Airbus’s newest freighter,with an order for six A330 -200Fs.Deliveries will start in the second halfof 2009.CODESHARES>> Korean Air hasexpanded its code-share partnershipw i t h U . S . i n t e r n a t i o n a l a i r l i n e ,Northwest, with the addition of seveninternational Korean Air services andsix Northwest domestic routes. Theroutes are Seoul to Seattle, Chicago,Tokyo, Osaka and Los Angeles as wellas Busan to Tokyo and Osaka. TheU.S. services are Chicago to Detroit,Memphis, Minneapolis/St Paul, LasVegas to Los Angeles, Detroit-Seattleand Minneapolis/St Paul-Seattle.Thai Airways International (THAI)and Scandinavian Airline Systems(SAS) have resumed their code-sharerelationship after a four-year hiatus. Itwill include routes to all Australian citiesserved by THAI, as well as Auckland,Hong Kong and Kuala Lumpur. InEurope, the partnership will apply toroutes from Oslo to Copenhagen,Gothenburg, Aalborg and Aarhus.IT>> Singapore Airlines (SIA) willoutsource its reservations call centres inAustralia, New Zealand, the U.S. and Canada“with the aim to streamline operations andincrease the service to 24 x 7 coverageon those markets”, the airline said.LEASING>> To reduce debt, China’sHainan Airlines will sell four B737-800s it has ordered, which it values atUS$220 million, to its sister company,Changjiang Leasing, and lease themback for US$630,000 to US$770,000each per month for six years. The firstB737-800 is scheduled for delivery in2008.MRO>> Singapore Airlines (SIA)has signed a Letter of Intent with Rolls-Royce for Trent 800 Engine TotalCareservices for the 58 B777s in the SIA fleetpowered by the Trent 800. SingaporeAircraft Engine Services Ltd’s 550staff celebrated the successful overhaulof its 500th Rolls-Royce Trent engine inJanuary.ROUTES>> AirAsia will add serviceseach week from Penang to East Malaysiaas well as flights from Macau to KotaKinabalu. U.S. carrier, ContinentalAirlines, will upgrade Hong Kong toNew York Newark International Airport todaily from April 1.Dragonair has launched services fromits home base of Hong Kong to Busanwhich is its first scheduled service toSouth Korea. In December, the airline,now wholly owned by Cathay PacificAirways, resumed services to Phuketwith daily direct flights from Hong Kong.India’s Jet Airways will commenceservices to New York and San Franciscoin 2007, the company has announced.Nok Air, a Thai low-cost domesticcarrier, added the resort of Krabi to itsschedule, bringing the number of cities itserves to seven.TRAINING>> Alteon has opened itstraining center in Singapore, adjacentto Changi International Airport. It isequipped with seven full-flight simulatorbays, a cabin emergency evacuationtrainer, flat panel trainers, six classroomsand a computer-based training facility.The Seattle-headquartered company, aBoeing subsidiary, also has supplied AirIndia with a B737 next generation flightsimulator at the carrier’s pilot trainingcenter in Mumbai.February 2007 ORIENT AVIATION 9

BUSINESS ROUND-UPChinese bankbuys SALEBank of China Ltd (BOC)has bought Singaporebasedaircraft l e s s o r ,S i n g a p o r e A i r c r a f t LeasingEnterprise (SALE) for a reportedUS$965 million. The state-ownedmainland institution, which operatesthe largest international network ofall Chinese banks and is listed onthe Hong Kong Stock Exchange,acquired the lessor in Decemberfrom shareholders SingaporeAirlines Ltd (35.5%), WestLB AG(35.5%), and two government ofSingapore investment companies,Temasek Holdings (14.5%) andSingapore Investment Corp. (14.5%).SALE had assets of US$3.1 billion atSeptember 30 last year and a worldwideclient list that included China SouthernAirlines, JetStar Asia and low-cost carrier,easyJet. Chief executive Robert Martincontinues to head up SALE under the newownership.Briefly …China Southern is onSALE’s client listA BOC statement issued to the HongKong Stock Exchange when the sale wasannounced said: “The acquisition forms partof the company’s overall corporate strategyin expanding its scope of diverse financialservices and increasing its diversificationinto non-interest income.”In January, SALE ordered 20 A320airliners and exercised an option to purchase20 B737-800 next generation airplanes.The new orders are the first made since thecompany was acquired by BOC. SALE hasa current portfolio of 75 aircraft. In addition,the lessor now has 67 airplanes on order:20 A320s referred to earlier and 47 B737-800s.The launch of Golden Dragon Airlines, a cross-bordercommuter carrier based in Macau and to be managed byHong Kong Express, is on hold. The airline’s shareholdersled by casino tycoon and chairman of Hong Kong Express, StanleyHo, are concerned about the limitations of the market since thelaunch of Viva Macau last year and the planned start up of AirMacau’s low-cost carrier, Macau Air Asia Express, by mid-year.– By Charles Anderson.• Cathay Pacific Airways executives, in a recent briefing toanalysts, said they plan annual capital expenditure of HK$9.5billion (US$1.217 billion) to HK$10 billion up to 2009, mainly toexpand the carrier’s fleet.• Malaysia Airlines (MAS) has announced a rights issue of418 million shares, valued at the time of the announcement at 1.6billion ringgit (US$455.2 million), to improve cash flow at the flagcarrier. The rights issue will provide funds for fleet purchases whenthe airline implements its new hub and spoke policy in 2008. MAShas said it lost 620 ringgit last year, but will report a 50 millionringgit profit in 2007.• Shareholders in Indian low-cost carrier, SpiceJet, haveapproved the sale of 50 million shares, or 24% of the total valueof that carrier, at US$1.17 a share to investors including the TataGroup, Goldman Sachs and BNP Paribas.The carrier, which started flying from its New Delhi base inmid-2005, raised US$80 million two years ago with a sale ofconvertible bonds. Executive director, Ajay Singh, said it believedthis was all the money it needed for now. “With the expandingmarket and our expanding share in the market, we do not want todilute any more than we are doing,” he said.10 ORIENT AVIATION February 2007

MAIN STORYAirlines chasing cash to finance growth couldbe in luck. Global equity firms are increasinglytargeting the aviation industry in the Asia-Pacific with billions of investment dollars.TOM BALLANTYNE reports on the effectsof their new found interest.THE REAL DEALThe dollar signs are flashingaround the Asia-Pacific asglobal equity investors take anincreasing interest in its carriers,adding further changesto a regional landscape already undergoinga significant shift thanks to consolidationmoves and ownership changes.Leading the charge is flamboyant 63-year-old David Bonderman’s Texas PacificGroup (TPG), part of an internationalconsortium of investors making a US$8.7billion bid for Qantas Airways.Bonderman, who already has a stake inSingapore low-cost carrier (LCC), TigerAirways, through another aviation investmentvehicle, Indigo Partners, has alsosignalled his interest in the booming Indianairline sector.TPG moved late last year to invest $30million in Indian LCC, SpiceJet, althoughnegotiations have now been put on holdtemporarily so Texas Pacific managementcan focus on completing the Qantas deal.There is increasing speculation that otherairlines in the region will become targets forequity buy-outs by similar consortia, set upin such a way as to ensure majority ownershipand management remains in local hands.In the Qantas deal the consortium– known as Airline Partners Australia(APA) – is being led by three Australianfirms, Allco Equity Partners (35%), AllcoFinance Group (11%), and Macquarie Bank(less than 15%). Offshore investors includeTPG (less than 15%), Canadian privateequity investor Onex Partners (9%) andother foreign investment funds (less than15%). Offshore investors will hold less than40% with no single international investorholding more than 15%. Qantas is currentlyabout 46% foreign owned.Elsewhere, Garuda Indonesia is wellMajority ownershipof Qantas will stayin local handsahead with talks to enlist an internationalshareholder as a strategic partner. This willmost likely be a foreign airline althoughpresident Emirsyah Satar told OrientAviation he does not rule out an equityinvestor with aviation industry experience(see page 20).Some analysts also believe that the‘[Asia] is going to be a globalmarket dominated by thesame [10] global playerswho dominate the markets inAmerica and Europe’David BondermanManaging partnerTexas Pacific Groupregion’s leading LCC, AirAsia,is being groomed as an attractivetarget for equity investment, followingits huge order for up to 100A320 jets and the launch of a newlow-cost, long-haul brand, AirAsiaX, in January (see page 18).The theory is that while thecarrier is not extending itself toofar financially, nevertheless it isdriving up its potential value forinvestors.Generally, investors are eyeingthe region with increasing favour,as Bonderman himself has highlighted.Speaking at a conferencein Hong Kong in November, hereferred to an “explosion” in equityinvestment deals across the boardin the Asia-Pacific and predictedthe region would join the U.S. andEurope as buy-out boom markets.He forecast the Asia-Pacific marketwould be dominated by just 10global firms, with TPG among them.“It’s going to be a global market dominatedby the same global players who dominate themarkets in America and Europe,” said TPG’smanaging partner.Bonderman’s TPG already manages $30billion of equity capital and companies withcombined revenue of about $65 billion. Inthe last 12 months his firms have allocated30% of their total investment capital to theregion, more than double the amount of theprevious four years.Other major global private equity firmssuch as Kohlberg Kravis Roberts, the CarlyleGroup, Bain Capital and CVC CapitalPartners are pursuing similar strategies.Indeed, in the nine months to October,private equity firms committed $28.9 billionbuying into, or buying, Asian companies12 ORIENT AVIATION February 2007

MAIN STORYinvestors and expects to close the deal in afew months”. GoAir currently has a fleet ofseven A320 aircraft with 20 more on order.While India is regarded as the region’sbiggest potential airline market, along withChina, financial results of its carriers havesuffered from intense competition, ticketprice discounting and over-capacity. AnotherLCC, Air Deccan, went to the market lastyear with a share issue it expected to raisenearly $100 million.In the end it had to reduce the price ofshares to attract investors and raised only$81.6 million.Despite that there still appears to bebullishness among investors who believein the long-term potential of India’s airlineindustry.But the deal of the moment is undoubtedlyQantas. Most industry observers believe itwill now be completed, probably by March,despite public concerns about the potentialfor the airline, regarded as a national icon, tofall into foreign hands. Shareholders were toreceive the formal offer from the consortiumearly this month.After rejecting an initial offer of A$5.50a share (US$4.30), the Qantas board onDecember 14 unanimously approved arevised offer of A$5.60, conditional on minimumacceptance by 90% of shareholders.In a letter to shareholders, Qantas chairman,Margaret Jackson, said the airline hadreviewed alternatives to the APA offer andhad concluded it was the best available tomaximise shareholder value.Shareholders can be absolutely sure ofone thing: Qantas will remain under majoritylocal ownership and control. That was thefirm message from Canberra as transportminister, Mark Vaile, publicly laid downthe law.Sir Rod Eddington, right, and David Turnbull maysit on the Qantas board, while Geoff Dixon, left,will remain as managing directorThe government, he declared, woulduse its foreign investment veto powers toensure Qantas remained Australian, didn’tcut domestic regional services, kept jobsonshore and did not move maintenanceoperations abroad.APA would face conditions similar tothose imposed on Air New Zealand when ittook a 100% stake in the now defunct Ansettin 2000, said Vaile.“Obviously, we can’t be too interventionist,but this business, particularlypost-Ansett, is in a very unique positionin the Australian economy and thereforewe need to move forward with great care inthe process.”The minister spoke out after his officewas “inundated” with calls from the publicexpressing concern over Qantas’s future,particularly the involvement of Bonderman’sTPG. On the surface, it appears those withqualms about the deal have little to worryabout. APA has bent over backwards toassure shareholders it will be business asusual when the deal goesthrough.Not only would Qantasremain under major it yAustralian ownership andmanagement control, thepresent management team,le d by ch ief exe cut ive,Geoff Dixon, would remainin place and continue withcurrent strategy, includingthe international ambitions oflow-cost offshoot Jetstar, saidAPA director and spokesmanBob Mansfield. “There is nointention to break up theairline, no intention to cutSpiceJet: attracted interest fromthe Texas Pacific Groupregional services and no intention to movemaintenance overseas,” he promised.More interesting is the possibility of areturn to the fold of two long-time stalwartsof the region’s aviation scene. FormerCathay Pacific Airways chief executives SirRod Eddington (he also led British Airwaysuntil September 2005) and David Turnbullare both on the board of Allco FinanceGroup, raising the real possibility of theireventual arrival on the Qantas board if thebuy-out is successful.This underscores the depth of aviationexperience within the consortium. MacquarieBank is no stranger to the industry. It ownssix airports around the world, includingSydney Airport and is also involved inaircraft and engine leasing.As well as this, Bonderman is a longtimeindustry investor with a formidablereputation for success. He took control ofU.S. carrier, Continental Airlines, after itentered bankruptcy protection for the secondtime. It has since become viable, profitableand doubled in size.Bonderman also took over another bankruptoperator, America West, and it has sincequadrupled in size and revenue. He investedin – and now chairs – Europe’s Ryanair,which has become one of the world’s largestand most profitable low-cost carriers.A PA has bigger plans for Qant as.Mansfield talked of a 40% increase incapacity in coming years and a commitmentby the consortium to investing A$10billion over the next five years to strengthenQantas’s product.Could this buy-out be a blueprint forother airline equity investment raids in theAsia-Pacific? Many believe the answer is yesand that other deals will follow.14 ORIENT AVIATION February 2007

MAIN STORY‘Time to think out of the box’There is certainly potential forfurther industry restructuringand consolidation in the Asia-Pacific region, accordingto JPMorgan Asia-Pacific’sregional transport analyst Peter Negline.But he stressed that private equity capitalfrom big international investment playerswill not be the only mechanism driving themarket.“Private equity is one of the catalysts,but it may not be the only thing that propelschange,” he said.“I think there are quite a few [developments]that are particularly interesting, butsuffice to say it is time to think outside thebox.”Negline believes broader issues areat play involving fundamental industrychange, with the airline industry becomingmore pragmatic “as people have watched thesuccess of the KLM and Air France mergerin Europe, on one level, while the stressescaused by the spike in oil prices which isstill fresh in everyone’s minds, must haveeveryone thinking about their options”.He and other analysts will not talk about‘Private equity is one of thecatalysts, but it may not be theonly thing that propels change’Peter NeglineRegional Transport AnalystJPMorgan Asia-Pacificindividual deals, but the regional industry isawash with unconfirmed reports of possibleinvestments.A cashed-up Singapore Airlines is saidto be interested in a stake in Garuda, as wellas investing in a Chinese carrier. AirAsiachief, Tony Fernandes, has reportedly saidprivately he wants to buy a slice of thePhilippines carrier, Cebu Pacific.Negline believes there will be consolidationin China, but he would not expand.Elsewhere, the analyst believes historicallegacy issues may prevent some deals.“But it may not constrict all of them...there are developments in India and China.“The only places that are reasonably[quiet] at the moment are Taiwan and Korea,but you have to wonder when things are goingto happen there”.Interestingly, he also believes the ambitiousexpansion plans of Malaysia’s AirAsiaare bound to have an “action/reaction”consequence in the region.AirAsia is due to take an average of 20new aircraft annually for the next six years,so this may well be a catalyst for change initself, said Negline. 16 ORIENT AVIATION February 2007

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MAIN STORYGoing the distanceFernandes targets long-haul services, while boosting AirAsia’s fleetBy Tom BallantyneTony Fernandes, the ebullientchief of Malaysian low-costcarrier (LCC), AirAsia, hadlittle time for celebration as theNew Year got underway. It wasall business. Fernandes was in London readyto make two of the biggest announcementssince the car rier was established inDecember 2001.First, the AirAsia brand was going longhaulwith AirAsia X, targeting China,India, Australia and Europe. Second, hewas placing an order – worth US$6.7 billionat list prices – for up to 100 new A320 jets,a move that could see his LCC fleet grow toaround 200.The latter was hardly a surprise. AirAsiahas been one of the fastest-growing carriersin Asia, leading the region’s no-frills boom.The first announcement was unexpected.Fernandes has repeatedly and publicly saidthe LCC model would not work beyond threeto four hours’ range.But with long-haul, low-cost operationssurging – Oasis Hong Kong Airlines andQantas’ Jetstar International are alreadypointing the way – Fernandes clearlyrecognizes an opportunity. And as always,he isn’t hanging around to let it pass.AirAsia X, he declared, “will bringindependence to the long-haul, low-costtraveller by providing a choice of service fortheir long-haul travel requirement.”The new airline, owned by Fly AsianExpress (FAX), a company establishedby Fernandes, Air Asia executive directorKamarudin bin Meranun and former AirAsiachief financial officer Raja Azmi, willoperate as a separate entity. FAX currentlyutilizes Fokker 50 and Twin Otter turbopropsin rural Malaysia. It started operations lastAugust when AirAsia took over rural airroutes from Malaysia Airlines (MAS). Undera 30-year franchise, AirAsia X will use theAirAsia brand, its website for bookings, andother services.The new carrier will launch mid-year withthree aircraft, have five operating by the endof its first year and reach its planned size of20 by the end of the fourth year. A decision onfleet type was expected by the end of Januaryor early February, with the A330-300 and theB777-300ER under consideration.AirAsia X expects to carry 500,000passengers in the first year. Average ticketprices will be about half those of full-serviceairlines. Inaugural flights, planned in July,will be to Tianjin and Hangzhou in China,and to either Manchester or London in the‘Within the next seven years, Iam convinced we will be thelargest airline in the worldwith 54 million passengers ayear’Tony FernandesChief ExecutiveAirAsiaUnited Kingdom. If AirAsia X ends upflying to London, it will operate from one ofEurope’s major LCC hubs, Stansted airport,said Fernandes.India and Australia are firmly on theradar screen, with flights to the U.S. andSouth America also under consideration.Malaysia and Australia are already in talksto open a low-cost air route between the twocountries.A deal would likely involve access forJetstar to the low-cost terminal at KualaLumpur International Airport, with AirAsiaX flying to Avalon, a similar terminal nearMelbourne.AirAsia’s domestic and Asian regionalflights will interlink with AirAsia X longhaulservices. “While AirAsia and AirAsiaX will be two separate legal entities andhave separate management teams, I believeAirAsia X and AirAsia will have a symbioticrelationship.Both carriers will enhance the feed ofpassengers into each other’s operations,and ensure passengers enjoy a seamlessexperience,” said Fernandes, who has notruled out future tie-ups with LCCs in Europesuch as easyJet and the Virgin Atlantic group,or Virgin Blue in Australia.As for AirAsia itself, Fernandes made itclear the latest Airbus order marks a majorleap forward. “Within the next seven years, Iam convinced we will be the largest airline inthe world with 54 million passengers a year,”he said. The airline carried about 15 millionpassengers last year and expects to reach 18million by the end of 2007.AirAsia already has 100 A320s on order,with 16 having been delivered. There are also36 B737-300s in the current fleet, but theywill gradually be replaced by A320s. TheJanuary deal was for another 50 firm orders,with 50 options.The aircraft will be distributed among theAirAsia group, which includes Thai AirAsiaand Indonesia AirAsia. Fernandes said thepurchases would be funded by a combinationof borrowings, internal reserves and cashgenerated by operations.They will all have arrived by 2014. “Weexpect about 20 aircraft to be delivered eachyear, beginning this year,” said Fernandes.With access to some 500 million peoplein the region, AirAsia needed more aircraftto properly fuel growth. “As we enter chaptertwo of AirAsia, the additional order forA320s will allow us to further strengthenour route network by developing our hubsin Bangkok and Jakarta, connecting morepoints and expanding into Indochina,Indonesia, southern China and India,” hesaid.18 ORIENT AVIATION February 2007

ENVIRONMENTIATA hit teams target US$20 billion annual spendFUEL BUSTERSThe world’s airlines are queuing up to inviteInternational Air Transport Association (IATA)experts to trawl through their operations andfind more ways to cut fuel use. The aim is notonly to save money, but also to protect theenvironment. TOM BALLANTYNE spoke toJuergen Haacker, the man in charge of IATA’sbig fuel-saving push.The figures maynot look much,but theh threemanIATA ‘got e a m s’ t h atadvise carriers on how tomaximise fuel savings, havenot found a single airlinewhere another 1% to 2%could not be trimmed fromthe annual fuel bill.Apply that to the totalfuel spend by Asia’s majoroperators – more thanUS$20 billion a year – andthey could save up to $400million.Just as importantly, thosemeasures would dramaticallyreduce harmful emissionsspewed out by aircraftengines.IATA’s fuel campaign lastyear identified a staggering US$1.8 billionin savings worldwide, equal to 15 milliontonnes of CO 2. According to JuergenHaacker, IATA director of operations, there’smore to come.The 7,000 new aircraft – with their newengines – that will replace older modelsover the next 10 years promise a further20% improvement in fuel efficiency as wellas emissions.His fuel ‘go teams’, are getting busierby the week. Developed during 2005, thereare now five teams operating. Each containsa pilot with flight operations experience, aflight dispatch expert and an engineering andmaintenance specialist.Airlines that want an assessment fillout a lengthy questionnaire, allowingteam members to prepare for their visit.Under a confidentiality agreement, the22 ORIENT AVIATION FEBRUARY 2007Seven thousand new aircraft means 7,000 more fuel efficientengines will be in usecarrier provides detailed cost and fuelconsumption data. Then the team visits theairline, going through systems and practiceswith a fine toothcomb. Two to four weekslater, it receives a 60-page report detailingrecommendations.“You look into the last corner and findout the last cent of saving potential,” saidHaacker, who won’t identify individualairlines that have called in his teams.It is then up to the carrier to decide howmany of the recommendations it wants toimplement.‘IATA’s fuel campaign last yearidentified a staggering US$1.8billion in savings worldwide,equal to 15 million tonnes ofCO 2.’“One airline may say thatfor one reason or another itis unable to implement somerecommendations,” he said.“Some say it sounds great, butthey have no fuel campaignrunning at the moment. Theyneed our help to establish theentire campaign. We do thatas well.”Last year teams visited40 airlines and completedsix full-scale fuel campaignprojects. One airline groupwith six airlines – only twoare IATA members – askedIATA to establish a commonfuel efficiency campaignacross the whole group.About 35 carriers arealready on the schedulefor visits this year and it isexpected 10 to 12 of thesemay ask for full implementation support.The ‘go teams’ are part of a wider IATAfuel strategy that includes a relentless drive tonegotiate shorter, more direct air routes withair traffic service providers. In 2006, morethan 350 routes were shor tened, savingairlines millions of dollars and cutting sixmillion tonnes of CO 2.Many fuel saving measures relate toaircraft weight. Reducing weight aboard byone kilogram for each seat saves up to 9,000gallons of fuel a year.Tailoring potable water to the load factor,carrying blankets only on long-haul flightsand using lighter catering material allcontribute.O t h e r a r e a s c o v e r e d i n I ATA’sassessments include optimizing utilizationof aircraft flight management capabilities,reserve fuel planning and alignment of

aircraft structures, including slats, flapsand doors, as well as engine water washesto ensure they are clean and operate at peakefficiency.Maintenance practices are criticallyimportant. “When you have a scratch or adent on the plane, take your time to repairit,” said Haacker. “Half an hour saved with asloppy kind of repair can cost you a lot of fuelafterwards in terms of drag. These are pointswe tell an airline as part of the basics.”Other issues include use of groundpower at the airport instead of the plane’sown auxiliary power unit (APU), a practicenot always readily accepted. “For the classicline pilot it is always a little bit of a burdento call for ground power,” said Haacker.“He cannot fully control that. He wants toget finished.”Airline assessments show there is avast difference between a large airlineand smaller carriers when it comes toimplementing fuel saving measures. “Withthe smaller ones the major element is whatI would call education,” said Haacker.“They don’t have enough people who reallyunderstand the link between the capability ofthe plane, the preparation of flight and whatthey burn in fuel.”With bigger airlines it often comesdown to implementation. “Their flightperformance people know quite well what‘You look into the last cornerand find out the last cent ofsaving potential’Juergen HaackerDirector of OperationsIATAneeds to be done, but the bigger the airlinegets the more complex it gets and the moreimplementation management becomes anissue,” he said.Also vitally important for airlines isthe quality of fuel used. “It’s like a car. Tryto make sure you have a good quality offuel because what you burn can hurt yourengine,” said Haacker.IATA runs a fuel quality pool andconducts audits on fuel quality for airlines.“We try to emphasise to airlines that if theyare not part of the fuel quality programme,then they must join because if you get badfuel, your engine will get hurt earlier andwill consume more fuel later.”Another area with potential for bigsavings is one-engine taxiing, where anaircraft taxis out using the power of justone power unit. The practice is in use today,particularly in the U.S., but could be morewidespread. Pilots, however, need additionaltraining.A further element in fuel wastage involvesdelayed departures, where pilots then speedup during the flight to recover time.“Some engine models are going to burna lot more fuel, when you try and speed upto compensate for a departure delay,” saidHaacker.IATA is now investigating whetherassessment teams can be expanded byincluding local airport and air trafficmanagement representatives. “Airlinescome to us and say ‘it is nice that you tell uswhat we can do or what we should do, butsome of these things we can only do withthe co-operation of airports and ATMs’,”he said. “That’s the reason we are lookingat that”.GREENER SKIES FORUM 2007Asia-Pacific aviation’s response to CO2Conrad International Hotel, Hong KongMarch 29-30, 2007Speakers will include IATA director general Giovanni Bisignaniand Singapore Airlines CEO Chew Choon Seng.See pull-out in this issue or log on to orientaviation.com for more details.For booking details contact Orient Aviation ConferencesMarketing and Communications Director, John McGeeat johnmcgee@orientaviation.comPhone: (852) 9722 1923 Fax: (852) 2865 3966FEBRUARY 2007 ORIENT AVIATION 23

ENVIRONMENTWanted: a global approachAsian airlines are pulling out all stops to make their operations environmentallyfriendly. But what they want most is international standardization when it comesto meeting the challenge to aviation presented by ‘green’ issuesBy Tom BallantyneThere needs to be a harmonizedglobal approach to aviationenvironmental issues and“consistency of application”of regulations rather thanunilateral regional initiatives, accordingto the director general of the Associationof Asia Pacific Airlines (AAPA), AndrewHerdman.Speaking at an AAPA forum on theenvironment held in Brunei late last year, hesaid harmonization was essential to avoidcompetitive distortions. “The AAPA willremain focused on ensuring that the viewsof the Asia-Pacific are both heard and carryproper weight in an international context,”he added.The forum urged governments to workcollaboratively within the framework of theInternational Civil Aviation Organization(ICAO) in seeking to reconcile the interestsof citizens and countries at different stagesof development as they moved towards trulysustainable global development.It also asked governments to recognizethe ineffectiveness of green taxes in changingbehaviour. Voluntary initiatives and marketbasedmeasures are more appropriate toolsfor tackling environmental challenges,delegates decided.The Brunei gathering came as theaviation environment debate continuedto heat up, particularly in Europe. Thereis mounting disquiet within the industryover European Commission (EC) plansto introduce an emissions trading schemespecifically targeted at airlines. It will applyto all airlines flying within Europe and toand from Europe. In January, Britain’senvironment minister, Ian Pearson, raisedthe temperature further by accusing airlinesof trying to dodge responsibility for theirimpact on climate change.The Inter national Air Transpor tAssociation (IATA) agreed emissionstrading is the best way for Europe to meetits emissions targets, but only with “the righttrading formula and if airlines take part in amulti-industry emissions market”.IATA’s chief economist, Brian Pearce,speaking during a series of briefings tointernational media in Geneva in December,criticised the European Parliament’s proposalfor airlines to have a “closed, aviation-only”emissions trading scheme. He argued thiswould not be effective if the objective was anoverall reduction in Europe’s global warming‘[Aviation] must minimize[its] impact on the naturalenvironment [it] inhabits’Andrew HerdmanDirector GeneralAAPAgas emissions.Pearce said if governments want to cutemissions rather than raise taxes that “makethe polluter pay”, they should approve asystem in which airlines can buy allowancesfrom industries that emit more CO 2 and havea greater potential to reduce production ofthis greenhouse gas while incurring a lowerunit cost of doing so.The formula would involve eachemissions-producing sector – or individualbusiness – having a capped allowance intonnes of CO 2 . If it needs to emit more,it must purchase “permits to emit” fromcompanies or sectors that have earned themby cutting emissions, or which have not usedall their capped allowance.According to Pearce, aviation’s problemis that airlines mostly own modern fleets inwhich most of the fuel efficiencies that canbe made have been, so further advances canonly be small and high-cost.He contrasts this with other sectors, suchas heavy industry, power generation andresidential energy use, where the technologythat can reduce emissions are relatively cheapper tonne of CO 2 cut. Not only is this cheaperto do, but since these sectors emit far morethan the airline industry does, the potentialbenefits are greater.“Aviation plays an important role inmodern economic and social development.At the same time we must minimize ourimpact on the natural environment weinhabit”, said Herdman.“Aviation faces a number of distinctissues relating to the environment. Noise,particularly around airports, has long beena contentious subject. Manufacturers havemade significant progress in reducing thenoise footprint of modern aircraft, whichare noticeably quieter in operation.“Local air quality is another aspectof being a good corporate citizen, whereairlines continue to work closely withairport operators to manage local emissions,including emissions from ground transportsystems and services, as well as aircraftemissions on the ground.”Herdman said the threat representedby global warming has some bearing onaviation. “It is worth noting that aviationgenerates only 2% of total CO 2 emissions,whilst contributing directly and indirectlyto 8% of global economic activity.Nevertheless, aviation is committed tocontinuous improvements in fuel efficiency,through the use of newer designs and moreefficient operating procedures,” he said.24 ORIENT AVIATION FEBRUARY 2007

COVER STORYPhilippine Airlines (PAL)president, Jaime Bautista,has dragged the airline fromthe depths of bankruptcy tofinancial health and industryrespectability. Its latest financialyear, with net profits rising ahefty 63% to US$28.7 million,represents its best result in overa decade. TOM BALLANTYNEtalked to Bautista about the nextphase of the PAL revival story.PAL pulls outall the stopsOfficially, it will be 2012before Philippine Airlinesis out of rehabilitation.That is when it handsover the final paymentand clears the massive US$2.3 billion debtit had amassed by 1998, when it plungedinto bankruptcy and closed its doors for 14days. But, according to PAL president JaimeBautista, now that the carrier has fought itsway back to liquidity, that day has, in effect,already arrived.“We are up to date with the payment of allour obligations,” said Bautista. “Out of theoriginal $2.3 billion that we restructured, wehave paid almost $1.3 billion. So, with halfour debts already paid, we owe our creditorsa little over a billion dollars and that will bepaid over the next six years.”Astute management and intensive reformshave transformed PAL into a nimbler, moreefficient and customer-focused airline as itcontinues to overhaul its operations underthe watchful eye of an official receiver. It hasimproved schedule reliability and on-timeperformance, slashed costs and dramaticallyimproved its balance book.Now it plans to modernize its fleet, furtherenhance service products and systemsand push into new markets. “We are on theright track and we have something to build ongoing forward,” said 49-year-old Bautista.One of Asia’s oldest airlines – foundedon March 15, 1941 – PAL has had a rollercoasterride since operating the first flight byan Asian carrier across the Pacific in 1946and the first service to Europe by a SoutheastAsian airline, in 1947.PAL has plumbed the depths, now itis back revitalised and ready to tackle thefuture.Reaching this point has not been easy, butBautista is proud that he was able to keep apromise made to PAL majority shareholder,tobacco tycoon Lucio Tan, when the airlinereached agreement with creditors on arehabilitation plan in late 1998 when he waschief financial officer.They insisted Tan inject $200 millionto back it. Bautista told his boss the moneyPhilippine Airlines presidentJaime Bautista: PAL is onthe right track and now hassomething to build onwould never be needed. And he was right.“I am happy to say the $200 million hasnever been touched by Philippine Airlines,”he said. “In the first year of the rehabilitationplan we were expecting losses, but wereported a meagre income, a few millionpesos. Since then there have only been two26 ORIENT AVIATION February 2007

years when we have lost money; 2001 inthe aftermath of 9/11 and 2003 because ofSARS.”Bautista splits his own involvement withPAL into three phases. “The first was postprivatizationand pre-restructuring. Thatwas from 1993, when I joined PAL, until1999 when we were losing money. The nextphase was post-restructuring, from 1999 tothis year. The third phase? I would call itsustained growth and profitability and weare beginning that phase now.”Among items on the agenda are fleetrenewal and expansion, as well as amuch-needed upgrading of inflight serviceofferings and entertainment systems. Therewill also be network expansion and, critically,a continuation of focus on corporatediscipline, a relentless drive for efficiencies,attacking costs and further strengthening ofthe company’s financial position.Last year’s healthy income – $28.7 millioncompared with the previous years’ $17.6million came on revenues that grew 15% to$1.24 billion – was a turning point. Drivenby strong performances by both passengerand cargo businesses, it was the best resultsince PAL last reported a surplus exceeding$20 million in 1993, when it booked $40.5million.Virtually all key performance indices,in the year ended March 31, includingthose measuring capacity, traffic carriageand load factor, improved year-on-year,buoyed by economic recovery in PAL’sbiggest markets: the Philippines, the U.S.and Japan. It also made inroads in boomingnew markets, such as China. Last November,the carrier launched services to Beijing, itsthird point on the mainland after Guangzhouand Xiamen.In the current year, Bautista expects tocome close to matching the 2006 result. “Itmay be a little below because of increasedfuel prices, but in terms of revenue it will begrowth, to perhaps more than $1.2 billion.”The only thing holding PAL back rightnow is lack of capacity. With its A340s flying15 to 16 hours a day and its B747s nearly14 hours, it has one of the highest aircraftutilization rates in the industry. It needs moreaircraft to increase existing frequencies andadd new destinations in the U.S., India and,probably, Europe.Bautista has already moved to resolvethe issue. Late in 2006, he signed a purchaseagreement with Boeing for two B777-300ERsfor delivery in 2010, with options on anothertwo for delivery in 2011. In addition, he hassigned a Letter of Intent with GECAS forthe lease of two more B777-300ERs, to bedelivered in 2009.Currently PAL operates a fleet of 32 aircraft– five B747s, four A340s, eight A330s,11 A320/A319s and four B737s. AnotherA319 will arrive in May. “We are lookingat a fleet of around 40 in four or five years’time. That takes into account retirements. Wewill have 20 A319 and A320s, eight A330s,four A340s, four B747s plus at least fourB777s,” he said.The plan is to use the additional capacityto dramatically increase penetration in theNorth American market. Services to LosAngeles and San Francisco (currently nineand eight services a week respectively)will be raised to double daily. Flights toVancouver will increase from four a weekto daily. The Canadian service also operatesthrough to Las Vegas, but Bautista wantsthe additional flights to continue to SanDiego, adding another U.S. destination tothe network.“There is a clamour from the Filipinocommunity for PAL to fly to San Diego,”he said. “Right now, passengers from therehave to take maybe a small aircraft to LosAngeles, or a bus, to connect with our LAflight. There is a big Filipino community inSan Diego.”On the agenda as well are daily flights to‘Our [domestic] competitors areoffering very cheap fares. Theyare trying to buy the market.In spite of that our passengernumbers keep on growing.’Jaime BautistaBeijing and Xiamen, up from four and fiveweekly at present. Additional capacity intoAustralia is being considered, as well as newflights to India. “We don’t fly there now, butwe have landing entitlements to sevendestinations,” said Bautista. “Obviously,it is a huge growth market and right nowthere are no direct flights between Manilaand India. People have to go via Singapore,Hong Kong or Bangkok.”A possible return to Riyadh in SaudiArabia is also being reviewed. Once a strongplayer in the Gulf region, PAL has reduced itspresence in the last decade, dropping Dubaiand Jeddah in 1998, then Dammam in 2001.Finally, in March 2006, it dropped Riyadhin the face of a massive oversupply of seatsin the market. It now code-shares on routesto the Middle East with Qatar Airways,PAL plans a mixed Airbus and Boeing fleettotalling 40 aircraft within five yearsEmirates Airline and Gulf Air.Flights to Europe remain under review.Bautista said the problem was not only lackof aircraft, but the cost of operations. Overthe last four years, four European carriersoperating direct flights between Manila andEuropean capitals have either stopped orreduced services: British Airways in 2002,Swiss International in April 2004, Air Francein November 2004 and Lufthansa GermanAirlines in April 2005. But it remains a toughroute to service successfully.“There is a still lot of competition. Faresare very low and cost of operations is veryhigh to Europe. If conditions improve andwe were able to charge higher fares and iffuel prices go down, perhaps we can considerflying to Europe. Our preferred destinationswould be London or Frankfurt, but right nowwe don’t really have additional capacity,” hesaid.February 2007 ORIENT AVIATION 27

COVER STORYAt least Bautista is no longer shortof pilots. Last year, the PAL presidentcomplained that dozens of cockpit crew hadleft, poached by the fast growing operatorsof the Gulf region and India.“The pilot shortage is no longer an issue,”he said. “We introduced a pilot retentionprogramme. We have given them a goodsalary increase. We have given them betterretirement benefits. That has stemmed theflow. I am getting feelers from pilots wholeft us that they want to come back, but rightnow we have enough.”While all is well in the cockpit, back inthe passenger cabin there is much work to do.The airline’s B747s are being reconfigured– at a cost of $12 million per aircraft – toa two-class layout, with first class beingeliminated. There will be new seats inbusiness and economy, with corporatetravellers getting cocoon-style sleeper seats.Audio Video On Demand (AVOD) is beinginstalled throughout. The number of seatswill be reduced from 433 to 426, but therewill be more in business class, increasing thehigher yield component.Like all airlines, staying significantly inthe black has not been easy. PAL’s expensesjumped by $153 million, or 14%, to a totalof $1.22 billion last year, due largely to thefuel costs, now 30% of the carrier’s expenses.PAL hedges around 60% of its fuel needs.Despite this, the airline managed tokeep outgoings in check by cutting costsand improving systems. For instance, itsrevenue management, reservations andticketing systems are now configured to drivedown distribution costs. Electronic ticketingis available on more than 70% of PAL flights,including all domestic routes.Domestically, PAL has been facing toughcompetition, particularly from rivals likeCebu Pacific (see page 32). “Passenger traffichas grown by almost 5% compared with lastyear although yields on domestic routes aregoing down because of competition,” saidBautista. “Our competitors are offering verycheap fares, as little as one peso, 10 pesos or99 pesos. They are trying to buy the market.In spite of that our passenger numbers keepon growing”. And, no, he won’t matchbargain basement fares.What Bautista has done is move to revampthe domestic fleet. The first of 20 A320 andA319 aircraft, an $840 million order placedin December 2005, arrived in September,with two more joining the fleet by the endof 2006. Seven will be delivered in 2007and five more in 2008, with the remaindercoming through 2009 and beyond.While some will be used for regionaloperations, the majority will operate inlocal skies. They allow PAL to offer businessclass on all its 18 domestic routes (only fourpreviously had business). More importantly,PAL will be the sole carrier to offer businessservice in the domestic market, giving it adecided edge in the country’s corporatemarket.“We are a legacy carrier and many peoplewill still prefer to fly more comfortably,” saidBautista.Meanwhile, the PAL president argues thatthe carrier is already low-cost in terms ofoperations. “If you compare costs in termsof the LCCs we have the same maintenancecosts, we spend the same on fuel and pay thesame airport charges,” he said.“Maybe they have an advantage in termsof manpower costs, but that is a very smallpercentage, considering our costs are alreadyvery low compared with foreign airlines.Jaime Bautista is no longer shortof pilots, thanks to a retentionprogramme and salary increaseBautista’s rescue actTheir advantage is they don’t spend muchon distribution, but we are also now pushingfor sales through the Internet, so soon we willhave the same cost of distribution.”Bautista believes the key elements inPAL’s turnaround have included improvementsin passenger service and instillinga “team feeling” among staff. “We havemotivated our people so there is moreparticipation and communication,” he said.As for the future, Bautista is far fromover-ambitious. “We are not comparable toSingapore Airlines, Thai Airways, CathayPacific or Japan Airlines and ANA (AllNippon Airways). We are not looking tobecome a huge carrier,” he said. “We arelooking to be a highly profitable middlesizedairline with 40 to 42 planes, an airlinewhich will have the biggest share of theU.S. market from the Philippines and alsoan airline which will have a bigger share ofthe third and fourth freedom traffic from theother countries [in which] we operate”.When Jaime Bautista was appointed president and chief operating officerof Philippine Airlines in August 2004, he came armed with a wealth ofexperience in the business, particularly the complex financial workings ofthe industry. A certified public accountant, he was already a PAL veteran and closeconfidante of the carrier’s majority owner, tobacco tycoon Lucio Tan.Having worked with a number of Tan companies previously, he was, successively,senior vice-president and chief financial officer, then executive vice-president and chiefoperating officer at PAL through the 1990s. When the airline’s receivers imposed a neworganizational structure on the carrier following its financial collapse in 1998, Bautistawas there to help clean up the mess. As chief financial officer he was a key player informulating the rehabilitation plan designed to appease creditors and rebuild PAL.By 2004, with the airline continuing to face challenges, Tan decided it was time toput Bautista in overall charge. Immediately prior to taking up his new post, Tan waspresident and chief executive officer of Air Philippines, the country’s third-largestcarrier and had also served on PAL’s Board of Advisors from 2002.28 ORIENT AVIATION February 2007

COVER STORYCebu turns up the heatIt came as no surprise to PhilippineAirlines management when CebuPacific announced its biggest-everseat sale to more than 200,000travellers in November, offeringUS$20 one-way fares to four of its Asiandestinations and just $2 to all domestic destinations.The fare blitz had been underwayfor months, with a regular stream of specialsat home and abroad.The offers are attracting big business.Cebu services 20 domestic destinations andhas recently been on a regional expansiondrive. Originally flying only to Hong Kongand Singapore, it spread its wings to KualaLumpur in November, Bangkok in Decemberand Jakarta in January.Domestically, the carrier now has a 45%market share, compared with PAL’s 43%. InOctober, Cebu recorded its highest passengerloads – domestic and international – in theairline’s 11-year history. It carried a totalof 366,284 passengers, 111% higher thanthe same month in 2005. Domestic traffichit 318,632, also a record and 108% higherthan October 2005. Little wonder presidentand chief executive Lance Gokongwei isflying high.“The steady growth of passenger loadscan be attributed to Cebu’s aggressivepricing strategy, continuous expansion andCebu Pacific president and chiefexecutive, Lance Gokongwei: haspositioned Cebu Pacific to cater forcost-conscious business travellersopening of new routes, as well as its highquality product offering,” he said.“Now that we are offering to the publicthe newest planes, lowest fares, the mostdomestic flights, routes and destinations, wecan see that people are indeed flying moreand possibly flying for the first time.”More serious for PAL appears to be theinroads Cebu is making in the corporatemarket, even though it has no businessclass. According to Cebu’s head of sales,Edwin Bautista, the number of companiesholding corporate accounts had increased bymore than 300% by the end of October 2006,compared to December 2005.Flexibility was the key to the corporateproduct, he said. “In addition, we have a fleetwith an average age of less than nine months,which once again makes our corporate offeringvery competitive.“We are seeing a change in the needsof the business traveller, where businesstravel no longer means flying businessclass. Nowadays, we see that companiesare becoming more practical and valueconscious. Many savvy chief executives andchief financial officers in both the public andprivate sector are realizing that a real easyway to improve the bottom line or to stretchthe budget further is to travel with Cebu.”Cebu continues to grow. It now operates12 new A320s and two more will bedelivered in early 2007, completing a $670million re-fleeting programme. And as PALintroduces more new A320 family aircraftof its own and offers business class on alldomestic routes, the battle for the corporatedollar is set to intensify. Whether it is Cebuthat is right with its all-economy strategy,or PAL with its comfortable offering, onlytime will tell.32 ORIENT AVIATION February 2007

NEWS BACKGROUNDERBy Tom BallantyneAfter more than two years ofinternal debate and numerousproposals from the world’smajor Global DistributionSystems (GDS), China’sown home-grown GDS, TravelSky, hasfailed to reach a decision on modernizingits systems in time to better handle the hugebusiness upsurge brought about by nextyear’s Olympic Games in Beijing.Orient Aviation has learned that during aspecial TravelSky board meeting on January9, the country’s airlines, led by Air China –they are represented on the TravelSky board– formally rejected a proposed joint ventureinvolving the big European GDS, Amadeus,and IBM.This followed intense lobbying frompotential rival consortiums claiming theAmadeus proposal would not work when itcame to a disaster recovery element includedin the plan.The TravelSky board is understood tohave been split over what direction to take.Driven by central government, it hasbecome mandatory for every industrycritical to the country’s economy to havea back-up and disaster recovery solutionin place before the Olympics, because theydon’t want anything to go wrongNone of the parties involved in the ongoingwrangle is making public comment,but this is hardly surprising given the delicatenature of any negotiations with China.TravelSky itself has issued no statementsregarding the recent board meeting.Another GDS known to be deeplyinterested in working with TravelSky,Singapore-based Abacus, also refused tocomment.It is understood Abacus has been workingwith Sabre, which owns 35% of Abacus, andUnisys on a counter proposal. Unisys hasbeen deeply involved with TravelSky sinceits inception 16 years ago.However the situation has been furthercomplicated by a move late last year by DavidBonderman’s Texas Pacific Group and otherequity investors to purchase Sabre for US$5billion. Abacus chief executive,Don Birch, told Orient Aviationhe would make no commentwhile ownership of Sabre wasbeing finalized.However, it is understood noformal Abacus-Sabre proposal isnow on the table at TravelSky.IT companies fail to convince China’s bookinggiant on best way to changeTravelSky missesOlympic deadlineAbacus chief executive Don Birch:his company has been working withSabre and UnisysNevertheless, sources close to discussionswithin Abacus regarding TravelSky say oneproposal approved by its board in June/Julylast year – along with Sabre, 11 of Asia’sleading airlines are stakeholders – involvedthe possibility of a groundbreaking mergerbetween Abacus and TravelSky.The suggestion was that the Chinesewould own 60% of the new joint venture,with 40% held by TravelSky and 20% byChinese airlines.The remaining 40% would be sharedbetween Sabre (with 28%) and the airlinestakeholders in Abacus (12%). These carriersare All Nippon Airways, Cathay PacificAirways, China Airlines, EVA Air, GarudaIndonesia, Dragonair, Malaysia Airlines,Philippine Airlines, Royal Brunei Airlines,SilkAir and Singapore Airlines.While it was realised that TravelSky’sGDS technology could not now be fullyupgraded in time for next year’s Olympics,the deal would have involved an all-outeffort to get systems in good enough shapeto handle the Olympic rush.TravelSky would then continue towardsfull modernization following completion ofthe Games.With the merger would come an estimated$160 million in annual Abacus revenue. Sucha move would create not only an Asia-Pacificspecific GDS involving China, but throughSabre a truly global GDS with its roots inthe region.What tipped the majority of TravelSkyboard members against the Amadeus dealwere the potential gains if something alongthe lines of the Sabre-Abacus proposal cameto fruition.While Amadeus won’t talk about it,Orient Aviation has been told the EuropeanGDS proposed that China split its GDSsystem in two, one handling domestic traveland the other international. Amadeus wouldtake 40% of the international arm and throwin its business in Taiwan, Macau and HongKong.There is some dispute over what this isworth. Amadeus cites $28 million whileother industry sources suggest it could be aslow as $15 million.Privately, Amadeus officials haveindicated some of this information is notentirely accurate, but they will not discussthe details of the final proposal.Visit our websitewww.orientaviation.com34 ORIENT AVIATION February 2007

CARGO UPDATEKAL ups the pressureNew freighters and a new JV carrier in China strengthens its handBy Charles AndersonRead between the lines of thebumper aircraft order placedlate last year by Korean Air(KAL) and the importance ofcargo to the carrier’s futurecomes through loud and clear.Of the 25 Boeings to be delivered between2009 and 2019, 10 are freighters. Ten moreare B777-300ERs needed to replace B747-400s being taken out of the passenger fleetby 2009 for conversion into cargo carriersfor KAL’s own use. Add these to the 19B747 freighters currently inoperation and, even allowingfor some retirements, KAL’sdetermination to keep itsposition as the world’s topcargo airline cannot bedoubted.The carrier won thataccolade in 2005 when itknocked Lufthansa off the topof the international scheduledfreight tonne kilometre table.Its current plans for growth,on the back of an annual6% increase in world cargodemand in coming years,will help it stay there, a KALcargo spokesman said.“We are introducingthese new freighters to catchup with increased demand and maintain ourmarket leadership,” he said. “With these newaircraft we can operate our cargo fleet moreflexibly and efficiently.”KAL, which garners some 30% of itsannual profit from cargo operations, hasswitched from its once held aim of deployingan all-B747 cargo fleet by ordering fivesmaller-capacity B777-200Fs, alongside fivenew-style B747-8Fs, as it builds its presencein China and probes new openings outsidethe region.“We will consider flying the B777s eitherto test and explore new markets, or put theminto the markets which hold potential forfuture growth, but are not yet big enoughfor 100-tonne freighter services,” said thespokesman.“We plan to put the B747-8s on routeslinking our big hub airports.”The carrier has options on up to 20 B747-400 conversion kits from Boeing. The first tobe firmed up, converted by Taikoo (Xiamen)Aircraft Engineering Company(TAECO) insouthern China, has already been delivered.The remainder of the work, some of whichmay be for other airlines, is being carried outat KAL’s own aerospace division facility inGimhae, South Korea.Last year, KAL, which is being boostedKorean Air: determined to keep its number onespot among world cargo operatorsby a strengthening home economy, added theIndian city of Chennai, Seattle and Miamiin the U.S, Stockholm and Tel Aviv to itscargo network, bringing its total to 43 cities.Frequency to Vienna, a gateway to EasternEurope, was increased from five to sevenflights a week.“Our strategy continues to be to developnew markets like India, China, Eastern andNorthern Europe and South America and notto be confined to our established markets likeKorea, Japan and Southeast Asia,” said thespokesman.Four weekly flights from Seoul toQingdao, the logistics hub of China’sShandong province, also began in December,to be increased to five this month. That makes13 cities served in China, a total which backsKAL’s aim of making China its second homemarket.It has strengthened its hand there bybrushing aside its failure to agree a cargocarryingjoint venture with Okay Airlinesand, after reportedly flirting with ChinaSouthern Airlines over another freightdeal, it finally signed with Sinotrans Air, asubsidiary of government-owned logisticsgiant, Sinotrans.In a switch from the normal practice byChinese joint venture carriers with foreignpartners, which invariablyconcentrate on internationalservices, the Sinotrans-KALoperation will fly both insideand outside the country,using the northern city ofTianjin as its headquarters.Operations under chiefexecutive and chief financialofficers provided by KALare slated to begin during thesecond half of the year, usingthree freighters secondedfrom Seoul. Two of thesemay well be A300s fromKAL’s fleet currently beingreconfigured in Germany.“We are eyeing the goalof becoming China’s topcargo carrier,” said thespokesman.The first international destination is likelyto be Frankfurt, but routes through someAsian sectors are also expected. “SinotransAir’s strength in the Chinese market,combined with Korean Air’s global network,will create a synergy for both companies andprovide a strong foothold for KAL to expandin China and from China to the rest of theworld,” said the spokesman.Sinotrans will hold 51% of the US$65million company to be formed with KALunder a 30-year contract.The carrier is taking 25%, with theremainder going to two Korean investorcompanies.36 ORIENT AVIATION FEBRUARY 2007

CARGO UPDATETwo joint venture carriers,Jade Cargo Internationaland Great Wall Airlines, aretaking steps this month to firmup their operations and expandair cargo links from major Chinese growthareas, writes Charles Anderson.In Jade’s case, it is a question ofwelcoming a third new Boeing 747-400ERFto enable it to grow its fledgling internationalnetwork. And for Great Wall Airlines thereis the rebuilding of operations after a fourmonthsuspension brought about by sanctionsimposed by the U.S. on its then majorityowner, Great Wall Industry Corporation, forallegedly supplying missile parts to Iran.Great Wall Airlines, 25% owned bySingapore Airlines and 24% by Temaseksubsidiary, Dahlia Investments, restarteddaily flights from Shanghai to Amsterdamon January 21.A three-times-weekly service to Mumbaiand Chennai in India, using two B747-400Fsleased from SIA Cargo will start soon.It won an appeal against inclusion ona sanctions list after the transfer of a 51%stake owned by Great Wall Industry togovernment-controlled Beijing AerospaceSatellite Applications. The carrier, whichonly started operations in June, stoppedflying because it had relied on technicalsupport from U.S. companies. Booked cargowas transferred to other carriers.“Our customers are keen to see theJade, Great Wallplan expansionresumption of service and have promisedto use our space and services as they didbefore the suspension of operations,” saidGuan Lei, manager, market development,for Great Wall.“We will increase frequencies anddestinations when more aircraft join thefleet. We have an interest in European andAmerican destinations.”Jade Cargo, a joint venture betweenShenzhen Airlines, Lufthansa Cargo anda German investment company, addedBrescia in northern Italy, the Spanish city ofBarcelona and Osaka in Japan to its networklate last year after the arrival of its secondB747. It launched operations from BaoanAirport in Shenzhen last August with flightsto Amsterdam. The carrier will receive sixB747s by early 2008 on 12-year leases fromPegasus Aviation Finance.Meanwhile, Cathay Pacific Airlines hasadded six more weekly freighter flightsfrom Hong Kong to Shanghai, bringing itstotal to 18, just one year after starting dailycargo flights to the Chinese city. Five flightsusing Air Hong Kong A300-600Fs carrymainly DHL express consignments, whichcannot be handled by Air Hong Kong itself.The joint venture carrier owned by CathayPacific and DHL has no flying rights to themainland as yet.Cathay Pacific, which also launched atwice-weekly freighter service to Beijinglast November, was cleared to fly cargo toShanghai and Beijing under an air servicesagreement reached by the Hong Kong andChinese governments in late 2004.• Hong Kong International Airport willstart the tendering process this month fora third air cargo terminal to be openedby 2011 at the earliest. Cathay PacificAirways, which has campaigned hard forthe right to operate its own facility, will beamong the bidders to design, finance, buildand operate it.Hong Kong Air Cargo Terminals(Hactl), which currently handles CathayPacific’s cargo, has said it will wait forthe tender details to be published beforemaking a decision on whether to bid.SIA, Cathay Pacific in IATA e-freight trialsThe cargo divisions of information technologyenthusiasts Cathay Pacific Airways and SingaporeAirlines are among those taking par t in theInternational Air Transport Association’s (IATA)year-long e-freight trials.They are being joined by Air Canada, KLM and British Airwaysas well as the carriers’ local customs administrations and membersof Freight Forwarding International in an exercise which aims totest ways to free air cargo of the paperwork which costs airlines andforwarders some US$1.2 billion a year.The initiative, which has a target deadline of 2010 for theestablishment of a global electronic supply chain, is part of IATA’sSimplifying the Business campaign. Locations were chosen basedon high cargo volumes, network connectivity and the enthusiasm –and ability – of the local authorities to help.Standards, processes and technical solutions will be developedon key trade routes which will then be used to expand e-freightglobally.IATA has taken airlines from among the big boys of cargobecause it wants the exercise to make the kind of impact that willSingapore Airlines: one of five global airlines taking partin IATA’s e-freight trialsconvince carriers and administrations worldwide of the worth ofthe programme. The trials, which are already under way, will spanthe year.38 ORIENT AVIATION FEBRUARY 2007

SPECIAL REPORTAircraft Maintenance& EngineeringHeavy work on a high... but demand falls short in the engine shopsThe future looks bright formaintenance, repair andoverhaul (MRO) companieswithin the Asia-Pacific hopingto use their low-cost base toattract heavy maintenance on widebodiesfrom outside the region.But its engine shops have some way togo to correct an imbalance that still sees achunk of work heading West to specialistsprimarily in Europe and, to a lesser extent,in the U.S.Figures from AeroStrategy, the industryconsultants, sum up the situation. Demandfor engine work within the region in 2005totalled US$2.8 billion, but supply fell13% short. Yet when it came to airframemaintenance, the region’s MRO giantscarried out 20% more work than the US$1.3billion-worth required by the Asia-Pacific’scarriers.Leading the way was Ameco Beijingthrough its five-year contract with UnitedAirlines for heavy maintenance on its B777fleet under which 80 aircraft are slated toarrive at the Lufthansa Technik-Air Chinajoint venture over five years. Thirty visitswere made in 2006.Ameco says it has now established a jointpreparation programme with LufthansaGerman Airlines to transfer the skillsacquired through this work to the Europeancarrier’s B747-400 fleet, three of whichrecently underwent D-checks in Beijing.FedEx, UPS and Northwest Airlineshave signed a variety of contracts withcompanies, most notably Hong KongAircraft Engineering Co (HAECO), its sisteroutfit Taikoo (Xiamen) Aircraft EngineeringCo (TAECO) and Singapore TechnologiesAerospace’s airframe maintenance subsidiaryST Aviation Services Co (SASCO).“This could be the start of somethingbroader,” said AeroStrategy joint principalKevin Michaels. “If you looked at thepeople at [industry trade show] MRO Asia,you would see American airline executivesstudying alternatives to turn to theiradvantage. I think we are going to see moreof that in the future.”Engine repairs, with their expensive toolingand special expertise, are another matter,especially at the top end where shops such asHong Kong Aero Engines Services Limited(HAESL) and its sister company, SingaporeAero Engines Services Limited (SAESL),which cater for Rolls-Royce’s Trent andRB211 range, are few and far between.“Fundamentally there’s not a lot of bigengine capacity in the region, so one of theAeroStrategy forecasts 5% annualgrowth for the MRO industryin the Asia-Pacific to 2015,compared to 6.6% for the Middle East,2.7% for Europe, 2.6% for North Americaand 3.6% globally. India will see 10.1%growth, China 9.4% and the rest of theregion a “relatively mature” 3.4%, thecompany said.Thirty United Airlines B777s hadheavy maintenance work carriedout at Ameco Beijing in 2006reasons [for the shortfall] is basically a lackof supply,” said Michael’s colleague, jointprincipal David Stewart.Much of that centres on China with itsfast-expanding fleets. There is growingcapacity for the engines that power itsmany narrowbody aircraft, but not so forits widebodies.Three existing joint ventures withEuropean partners – Air China’s SichuanSnecma, Ameco Beijing and China SouthernAirlines’ MTU Zhuhai – handle many of theCFM56 engines operating in the country.There are 1,200 CFM56-3s in China alone.5% MRO growth forecast for regionEngine work will enjoy the fastestincrease at 4.2% a year; airframe maintenancewill grow 2.7% and componentsupply 3.9%.The total spend within the regionwill increase in that time from US$8.8billion to US$14 billion. The Asia-Pacificcurrently accounts for 23% of the globalmarket.40 ORIENT AVIATION February 2007

By Charles AndersonAmeco also has Pratt and Whitney (P&W)and RB211 capabilities.GE Engines Services (Xiamen) insouthern China overhauls GE and CFMengines with the help of TAECO and SnecmaServices is looking to handle CFM56-5Bsand -7Bs at its facility in Chengdu by early2008. Outside China, General Electric hasengine overhaul facilities for the CFM familythrough GE Malaysia, a joint venture withMalaysia Airlines.Then, late last year, P&W partnered withChina Eastern Airlines to form a CFM56repair company in Shanghai, adding anothercompetitor for business within the country.While the number of CFM56s in usedomestically gives these companies plentyto aim for, the problems of customs delaysand turnaround times, added to the 17%taxation imposed on imported materials, aredrawbacks when trying to capture businessbeyond China’s borders. Operating in aspecial economic zone helps, as is the casewith MTU Zhuhai, but does not eliminate theproblems altogether. “Unless there are somestructural changes in China, a lot of thesefacilities are not going to be competitiveoutside the country,” said Michaels.Addressing a regional imbalance is notthe prime purpose of these companies,however. Their first aim is to meet theneeds of their owners’ narrowbody fleets.“The Chinese airlines want to have enginecapability in-house,” said Stewart. “Clearly,the volumes are going to be in narrowbodiesin China.“Inevitably, within China, there’s goingto be a lot of growth and some of that willgo into those facilities, but a lot will also beoutsourced.“Volumes are going to go up and they aregoing to see increased revenues, either frominternal business or from outsourcing in theexternal market. But they will take some timeto become competitive.”P&W’s Jim Keenan believes there ispotential within his company’s joint venturewith China Eastern that goes beyond cateringfor the carrier’s fleet alone, even though thecarrier is the largest operator of CFM56s inthe region, with 200 on its books, a numberwhich will grow with fleet expansion.Keenan is senior vice-president andgeneral manager for P&W’s GlobalService Partners initiative which includesa concerted push into the aftermarket forparts and servicing for the CFM56 family,made by rivals Snecma and General ElectricP&W attacks aftermarket(see separate story). He uses the success ofEagles Services Asia – P&W’s joint venturewith Singapore Airlines which handles P&Wand CFM56-5Cs – as a pointer to how itsShanghai company could develop.“Virtually all of the load in that shopwas once made up of engines operated bySIA,” he said.“As we have grown the business and aswe have achieved operational efficiencies,we have attracted a great deal of third-partydemand. Today, nearly 80% of the volumegoing through that shop is third party.”The Shanghai joint venture, set up for aninitial 15 years, will be housed in a newlybuiltfacility on a greenfield site which hadnot been identified at press time. It will acceptits first engine in 2008.“In building this facility, going beyondhaving actual overhaul, disassembly andassembly of the engine performed in country,we are including a very extensive part repaircapability in the shop itself,” said Keenan.“The fundamental principle is to drive asmuch volume into this joint venture and keepas much in China as possible. As the facilitygrows, we anticipate attracting customersnot only from China, but also across theAsia-Pacific region.”Engine manufacturer Pratt and Whitney (P&W) ismaking a determined move into the aftermarket, notjust for its own engines, but also to handle the CFM56family manufactured by its rivals, Snecma andGeneral Electric. And, with 14,000 of those installedon narrowbody aircraft around the world, it has plenty of businessto target.MRO now accounts for more than 50% of the U.S. company’sbusiness. This is underpinned by the kind of strategy that has seenP&W provide service centres that can handle the CFM56 range, aswell as breaking with tradition and making a range of replacementparts to rival the original equipment manufacturer’s (OEM) own,counting on its expertise as an engine-maker itself to convincepotential customers it can do the job properly.It has 18 repair and logistic centres globally and six enginerepair centres, two of which are in Singapore and Christchurch,New Zealand. A seventh is to open in Shanghai in 2008 througha joint venture with China Eastern Airlines, specifically to handleCMF56-3s. Some 40% of the 24 P&W facilities currently operatingare in the Asia-Pacific. A stand-alone division was created for MROwork last year, branded as Global Service Partners (GSP).Pratt & Whitney is servicing the CFM56 family ofengines in addition to its own models as it builds up itsaftermarket businessFebruary 2007 ORIENT AVIATION 41

SPECIAL REPORTAircraft Maintenance & EngineeringCompetitive conversionsHeadhunters target skilled Chinese workersBy Charles AndersonBedek Aviation, Boeing’s B747-400 passenger to freighterconversion rival, may set upa production line in the Asia-Pacific, using GAMECO(Guangzhou Aircraf t MaintenanceEngineering Co) to do the heavy lifting as theneeds of growing cargo fleets fuel demandfor quick access to economic aircraft.The move would put the two companies indirect competition with Hong Kong AircraftEngineering Co (HAECO) subsidiary,Taikoo (Xiamen) Aircraft Engineering Co(TAECO), in which Boeing holds a 9%stake.TAECO, which acts as the airframemaker’s main B747-400 conversion centre– booking orders directly from it – leads thefield with eight aircraft already deliveredand 42 firm orders on its list, working outof a hangar specifically built for the purposeat the company’s ever-expanding facility insouthern China.Boeing also has approved conversioncentres at Singapore Airlines EngineeringCo (SIAEC) and Korean Air’s (KAL)Aerospace division.Dany Kleiman, vice-president andgeneral manager at Bedek, the MRO andconversion arm of Israel Aircraft Industries,believes there is room for more movementbased on industry forecasts that see theglobal freighter fleet doubling in the next 20years, with 75% of that growth coming fromconversions.“The competition from TAECO is verytough, of course,” he said. “These guys areworking with Boeing to convert the aircraft.But we think the size of the market is suchthat it can definitely hold two competitors,or two STC (supplemental type certificate)holders for this type of airplane.”Bedek recently won FAA (FederalAviation Administration) approval forsuch conversions, to go with the EuropeanAviation Safety Authority (EASA) certificateit holds.The company has converted two B747-400s for Air China at its facility in Israel.It has orders for three more from AsianaAirlines and eight from EVA Air.GAMECO is already doing a briskbusiness in B737 conversions for Bedek.“They are a natural candidate to expand ourworking relationship into this programme aswell,” said Kleiman.Joey Lo, GAMECO’s commercialdirector, wants to ensure there are enough‘We think the size of the[aircraft conversion] marketis such that it can definitelyhold two competitors for the[B747-400]’Dany KleimanVice-President and General ManagerBedek Aviationorders, and enough time for preparation,before going ahead, probably at the end ofthis year, or early in 2008.‘There is not much work on the structureor the floor beam for a 737 conversion,” hesaid.“But the floor beam on the 747 is a bigjob. We want to make sure we have enoughskilled people and we must take into accountour hangar slot issues. The first one would sithere for four to five months.“There are more processes involved. It’snot just a question of buying more jacks,but also getting the software, the skilledtechnicians, the sheet metal guys.”Staffing is no easy task. “Overseasfacilities are always head-hunting peoplefrom mainland China,” said Lo. “We wantto make sure we are confident.”GAMECO’s first B737-300 conversion,started last March, is already in operationwith China Postal, leased through GECommercial Aviation Services (GECAS).Another for the same customer was in thepaint shop at press time and two more,destined for Australia and Europe, are onthe books.B737-400s will be handled when Bedek,which supplies the kits, has that particularmodel certified.Taikoo (Shandong) Aircraft EngineeringCo beat GAMECO to the punch last year byconverting and delivering the first B737-300conversion in the Asia-Pacific to ShenzhenDonghai Airlines, using a conversion kitsupplied by Pemco Aviation Group.TAECO, meanwhile, has no slots availablefor B747-400 conversions until 2010.Cathay Pacific Airways and JapanAirlines are among early customers toreceive aircraft, as are Singapore Airlines(SIA) and KAL, which will handle laterconversion work itself. In SIA’s case, thisinvolves aircraft from its own fleet to besold to Dragonair’s cargo arm.All Nippon Airways (ANA), meanwhile,firmed up two options for B767-300 conversionslate last year to go with the threefirm orders it made in late 2005 as launchcustomer.W o r k w i l l b e c a r r i e d o u t b yAleniaAeronavali in Italy. That programmewill increase in numbers when the B787enters service, replacing B767-300s in somefleets and freeing up the older aircraft forconversion, said Boeing.Bedek is setting up a joint venture withJapan’s Mitsui trading house to convertB767-300s on its own account, targeting 80to 100 aircraft within 10 years of the start ofoperations.The company said the work would be42 ORIENT AVIATION February 2007

done at Bedek’s own facility in Israel, or atone of its authorised conversion centres. Nostarting date has been given.A shortage of aircraft all round, in fact,is proving a key factor for freight carriersanxious to bypass the waiting line for newmodels, and save considerably on the listprice, through buying conversions whichhave a shorter lifespan, but can meet a moreimmediate need.Kleiman cites delays to the A380 andA350 programmes as factors, leading carriersto hang on longer to aircraft which couldbe candidates for conversion. Any problemswith the B787’s production schedule wouldadd to that.“It’s very hard to find any aircraft availableright now in all categories and that isdefinitely going to impact on the conversionindustry over the next year or two,” he said.But that should be a temporary hiccup.“Towards the end of 2008 and in 2009, weare going to see a steep availability of theseaircraft. So we need to get ready ourselvesto process them,” he said.With the global freight market tipped togrow at 6% a year, and China slated for 12-13% growth in its cargo sector, demand forconversions can only increase, particularlyfor B737s and maybe B767s in that lattermarket, said Kleiman.China, however, does not allow theregistration of freighters that are more than15 years old, a regulation creating a barrierwhen the availability of aircraft is also takeninto account.Bedek began such work 20 years ago,starting with B747-100s and -200s, butstepped up its numbers from 2000 onwards.A former SIA B747-400 after conversioninto a freighter for DragonairNow conversions are a main growth enginefor its parent, Israel Aircraft Industries. It hasother MRO partners working on conversionsin Brazil and South Africa, deciding on sitespartially in line with demand in a region,which means B737 and B747 work getspriority in the Asia-Pacific.It must also chose the companies which,according to GAMECO’s Lo provide the“arms and legs”, with care. “Firstly, itshould be a very well established heavymaintenance MRO,” said Kleiman. “Youcan’t do any serious conversion work if youare not skilled enough in heavy maintenancefor those specific aircraft, or close to thosespecific aircraft.“Secondly, we are looking for the skill,because skill has to do with quality and theability to do this work at the level we needto deliver.Sixth hangar for SIAEC“Working from across the ocean is not asimple exercise. The third consideration hasto do with cost and the consumer base. Theseare key considerations, as with China Postal,for example.”Bedek was also an early partner withBoeing and Singapore TechnologiesAerospace (ST Aero) in a planned B757-200 conversion programme. It has nowwithdrawn from that, leaving ST Aero to dothe design and production work at its facilityin Mobile, Alabama. No orders have so farbeen publicised.ST Aero continues to handle MD-11conversions at its home base in Singapore,as does AleniaAeronavali. Their jointbacklog will be completed in late 2008, saidBoeing, proving that even veteran passengeraircraft have a future hauling cargo acrossthe skies.Singapore Airlines’ MRO arm, SIAEngineering Co (SIAEC), beganground-breaking late last yearfor a sixth hangar at SingaporeChangi International Airport hoton the heels of the start of operations at itsnew fourth and fifth hangars housed at thesame site.The latest addition, which SIAEC said wasbeing built in response to robust demand forMRO services on the back of an upswing inglobal air travel, will be specially equippedto handle the Airbus A380, for which SIA isthe launch customer.Hangars four and five have added a 30%increase in airframe maintenance capacity,which will also be used for third-party business,while hangar four also houses SIAEC’spassenger to B747-400 freighter conversionline. Hangar six will add another 10%. It willbe operational in early 2008.Total investment for the three hangarscomes to S$160 million (US$104 million).Some 1,000 engineering and technical jobswill be added.“More than 40 customers from fourcontinents fly their planes to our Singaporebase for maintenance checks, with thirdpartywork accounting for more than 50%of the checks performed in the first half of thecurrent financial year,” SIAEC chairman,Stephen Lee, told media at the time of theannouncement.Meanwhile SIAEC’s local rival, the giantSingapore Technologies Aerospace (STAerospace), has celebrated the re-deliveryof the 2,500th aircraft to FedEx Express atits subsidiary, ST Aviation Services Co’s(SASCO) facility at Changi.ST Aerospace began work on FedExaircraft some 15 years ago at its facility inMobile, Alabama, and has since handledA300s, A310s, B727s, MD-10s and MD-11son behalf of the company through its globalnetwork of MRO stations.February 2007 ORIENT AVIATION 43

SPECIAL REPORTAircraft Maintenance & EngineeringChina’s key role in PMA pushThe push to increase industryacceptance of PMA partshas been boosted by twodevelopments in which Chinais playing a key role.First came the entry last year of enginegiant, Pratt and Whitney (P&W), into partsmanufacturing for the aftermarket of theubiquitous CFM56-3 – made by rivalsSnecma and General Electric – and offeringfor the first time an alternative to CFM’s owncomponents.Alongside that P&W announced plans fora joint venture overhaul facility in Shanghaiwith China Eastern Airlines for the sameengine through which those parts will beavailable.Then HEICO, the world’s largest PMAsupplier, brokered a deal with ChinaAviation Supplies Import and Export GroupCorporation (CASGC) to promote its aircraftand engine replacement parts in the world’sfastest growing aviation market.David Stewart, principal at AeroStrategy,the industry consultancy, sees the P&W move– bringing the weight of an OEM (originalequipment manufacturer) employing newtechniques to bear – as particularly importantfor PMAs.The PMA acronym stands for “partsmanufacturer approval” gained under U.S.Federal Aviation Administration (FAA)auspices, meaning the parts, usually cheaperthan those made by an OEM, can be used inany country with a bilateral agreement withthe U.S. body.“If you have an OEM producing PMAparts, it suddenly increases the credibilityof those parts and of PMAs as a source ofsupply. It reduces the barrier [on the airlines’part] to purchasing,” said Stewart.The jury, however, was still out overwhether P&W was on to a winner. “First,they have to make a success of it and I cannotbelieve that GE is going to sit there and donothing,” he added.PMAs only account for some 3% of totalmaterial spend across the MRO industry.“It’s still only a small market and its majorimpact is on pricing, not volume. Airlines canuse the threat of PMAs to keep OEM pricingunder control,” said Stewart.Graham Air, managing director of partssupplier, Aero Inventory (Hong Kong),agrees.“PMAs are a valuable tool to driveOEMs to lower their prices,” he said. “PMAmanufacturers and suppliers are workingvigorously to get them into the market.Their quality is reliable, but operators tendto under-utilise their availability. They tendto think, if it’s not broken, don’t fix it. But theconcept of PMAs will work.”In P&W’s case, the move into parts‘If you have an OEMproducing PMA parts, itsuddenly increases thecredibility of those partsand of PMAs as a source ofsupply’David StewartPrincipalAeroStrategymanufacturing is one component in a planto provide a complete service for CFM56-3sin line with its overall strategy of operatingas both a major manufacturer and an engineMRO provider. Some 50% of its revenuenow derives from after-market and partsactivities.In March, it will begin delivering thefirst in a line of some 48 CFM56-3 parts,including blades and vanes and life-limitedrotating parts such as shafts and discs, whichwill be available in early 2008. This will bethe first time, the company says, that the FAAhas approved life limited parts not made bythe OEM.Matthew Bromberg, vice-president,global material solutions at P&W, pointed tothe 60% of cost that goes on new materialsduring a US$1.5 million engine overhaul.“We realised we were limited in the valuewe could offer customers, if that much of thecost comes from the catalogue. Now we canprovide a comprehensive package,” he said.P&W, which has signed United Airlinesas launch customer for its CFM56-3 parts,is talking to a number of airlines in theAsia-Pacific, and in China in particular, aswell as regulators within the region about itsnew initiative.There are some 1,200 of the engine typein operation in China alone. P&W also hasmajor shops in Singapore and Taiwan.Interest has come from low-cost airlinesand start-ups as well as the legacy carriersthat the company had expected. “In retrospect,it’s not surprising,” said Bromberg.“This is a very competitive industry and weare now in the position where airlines knoweverything about their competitors, down tothe cost per seat. So, if one airline is pursuingthis, others will.”He believes P&W has upped the gamewhen it comes to PMAs through thecompany’s ability to use its vast resourcesand expertise to develop service and supportat OEM standard and to pass muster with theregulatory bodies through its own, exhaustivetesting systems.“If we were to start from ground zerowithout that, I couldn’t fathom how manyyears and how much money it would needto develop that capability,” he said. “Manyairlines would not have considered suchmaterial until Pratt and Whitney came onthe scene with our history, our engineeringcapability and our service potential.“We already have the infrastructure. It’sjust a question of expanding the databaseand knowledge set to include these engines.There’s nothing here that we haven’t donebefore.”Meanwhile at HEICO there is optimismabout the agreement with governmentownedCASGC that allows it access to the44 ORIENT AVIATION February 2007

giant China market for the first time. “Weare encouraged by this partnership,” saidparts president Robb Baumann. “CASGChas proven to be a very entrepreneurialorganisation that clearly understands and hasaccess to the decision-makers in China. Weare confident it will accelerate the acceptanceof our parts.”HEICO, which holds 4,000 differentPMA parts and produces 300 new ones ayear, accepts there is a learning curve toclimb in China and the Asia-Pacific, despitethe fact that the region accounts for 17% of itstotal sales of 2.7 million parts a year.Most notably, Japan Airlines (JAL) haspartnerships with HEICO and two otherPMA manufacturers, Wencor and AAXICO,to produce parts primarily for its own use.Wencor has a similar agreement with CathayPacific Airways relating to airframe andinterior parts.The company says it will step up itspresence in the region.“We are spending more time educatingAsian operators on the benefits of workingwith a high quality alternative parts companylike HEICO,” said Baumann. “We are alsoensuring that operators understand thatPMAs are allowed by the regulators, thatHEICO is not new and has been supplyingand supporting alternative parts for 50 yearsand that operators need to be careful not toaccept the OEM’s ‘FUD’ – fear, uncertaintyand doubt.”AeroStrategy’s Stewart sees the CASGCpartnership as a boost for HEICO and PMAsin general. “You have a huge market thereand for PMAs to be legitimised to a certainextent like this is good for their credibilityand obviously good for HEICO,” he said.In general, there were two other barriers,apart from acceptability, to overcome: theexclusion of PMAs when work is undercontract to an OEM – “if you have a contractwith them, you won’t be able to use PMAs”– and the suitability of a part to become aPMA in the first place.“I’m sure most airlines are looking at waysto accept PMAs, assuming the OEM doesn’tstep up to the plate in terms of availabilityand price,” said Stewart. “Acceptability willgrow. It is going to have to rely on crediblePMA suppliers, the ones who have robusttesting and robust procedures.”Major growth for LTSFast expansion of the Asia-Pacific’s f leets has beenmatched by healthy growthat specialist repair and supplycompanies such as LufthansaTechnik Shenzhen (LTS) in southernChina.LTS, which concentrates on the repairof airframe related components like thrustreversers, cowlings, radomes and flightcontrol surfaces, saw a 100% increase inbusiness during 2004 and 2005 and wasexpecting to record 75% in 2006 alone. Itis adding one new thrust reverser capabilitya year, along with other new products thatrequire the use of composites, as it plotscareful expansion of a young companyonly founded in 2002. General componentservices are also being expanded.“We are on a development path, but itmust be controlled,” said Wolfgang Breckau,chief executive of the joint venture which is85% owned by Lufthansa Technik with theremainder going to local partners.Pratt and Whitney PW4000 reverserswere added to CFM56-3 and CF6-80capabilities this year; V2500 and furthermembers of the CFM56 family will be onthe books soon, utilising the only autoclaveof its kind in China. Actuators are repairedin-house.Some 50% of LTS’s business comes fromoutside China and Breckau is consideringintroducing two shifts at his 6,500 sq. metreworkshop, while keeping an eye on ways toLufthansa Technik Shenzhen has forecast that business for the company willhave grown 75% in 2006expand the building itself at some stage.Lufthansa Technik bases its airframerelated component work in Germany, Tulsain the U.S. and in Shenzhen. “Sometimesthese are big parts, so we need to be in therelevant markets,” said Breckau. “In thelong run we will not be successful if we askcustomers to transport them to a high-costcountry like Germany. More and moreairlines don’t have spares of their own. If apart is damaged, they need upfront delivery,a change or a loan.”This is a long-term investment onLufthansa’s part, meaning major profitlevels will take time, only reaching fullpotential as new fleets begin to age. “Thereal need comes after eight or 10 years,” saidBreckau. “But airports are so crowded that,fortunately for us but unfortunately for theairlines, something like ramp damage canhappen after just a couple of days.”LTS, which also added hydraulic repairsto its component service wing this year, hasseen personnel costs rise to 50% higher thanelsewhere in China thanks to the Shenzheneconomic zone’s own success story. ButBreckau argues that its relatively lowcost base makes it very competitive whencompared to companies operating in Japanand Singapore.February 2007 ORIENT AVIATION 45

SPECIAL REPORTAircraft Maintenance & EngineeringTaking the strainMore airlines turning to component suppliersWith airlines continuallylooking to outsource,component suppliersare moving to meettheir needs throughindividual deals or pooling strategies thattake the strain, and the cost, away from carriers’in-house engineering and maintenanceoperations.Late last year, British componentsupplier, Aero Inventory, signed a 10-yearcontract to supply Qantas Airways with a fullrange of expendable and recoverable parts ina deal which forms one part of the carrier’songoing revamp of its maintenance, repairand overhaul (MRO) operations.The option of two five-year extensionswas built into the contract, effectivelydoubling operations at Aero Inventory,which currently include large-scale componentsupply for major MRO operatorssuch as Hong Kong Aircraft EngineeringCo (HAECO) and its sister companyTaikoo (Xiamen) Aircraft Engineering Co(TAECO), as well as the SR Technics groupand its subsidiary, FLS Aerospace.Aero Inventory typically acquires a clientcompany’s stock – in Qantas’s case it paidUS$141 million for the carrier’s existinginventory – and then maintains an on-sitecomponents cache, with parts required overa longer term housed at an off-site facility,such as at the Airport Freight ForwardingCentre in Hong Kong, which serves HAECOand other customers. An agreed listing canconsist of up to 100,000 parts.The Qantas deal was financed through arights issue placed earlier in 2006 by AeroInventory to provide the cash for such anexpansion. And, although the companyalready has an exclusive contract to supplythe Garuda Maintenance Facility’s (GMF)workshops in Indonesia, the Qantas contractmarked a significant step forward on thecarrier side, also adding another blue chipname to its customer list.GMF is also looking to catch third-partybusiness in the fast-growing Indonesianmarket, especially through line maintenance,at the same time as handling the airline’sown aircraft. “It has enormous potential,”said Hugh Bevan, Aero Inventory financedirector. “We want to be there, but it has yetto bring in the figures we would like.”Qantas, with its 213-strong fleet, is abigger fish altogether and it will take a lotof hard, painstaking work to implement thedeal, which will be Aero Inventory’s primeconcern in the coming months. The twocompanies are also expected to explore thedevelopment of a common pool of parts forexisting and future customers.‘Whenever an airline hasa fleet that is not that big,[parts pooling] makes sense’Wolfgang BreckauChief ExecutiveLufthansa Technik ShenzhenIn some ways, however, the Qantasoperation will be easier to maintain onceit is up and running. “With an MRO, youhave an open hangar and lots of differentaircraft types can come through the door,”said Bevan. “With Qantas, there are onlyfour aircraft types, so in some ways it is aneasier concept.”He sees all this as a development thatwill help carriers concentrate on their corestrengths. “From day one, we take this offtheir balance sheets,” he said. “Then they payfor parts as and when they need them.”The same can apply to MROs. “Theyconduct maintenance; that’s their expertise,”said Graham Air, managing director of AeroStrategy (Hong Kong), which handles theHAECO business. “They are not experts insupply chain management.”In the complex world of componentsupply, no one covers the entire waterfront.Aero Inventory sees airlines’ in-housemaintenance teams, which do all the work,as its main competitors, not supply giantssuch as Europe’s Satair or America’s Aviall,recently bought by Boeing.Each, according to Air, has distributionrights for certain OEMs. “If they were tomerge together, they could maybe offer asimilar sort of solution,” he said.The more modern the fleet, the morelikely it will be covered by one of the optionsoffered by the airframe manufacturer, butthat obviously applies only to that brandof aircraft. “We don’t have an all-Boeingtype fleet, or an all-Airbus fleet. We have anundefined, exclusive agreement covering allaircraft,” said Bevan.“The larger we get, the more efficient wecan be. We don’t just have one user, we havemany more users and now we can start usingthe stock more efficiently.”Aero Inventory does not call this “pooling”,although the concept is the same. AtLufthansa Technik Shenzhen (LTS), chiefexecutive Wolfgang Breckau, uses the wordwith enthusiasm, pointing to the benefits itbrings an airline with a limited number ofone aircraft type, such as the three Chinesecarriers – Shenzhen Airlines, ShenzhenDonghai Airlines and Jade Cargo – whohave recently signed up to access LufthansaTechnik’s (LT) worldwide parts pool.Some critical and commonly-usedcomponents are being kept on site, whileothers are available through LT’s centralstock held in Germany.Traditionally, Chinese carriers have beenreluctant to join such exercises, relying ontheir state-owned parent companies to findthe finance for their own component pools.“Most western companies in a similar situationcould not afford it,” said Breckau. “Butthat is changing now. The Chinese are muchmore cost-conscious.”46 ORIENT AVIATION February 2007

Airframe giants Boeing andAirbus continue to be activein the Asia-Pacific’s MROmarket through strategiesthat have different emphaseson how to bring global concepts into aregional setting.In Boeing’s case, this means takingadvantage of one-off openings that alsosupport their airline customers, such asthe establishment of a joint venture inShanghai and plans for an MRO centre inIndia. It is also marketing its new GoldCareprogramme for the B787 Dreamliner, whichwill provide carriers with a comprehensivesupport package through local members ofa global team.“For now, Boeing’s interest in theMRO business is narrow and confinedto specific market opportunities,” said aBoeing spokeswoman. “We will continueto examine opportunities as they arise,particularly in cases where our expertisemay be able to benefit a regionin need of specialised MROexperience.”At Airbus, its global MROnetwork has been in placesince March 2005, with China’sG A M E C O ( G u a n g z h o uA i r c r a f t M a i n t e n a n c eEngineering Company) andHAECO (Hong Kong AircraftEngineering Company) recentlyjoining a grouping whoseindividual members can stillcompete against each other.Regional members includeAir New Zealand EngineeringServices, SIA EngineeringCompany and Si ngaporeTech nolog ies Aerospace (ST Aero).Lufthansa Technik, which has a strongregional presence through its Chineseand Philippines joint ventures, also joinedrecently.“We will have a significant peak insingle-aisle heavy maintenance checksbecause of the fleet we delivered into thesecountries in the Nineties,” said WolfgangKortas, senior director, MRO supportmanagement at Airbus.“All we do is provide a framework for acloser relationship. We believe in an openmarket approach [so that] competition canplay its role. From the feedback we have fromcustomers, they seem to like that very much.”The network’s aim is to improvemaintenance services by benchmarkingBoeing, Airbusdiffer onregional MRO focusefficiencies, sharing improvement plansand supporting Airbus sales campaignsfor customers looking to outsource theirmaintenance needs.ST Aero recently benefited when Airbussigned up Skybus Airlines of the U.S. fora comprehensive care package for 65 newA319s and contracted ST Aero to carry outthe MRO work at its U.S. facilities over 12years from 2007.Messier Bugatti will look after theBoeing is currently selecting an Asian MRO partner forGoldCare which will carry out work on the B787 along withinventory managementequipment side for Skybus in the largest dealunder the “Air+ by Airbus” service whichallows customers to select the services theyneed from Airbus’s MRO and equipmentpartners.With an eye on the main chance, Boeinghas recently partnered with ShanghaiAirlines and the Shanghai Airport Authorityto establish Boeing Shanghai AviationServices, which will provide aircraftmodification and maintenance work out ofa newly-built four-bay hangar at PudongInternational Airport.Boeing holds 60% of the new companystarted with a total US$85 million in investmentfunds. A licence was issued last June andgroundbreaking began in late October. Workwill be completed in two phases, the secondof which will include an engine shop.It has also earmarked up to US$100million for a planned MRO company at thegrowing Indian aviation hub at Nagpur in thecentre of the country, plus additional fundingof US$75 million for a training facility to berun by Boeing’s Alteon subsidiary.Airbus, meanwhile, has announced it isto spend some US$550 million setting up itsown engineering facility and training schoolin Bangalore.Boeing also is in theprocess of selecting an AsianMRO partner for GoldCare,which will carry out B787work on the ground along withinventory management, whileBoeing will provide integration,materials managementand information management.Traditional maintenancesupport will continue to beoffered for the Dreamliner.SR Technics has alreadysigned as a European partnerfor GoldCare and one alsois being sought in NorthAmerica.Boeing has spoken on a generallevel with its Asian B787 customers andhas offers lodged with a number of carriers,said the company, but with entry-into-servicewith All Nippon Airways still two years away,none has yet opted to buy in.Boeing recently acquired Aviall, theworld’s largest independent parts supplier,for US$1.7 billion. David Stewart, principalat AeroStrategy, the industry consultants,sees both this buy-out and the establishmentof GoldCare as major investments in whathappens after its aircraft are delivered.“One is to help them serve the aftermarketbetter in terms of logistics, recognising theyare not as good as others, focusing on serviceand the aftermarket to improve their core business,”he said. “The other offers customers asolution on the maintenance side.”February 2007 ORIENT AVIATION 47

SPECIAL REPORTAircraft Maintenance & EngineeringSeletar Airport upgrade will provide 10,000 more MRO jobs in Singapore, meanwhile ...Goodrich, NORDAM go for growthGoodrich and NORDAMhave announced significantinvestments in theirSingapore facilities at thesame time as the Lion Citypushes ahead with plans to build SeletarAirport into the top Asian MRO hub by2015, complementing activities at Changiand Loyang.The Seletar expansion will create anestimated 10,000 jobs and add S$3.3 billion(US$2.1 billion) annually to Singapore’sgross domestic product (GDP), thegovernment says. An aerospace park is tobe developed on 140 hectares of land whileexisting facilities and infrastructure are tobe upgraded.Goodrich, meanwhile, is doing its bitfor the cause by adding a 28,000 sq. metreexpansion to the nacelle and thrust reverserfacility it opened just three years ago atChangi. The new Goodrich aerostructuresservice centre – the company’s largest MROfacility worldwide – will now occupy some80% of a 47,000 sq. metre campus which willalso house Goodrich’s customer service andaircraft interior products centre.Goodrich, which first set up shop inSingapore in 1995 at Loyang in a facilitythat tripled in size in six years, began itsMRO activities in the city by focusing onPratt and Whitney PW4000 thrust reversers,later adding nacelle component work for bothGoodrich and other OEM (original equipmentmanufacturer) products on virtuallyall Boeing, Airbus and McDonnell Douglasmodels. Sales of nacelle services increased40% last year.One key to expansion was a realisationthat the region’s large B777 fleet wouldneed extra work as it began to age. “We didanticipate that the growing B777 fleet in theregion would provide opportunities for us,”said general manager Ken Tan.Work on B777/Trent 900 thrust reverserswas started in early 2003 in collaborationwith Boeing. B777/PW4000 and GE90capabilities were added soon after, givingGoodrich a monopoly on such work for theB777 fleet in Asia.Another factor was increased MD-11passenger-to-freighter conversions beingcarried out by Singapore TechnologiesAerospace.More than 60 regular customers are nowon Goodrich’s books, the majority fromAsia-Pacific airlines and engine overhaulshops.“Additionally, we service nacelles fromairlines from other parts of the world thatare performing heavy maintenance checksor cargo conversions in this region, includingcustomers such as FedEx and UPS,”said Tan.Goodrich, which has a wheels and brakesfacility in Hong Kong and customer servicecomponent centres in Sydney and Xiamen inChina, is also adding R&D to its Singaporeoperation in both MRO and OEM areas.Goodrich Aerostructures will transfer aportion of its development work from SanDiego.Meanwhile, U.S.-based NORDAM istripling the size of its MRO facility, alsoat Changi, to handle increased demand fornacelle and thrust reverser repairs, alongwith work on airframe components andflight control services. Manufacturing ofcomponents for OEMs is also on the cards.Output at Changi has increased 90%over the last four years at buildings whichGoodrich is adding a 28,000sq. metre expansion to thenacelle and thrust reverserfacility it opened just threeyears ago in Singaporewill now grow from 5,600 sq. metres to17,000 sq. metres. Expansion is partiallydue to a deal last year in which NORDAMtook over worldwide repair work on CF6thrust reversers previously carried out bythe reverser’s manufacturer, Middle RiverAircraft Systems (MRAS) of Maryland.The company is looking for double-digitannual expansion in MRO operations andmanufacturing on the back of growth innacelle repairs and an expansion of work oncomponents which also include nose and fancowls for CF6-80C2 engines.“Increases are mainly due to the high fleetgrowth and ageing aircraft fleet in the regionand the migration of heavy maintenanceand cargo conversion to Asia,” said BrettBenton, company vice-president for theAsia-Pacific.“As customer requirements dictateand new fleets begin to age in the region,NORDAM will begin to add new generationnacelle repairs such as to the CFM56-7, Trent700, Trent 800 and V2500.”Bonding work on blocker doors, soundpanels and core cowls will increase while,at the same time, NORDAM offloads someof its manufacturing operations for bondedcomponents from its overworked facility inTulsa to Singapore.48 ORIENT AVIATION February 2007

SPECIAL REPORTReed Exhibitions’ recentacquisition of the Asia-Pacific’s leading air freightexhibition and conferenceis a timely and strategicmove, with the cargo business set to outstrippassenger travel growth rates over the nexttwo decades, according to Boeing.The aircraft manufacturer’s latest marketoutlook forecasts a 6.1% rise in air cargo overthe next 20 years, while passenger travel willgrow by 4.9%.A growing emphasis on cargo’s role andits impact on airline balance sheets andoperations will be a focus of the biennialAir Freight Asia, which will next take placealongside Asian Aerospace InternationalExpo & Congress at AsiaWorld-Expo HongKong from September 3-6, 2007.The acquisition of Air Freight Asia,which will be integrated with the flagshipinter national aerospace i n d u s t r ye v e n t , A s i a n Aerospace, also includesits regional monthly trade publication,Payload Asia.Nol van Fenema, the organiser of AirFreight Asia and publisher/editor of themagazine, will continue to be responsiblefor the management of the event and thepublication.“As part of the well-established AsianAerospace, the Air Freight Asia conferenceand exhibition will generate more tradevisitors and more networking opportunitiesfor our exhibitors and delegates who haveattended our previous trade events in theAsian region,” he said.“The air cargo industry in Asia andthe Middle East will continue to enjoysignificant growth in the next 10 to 15 years.In particular China, India and the leadingcountries in the Middle East will be at theforefront of unprecedented expansion inairline fleets, airport facilities, logistics, ITand infrastructure projects.Air Freight Asia started as a tradeconference in Singapore in 1986. Over theyears, the event has evolved into the region’sleading air cargo trade exhibition andconference, which in addition to Singapore,has been held in various cities in Asia in thepast 20 years, including major centres suchReed acquires theregion’s premierair freight conferenceTo join cluster of events at Hong Kong’s Asian Aerospaceas Hong Kong, Bangkok, Sapporo, KualaLumpur, Seoul and Shanghai.The integration of Air Freight Asiainto Asian Aerospace is in line with ReedExhibitions’ plans to provide a cluster ofcomplementary events that will combineto offer the largest dedicated civil aviation‘This latest acquisition supportsour ambition to develop an eventthat incorporates a number of keycommercial aerospace industrysectors’Clive RichardsonSenior vice-presidentReed Exhibitions’ Aerospace and DefenceGroup Asiaindustry showcase in the world.The organisers of the world’s premieraircraft interiors show, Aircraft InteriorsExpo Asia, will place their event alongsideAsian Aerospace in 2007 in a joint initiativewith Reed Exhibitions.Another key component of AsianAerospace 2007 is Civil Aircraft EngineeringExpo, organised by Reed ExhibitionsAerospace & Defence Group. It will offera broad showcase of the aerospace industrysupply chain sector.An associated event, Composites Asia,will showcase raw materials, production andmanufacturing technology for compositematerials.The Asia Pacific Airline TrainingSymposium (APATS), which will alsobe held in conjunction with AsianAerospace, will zero in on innovative andcost effective training as the foundation ofairline growth in the Asia-Pacific, giventhe shortage of trained personnel and thetraining need created by the tremendousgrowth of the region’s fleets.A ltoget her, visitors to Asia nAerospace can expect to see in excess of40,000 gross sq. metres of commercialaviation products and services atAsiaWorld-Expo.This excludes the static display areafor commercial aircraft, which will belocated within Hong Kong InternationalAirport.Clive Richardson, senior vice -president of Reed Exhibitions’ Aerospaceand Defence Group Asia, said: “Thislatest acquisition supports our ambitionto develop an event that incorporates anumber of key commercial aerospaceindustry sectors.“The dramatic growth of the air cargoindustry in the Asia-Pacific region hasparalleled the record growth in passengerair travel and the combined effect has turnedthe eyes of the industry even more towardsthis area, which is likely to maintain itsgrowth momentum for many years to come,”added Richardson.Words for this report have been suppliedby Asian Aerospace International Expo andCongress.February 2007 ORIENT AVIATION 49

COMMUTER AVIATIONRex on a rollSingaporean businessman, Lim KimHai, was a rookie airline boss whenhe and his partner, Lee Thian Soo,took over Australian regional carrier,Rex, in 2003. But in a year his handsonstyle transformed a basket caseinto a profitable airline that can’t getits hands on aircraft fast enough.Working outside the industry wasthe key to his success, he toldCHARLES ANDERSONAs domestic outfits continueto fall by the wayside inAustralia, Regional Express(Rex) is consolidating itsposition as the country’slargest independent regional airline withan ambitious fleet renewal exercise thatalso gives it the flexibility to expand asopportunities arise.Rex, formed through the amalgamationof the Hazelton and Kendell regional carrierssoon after the collapse of their parent, theAnsett Group, in 2002, has snapped upthe leases on 25 Saab 340Bs being freedby American Airlines’ affiliate, AmericanEagle.The aircraft, the only 340Bs on the marketat the time of the signing, will arrive via SaabLeasing over the next three years. Theywill either replace the carrier’s older Saab340As or be used in addition to aircraft in itscurrent 32-strong Saab fleet, depending onthe demand for extra frequencies on currentroutes or the need to launch new ones.The deal, which follows the acquisition ofanother six 340Bs earlier in 2006, will alsomake Rex one of the largest Saab operatorsin the world.“Currently, we cannot get enough newSaabs into our fleet fast enough. Being ableto upsize our fleet this way offers us a hugeopportunity,” said executive chairman,Singaporean Lim Kim Hai.It also fits into the philosophy that hasled to a continuing turnaround in profit atRex since Lim and his fellow Lion Cityinvestor, Lee Thian Soo, took over handsonmanagement in 2003.Their intervention followed a disastrousRex: a 50% increase in profitexpected for 2006-07first year when, as passive investors, theysaw the newly-formed carrier lose A$30million (US$23.5 million). That was turnedinto a A$1 million profit in 2003-04 afterLim sacked the board and began lookingat the nitty-gritty side of the businesshimself, cutting staff from 1,000 to 600 andintroducing new operational efficiencies.An A$7 million profit followed in 2004-05, increasing to A$15 million in 2005-06,alongside a successful public listing that year.He expects a 50% year-on-year increase forthe financial year ending this June.Lim said his company relies on cash tofund expansion and has no debt. His aimis to squeeze the best results possible outof existing operations before consideringexpanding into new routes, although heThe Lim philosophyLim Kim Hai is no fan of the way someairlines conduct their business,claiming that his experience operatingoutside the industry was key to turningRegional Express from a basket case into aprofitable venture. And he has harsh words forthose at the top elsewhere who, he claimed,let their egos rule their actions.“We looked at it like a business,” said Lim, talking of thechanges he made when taking over the running of Rex. “Buttraditional managers, with 10 or 20 years’ experience in aviation,they looked at it like an airline. That’s why there was no way atraditional manager was able to make it a success.Rex executivechairman,Lim KimHai: had tore-invent‘hundreds ofthings’“ I had to go in and re-invent hundreds ofthings and I would say ‘why do I have to dothis? Can’t you guys who have been herefor the last 30 years, see it?’ That tells youhow hard it is to do something new whenyou are so deeply ingrained.“You will find, invariably, that a lot of[today’s] airline success stories come frompeople who have not been in the airline business.”He also accused some airline bosses of having big egos.“They like to play with big toys, nice big planes,” he said.“Those are the two things that destroy airlines: people withbig egos and the mind-set of traditional managers.”50 ORIENT AVIATION February 2007

admits Rex, which currently operates some1,200 flights a week to regional destinationssurrounding Sydney, Melbourne andPerth, is considering a move into southernQueensland. Typically, Rex operates on oneand half hour sectors.“We are not really focused like atraditional airline which always thinksabout growth. They can go too fast,” saidLim, who came out of semi-retirement toadd aviation to a list of investments, whichincludes interests in biotech and propertycompanies.“We want to be flexible, but you need agood organisation to scale up quickly, be itthrough pilots, mechanics or even planes.”Rex owns 15 of its aircraft outright and,with A$20 million in the bank, is able tomove quickly. “There are times we decidewe need a plane, we go and inspect it, paycash and one month later the plane is in thecountry,” said Lim.It is also funding the remaining 50%buy-out of Pelair, a Sydney-based freightand charter operator, with cash. Rex boughtanother 25% in January and will pay forthe final quarter this November. Pelair’soperations, usually utilising Metro Fairchilds– some of which came from Rex – to carrycargo at night, are seen as complementary toRex’s main services. Rex also owns Air Link,a one-time small competitor operating outof Dubbo in New South Wales, again usingMetros.‘We are not really focused likea traditional airline whichalways thinks about growth.They can grow too fast’Lim Kim HaiLoad factors on Rex’s 30-plus routes totowns typically with populations of 10,000to 25,000 are targeted at between 65% to70%. Extra capacity is brought in when theyincrease beyond that, through the addition offrequencies, but fares are also kept down tohelp fill the extra seats.“We are not focused on growth, we arefocused on profitability. We want an airlinethat is extremely profitable on margins. Ourmargins on revenues exceed 10% and veryfew airlines in the world can claim that,”said Lim, whose airline has been flying for15 years in its current and former guises.Nor has fuel been hedged. FollowingQantas’s lead on fuel surcharges has provedsufficient. “Our experience has shown us thatbecause we are so efficient in our fuel use,even today our fuel bill is only 20% of ouroverall costs,” said Lim.Rex’s main competition comes fromQantas Air ways’ regional offshootQantasLink, but that now only occurs ona handful of main routes as Qantas slowlywithdraws from commuter services.“We are in a quasi-monopolistic situation.But we don’t operate like a monopoly. We doCommuter boss calls for mergerthe opposite of what any monopoly woulddo,” said Lim.Lim was talking soon after the closureof Big Sky Express, the New South Walesoperator, after safety concerns also groundedTransair, the Brisbane carrier that suppliedBig Sky’s Metros. That leaves Fokkeroperator, Skywest, in Perth, Macair whichbases Saabs and Metros in Townsville,Cairns and Brisbane and Airnorth whichrecently announced plans to add an Embraer190 jet to its mixed turbo fleet in Darwin, asthe other carriers with some regional clout.T he Rex ch a i r m a n sees f u r t herrationalisation as QantasLink slims itsoperations, leaving only a couple of majorregional operators. “Regional aviation inAustralia is untenable. Hardly anybody canmake money. The small ones will just dropoff. Qantas will also continue the withdrawalthey have already started. Their cost base isvery high,” he said.And when QantasLink does leave thescene, it can be to the advantage of thecommunity, Lim argued, because rivalfrequencies in the same time slots canbe changed to a greater number spreadthroughout the day by a single carrier.Lim’s staff field many calls from townsand cities hoping for an air link in a countrywhere settlements are often far apart. “Wehave increased frequencies and, yes, we willexpand. But we are always very conservative.So we will expand slowly and carefully.”Hong Kong Airlines and HongKong Express are eachadding between four and sixB737-800s this year as theyphase out smaller commuteraircraft and beef up operations to mainlandChina and elsewhere.The aircraft are arriving on leasearrangements organized through HainanAirlines Group (HNA), which took a 45%share in each carrier last year. Hong KongAirlines, the former CR Airways, alreadyhas four B737s on its books and has appliedfor rights to a further 15 to 20 Mainland andSoutheast Asian destinations.It is also considering adding Beijingand Shanghai to its roster, putting it indirect competition with Hong Kong giantsDragonair, which serves both cities, andCathay Pacific Airways, which startedpassenger services to Shanghai in December.Hong Kong Airlines already flies to sevensecondary Chinese cities and, according tolocal media reports, has plans for a 30 to 50-strong fleet within five years.HNA, which late last year ordered 100Embraer commuter jets for its own use onMainland domestic routes, bought its stakein the then CR Airways from Robert Yip,who founded the carrier in 2001 with a singlehelicopter and later began Mainland servicesusing 50-seat CRJ200s. The remaining 55%of Hong Kong Airlines is now held by localinvestor, Mung Kin Keung.Hong Kong Airlines and Hong KongExpress are seen as rivals in the short-haul,Hong Kong to China business, even thoughthey have rights to different cities. AndHong Kong Express founder and managingdirector, Andrew Tse, admits that having thesame shareholder has caused some confusionin the marketplace.“There’s an obvious problem here,” hetold Orient Aviation. “Two subsidiaries areoffering a similar product. If we combined,we could offer a single product that would bebetter. But it’s beyond my jurisdiction. As ashareholder I would like to see a merger as amatter of synergy.”Hong Kong Express’s first B737 wasbeing re-painted at press time in the carrier’snew livery, which was due to be unveiled atthe end of January. Its four Embraer 170s willbe phased out by the end of the year.Traffic rights to further Chinese cities arebeing sought – it currently flies to four andhas rights to a number of others. Tse also iskeen to access Okinawa in Japan and turn thecarrier’s daily charter to Taichung in Taiwaninto a scheduled service.February 2007 ORIENT AVIATION 51

BUSINESS DIGEST: OCTOBER STATISTICSAirline CodesRPK Growth by CarrierPassenger Load FactorGrowth by CarrierBIRoyal Brunei AirlinesMH Malaysia AirlinesBREVA AirlinesNHAll Nippon Airways25%12CIChina AirlinesOZAsiana Airlines20%10CXGAJLCathay PacificGarudaJapan AirlinesPRQFSQPhilippine AirlinesQantas AirwaysSingapore Airlines15%10%5%86KEKorean AirlinesTGThai Airways Int’l0%4KA DragonairPercentage(Oct 06 vs Oct 05)VN Vietnam AirlinesPercentage Points Change(Oct 06 vs Oct 05)-5%-10%-15%20Percentage(Nov 05-Oct 06 vs Nov 04-Oct 05)Percentage Points Change(Nov 05-Oct 06 vs Nov 04-Oct 05)-20%BI BR CI CX GA JL KA KE MH NH OZ PR SQ TG VN-2BI BR CI CX GA JL KA KE MH NH OZ PR SQ TG VNStrong PAX growthCompiled and presented by KRIS LIM of the Research and StatisticsDepartment of the Association of Asia Pacific Airlines Secretariat.Association of Asia PacificAirlines (AAPA) memberca r r ie r s’ i nt er nat ionalpassenger traffic picked upin October 2006, largely inSoutheast Asia. October also saw severalAAPA carriers lowering fuel surchargesfollowing the weakening of global oilprices.In total, 11.3 million internationalpassengers were carried in the month, up4.2% year-on-year. In revenue passengerkilometre (RPK) terms, traffic rose 3.5%despite a marginal 0.1% decline in overallcapacity levels compared to October 2005.As a result, passenger load factor (PLF)improved 2.7 percentage points to 75.3%.Twelve AAPA carriers posted positiveRPK growth in October, led by GarudaIndonesia (22.2%), Asiana Airlines(20.9%), Vietnam Airlines (13%), CathayPacific Airways (9.1%), Singapore Airlines(8.1%) and Thai Airways International(7.9%). A substantial decline in traffic wasexperienced by Malaysia Airlines (15.3%),Philippine Airlines (7.7%) and JapanAirlines (7.1%).The majority of the car riers alsoregistered improvements in PLF as aresult of sensible capacity management.RPK and ASK (In Billions)RPK and ASK (In Percentage)40RPK, ASK and PLF Growth Rates(Nov 05 to Oct 06)151050-5N D2005RPK, ASK and PLF(Nov 05 to Oct 06)RPKASKPLFJFMAM J2006RPKASKPLF-5N D J F M A M J J A S O2005 vs. 2004 2006 2005 vs.JASO806040200151050PLF (In Percentage)PLF (In Percentage Points)With the exception of Malaysia Airlines,all carriers posted load factors over 70%,led by Cathay Pacific (79.4%), All NipponAirways (78.1%), Singapore Airlines(77.9%), Thai Airways International(77.6%) and EVA Air (77.3%).YEAR-TO-DATE INTERNATIONALPASSENGER TRAFFIC:JANUARY TO OCTOBERYear-to-date passenger growth was3.6% in RPK terms, a relatively modestrate of growth compared with the averageannual growth rate of about 6% for the past10 years.O n t he ot her hand , year- to - d at epassenger capacity was up only 0.9%,providing a positive boost to the PLF of75.4%, a two percentage point improvementfrom the corresponding period in 2005.FREIGHTIn October, AAPA international freighttraffic grew 3% year-on-year, down fromthe 6.2% growth rates posted in Augustand September. Capacity rose 6.5%, whichresulted in a 2.3 percentage point declinein freight load factor (FLF) to 67.1%.The month saw mixed air cargo growthamong A APA car riers. The leading52 ORIENT AVIATION February 2007

FTK Growth by CarrierFreight Load FactorGrowth by CarrierPAX Growth by Carrier20%15%10%5%0%-5%-10%-15%-20%-25%-30%-35%BI BR CI CX GA JL KA KE MHNH OZ PR SQ TG VN2520151050-5-10-15-20BI BR CI CX GA JL KA KE MH NH OZ PR SQ TG VN25%20%15%10%5%0%-5%-10%-15%BI BR CI CX GA JL KA KE MH NH OZ PR SQ TG VNcarriers in terms of FTK growth wereAsiana Airlines (14.4%), Korean Air(13.4%), All Nippon Airways (11.1%) andCathay Pacific (6.6%). However, otherestablished freight operators experienced afall in demand; Singapore Airlines (2.7%),China Airlines (2.9%) and EVA Air (5%).In addition, as a result of an increasein freight capacity, the majority of AAPAcarriers posted lower freight load factorscompared with the same month last year.Only four carriers recorded load factorsover 70%: Asiana Airlines (79.2%),Dragonair (75.8%), Korean Air (75.3%)and EVA Air (71.1%).YEAR-TO-DATE AAPA INTERNA-TIONAL FREIGHT TRAFFIC:JANUARY TO OCTOBERIn terms of FTKs, freight traffic grew4.9% for the first 10 months last year,a modest improvement from the 3.6%growth achieved for the whole of 2005.FLF to date stood at 66.7%, marginallybetter than the corresponding period in2005, as year-to-date capacity growth of3.6% kept pace with FTK growth.NOVEMBERPreliminary results for November2006 showed passenger traffic growthcontinued to be strong with over 11.2million international passengers carried,up 6.2% over the same period in 2005.Traffic in RPK terms rose 3.3% which,together with a slight reduction in capacity,led to a 2.5 percentage point improvementin the PLF to 75.2%.International freight traffic, expressedi n F T K s, g r ew 6. 2% i n Nove mb e r.Capacity increased 5.7%, which resultedi n a marg i nal 0.4 percent age poi ntimprovement in load factor to 68.9%.For the f irst eleven months of theyear RPKs rose 3.6%, while FTKs grewincreased 5%.FTK, FATK and Freight Load Factor(Nov 05 to Oct 06)FTK and FATK (In Billions)4N D2005FTKFATKFLFJE-mail: krislim@aapa.org.myFMAM J2006J80604020FLF (In Percentage)0A S OFTK and FATK (In Percentage)Asiana Airlines:healthy passengerand cargo results1612840-4-8FTK, FATK FLF Growth Rates(Nov 05 to Oct 06)NDFTKFATKFLFJ F M A M J J A S O2003 vs. 2002 2004 vs. 20031612840-4-8FLF (In Percentage Points)February 2007 ORIENT AVIATION 53

BUSINESS DIGESTAAPA MONTHLY INTERNATIONAL STATISTICSSummary of Consolidated Results (thousands)2005-6 RPK ASK PLF FTK FATK FLF RTK ATK PAXNov 05 43,299,147 59,576,651 72.7% 4,608,388 6,721,333 68.6% 8,670,440 12,208,845 10,561Dec 05 45,782,023 61,920,871 73.9% 4,558,022 6,683,006 68.2% 8,843,209 12,397,300 11,001Jan 06 47,101,038 62,357,151 75.5% 4,025,999 6,421,068 62.7% 8,440,154 12,205,832 11,009Feb 06 41,571,554 55,845,378 74.4% 3,791,409 5,664,189 66.9% 7,708,076 10,839,790 10,186Mar 06 45,507,045 61,393,480 74.1% 4,832,926 6,923,915 69.8% 9,104,583 12,591,959 11,012Apr 06 44,790,619 60,118,396 74.5% 4,479,972 6,624,728 67.6% 8,674,931 12,227,133 10,903May 06 43,779,805 61,711,230 70.9% 4,277,940 6,515,291 65.7% 8,405,051 12,276,357 10,573Jun 06 46,262,155 59,763,374 77.4% 4,431,054 6,591,012 67.2% 8,778,000 12,177,549 10,988Jul 06 49,276,319 62,502,058 78.8% 4,509,450 6,809,317 66.2% 9,135,447 12,655,589 11,905Aug 06 48,807,716 62,467,457 78.1% 4,447,424 6,844,580 65.0% 9,030,348 12,697,095 11,975Sep 06 44,590,197 59,579,125 74.8% 4,696,263 6,833,265 68.7% 8,778,920 12,241,687 10,754Oct 06 46,274,701 61,428,521 75.3% 4,894,510 7,299,458 67.1% 9,220,881 13,036,944 11,338TOTAL 547,042,319 728,663,692 75.1% 53,553,357 79,931,162 67.0% 104,790,040 147,556,079 132,2062005-6 RPK ASK PLF FTK FATK FLF RTK ATK PAXNov 05 2.5% 2.8% -0.2 2.8% 2.1% 0.4 2.6% 2.6% 0.4%Dec 05 2.1% 1.5% 0.4 5.6% 3.8% 1.2 3.7% 2.8% 1.3%Jan 06 5.0% 2.0% 2.1 5.6% 4.5% 0.6 5.1% 3.2% 4.9%Feb 06 4.4% 2.0% 1.7 4.9% 2.1% 1.8 4.8% 2.3% 4.3%Mar 06 3.9% 2.4% 1.0 7.2% 3.4% 2.5 5.5% 3.2% 3.2%Apr 06 6.9% 2.5% 3.0 5.4% 3.2% 1.4 6.0% 3.3% 6.4%May 06 4.4% 1.7% 1.8 3.4% 2.4% 0.7 4.0% 2.5% 4.3%Jun 06 4.2% 0.2% 3.0 3.4% 3.0% 0.3 3.9% 2.2% 4.1%Jul 06 1.5% -0.7% 1.7 3.2% 3.0% 0.1 2.5% 1.8% 2.7%Aug 06 2.4% -0.3% 2.0 6.3% 4.3% 1.2 4.5% 2.8% 3.9%Sep 06 0.6% -0.8% 1.0 6.2% 3.3% 1.9 2.3% 1.1% 1.5%Oct 06 3.5% -0.1% 2.7 3.0% 6.5% -2.3 3.0% 4.1% 4.2%GROWTH 3.4% 1.1% 1.7 4.7% 3.5% 0.8 4.0% 2.7% 3.4%CY RPK ASK PLF FTK FATK FLF RTK ATK PAX2001 449,997,481 632,484,230 71.1% 36,254,186 56,302,344 64.4% 78,370,595 114,075,864 105,8602002 471,599,221 633,726,957 74.4% 41,760,845 60,792,084 68.7% 86,388,889 118,421,507 112,5062003 424,867,398 610,926,830 69.5% 43,587,366 64,971,618 67.1% 83,402,125 121,028,734 98,8752004 505,242,763 692,635,360 72.9% 49,704,793 73,735,163 67.4% 97,093,807 137,542,532 121,9152005 531,052,164 723,386,103 73.4% 51,499,871 77,609,694 66.4% 101,333,490 144,377,541 128,0332006 YTD 457,961,149 607,166,170 75.4% 44,386,947 66,526,823 66.7% 87,276,391 122,949,934 110,644CY RPK ASK PLF FTK FATK FLF RTK ATK PAX2002 4.8% 0.2% 3.3 15.2% 8.0% 4.3 10.2% 3.8% 6.3%2003 -9.9% -3.6% -4.9 4.4% 6.9% -1.6 -3.5% 2.2% -12.1%2004 18.9% 13.4% 3.4 14.0% 13.5% 0.3 16.4% 13.6% 23.3%2005 5.1% 4.4% 0.5 3.6% 5.3% -1.1 4.4% 5.0% 5.0%2006 YTD 3.6% 0.9% 2.0 4.9% 3.6% 0.8 4.1% 2.7% 3.9%Note: 1. 16 member airlines participate in AAPA Monthly International Statistics. NZ does not participate.2. Jan-Jun 2006 figures restated54 ORIENT AVIATION February 2007