OAMag-V7N4-Cover [Converted] - Orient Aviation

VOL. 7 NO. 4 FEBRUARY 2000MAGAZINE OF THE ASSOCIATION OF ASIA PACIFIC AIRLINES25 yearsafter theFall of Saigon...Equity deals putalliances to the testJapan paying pricefor high airport feesThe Man WhoBombed thePresident’s PalaceVietnam Airlines’ chief pilot recalls his part in historySPECIAL REPORT: Engineering & Maintenance in the Asia-Pacific

vOl. 7 nO. 4 FebruArY 2000C O V E R S T O R YTHE MAN WHO Page 54BOMBED THEPRESIDENT’S PALACEN E W SMalaysia Airlines in alliance talks 16Cathay Pacific chief says his airline is studying the A3XX 16Impasse on Taiwan-Philippines air agreement 17China Airlines equity sale delayed 18Cambodia aims to attract tourists with open skies 18Japan Airlines puts emphasis on low-cost subsidiary airlines 35Asian Aerospace 2000 proves region is back in business 36Fuel contamination crisis hits general aviation in Australia 52F E A T U R E SChina Airlines proves to be the region’s ‘comeback kid’ 30British Midland’s Sir Michael Bishop: Man of style 70S P E C I A L R E P O R T :Airport charges: Are Japan’s sky-high fees really necessary? Sydney and 43Beijing apply for large increasesEngineering and maintenance: eight page report 60Vietnam Airlines’ chief pilotCapt. Nguyen Thanh Trung outsidethe former palace in Ho Chi Minh Citywhich he bombed in 1975C O M M E N TTurbulence by Tom Ballantyne 72I N F L I G H T A S I AA 16-page pull-out dedicated to onboard services and technology. In this issue: Sex onplanes. Is it the latest cabin management issue? Vietnam Airlines new uniforms; thepeople’s choice; Airline doctor calls for full time flying nurses; Asia-Pacific readies forits first IFCA president; Network: industry news.PublisherWilson Press LtdGPO Box 11435 Hong KongTel: Editorial (852) 2893 3676Fax: Editorial (852) 2892 2846E-mail: orienta@asiaonline.netPublisher and Managing EditorBarry GrindrodJoint PublisherChristine McGeeChief CorrespondentTom BallantyneTel/Fax: (612) 9638 6895Special CorrespondentPatrick GarrettHong Kong & China:Wellington NgTel: (852) 2893 3676PhotographersAndrew Hunt (chief photographer),Hiro MuraiDesign & ProductionÜ Design + ProductionColour SeparationsAGP Repro Co. LtdPrintingLammar OffsetPrinting Company LtdDistributed bySpeedmail LtdAdvertisingAsia :Wilson Press LtdJim ScullionTel/Fax: (852) 2537 3379The Americas / Canada :Robyn Tucker International MarketingRobyn TuckerTel: (1-441) 295 8200Fax: (1-441) 295 8210Europe :REM InternationalStephane de RemusatTel: (33 5) 34 27 01 30Fax: (33 5) 34 27 01 31Australasia :Phil GroseTel: (61 2) 9820 7920Fax: (61 2) 9820 7756Mobile: (61 0) 417 7449943E-mail: pgrose@ozemail.com.auAssociation of Asia Pacific AirlinesSecretariat5/F, Corporate Business Centre,151 Paseo de Roxas, 1225 Makati,Metro Manila, The PhilippinesDirector General: Richard StirlandCommercial Director: Carlos ChuaTechnical Director: Leroy KeithTel: (632) 840 3191Fax: (632) 810 3518Published 10 times a year© All rights reservedWilson Press Ltd, Hong Kong, 2000.The views expressed in thismagazine are not necessarilythose of the Association ofAsia Pacific Airlines.December 1999 | Orient Aviation |

P U B L I S H E R ’ S L E T T E RJAPAN SERIOUSLY OUT OF STEPFor years the airline industry has been complaining about theextortionate charges at Japan’s airports. Narita and Kansaicharge three times more than the world average. Even classtwo airports, Fukuoka and Nagoya, are more expensive than any otherairport outside Japan.The airlines, international and local, in Japan the International AirTransport Association and the Association of Asia Pacific Airlines havebeen beating, and are continuing to beat, on the door of the Ministryof Transport for a more realistic approach to pricing.But apart from a little bit here, a little bit there, it has fallen ondeaf ears.In the past the airlines have been able to ride the wave of escalatingfees thanks to generally higher air fares in Japan, and a fair degree ofgovernment protection. But no more. Today, it’s a free market.Ticket prices have plummeted. And recovery is not a word readilyon the lips of people in Japan when referring to the Asian economicrecession, although elsewhere in the region it is almost history.Yet through all this airport charges have stayed unhealthily high.Well, the chickens may be coming home to roost. The ForeignAirlines Association of Japan (FAAJ) report an average of 100 flights aweek have disappeared from flight schedules in the last year.The FAAJ claims that any concessions made by the regulatoryauthorities have favoured the local airlines. The local carriers do notdisagree, but point to a crippling fuel tax they must pay that is notapplicable to overseas airlines. But, all in all, they stand united.There are disturbing views aired by overseas and local airlines alike.Basically, they believe the MoT cares little about transport as long asthe trains run on time. Great!Jobs for the boys (retired civil servants) with airport building companies,the airlines claim and approval of unnecessary white elephantprojects may be good for the aforementioned companies, but are badnews for the carriers who have to pay for them.But the pressure is mounting on the government to tackle the problem.More co-operation, more transparency and more modern thinkingis required by the MoT and its airport authorities. The warning signsare there. Japan cannot afford to be out of step any longer.BARRY GRINDRODPublisher/Managing EditorThe Association of Asia Pacific Airlines members and contact list:Air New ZealandManaging Director, Mr Jim McCreaGM Govt & International Affairs,Mr Graeme McDowallTel: (649) 366 2605 Fax: (649) 309 4134Air NiuginiManaging Director, Mr Andrew OgilAsst Marketing and PR Manager, Ms Eva ArniTel: (675) 3273 415 Fax: (675) 3273 416All Nippon AirwaysChairman, Mr Kichisaburo NomuraDirector, Public Relations, Mr Koji OhnoTel: (81 3) 5756 5675 Fax: (81 3) 5756 5679Ansett AustraliaExecutive Chairman: Mr Rod EddingtonEGM Corporate Affairs, Ms Pamela CattyTel: (631) 9623 3471 Fax: (613) 9623 3663Asiana AirlinesPresident, Mr Park Sam KooManaging Director, PR, Mr Hong Lae KimTel: (822) 758 8161 Fax: (822) 758 8008Cathay Pacific AirwaysChief Executive Officer, Mr David TurnbullCorporate Communications Manager,Quince ChongTel: (852) 2747 5214 Fax: (852) 2141 5214China AirlinesPresident, Mr Sandy K. Y. LiuDirector, Public Relations, Mr Scott ShihTel: (8862) 2514 5750 Fax: (8862) 2514 5754DragonairChief Executive Officer, Mr Stanley HuiCorporate Communication Manager, Ms Laura AysonTel: (852) 2590 1260 Fax: (852) 2590 1333EVA AirPresident, Mr Frank HsuDeputy Senior Vice President, Mr K. W. NiehTel: (8862) 2500 4585 Fax: (8862) 2501 7599Garuda IndonesiaPresident, Mr AbdulganiVP Corporate Affairs, Mr PujobrotoTel: (6221) 380 0592 Fax: (6221) 368 031Japan AirlinesPresident, Mr Isao KanekoDirector, Public Relations, Mr Geoffrey TudorTel: (813) 5460 3109 Fax: (813) 5460 5910Korean AirPresident and CEO, Mr Shim Yi TaekVP Public Relations, Mr Seung Jae NohTel: (822) 656 7092 Fax: (822) 656 7288/89Malaysia AirlinesChairman, Tan Sri Tajudin RamliHead of Industry Affairs, Ms R. Nordiana Zainail ShahTel: (603) 265 5154 Fax: (603) 263 3178Philippine AirlinesChairman, Mr Lucio TanVP Corporate Communications,Mr Rolando EstabilioTel: (632) 817 1234 Fax: (632) 817 8689Qantas AirwaysManaging Director, Mr James StrongDirector of Public Affairs, Mr Bernard ShirleyTel: (612) 9691 3760 Fax: (612) 9691 4187Royal Brunei AirlinesChairman, Dato Paduka Awang Haji Alimin BinHaji Abdul WahabTel: (673 2) 343 368 Fax: (673 2) 343 335Singapore AirlinesDeputy Chairman and CEO,Dr Cheong Choong KongVP Public Affairs, Mr Rick ClementsTel: (65) 541 4030 Fax: (65) 545 6083Thai Airways InternationalPresident, Mr Thamnoon WangleeDirector, PR, Mrs Sunathee IsvarphornchaiTel: (662) 513 3364 Fax: (662) 545 3891Vietnam AirlinesPresident and CEO, Mr Dao Manh NhuongDep Director, Corp Affairs, Nguyen Huy HieuTel: (84-4) 873 0928 Fax: (84-4) 827 2291February 2000 | Orient Aviation |

p e r s p e c t i v eTOUGH: Korean Air (KAL) made companyhistory in January when it appointedHarry Greenberg as its firstnon-Korean executive vice-president and chiefoperating officer of flight operations, safetyand security divisions. Mr Greenberg spent28 of his 35-year aviation career at Delta AirLines in the U.S. where he was vice-presidentof flight operations before he retired.In 1999, he worked as a consultant forKAL as it began to implement its revampingof flight, safety and security operations, includingthe new US$30 million flight trainingprogramme with Seattle-based FlightSafetyBoeing and the honing of the airline’s fleetto four aircraft types.“Korean Air is an excellent company withdedicated people, but sometimes during thelife of a company it is necessary to achievea new focus. I am here [Korean Air] to helpestablish that focus,” he said.KAL has had a series of high profile accidentsand incidents in recent years whichhas led to the government imposing toughsanctions on the airline. These have includedstripping KAL of lucrative domestic and regionalroutes.In the most recent accident a B747-200freighter crashed shortly after take-off fromStansted Airport in the UK in December, killingall four crew on board.Mr Greenberg will be busy.WOOING: Australian states Queenslandand Victoria have gone out of their individualways to convince Sir Richard Branson heshould set up the headquarters of his plannedno-frills Australian airline within their borders.Queensland has offered a cut in payroll tax, relocationcosts and staff training programmesand incentives.Not to be outdone, Victoria is reportedto have promised to build Sir Richard a newterminal that the airline would have to sharewith another no-frills start-up, also plannedfor 2000.Virgin Australia is planning to investUS$33 million (A$50milllion) and create morethan 500 jobs when it decides where to baseits Australian headquarters, airline operationsand reservations call centre. A locationdecision is imminent. Meanwhile, the newlyknighted Sir Richard has been busy elsewhere.In India he is about to bring much-neededcomfort to the sub-continent’s London boundtravellers when Virgin begins three services aweek on the Delhi-London run with Air India.Pushed by the national government, Air Indiahas agreed to code-share with Virgin on theservice because the Indian flag carrier onlyhas enough planes to use 10 of the 16 authorisedslots on the service. The Virgin bossannounced the three times a week round tripwith a blowing – literally – of his trumpet inthe country’s capital in January.TRANS TASMAN VIRGIN: The UK operator’sdomestic foray may not stop at Australia’sborders. Virgin officials have confirmed privatelyto Orient Aviation that talks are takingplace with New Zealand airports with a viewto launching trans-Tasman services.Described as “preliminary” discussions,such a move would add to the pain of Virgin’sarrival, bringing new heights of competitionHarry Greenberg has been appointedas Korean Air’s first non-Koreanexecutive vice-president and chiefoperating officer of flight operations,safety and security divisionsto what are already hard fought routes betweenAustralian and New Zealand cities.Meanwhile, airline executives at VirginAtlantic are becoming sensitive about thecoverage of the Australian venture. They arekeen to point out it is under that umbrella ofVirgin Express and not the international armof the airline.YES TO THE 3XX: Airbus Industrie mightbe right after all, it seems. When he wasasked at an industry lunch in Hong Kongabout his airline’s view of the Very LargeTransport aircraft, Hong Kong-based CathayPacific Airways CEO, David Turnbull, jocularlysaid: “Well, we have two full planes leavinghere for London tonight within 30 minutesof each other and we could shove (pause) ...hmm, PUT them all on one plane. Yes, we areinterested in the A3XX.” But beyond that MrTurnbull was playing his cards pretty closeto his chest.WATCH THIS SPACE: In the early 1990sVietnam was flavour of the month, touristsand businessmen were flooding into thecountry and the national carrier, VietnamAirlines (VN), could do no wrong. Its revenueand load factors had been spiralling upwardsat an enviable rate.But then the country and the airline wentinto economic decline. But last year, after severalyears of losses, VN was back in the black,albeit helped by government tax breaks.It is now looking to add five aircraft to itsfleet, B777s or A340s are the options.Oh yes, and expect changes at the topbefore the end of 2000, insiders told OrientAviation.BENEATH CONTEMPT: A top-rankingsecurity investigator in Thailand has claimedthat corrupt customs officers are in the pay ofa Golden Triangle drugs lord.The allegations state the drug baronstell customs officers the names of couriersor naïve travellers who are carrying small tomedium amounts of illegal drugs for them.The customs officers home in on them atBangkok International Airport where theyare arrested.The purpose? To convince foreign nationsthat the anti-drugs campaign is working.Meanwhile, said the investigator, hugequantities of drugs are smuggled out of thecountry in cargo holds.OUTSPOKEN: Only weeks into the job,new China Eastern Airlines (CEA) chairman,Li Zhongming, lost no time in speaking tothe Shanghai Daily where he announcedthe first round of talks on the mergers of thethree score plus mainland airlines into tenoperators will take place in February. Until hispromotion, Mr. Li was president of the Shanghai-basedairline. He named Shen Zejiang aspresident and Xiao Liyuan, Zhiong Xiong andWu Yulin as vice-presidents. Cao Jianxiong,CEA’s former chief financial officer, resignedat the time of the December managementrevamp.OVER AND OUT: Top Ansett Australiaexecutive, Ron Rosalky, has been dispatchedto the carrier’s regional subsidiary, KendellAirlines, where he has replaced the formerKendell CEO, Geoff Breust. Ansett also replacedthe senior pilot management team atthe NSW carrier and has brought in six AnsettAustralia captains to oversee the checkingand training responsibilities required as theairline introduces Bombardier’s Canadair jetsinto the fleet.12 | Orient Aviation | February 2000

N E W SRegional round-upMAS winging it?Airline admits alliancetalks as losses mountIN A statement to the Kuala Lumpur StockExchange on January 18, Malaysia Airlines Systems (MAS) revealed it was in talksto join a global alliance to help it compete betterwith its regional rivals.The MAS statement said the Kuala Lumpurheadquartered carrier was now discussing withseveral parties the possibility of joining a globalalliance, widely tipped at this stage to be theproposed partnership of KLM Royal DutchAirlines, Northwest Airlines and Alitalia.MAS’s announcement represents an aboutturn on the airline’s past stance of going italone. It is believed to be influenced by the continuinglosses at the airline, its large debt andthe harsh reality of competing with regionalrivals that already have joined the oneworldor Star alliances or have code-shares with theglobal groups.The carrier has more than a dozen codesharesincluding Star Alliance member, AnsettAustralia, and Virgin Atlantic Airways, now49% owned by MAS arch rival, SingaporeAirlines.Last November, MAS chairman TajudinRamli, said he expected the airline to reverselosses of US$159 million in 1998-99. But theairline has announced a larger than expectedloss of US$116.6 million for the six months toSeptember 30. Efforts to stem the losses haveincluded cessation of 14 domestic serviceswhich have been long-term loss-makers.A report by news agency Reuters said aKLM spokesman commented the European airlinewas committed to its commercial relationshipwith MAS and added KLM was “aware”of speculation that it also could be buying astake in MAS. The airline denied any plans fora foreign buy in (see cover story).Cathay Pacific onfast track expansionCATHAY Pacific Airways’ chief executive,David Turnbull, told guests at an industrylunch in Hong Kong the airline will revive aplan, shelved in 1997, to double the carrier’spassenger traffic to 20 million by expanding tonew routes and stepping up the frequency ofservices to established destinations.Mr Turnbull, also the vice-chairman of theairline, said the carrier’s yields fell 30% duringCathay Pacific Airways: to order more aircraft this year1997 and 1998. “Yields have not yet pickedup,” he told the 100-strong audience at theChina (Hong Kong) International AerospaceForum luncheon, “and to be honest, I don’tthink they ever will.”Citing improved cash flow and lowering ofdebt, he said Cathay now intended to expandfrequency to all its Asian destinations, dispatchingflights every two to three hours and flyingto every one of its markets outside the regionup to twice daily. New cities being consideredfor Cathay services are Tehran, Riyadh, Cairo,Pakistan and additional cities in the UnitedArab Emirates.The airline’s management is now lookingat the Airbus A340-500/600 and the B777X asit weighs a decision to place a large order forlong-haul planes this year. “If Airbus Industriedoes build the A3XX, we certainly could be acustomer,” he added.Lucio Tan buys upPAL creditor bankPHILIPPINE Airlines’ (PAL) chairman, LucioTan, said PAL would soon fly to Sydney, Seattle,Frankfurt and cities in Canada and theMiddle East. Since the near meltdown of PALlast year, the flag carrier, in which Mr Tan has acontrolling share, cut back its services outsidethe region to Riyadh, Dahrahn, San Francisco,Los Angeles and Hawaii.Meanwhile, Mr Tan, a fabled donor to thepolitical coffers of Philippines president, JosephEstrada, continues to attract controversy after itwas revealed he will be the buyer of the 30%stake in the Philippine National Bank (PNB) thatwill be put up for sale by the national governmentin April. Mr Tan already owns 50% ofPNB, which has a loan of US$80 million out toPAL and Mr Tan.Cap to stay onmainland capacityANNOUNCEMENTS of mainland mergers,initially planned for 1999, and continuingcapacity caps on all the major carriers will bethe hallmarks of the first quarter of aviationin China, the Civil Aviation Administration ofChina (CAAC), the mainland’s aviation regulator,said in January.There was much comment and speculationabout mergers among China’s 30 plus airlinesin 1999 with all but a handful making heavylosses. Changes were promised by the endof the year by the CAAC, but Orient Aviationin November told readers not to hold their16 | Orient Aviation | February 2000

eath.Firstly, the mergers proved unpopular withthe airlines and rumours circulated of heatedclosed door disputes. Secondly, as the financialposition of China’s major carriers improvedduring the year observers said the pressurewas off the CAAC to push through its reforms.Year-end came with a deafening silence. Butstreamlining of the mainland airlines is a questionof when rather than if. The big question iswhen and who?As a marker for the industry, China SouthernAirlines (CSA) company secretary, LiYongzhen said: “There has not been a strongrebound in passenger traffic despite the easingAsian financial crisis. CSA’s load factor is justabove 60 per cent, compared to 65.3% in 1997and 78% in 1994-95.Hainan borrows tobuy commuter jetsHAINAN Airlines’ chief Chen Feng musthave good contacts in Beijing’s corridors ofpower. He is one of China’s most successfuland charismatic entrepreneurs. He talks bigand backs his words with action. The Hainanboss, based in the southernmost part ofChina, known as the Hawaii of the East, hasobtained a domestic loan of US$132.9 millionfrom the Agriculture Bank of China to pay for10 of the 19 Fairchild Aerospace 328 jets theairline ordered last year. The new commuterfleet, purchased for approximately US$226million, is to be used by Hainan to ensure itgrabs the majority share of the developingfeeder airline market on the mainland. Theairline also has options on 20 more airplanes,which will take the value of the entire deal toUS$464 million.Hainan took delivery of its first 32-seatFairchild 328 Jet, powered by two P&W CanadaPW306B turbo fans, from the manufacturer inGermany on November 3. The aircraft has arange of 900 nautical miles.It was only in the early 1990s that Mr Chen,charged by the mayor of the province withforming an airline, toured Hainan looking forinvestors and had to explain to people themeaning of the word ‘stock’. Initially he wasnot impressed. “I told them I was not talkingabout paper aeroplanes,” he once told OrientAviation.Today, he has a profitable airline and significantinterests in airports and hotels.No new Taiwandeal for the PhilippinesTHE Taiwanese and Philippines governmentsstill cannot resolve the dispute over airrights that has produced the cancellation ofthe air service agreement between the twocountries. In the latest bout, Civil AeronauticalAdministration director, Chang Yu Heng, saidPhilippine Airlines’ (PAL) application to operatea daily Manila-Taipei-Manila service has beenrejected.He said the route will only be approvedif the Philippines’ Civil Aeronautical Board“grants designated Taiwanese carriers all trafficrights”, a condition that PAL repeatedly says itcan’t meet.“We fully realise that meeting this demandwill have an adverse effect on the national interest,”said PAL president Avelino L. Zapanta.“If you give sixth freedom rights to TaiwaneseFebruary 2000 | Orient Aviation | 17

N E W Scarriers you can kiss your national flag carriergoodbye. It’s a fact.”The row between the two countriescentres on PAL’s objections to the Taiwanesecarriers picking up traffic in the Philippines androuting it through Taiwan to the U.S. PAL claimsit is an abuse of the 1996 agreement while theTaiwanese carriers assert what they did andwant to continue to do, is a proper applicationof their sixth freedom rights under the treaty.On October 1 last year, the Philippines Governmentcancelled regular scheduled flights toand from Taiwan. The Philippines Governmentsought, but failed, to reach a negotiated settlementwith the Taiwanese bureaucrats and thebilateral agreement between the two countrieswas cancelled. The final links between theairlines’ operations in Taiwan and the Philippinesclosed down on December 31. Since then,PAL has been particularly hurt by the ongoingdispute as the Manila-Taipei route made moneyfor the struggling national flag carrier.China Airlines equitysale delayed againTHE proposed sale of 35% of China Airlines,planned to take place in December, hasbeen delayed until at least the end of February.The state-run Central News Agency said thedecision was made because the current priceof China Airlines (CAL) shares was too low.CAL is 71% owned by the quasi governmentorganisation, the China Aviation DevelopmentFoundation (CADF).In the last 18 months, the CADF has beentrying to reduce its holding in CAL, but withno success. A year ago, Singapore Airlines(SIA) formally withdrew from its plan to buy alarge stake in the carrier, reportedly because ofconflicts over management control.In June last year, brokers Salomon, SmithBarney were given six months to find anotherbuyer. CAL president, Sandy K. Y. Liu, told OrientAviation there are a number of airlines in‘the frame’. Insiders say they don’t believe afirm prospective buyer, yet to be identified,will come from within the region.Cambodia gambles on openskies to woo touristsCAMBODIA has announced an open skiespolicy to lure more international airlines tolaunch services designed to bring more touriststo the country’s famed temples.One carrier, Vietnam Airlines, has alreadytaken advantage of the new deal, launchingflights from Ho Chi Minh City in southernVietnam to Siem Reap in northern Cambodia,which is near the site of the Angkor Wattemples.Tourists previously had to fly throughthe Cambodian capital, Phnom Penh, or viaBangkok to reach Angkor, the stone ruins ofan abandoned 12th century royal city.But the move has failed to win universalsupport from local tour operators and the nation’snational flag carrier, Royal Air Cambodge.The airline fears heightened competition willhurt its revenue.Tourism officials believe visitors will beencouraged to fly direct to Siem Reap, hurtingthe tourism business in Phnom Penh.Cambodian Prime Minister Hun Sen announcedthe new policy in December, sayingregional airlines will be allowed to fly directto Siem Reap. A government official said carriersfrom such places as Taiwan, Hong Kong,Malaysia, Singapore, Thailand, Vietnam andIndonesia are now free to launch flights.Thailand’s Bangkok Airways is currently theonly foreign carrier serving Siem Reap.The upgrading of Siem Reap airport tohandle larger aircraft is due for completion inMarch. More than 184,000 visitors flew in toPhnom Penh and Siem Reap in the first ninemonths of 1999, compared with 136,000 in thesame period of 1998. The government expectedtourist arrivals to increase by an annual 30%.Anti-trust move byAir NZ, United AirlinesSTAR Alliance partners Air New Zealand(Air NZ) and United Airlines have jointly filedfor anti-trust protection in the United States, amove they say will enable them to strengthentheir alliance relationship and offer morebenefits and services to their mutual customersthrough increased co-ordination of theirnetworks.“If granted, anti-trust immunity will enableAir New Zealand and United to share information,allowing both carriers to offer consumersthe benefit of their combined networks”, saida statement from Air NZ.The US Department of Transportation,which will rule on the request, has approvedseveral other applications for anti-trust immunitybetween U.S. and foreign airlines, mostlyin Europe. Without such protection partnerairlines are unable to co-operate openly onpricing and other critical marketing fronts.Sentimental CFMIsays thanks with bubblesWITH a single bottle of champagne and anote of thanks to the entire production team,CFM International shipped its last CFM56-3engine to Boeing for its installation on theairplane manufacturer’s final classic B737, to bedelivered to CSA Czech Airlines this month.CFMS International is a 50/50 joint venturebetween Snecma of France and GeneralElectric of the U.S. When Boeing selected theCFM engine to power its B737-300, -400 and– 500 series in 1981, the company predicted itwould sell 400 airplanes. Nineteen years, 1,867aircraft and 3,975 engines later, the aircrafthas put CFM in the record books as the largestselling supplier of aircraft engines in the world.Although the final installed engine has leftthe company’s shop, CFMI will produce 20 to30 spare engines per year for the next severalyears. Well done!18 | Orient Aviation | February 2000

m a i n s t o r ySingapore Airlines: will join an alliance, but is attempting to show itwill not operate in a commercial straightjacketMalaysia Airlines: may suffer if Kuala Lumpur International Airportis not developed quickly into a major regional hub.FORTom Ballantyne reportsSALETesting times for global alliances as Asianairlines open their doors to investorsThe ownership structure of the Asianairline industry is set for a radical shakeupamid developments – includingSingapore Airline’s (SIA) purchase of a 49%stake in Britain’s Virgin Atlantic Airways– which have thrown the shape of globalairline alliances into a state of uncertainty.At least 16 carriers in the Asia-Pacific andthe Indian sub-continent – half of them government-owned– are preparing for partialprivatisation or seeking major investors (seetable).Many of these sell-offs will take severalyears to finalise, but the intensity of the drivetowards a more shareholder-driven structurefor the region’s airlines is extremely significantand will, ultimately, completely alter existingownership norms.A significant number are certain to involvecross-border equity stakes, heightening thepressure on governments to ease foreignownership regulations as alliance arrangementsand investment make a mockery ofexisting rules.It was an easing of such regulations byCanberra that cleared the way for Virgin toplan a ‘raid’ into Australia’s skies.Meanwhile, SIA’s move into Virgin mayhave serious implications for the Star Alliance,which the Singapore carrier is due tojoin in April.Coming only days after Virgin disclosedit plans to launch a wholly-owned domesticairline in Australia, of which SIA could also bea part, the tie-up will put SIA into direct and,potentially, hostile conflict with Star membersAnsett and Air New Zealand (Air NZ). Thethree carriers already have a major tripartitecommercial agreement, including numerouscode-share flights.Just how SIA will balance its commitmentsto Star while being part owner of an Australianoperator competing furiously with Ansett– and possibly fighting Air NZ on trans-Tasmanroutes – is intriguing the industry. It will putthe oft-stated alliance intention of competitiveco-operation, or co-operative competition, tothe test.But SIA is clearly attempting to showthat although it is prepared to enlist in analliance it will not operate in a commercialstraightjacket.One respected industry airline analyst believesthe Virgin move has wider implications,representing a key strategic move by what hecalls “Singapore Inc” – SIA, Singapore ChangiInternational Airport and government – to cementthe position of Singapore as South Asia’sairline super hub.Peter Harbison, managing director of theCentre for Asia Pacific Aviation (CAPA) believesChangi Airport will prosper at the expense ofBangkok and Kuala Lumpur airports, as Starpartners develop services with SIA throughSingapore.“The SIA-Virgin deal could well see theend of the British airline’s code-share linkswith Malaysia Airlines (MAS) and result in itsoperations from Europe switching from KualaLumpur to Changi Airport.He said broader interests are motivating‘Singapore Inc.’ to secure not only Starbusiness, but flights from all other alliances.Singapore is a major hub for British Airway’s(BA) oneworld.“Is there a new solution, where SIA/Singapore/Changi can equally tie in oneworld,already powerfully represented there, as wellas the Air France/Delta alliance and even KLM/Alitalia/Northwest’s Wings alliance?“The outcome, given SIA’s market presence22 | Orient Aviation | February 2000

and huge war chest, could be a new hybrid versionof global alliances,” said Mr Harbison.He added what SIA is doing “offers amodel for how to position a national aviationsystem to gain maximum benefit from theinternational market place” and said it couldalso re-shape global alliances.The development also could be a dangerousthreat to the viability of Malaysia’s brandnew US$2.3 billion Kuala Lumpur InternationalAirport at Sepang and the US$3 billion greenfieldsfacility planned for Bangkok.While no one involved in the Star Allianceis making any public comment, sources withinthe group say recent events are the subject ofintense debate and genuine concern about thefuture structure of the alliance.As the SIA gambit and Virgin’s move intoAustralia reverberated through Asian andworld airline circles, the push towards privatisationheightened. Among major operatorsseeking new ownership involvement areAnsett, Asiana Airlines, Korean Air, PhilippineAirlines, Air India, China Airlines (CAL), GarudaIndonesia and Thai Airways International(THAI).In addition, there was intense, but unfounded,speculation in January that MAS wason the verge of a debt restructure plan whichwill see the Netherlands’ flag carrier KLM RoyalDutch Airlines take a stake. A spokeswomanfor MAS denied the rumours, although it isknown the SIA/Virgin tie-up has placed theMalaysian operator, which has US$2.6 billionof long-term debt, under pressure.In other developments:• On his way back to London after announcinghis Australian domestic plans Virgin’s SirRichard Branson completed a code-sharingdeal with Air India (AI). He said he might beinterested in taking a stake in the Indian flagcarrier. That would give SIA an interest in AIthrough its Virgin shareholding.• Financial advisers to THAI have advised thegovernment to sell 400 million shares thisConsultant Peter Harbison: SIA’s marketpresence and huge war chest, could resultin a new hybrid version of global alliancesyear, up from the planned 300 million. Thatwill reduce the state’s holding from 93% to70%, with further stock sales to come.• Taiwan Transport Minister, Lin Fong-cheng,said the government would not allowmainland Chinese capital to acquire sharesof Taipei-based CAL. The China Aviation DevelopmentFoundation, which owns 72% ofCAL shares, is to relinquish half the holdingto prospective private investors.• Garuda Indonesia has reached an agreementwith foreign creditors to re-scheduleits US$1.8 billion debt, critical to its recoveryplan and likely to help speed up its movetowards privatisation. The carrier, now beingassisted by Germany’s Lufthansa Consulting,has rejected a suggestion SIA might bebrought in to manage its operations.• Talks, however, are understood to have takenplace between SIA and Indonesia’s stateownedregional carrier, Merpati Nusantara,about a management deal. Merpati is in direfinancial straits and many of its aircraft aregrounded. SIA has not commented on theissue, but Merpati president, Wahyu Hidayat,said the carrier is “open” to the possibility ofSIA acquiring a stake.• Outside Asia, Canada’s biggest airline, Staralliance member Air Canada, has bought82% of rival Canadian Airlines, a oneworldpartner, causing more uncertainty on thealliance front.SIA is paying around US$984 million for49% of Virgin, a sum that includes an injectionof US$80 million in new capital. It makesno secret of its plans to make more equityinvestments in other airlines – not only in Asia– although the Virgin move follows severalfailed attempts elsewhere.These included an effort to start a newIndian domestic airline with industrial groupTata Industries and aborted deals to take ashare in CAL and Ansett Australia. SIA also triedto purchase part of Qantas in 1992 and last yearlost out, in a joint bid with Lufthansa GermanAirlines, for 30% of South African Airways.The purchase of half of Ansett from NewsLimited was virtually a done deal until theother 50% owner, Air NZ, decided to take upits right under an agreement to buy the sharesSIA wanted. As it turned out, News Limitedended up refusing to sell to Air NZ.It appears the process rankled SIA andits highly astute deputy chairman and chiefexecutive officer, Dr Cheong Choong Kong.Despite persistent media reports the dealis still on the agenda, all the signals fromSingapore indicate this is not so, especially asSIA has found another way into the Australiandomestic market through Virgin.Said Dr Cheong: “...our acquisition of a49% stake in Virgin Atlantic ... neutralisesthe sour taste of the false start with Ansett.Indeed, with the options now available to us,the failure of our Ansett attempt may proveto be a blessing in disguise.”If SIA is deeply involved with Virgin Australiait would seem illogical for it to pursue abig Ansett stake, particularly as News Limited’schief, Rupert Murdoch, is now said to be seek-Privately ownedON THE MARKETGovernment ownedAirlineAmount for saleAir Philippines Up to 50%Angel Airlines (Thailand) Up to 15%Ansett Australia Up to 50%Ansett New ZealandSeeking investorAsiana Airlines Up to 50%Korean AirSeeking investorPhilippine Airlines Up to 40%Shanghai AirlinesSeeking investorAirlineAmount for saleAir India Up to 40%Air Niugini (PNG)Seeking investorBiman Bangladesh Up to 40%China Airlines Up to 35%Garuda Indonesia Up to 50%Indian Airlines Up to 51%Pakistan International Airlines Seeking investorThai Airways International 23%February 2000 | Orient Aviation | 23

m a i n s t o r ying US$650 million, way up on the originalUS$500 million asking price.For SIA, already a powerful internationalplayer in Australia, Virgin is not only aboutthe market ‘Down Under’. It is a key link inthe carrier’s plans to extend its network fromEurope across the Atlantic to the U.S., using aBritish, now partly-owned, partner.Complicating matters, British Midland(BM), another UK operator and Virgincompetitor, is due to join the Star Alliancesoon, clouding the map on which SIA willoperate in Europe in conjunction with alliancepartners. BM also plans to launch trans-Atlanticservices this year and, as a Star partner, wouldexpect to be able to code-share with SIA.Mr Harbison is convinced developmentsover the past month could have a significantimpact on aviation in Asia. He believes Virginis moving towards a new strategy of globalaspirations and membership of a majoralliance, although Sir Richard Branson deniedthis.“We have no plans at all to join anyalliances. This is the marriage we want and thisis as far as we want it to go,” he said.Nevertheless, Mr Harbison said Virginis moving into Asia, which could have greatsignificance for airline competition – and forone or two key hub airports. “If Virgin doeswant to join one of the global alliances onequal standing, it needs more assets in itswar chest.“A position in the Indian market – with itsenormous potential – along with a footholdin Australia and a growing list of associationsin northern Asia would add much greatersubstance to its profile,” said Mr Harbison.He considered the alliance position in Asia“keenly poised”, with SIA apparently aboutto commit to Star, MAS moving towardsthe Wings grouping and the possibility thatTHAI, now a Star member, may explore otheroptions, depending on which foreign carrierends up holding shares.“The list of permutations is a long one. Theoutcome will possibly secure the future of atleast one airport and greatly affect the roles ofseveral airlines,” said Mr Harbison.MAS chairman, Tan Sri Tajudin Ramli, hasacknowledged the potential danger of theVirgin/SIA deal and pointed out MAS maysuffer if Kuala Lumpur International Airportis not developed quickly into a major regionalhub.“While we recognise there are somethreats to us here, there are also a lot ofopportunities that can be created,” he said,conceding MAS could lose its code-sharearrangement with Virgin on the Kuala LumpurSingapore Airlines deputy chairman andchief executive, Dr Cheong Choong Kong:“the failure of our Ansett attempt mayprove to be a blessing in disguise”to London sector.Despite some speculation about SIA’sintentions with Star, a spokesman for theairline told Orient Aviation membership wouldbe confirmed in April. This “does not precludeus from entering into bilateral strategicarrangements with airlines outside Star. Weare certainly thinking about opportunities thatmay arise following our decision to buy 49%of Virgin, including Richard Branson’s plansto enter the Australian aviation scene. But itis premature to talk about how this wouldimpact on our code-sharing arrangementswith Ansett,” he added.SIA’s position on equity participation inother airlines has not changed, he said. “Ourobjective is to grow into a global group ofairline and airline-related companies.”With around US$1 billion of reserve cashand another US$1.3 billion to come from theplanned sale of airport and engineering units,that undertaking is bound to cause extremeAirline shareholders may well have beentearing their hair out as the rash ofdevelopments in the industry sparkedsharp swings in the value of stock.Whether they were doing it out of joy ordespair depended where their cash wasinvested.Shocked Qantas Airways investors sawthe airline’s shares sink to an 11-month lowof US$2.27, well below the highs of over$3.25, on the news Virgin was shaping upto enter the domestic market.The deal knocked US$567 millionoff the value of Australia’s flag carrier,nervousness among some of SIA’s rivals.There may be more income to come. SirRichard Branson said SIA can expect to reaphuge profits within three years from its sharebuy.Final documentation on the deal wasexpected to be complete by the end ofJanuary.Sir Richard had a warning for long-time rivalBA: “We will be meeting every two monthsto plot how to compete with our mutual friend– British Airways,” he said.Under the deal, SIA and Virgin will haveagreements on code-sharing, frequent-flyerprogrammes and shared access to passengerlounges and airport facilities.“This deal is all about growth. Thesynergies derived from linking two perfectlycomplementary route networks will allowboth airlines to grow faster than either canmanage on their own,” said SIA CEO DrCheong.“One important benefit SIA will gain fromthis association with Richard Branson is thatwe Singaporeans will be infected by his joiede vivre and begin taking ourselves a little lessseriously. Richard Branson clearly has fun whenhe does business,” added Dr Cheong.That tongue-in-cheek remark concealsa steely determination at SIA to dominateAsia’s skies and continue with a strong growthpattern and improvements in economicperformance. “This is a long-term investment... It will have a positive impact on our EVA(economic value added),” he said.What is becoming apparent is that withinStar SIA will be operating an alliance withinan alliance, giving it enormous power andinfluence, but who the members are will verymuch depend on the outcome of the plannedshare sale process at several Asian airlines andelsewhere.Deal puts markets in a spinalthough by late January the stock hadrecovered to around the $3 mark.In London, British Airways shares alsodropped nearly 5%.Not surprisingly, SIA shares soared followingits Virgin purchase announcement,rising some 9.1% at its peak, its biggestone-day gain in six months.While MAS’s fortunes may be hit bythe new partnership, its shares also surgedon (apparently unfounded) speculationKLM Royal Dutch Airlines was preparingto take a stake in the Kuala Lumpur-basednational carrier.24 | Orient Aviation | February 2000

m a i n s t o r yBattlefield Australia!By Tom BallantyneQantas Airways and Ansett Australiaare gearing up for a battle royal asthree new competitors prepare tolaunch cheap, no-frills services on the country’sprimary domestic air routes. It will present theincumbents with their most serious marketchallenge ever.Observers believe the development hasthe potential to forever alter the Australiandomestic airline industry, although bothexisting operators do not appear eager tolaunch a no-frills offshoot themselves.The most serious aspect of new no-frillscarriers for Qantas and Ansett is that one ofthe start-ups is no ‘bunny’. It will be a divisionof the mercurial and newly knighted Sir RichardBranson’s Virgin Atlantic Airways, a manwho has been a thorn in the side of Qantas’oneworld partner British Airways for years.Worse still, Singapore Airlines (SIA), alreadya powerful player in the Australian internationalmarket, has just bought 49% of Virginand may use its new equity stake to leverageeven more presence in skies ‘Down Under’. (Seeseparate story).Sir Richard said SIA would decide “in thenext couple of months” if it wished to takepart in the Australian domestic operation.“We would be delighted to have them in. Ithink it’s possible. The investments are not veryconsiderable. Without the need to buy planes,the start-up would need to be capitalised atabout US$30-US$40 million. With aircraft, itcould go up another couple of hundred milliondollars.“If SIA did come in, they would not haveto put in any extra money. It is possible to fundthat airline through Virgin Atlantic,” said theentrepreneur.A spokesman for SIA, Rick Clements, said;“We are seriously considering various optionspresented by our purchase of the Virgin stakeand Richard Branson’s proposed entry into theAustralian aviation scene.”Meanwhile, two other local firms alsointend to enter the fray, although there remaindoubts about their capacity to raise sufficientfinance for their start-ups. Backers will be verynervous about funding airlines that will have tocompete against big money operators.They are:• Impulse Airlines, an existing Sydney-basedregional carrier which plans to lease 10Boeing B717s and fly major trunk routesbetween Brisbane, Sydney, Melbourne andAdelaide.• Spirit Airlines, a start-up which wants tolease two Boeing B737-400s and, initially,link Melbourne, Sydney and Brisbane. Spiritsaid it would expand the fleet to seven jetswithin four years. Observers believe it is theleast likely to succeed.Established in 1993, Impulse operates afleet of Beech 1900 turbo-props on a regionalnetwork out of Sydney.Ansett executive chairman Rod Eddington:“Branson will take customers from us ... wehave to be even more focused ...”Owner Gerry McGowan is understood tobe talking with Boeing about new aircraft.The head of Spirit is Mike Dixon, a formerpilot with Trans Australian Airlines (laterAustralian Airlines and now part of Qantas).The new carrier is modelled on the Texas-based,low-cost airline Southwest and other no-frillsservices in England and Canada.The newcomers want to launch flightsby July, but the timetable is far from certain.They have to gain air operators’ certificates(AOCs) from Australian regulatory authorities,a process which insiders say will take atleast six months. The Impulse application iscomplicated because the B717 will be a newtype in Australia.Ansett and Qantas have reacted cautiouslyto the newcomers. Neither will announcecounter plans until they know details of theoperations of their new rivals.When last facing low-cost start-ups inthe early 1990s – two versions of the ill-fatedCompass Airlines – both airlines lost severalhundred million dollars in a bitter and vitriolicprice war that raged over a three-year period.With Asia emerging from its economicrecession and the need for profitable performancedriven by nervous shareholders, neitherQantas nor Ansett want a repeat performance.Ansett in particular is in a difficult position.It is in the midst of major restructuring andrationalisation and has only just moved backinto profit after several lean years.Sources at both carriers suggest whilethey will react with aggressive discountingcampaigns when the time comes, it will be acarefully measured response using their highlysophisticated yield management systems toensure the impact on revenue and profits isnot dampened.The prospective new operators arepromising one-way fares of US$65 or lesson flights between the major state capitals,compared with more than US$130 currentlyon offer in the marketplace from the majorairlines.Ansett has ruled out launching its own lowcostsubsidiary, although Qantas is still studyingthe option. Ansett executive chairman, RodEddington, said the airline has “neither deepenough pockets nor the ability” to set up anew operation.“Branson has a strong global brand. He hasplenty of money. He already runs airlines. Hewill be a serious competitor and he will takecustomers from us,” he told staff in an internalmemo. “We have to be even more focusedon our Business Recovery Plan agenda thanever before, particularly on our cost reductioninitiatives.”Qantas chief executive, James Strong, hasindicated a response to the budget airlines maybe made in the early part of the year, althoughhe feels a July launch by Virgin is optimistic.He prefers an aggressive discountingcampaign to starting up a second airline, eventhough its partner, British Airways, launchedits own no-frills carrier, Go, to compete withsimilar competition in Europe.The arrival of a wholly foreign-owneddomestic operator in Australia would havebeen impossible 12 months ago, with foreigninvestment rules limiting offshore ownershipto below 50%.That all changed when the Australian Governmentamended the rules and put Australiaon the path towards liberalisation.26 | Orient Aviation | February 2000

e x e c u t i v e i n t e r v i e wBrainwashing part of CAL’s safety blitz – page 34CAL: the‘Comeback Kid’After a year of ups and downs, China Airlines is back in the moneyBy Barry Grindrodin TaipeiResponsibility appears to rest easily onthe broad shoulders of China Airlines’(CAL) chief Sandy K. Y. Liu. It needs to.Historically, to be president of Taiwan’s nationalcarrier, with all the political baggage it carries,albeit through no fault of its own, has neverbeen easy.In more recent times demises like the Asianrecession and the tragic September earthquakein Taiwan, have tested CAL to the full.And if all that was not enough, a poorsafety record, very much the responsibility ofthe airline, has brought CAL extra governmental,operational and financial pressures.Mr Liu’s first year in office – he was confirmedas president in mid-1999 after fivemonths as acting president – has been nothingshort of extraordinary. A whole range of eventsfrom the good, the bad and downright uglyended in December when CAL announced itwas increasing its pre-tax profit forecast by39%.In August, CAL placed the largest aircraftorder in Taiwan’s aviation history and the biggestin the region for four years. Within 24 hoursit signed purchase agreements for 13 BoeingB747-400 freighters, valued at US$2.5 billion,with four options, and seven Airbus A340-300s with options for an additional A340 andfour A330-300s. The Airbus order was worthUS$1.8 billion.A few days later CAL’s safety record was inthe spotlight again, but for the worst reasonswhen one of its MD-11s flipped over on landingat Hong Kong’s Chek Lap Kok airport andcaught fire. Three people died and more than200 passengers and crew were injured.Although he was limited in what he couldsay about the accident at the time of thisinterview, Mr Liu said an ongoing investigationChina Airlines’ president Sandy K. Y. Liu: an extraordinary first year in officehas revealed, to his “relief”, that the cockpitcrew, contrary to early reports, acted properlyin the circumstances and pilot error was nota factor in the crash (see elsewhere in thisstory).The airline’s woes mounted in lateSeptember, however, when Taiwan was hit bya massive earthquake that killed an estimated2,000 people.Load factors slumped by 9% in October, butafter six weeks passenger and cargo traffic hadexceeded 1998 levels, with 73% and 85% loadfactors respectively in November!On September 30, CAL was forced to ceaseservices to the Philippines after Manila pulledthe plug on the air services agreement betweenthe two countries. The Philippines Governmentclaimed CAL and EVA Air were poaching sixthfreedom traffic on the route between Taiwanand its country and that they were hurtingPhilippine Airlines.Add these circumstances together and itmakes the profit forecast announcement bythe CAL board at the beginning of Decemberall the more remarkable.Consider the figures:Pre-tax profit forecast to increase to NT$2.8billion from NT$1.725 billion.In the first three quarters of the year passengerand cargo revenue rose 22.8% over thesame period in 1998. Pre-tax profit totalledNT$2.5 billion. This performance resulted in a6.2% reduction in unit cost, a 6.6% yield increaseand a 7.8% improvement in productivity.CAL predicts its revenue for 1999 willbe NT$61.2 bullion, up 18% on 1998. Net30 | Orient Aviation | February 2000

e x e c u t i v e i n t e r v i e woperating profit is expected to reach NT$1.6billion, compared to a loss of NT$3.9 billionlast year.Not for the first time, CAL has proved to bethe region’s leading ‘comeback kid’.And fifty-one-year-old Mr Liu has seen itall before. A 30-year stalwart of the nationalcarrier, CAL has been his life. He has workedin just about every division of the airline as heclimbed the management ladder. His father isa former chairman of CAL.Before he agreed to take on the hottestof hot seats following the crash of anotherCAL airliner in 1998, he thought long and hardbefore accepting what he describes as “a greatchallenge”.At the time, CAL staff were still recoveringfrom the crash of the A300-600 jet as itapproached Taipei’s Chiang Kai Shek airportwhich killed 201 people. Four years earlier,another A300-600 crash killed 264 passengersand crew in Nagoya, Japan.An extensive safety programme coveringall of the airline’s operations was already inplace when Mr Liu took over the reins, butsafety has continued to be his priority. No onecan accuse CAL of not addressing the problem(see separate story).Company sources say Mr Liu is a toughtaskmaster. “He has very high standards, buthe applies these standards equally to himselfas he does others,” said a source.Only time will tell if CAL has managedto exorcise its safety demons, but there is nodenying the contribution of the fiscal gurus tothe airline’s improved performance. Althoughthe turn around in the Asian economy hasplayed its part in the CAL recovery, cost controlhas been the underlying cause of the carrier’sperformance.But unlike many other airlines in theregion not one staff member has lost his orher job. “We guaranteed staff would not beasked to take furloughs or be laid off,” saidthe president.Staff cuts have been achieved throughnatural attrition, although some CAL employeeshave been retrained and moved to other areasof the company. In 1998 CAL had a payroll of9,200 staff. The budget for 1999 increased it to9,400. By mid-December, the figure had fallento 9,030.THE FUTURE:“The market is looking prosperous”, saidpresident Liu and CAL is honing its operations toexploit the improving economic situation.During 1999 CAL reduced the number of itsaircraft types from seven to five. It rid itself of itsremaining A300B4-200s and B747SPs. Between2000 and 2003 CAL will introduce new Boeingand Airbus aircraft to replace its B747-200s andthe MD-11s. By 2007, maybe earlier, CAL willhave just three aircraft types in its fleet; B747-400 passenger and freighter jets, B737-800s andAirbus A340/330s.Its fleet plan, said Mr Liu, is based onrenewal rather than expansion although itsaircraft options will allow it adapt to marketconditions. By 2007, CAL will have a minimumof 60 and maximum of 69 planes, dependingon market conditions.Mr Liu said CAL spent four years developingthe company “bible”, its strategy for the next 10years. At best it could make CAL hugely successful.At worst CAL could continue to be blightedby its poor safety record. One has to ask howmany more comebacks can a ‘kid’ make.Mr Liu will be hoping to ensure that comebacksare a thing of the past.Will an airline buy into CAL?China Airlines’ chief, Sandy K. Y. Liu,kept his cards close to his chest when hetalked to Orient Aviation about the saleof 35% of the stock in his airline.It was only days to the original dateplanned for the completion of the sale– the end of December. The decision hasnow been shelved until the end of February.The stock is half of governmentcontrolledChina Aviation DevelopmentFoundation’s 71% holding.“Yes, there has been a lot of interest,”he said. Banks? “Yes,” he replied.Airlines? “Yes,” he repeated. More thanone? Again: “Yes”.“You will know soon”, he said. Butalas the stock sale was delayed until theend of February.Analysts said the deferral was causedby CAL’s recent stock performance. ButMr Liu told Orient Aviation a delay wouldbe beneficial to CAL because prospectivebuyers would see the airline’s improvedposition unfold.And then, just possibly, a clue fromthe president’s tight lips about his plansfor CAL. Yes, China Airlines is investigatingthe benefits of alliances. “But we willwait for a result (of the sale) before wedecide on the way to go,” said Mr Liu.Could the buyer be a member of amajor alliance? Time will tell.MR LIU’SVIEWS ON...CAL’s MD-11 crashin Hong Kongased on all known facts this was to“Btally different to the Taipei andNagoya accidents. I spoke to Albert Lok, theHong Kong CAD director, and the investigatingcommittee and they said while there are manyareas where there are big questionmarksabout the crash, they confirmed that we cannotidentify this incident as pilot error related(on this basis Mr Liu said CAL had downgradedit from an accident to an incident).“The CRM between pilot and co-pilot,there is no question (they acted properly) ifyou read our aircraft CVR and FDR (transcripts)... I am not happy that we did not land the aircraftsafely, but I am somewhat relieved, basedon known facts, that all our efforts focused onflight safety related issues such as training andpilot discipline in the last year have proven weare serious about it.”Mr Liu said the investigators are concentratingtheir efforts on conditions at HongKong International Airport and the structureof the aircraft. He confirmed CAL is co-operatingwith Boeing, the U.S. National TransportationBoard (NTSB) and the Federal AviationAdministration (FAA) in studies into threesimilar accidents involving MD-11s.The Philippines airrights disputes the national carrier of Taiwan we”A have served this route for manyyears and likewise Philippine Airlines. Wehope the agreement can be re-instated,not just for the sake of the airlines, butalso for business and tourist customers.“As an international commercial airlinewe are selling the network. We are notselling the sector ... if any given route hasto miss out on fifth and sixth freedomtraffic that route has no future.“The Taipei-Seoul route has been suspendedfor seven years (a Governmentdecision when Korea opted to recogniseChina instead of Taiwan). It was an importantsector, but we have managed verywell without the services.“If the Manila situation is not resolvedwe will diversify to other areas.”32 | Orient Aviation | February 2000

s a f e t yPromising signsCAL pulling no punches in safety driveThe acting director of China Airlines’(CAL) operations division, Capt. ChouYu-Sen, is not a man to beat aboutthe bush.“Any pilot who does not meet the standardswill be grounded,” he said. The words arequietly spoken, the smile is warm, but there isno hiding Capt. Chau’s determination. It hasalready happened in a few cases.They are given every opportunity to provethemselves, but the days of the much-criticised,autocratic “macho” military pilots rulingthe CAL cockpit ‘roost’ are numbered.Lack of communication on the flight deckin Taiwan, Korea and China, all of whom hire ahigh percentage of ex-military men, has contributedto accidents and incidents in recentyears. CAL has admitted it has had a ‘cultural’problem with its older, former military pilots.Capt. Chou is a former military pilot. Butsince then he has worked in Singapore andhelped Taiwan’s second international airline,EVA Air, set up their training department afterit was launched in the late 1980s. Attitudes arechanging, said Capt Chau.Since the CAL Taipei crash two years ago,which killed 201 people, every CAL pilot hashad to return to school to be tested and,where need be, re-trained. The trainers, too,have been re-trained.With the assistance of consultants LufthansaTechnik, CAL has introduced strict newEnglish language standards, compulsorycockpit resource management (CRM) classesfor all flight crews and up to nine months“brainwashing” or crew pre-qualification(CPQ) courses, for new military recruits andab initio graduates.It’s a cliché, but no stone has been left unturned.A 48-point “continuous improvementproject” or gai jin as it is called in Chinese, isin operation and constantly under review.It covers everything from pilot qualificationand selection to improving flight standardsand upgrading CRM and LOFT training tolanguage skills in the air and on the ground. Italso incorporates updating operations manualsand establishing performance monitoringsystems.The maximum age for former militarypilots eligible to join CAL has been lowered to40. Only two were accepted in 1999. Instructorpilots and check captains also have felt theheat in the last 12 months. All of them had tobe re-certified and take a 14-day enhancementcourse. Of the 135 tested, 15% failed the writtenor oral examination.“They took it too lightly,” said CAL presidentSandy K. Y. Liu. “They thought it wasmore ceremonial than practical.”They were told they would only be allowedone re-test. Anyone who failed wouldbe stripped of their instructor/check captainrole. All but two passed the second time.Acting director of operations Capt.Chou Yu-Sen: pulls no punchesCAL knows it has to play hard ball. But arethey playing hard enough? The airline’s expatriatepilots are its strongest critics, but eventhey concede CAL has made recent significantimprovements.The standard of English, they say, hasshown a sharp improvement; CRM less so,but it is still better than a couple of years ago.There are allegations that some local pilotsare given “an easy ride” by some of their exmilitarysuperiors.CAL has a shortage of pilots and a vigorousrecruitment campaign to build its cockpitranks is under way world-wide. By the endof 1999 the airline had 783 cockpit crew: 363captains, 315 first officers, 39 cruise captainsand 66 flight engineers.Of these, 393 are ex-military pilots, with200 ab initio graduates and 124 expatriates.An advertising campaign for expatriate cruisecaptains attracted 120 applications up to mid-December. The operations department is fastbecoming a melting pot of nationalities. CRMwill be ever more critical and the need forgood English more important. Recruitmentof native speaking English pilots has helpedfoster better attitudes on the flight deck,sources told Orient Aviation.CAL has established a mandatory Englishlanguage standard for its local pilots: Testof English International Communications(TOEIC). The airline has three English instructorsand all local flight crew have to take atest to achieve TOEIC 550 level. This includesnew military recruits. TOEIC 600 is necessaryto upgrade to captain.Anyone who fails the test will be relegatedto ground duties. In the past CAL hascancelled schedules to accommodate extensivepilot training. This was particularly thecase after the Taipei crash in 1998.While the current shortage of pilotscontinues CAL president, Sandy Liu, said theairline would continue to cut back on schedulesto facilitate training of new and existingpilots if necessary.Meanwhile, CAL’s Flight Safety Office hasexpanded in the last two years. It has 18 staffcovering flight operations, maintenance andground handling.Two years ago, it had 16 aircraft equippedwith Flight Operations Data and Analysis (FO-DAS) monitoring equipment covering 7,046sectors. By the end of 1999 it was expectedthat all aircraft, with the exception of theB747-200s, would be installed with FODASand be monitoring an estimated 30,000 sectors.Flight crews are becoming increasinglyrelaxed about onboard monitoring, said actingdeputy director in the Flight Safety Office,C. H. Cheng. There also is an increase in thenumber of confidential reports submitted byflight crews and ground personnel.In the summer it will start services toCanada, taking over the routes of its subsidiarycarrier, Mandarin Airlines. Recently, threeinspectors from the Canadian Governmentvisited Taipei and toured CAL’s operations,maintenance and inflight service departments.“They told us they were very impressed withwhat we were doing,” said Capt. Chau.Only time will tell.34 | Orient Aviation | February 2000

A s i a n A e r o s p a c eAA 2000 could be record breakerAsia back in businessThe economic blues appear to be lifting as the world’s aviationindustry emerges from its recessionary shell to display its waresat the first major international air show of the new millennium,Asian Aerospace 2000 in Singapore, writes Tom Ballantyne.All the big guns – planemakers, engine manufacturers and suppliers– will be on hand with big contingents of senior executives and salesmenat the region’s biggest show ever, with record numbers of visitorsexpected.Organisers predict the upsurge in business confidence will see the1998 attendance figures of nearly 24,000 – 4000 of them internationalvisitors – outstripped.The show, from February 22 to 27, gets underway as the AsianDevelopment Bank (ADB) predicts the region’s economies are recoveringfaster than expected, with overall growth set to rebound stronglythis year.“Industrial production and exports in most of the crisis affected economiesare on the rise and in many cases, capital outflows have reversed,”according to the ADB, which said Singapore, South Korea, Taiwan, thePhilippines and Thailand are leading the way.This trend is reflected by the international interest in the show. Boththe U.S. and European aviation industries will be strongly represented.The U.S. Ambassador to Singapore, Frank Green, said the U.S. aerospaceindustry enthusiastically welcomed Asian Aerospace as it providesthe most significant networking opportunities for aerospace companiesin Asia.“Not only does this region represent the fastest growing market forlarge commercial aircraft, but military programmes are also dependent onthe Asia-Pacific for sales. In the next few years there will be a significantincrease in sales within both aircraft sectors.”Asian companies, too, are looking to the show to help boost businessand win a bigger share of the global aerospace pie.“We have looked at AA 2000 as a key event for us,” said Wee SiewKim president of Singapore Technologies Aerospace (ST Aero).“We will be taking full advantage of the event to showcase ourcapabilities. As the first major international air show of the new millenniumit will draw key industry and government officials from around the world,offering a valuable marketing opportunity”In addition to hosting the world’s top aerospace companies and keymilitary and commercial trade visitors, AA 2000 will also feature twomajor international aviation conferences – the Millennium Air PowerConference (MAPC) and a special International Civil Aviation Organisation(ICAO) conferenceThe ICAO Special Directors-General Asia-Pacific Conference, hostedby the Civil Aviation Authority of Singapore (CAAS), will bring togetherdirectors-general of civil aviation from Asia-Pacific countries and seniorrepresentatives from various international and regional aviation organisations.It will focus on developments in the use of satellite-based technologyfor aircraft navigation and surveillance to enhance airspace capacity andaviation safety.Significantly, more than 75% of exhibitors are from outside Asia, clearlyreflecting a recognition by the global industry that the Asia-Pacific will beplaying a critical role in their future business.Exhibiting companies from the U.S. and Europe include Airbus Industrie,Boeing, British Aerospace (BAe), Rolls-Royce, Dassault, LockheedMartin and Raytheon Systems, along with Brazil’s Embraer and Bombardierfrom Canada. Asian exhibitors include China National Aero-TechnologyImport and Export (CATIC), Singapore Technologies, Hindustan Aeronauticsand Indonesia’s IPTN.The AA 2000 flying display programme will feature three aerobaticteams for the first time; Patrouille de France, the Australian Air Force Roulettesand the Black Knights of the Republic of Singapore Air Force. Severalexhibiting companies also have indicated their intention to put their toplinemilitary and civilian aircraft in the flying display.One of the features of the aircraft static display will be a large numberof business jets, a reflection of current stiff competition in the Biz Jet market.At least 13 business jets are scheduled to appear, from the manufacturingplants of Bombardier, Cessna, Dassault, Gulfstream, Fairchild andRaytheon.36 | Orient Aviation | February 2000

a d v e r t o r i a l r e p o r tBusiness Success in Aircraft MaintenanceTotal Customer Care:The Competitive Advantageof SR TechnicsAircraft maintenance work is a complexblend of preventive, scheduledand unscheduled work. More andmore of today’s highly reliable aircraft partsare maintained “on condition”, which meansthere are no fixed time limits for maintenanceactions, but through a careful monitoring ofoperating parameters actions are triggeredwhen needed, before acute failure. In this waythe safe in service times of components andengines are maximised and the maintenancecosts minimised.The true maintenance costs of an operatorare thus not just given by the costs ofits maintenance department plus those ofpurchased services, but have to include alsothe impact of the maintenance on aircraftavailability, of passenger dissatisfaction due totechnical irregularities and other operationalconsequences of the maintenance.To establish an optimised maintenanceconcept requires both an intimate knowledgeof the operational characteristics of an airlineand extensive technical knowledge on thereliability performance of aircraft, engines andsystems. Many satisfied “total care” customersof SR Technics give proof that such an optimisationdoes not require an integrated maintenancedepartment, but can be realised in a wellmanaged customer-supplier relationship witha powerful external service provider.An important success factor in such arelationship is the definition of its optimal,comprehensive scope. As an example, a timeand material contract for engine services givesno incentive to the service provider to activelymonitor the engine performance data, toinduce preventive maintenance actions andto determine the optimal timing of removals– all factors that can significantly influence thetotal engine costs to an operator.For SR Technics “total aircraft care” doesnot mean that all services have to be providedby our staff, from our operations. It meansthat we are supporting the optimisation ofmaintenance procedures across all activities,from line through base to heavy maintenanceand that we support the build up and trainingof adequate support systems and resources– either within a customer’s organisation oras part of our own operation.SR Technics’ “total aircraft care” concept isat the same time the best approach to aircraftsafety as in parallel to the comprehensive costoptimisation the concept also includes themonitoring of all safety aspects of individualmaintenance tasks as well as their total integrationinto a safe, airworthy aircraft.While comprehensive technical supportis one of the most attractive customer valuesSR Technics provides, some features of specificproducts of SR Technics are also uniqueamong the industry: heavy maintenanceSR Technics signed a 15-year powerby-the-hourcontract with Cathay PacificAirways last year to maintain the airline’sCFM56-5C4 engines which power its fleet ofA340-300 aircaft.“SR Technics demonstrated a clear understandingof the powerplant and its overhaulprocess, including the optimum and efficientutilisation of all available resources to supportthis long-term arrangement,” said Cathay’sengineering director, Derek Cridland.In 1996, SR Technics established its regionaloffice in Hong Kong headed by Asia-Pacific executive director Erwin Stillhard.The company has worked with a number ofAsian airlines since the late 1960s. Since thenits customers have included China EasternAirlines, Garuda Indonesia, Japan Airlines,Thai Airways International, China Airlines,Malaysia Airlines, Korean Air, Air China, ChinaNorthern and Biman Bangladesh.February 2000 | Orient Aviation | 41

visits for DC-10, MD-11, A310 and A330/A340with record fast turn-around times, efficientand fast overhaul services for JT8D, PW4000,CFM56-5 and CFM56-7 engines, componentavailability services and field team assistanceat any location for specific tasks.Ongoing Changesin the MarketplaceA few years ago the marketing and salesof technical services was mostly an affairbetween engineers. Customers were happyto find someone who took care of aircraftand engines and entrusted him to design thesupport as it best suited him. Today operatorsintricately optimise their aircraft utilisationaccording to the needs of their network andclientele. As a consequence they demandhighly customised maintenance, optimallysupporting their operation and businessmission.Despite this need for more and morecustom tailored technical support there is agrowing trend to outsource maintenance. Thistrend is related to the ongoing changes in themaintenance industry. Cost pressures, the ongoingmarket globalisation and technologicaladvances induce a consolidation of the manysmall maintenance organisations across theworld into larger, globally active units withthe necessary size and financial power tooffer modern aircraft support at competitiveprices.In the domain of engine services this consolidationprocess is already well advanced.In this field the airlines have unfortunatelyleft the initiative to the manufacturers. As aconsequence there is now an acute dangerthat the global engine service market willbe dominated by the manufacturers, a monopolisticsituation that is certainly not in theinterest of aircraft operators.In other areas the consolidation processis slowed down by the fact that many of theservice providers are part of a state-ownedand protected airline. There is no questionthat eventually market forces will prevail andwhat is intended to be a protection of themany small and increasingly uneconomicalmaintenance operations will actually workagainst them. Protected from the fast ongoingchanges in the markets, the small operationsmay find themselves stranded between theemerging big, industrially managed and globallyactive market leaders.SR Technics’ Reachesfor Global PresenceSR Technics was fortunate to have itselfprepared just in time for these ongoing changes.As a legally separate business entity, beingon its own, SR Technics had to transmute itsstructures from a functional airline departmentinto a customer and product oriented businessactivity. This entailed the establishment ofproduct oriented cost accounting systems, areview of the product portfolio and the launchof a proper sales and marketing strategy.On the strategic level SR Technics decidedearly on to leverage its capabilities in the globalisationof the industry by taking a lead inthis process. The aim is to set up a network ofstrategically placed operations which providetechnical support in their respective regions,adapted to the needs of the local markets,but always at the quality and performancelevels which constitute the uniqueness of SRTechnics. SR Technics is currently engaged ina series of discussions on partnerships andjoint ventures that will form the basis of ourglobal activities.SR Technics onthe Road to SuccessThe rigorous transformation of theSwissair Technical Services into SR Technics Ltd.has already borne fruit which is reflected in itsbusiness figures: from 1995 to 1998 the salesof services outside the SAirGroup increasedby more than 50%, reaching CHF 525 million,or 48% of the total sales. In the same periodthe maintenance unit costs for the Swissairfleet were reduced by 19% despite more than20% re-evaluation of the US Dollar againstthe Swiss Franc. Productivity and profitabilityKey figures(values in million CHF)1997 1998Revenue 1,060 1,116EBIT 53.5 63Net Profit 26.4 52ROIC 20.1% 225.5%Employees 2,849 3,093could be continuously increased. The assets,consisting among others of all spare parts,rotables and spare engines of the Swissairfleet were successfully managed in supportof the business activities, resulting in anattractive return on investment.The high level of expertise and the businessorientation of SR Technics were also keyfor SR Technics to be selected as an importantpartner by Boeing for its DC-10/MD-10 aircraftconversion programme. SR Technics providesthe total work planning and will moderniseand convert a series of DC-10 aircraft in itsown premises to MD-10s with its advancedtwo men flight deck.Contact Address: SR Technics Ltd.Marketing & Public Relations, TVM8058 Zurich-Airport, SwitzerlandTelephone: + 41 1 812 65 67Telefax: + 41 1 810 69 96E-Mail: srtechnics@sairgroup.comInternet: http://www.srtechnics.comFrom the Swissair Group to SAirGroupThe Swissair Brand is recognised globallyas being a synonym for safety, punctualityand world class service. Swissairhas gained this envious position through along term, systematic cultivation of a spiritof excellence in all activities that are keyto the performance of a first class airline:aircraft operation, inflight product, technicalsupport, ground support, catering, informationservices etc.Recognising that excellence in thesefields has become an important asset inits own right. In 1996, the Swissair Groupchanged its corporate structure. Withinthe Group, renamed to SAirGroup, all theservices now operate as legally independentbusiness units. Their mandate is nomore restricted to serve the Swissair fleet,each activity is expected to develop its ownsuccessful market position within its ownbusiness area and to profit from the globalliberalisation of airline services.Different from other airline groups thatconcentrate their activities to the core of thepassenger transport it is SAirGroup’s explicitstrategy to encourage and support theserelated fields to expand their activities intheir own markets. The example is set by theformer Swissair Catering that has becomethe world’s second largest caterer under thename of Gate Gourmet.SR Technics Ltd was well prepared forthis new challenge. It already had a longstandingtradition to offer its excellent servicesto partners within the KSSU (KLM RoyalDutch Airlines, Scandinavian Airline System(SAS), Swissair and UTA) consortium and toother customers world-wide. SR Technicshas seized the opportunity to build a successfulentrepreneurial activity in its ownright in the evolving market of technicalaircraft services for commercial airliners.42 | Orient Aviation | February 2000

a i r p o r t sIn the last 12 months the burden of operating the world’smost expensive airports took its toll on Japan with foreigncarriers slashing an average of 100 flights a week from itsmajor points. Some carriers have pulled out of the countryaltogether.Take note, Sydney and China, say airline representatives,while also issuing a warning to other countries, including India,which are thinking of pumping up revenue at the expense ofairlines. In January, the Sydney Airports Corporation applied todouble its user charges. If approved, Sydney will become oneof the world’s most expensive airports.The Foreign Airlines Association of Japan (FAAJ), whichpublished an eye-opening position paper last summer,are campaigning for a massive 50% reduction in fees withgovernment, airports and building companies sharing the load.TOM BALLANTYNE in Sydney and BARRY GRINDROD reporton one of the region’s most contentious aviation issues – airportuser charges.CHARGED UPAirports are natural monopolies and its time they became more competitive,says AAPA chairman and Air New Zealand chief Jim McCreaAsia’s airlines face significant increasesin operating costs by the end of thisyear as some airport owners moveto dramatically lift charges, compoundinggrowing fears among carriers that widerprivate ownership of airport facilities is forcingcarriers to pay more for terminal and runwayservices.Australia’s Sydney airport, still governmentowned but heading for privatisation, hasapplied to more than double its charges. If theAustralian Competition and Consumer Commission(ACCC) approves the move the airport’sincome from airline customers will rise fromUS$64 million to US$138 million annually.The manoeuvre has sparked a storm ofprotest from the 40 plus international airlinesoperating through Sydney. The cost of turningaround a Boeing B747 will jump 130%,from US$2,905 to US$6,635, if the proposedincreases win ACCC support.Warren Bennett, executive director of theBoard of Airline Representatives of Australia(BARA), which represents all the internationalcarriers operating through Sydney, accusedSydney Airports Corporation Limited (SACL)of “arrogance” and warned more new chargesare in the pipeline.Observers warn such developmentscould become commonplace as more regionalairport authorities look at privatisation or partprivatisationand new owners strive to eke outimproved profits for their shareholders.The Sydney move came just weeks afterthe chairman of the Association of Asia PacificAirlines (AAPA), Air New Zealand’s Jim McCrea,expressed deep concern about rising costs inSydney Airport: facing major opposition from airlines over proposed doubling of chargesareas airlines cannot control, including airwaysand airports charges.“They are of major concern to us and inAustralasia they are a particular concern. It’sinteresting that as airports are privatised andsold, not long afterwards the new owners revaluethe assets and on the basis of re-valuingput the charges up and still maintain they areonly recovering the cost of capital or retainingtheir rates of return,” said Mr McCrea.“That’s a circular argument and an invidiousargument and something that has got to besorted out in competition terms.”Mr McCrea described airports as naturalmonopolies. “I have no problem with freeenterprise and deregulation. I call for it. Butthere are a number of infrastructural assetsthat have privileged natural monopoly positionsand they seem to be free to charge asthey choose.“In other words, competition laws areeither non-existent or light-handed, while inthe airline industry competition law is veryinterventionist and so there is quite a difference.”Elsewhere in Asia, China’s largest airport,Beijing Capital International Airport (BCIA) isto raise charges for domestic airlines this yearby up to 50%.The airport also launched a share offer forretail investors in January. BCIA is attemptingto offset the heavy cost of its recent US$108million facelift.Sources believe international operatorsFebruary 2000 | Orient Aviation | 43

a i r p o r t smay be hit with fee increases later.The airport’s existing charges were set in1992 and operating costs have risen considerablywith the opening of a new terminal lastOctober and plans to expand runway and taxiwayfacilities. A dual listing of the airport onthe Hong Kong and New York stock exchanges,to raise around US$400 million, is imminent.Also, late last year the Airports Authorityof India (AAI) announced plans to raise itsroute navigation facility charges at all domesticand international airports by 7.5% in 2000, anincrease aimed at substantially lifting revenue.Worse, the new charges are planned to beretrospective from February, 1999.At the same time AAI, which is in the processof offering 30-year leases on six of its leadingairports to private companies, asked India’sCivil Aviation Ministry for permission to raiselanding and parking fees at all internationalairports by 12.5%.In Australia, if the proposed increasesare granted at Sydney, the country’s majorgateway, they would come into effect on November1, following the 2000 Olympic Games.Prior to the introduction of the new fees therewill be lengthy hearings that will undoubtedlyinvolve a series of torrid submissions fromangry airlines, including local majors Qantasand Ansett.SACL chief executive officer, Tony Stuart,strongly defends the charging restructure.He said it is long overdue and is necessaryto sustain a truly world class gateway forAustralia. The new charges would result in anaverage fare increase of US$6.66 from Sydneyto London when passed on to passengers byairlines.“Reducing delays and congestion andimproving facilities and services against a backdropof increased noise related operationalconstraints has required significant capital investmentover recent years,” said Mr Stuart.“While [we are] expecting the airlines willreact to any increase in costs, the airlines – andtheir passengers – are benefiting significantlyfrom the improved runways, taxiways andterminal facilities through fewer delays, lesscongestion and better traffic flow.“Delays cost everyone money – particularlyairlines – and we have worked hard toimprove the situation to where 88% of flightsin and out of Sydney operate on time, wellahead of comparable airports in the U.S. andEurope.”He said the new charges representeda “fairer, better balanced system” and thatwithin operational and regulatory constraints,Sydney is a highly efficient airport. Independentsurveys showed its operating cost perAirlines give Sydneythumbs downAs public relations go, Sydney Airport could hardly have selected a worse time toannounce huge charge increases. The news only heightened existing anger amongairlines about the airport’s performance.Indeed, carriers were so annoyed at what they claim is poor service at Australia’sprimary air gateway they were in the process of leaking details of a confidential internalairline survey to local media when airport officials dropped their fees bombshell.The survey, which consisted of a series of “quality-of-service” reports compiledby major operators like Qantas Airways, Ansett Australia, Singapore Airlines, BritishAirways, Cathay Pacific Airways and Japan Airlines, rated many of the airport’s facilitiesand services as “very poor” or “poor”. They complained airport staff were eitherdifficult to find or arrogant when approached about problems.The reports, covering the year to the end of October 1999, rated the condition ofground services and facilities such as runways and aprons, taxiways, arrival and departuregates, aerobridges, ground service and storage, check-in and baggage facilities.Among the complaints were:• Baggage processing facilities are unreliable. In September alone United Airlines hadfive separate departures delayed due to failure of the baggage system or its inabilityto cope with demand.• British Airways claimed safety was being compromised because speed limits for groundvehicles were not being enforced.• Japan Airlines complained it sometimes took 20 minutes for aircraft to be pushed backfrom aerobridges.• Singapore Airlines complained about freight storage and equipment, saying facilitieswere congested with not enough bays.• Passengers also expressed frustration at baggage delays, the lack of information atthe airport and the “rough treatment” of their baggage.passenger is half the international average,according to Mr Stuart.If approved, Sydney’s charges would becomparable with Vancouver, London Heathrow,Washington DC and Amsterdam internationalairports, but still below the internationalaverage.“Landing charges at Sydney Airport havebeen artificially low for many years, whichAAPA chairman and ANZ chief,Jim McCrea: concerned overescalation of chargesmeans that Australian taxpayers have, for along time, provided a de-facto subsidy to theairlines and their passengers. The proposedrestructure will remedy that situation and allowus to maintain the massive investment wehave been making in Sydney Airport to bring itto world class standard,” said Mr Stuart.His explanation has done little to temperthe anger of airlines. Said BARA’s Mr Bennett:“The proposed increases are totally unreasonable.If approved, landing fees will rise fromA$2.92 (US$1.90) per tonne to A$8 (US$5.20)per tonne, terminal charges will increase fromA$7.90 (US$5.13) per tonne to A$18 (US$11.70)per passenger. Also, there will be a new parkingcharge of A$55 (US$35.75) per 15 minutes.SACL is displaying the worst characteristics ofmonopoly behaviour.”More new charges are in the pipeline,he said, including a checked bag screening(CBS) fee to pay for a security project criticalto handling passengers during the OlympicGames. The cost of the project has balloonedfrom US$13 million to US$21 million, with CBSnow expected to cost about US$1.60 a passengerat Sydney, three times the likely cost44 | Orient Aviation | February 2000

Beijing Capital International Airport: will raise charges for domestic airlines to offset theheavy cost of its recent faceliftat other airports.He said a number of major airline customershad already lodged serious concerns with theACCC regarding SACL’s “lack of accountability,responsiveness and operational management”.Adding to the irritation of airlines is thatwhen the government privatised the country’sother major airports – Sydney is the onlyone remaining under state ownership – itintroduced a formula for aeronautical chargesdesigned to ensure fees were reduced.“It is incredible then that the only remaininggovernment-owned airport, Sydney, shouldexpect airlines to accept an increase in overallaeronautical charges,” said Mr Bennett.In 1998-99, Sydney Airport had a throughputof 21.8 million passengers (7.4 millionof them international, 13.1 million domesticand 1.3 million regional), with 281,300 aircraftmovements. More than 43 international and 13domestic and regional carriers operate throughthe facility.Forecasts suggest it will experience a 7.5%increase in international services during thefive-month period of the current schedule season,from November 1999 to March this year.Meanwhile, the International Air TransportAssociation (IATA) has said it is studying theproposed high percentage increase at SydneyAirport. “From a prima facie examination theproposal will be aggressively challenged bythe IATA Australia Task Force Group,” said anIATA spokesman.“More detailed information will be soughtfrom the SACL. Once the necessary informationhas been made available meaningful discussionswith SACL can then start. Depending onthe outcome of the discussions, further actioncould be taken.”February 2000 | Orient Aviation | 45

a i r p o r t sOver 100 flights a week to Japan’s airports withdrawn in last yearHigh costs taketheir toll in JapanBy Barry GrindrodPressure is mounting on the JapaneseGovernment from international andlocal airlines to slash its sky high aviationcharges “as a matter of priority”.Recently Finnair withdrew its servicesfrom Kansai, bringing the number of flightscancelled by international carriers at all Japan’sairports in the last year to more than100 a week.The 45-member Foreign Airlines Associationof Japan (FAAJ), which represents 56.2%of all international flights from Japan, hascalled for a 50% cut in charges. Collectivelythey are by far the most expensive in theworld.They include landing fees, navigationcharges, airport terminal rents, airportterminal common user charges and cargohandling fees.Japan Airlines (JAL), All Nippon Airways(ANA) and Japan Air System (JAS) are standingshoulder to shoulder with the FAAJ and arejointly petitioning the government to demandlower fees.A fuel tax of 26,000 yen (US$247) for every1,000 litres uplifted, levied specifically on thelocal carriers and totaling 100 billion yen a yearfor JAL, ANA and JAS, is an added “crippling”burden, according to a JAL spokesperson. TheU.S. is the only other country to impose such atax, but it is 17 times lower than Japan.Local carriers have also called for a reductionin the aircraft property tax.“The Japanese carriers have not changedor deviated from their mission of askinggovernment to reduce charges. We are at itevery day. Our president, Mr Isao Kaneko,is constantly referring to it in interviews,”he said.An added frustration for the industry,said sources, is that aviation issues are left tothe bureaucrats and little is done. “Politically,transportation, in the air or on the ground, isBritish Airways: pulled out of Osaka after 30 years.not seen as important,” said one source.Last year the FAAJ published a positionpaper which it called “a plea for help”.“In the past, although airlines complainedvigorously, the high charges could becovered by the generally higher market faresobtainable in Japan,” said the paper.“Until the opening of Kansai airport, therewere insufficient landing slots available nearthe main population centres of Japan. Anduntil recently, Japan’s Ministry of Transport(MoT) took steps to limit deviations from thefares approved and published by the JapanCivil Aviation Bureau (JCAB). That policy haschanged. The earlier attempts to influence themarket have ceased.“The airline community is happy to accepta free market for passenger tickets andairfreight prices in Japan, in common withmost other countries, (but) in the changedenvironment airlines find it increasingly difficultto pay the enormous cost of operatingto Japan.“The consequence of the high costs andchanged environment is plain for all to see.Formerly airlines were queuing up to be allowedto fly to Japanese airports. Landingslots were in short supply and rationed. Thisis no longer true.“In the last year, every internationalairport in Japan, including Narita, has hadservices withdrawn and cancelled. At least10 airlines have withdrawn completely fromKansai airport since it opened (in 1994).“Many airlines are wondering how longthey can afford to continue operating theremaining services.”Said the source: “Airlines are paying threetimes the global average in charges at Kansaiand Narita. Why? Because the MoT is stilllooking at it from an old-fashioned point ofview; that the airlines should pay. Airports arenot perceived as an economic engine for theeconomy as they are in other countries.”The FAAJ’s position paper said ticket pricesin Japan for some international destinationsare as low as 20,000 yen (US$195) for a roundtrip. This meant it would take 70 passengersto cover the landing fees and navigationcharges.The FAAJ’s position paper said becauseJapan’s charges were so much higher thanother countries, radical new approaches werenecessary to redress the problem.It was critical of practices and decisionsthat have burdened airlines with unnecessary46 | Orient Aviation | February 2000

a i r p o r t scosts.In general, Japanese airports only handled26 aircraft movements an hour. In contrast,several single runway airports in the worldhandle over 40 movements per hour withoutcompromising safety. “This suggests Japaneseairports have considerable under-utilisedcapacity ... there is surely an obligation to usethe facilities as efficiently as possible allowingunit costs to be reduced,” said the paper.It also raises questionmarks over:• Allowing Itami Airport to continue operationsafter the opening of New KansaiAirport.• Approving development of a third airportin the region at Kobe.• Allowing construction of a second runwayat Kansai “without consensus on the needfor this huge new expenditure”.• The building of a new international terminalat Nagoya Airport when a new airport isscheduled to replace it in 2005. It was notjustified, claimed the report.• Given the cost escalation that has accompaniedeach new airport facility in Japan, thepaper said it viewed the prospect of a newCentral Japan International Airport “withmisgivings”.A source told Orient Aviation the Kobeproject, for example, had been on the stocksfor 20 years, but there was “no justificationfor the airport”. He said there were a numberof “white elephant” airports in Japan. “They(the development) are part of governmentmeasures to boost the economy,” said thesource.A 3.8% reduction in Japan’s Air NavigationFacility Charge in January was a step inthe right direction, but did not significantlyalter the comparative picture, said the FAAJpaper. “To be consistent with ICAO principles,air navigation charges should be justifiedby the level of service provided,” it added.“According to aviation experts in this field,the amount of information provided by theJCAB was not sufficient to determine if Japan’scharging level for air navigation services wasappropriate.“If Japan could fund navigation servicesdirectly from landing fees or other sources, aspractised in several other jurisdictions, thatwould be ideal.”Office rents and common user chargesat airport terminals in Japan also rank as thehighest in the world. “The airport buildingcompanies are monopoly franchises ... theairlines wish to see evidence they are beingefficiently run with no unnecessary waste,”said the paper.“According to the ICAO Council on AirportCharges ‘airports should maintain accountsthat provide a satisfactory basis for determiningand allocating costs to be recovered’.”At present, the Nagoya Airport BuildingCompany did not do this, said the paper.There also was strong evidence the Fukuokaand Nagoya building companies had madegood profits for many years and both haveproposed to heavily increase their charges.“The foreign airlines wish to ensure their pastreserves have been fully utilised to pay for thenew terminal facilities.”The FAAJ is also unhappy that the NaritaAirport Authority is charging airlines the samerent for Narita Terminals 1 and 2. “Terminal 1 isfar from complete. It will be at least six yearsbefore Terminal 1 will reach the same standardsas Terminal 2, which opened eight yearsago.” The FAAJ said it was premature to imposehigh rent increases at Narita Terminal 1.It urged the Japanese Government to“incentivise” airport building companies toreduce costs. “For example, airports in otherLanding Charges in Year 2000 (in US$)10,0009,0008,0007,0006,0005,0004,0003,0002,0001,0000NRTHND(Intl)KIX NGO/FUKNGO/FUK*Pre *Postfee reductionCumulative Port Charges in Year 2000 (in US$)16,00014,00012,00010,0008,0006,0004,0002,0000NRTHND(Intl)countries raise a higher share of revenue fromnon-aeronautical concession fees like dutyfree goods, compared to airports in Japan,”said the paper.On January 1 Japan introduced overflightcharges for aircraft crossing its airspace. “TheFAAJ maintains the capital and operating costof the air navigation infrastructure in the NahaFlight Information Region (FIR) does not justifythe same level of charges as the Tokyo FIR,” itsaid. The FAAJ wants them reduced.“The world trend in air navigation chargesis moving away from the systemwidecharging approach, with its inherent crosssubsidisationbetween different users, tofocus on route and location specific charging,thereby aligning costs to the services beingprovided. The FAAJ urges the MoT to followthis trend in Japan.”The first vice-chairman of the FAAJ andCathay Pacific Airways regional manager forJapan and Korea, Michael Whitehead, said theFAAJ and the IATA Joint User Charges BoardRelated ChargeLanding ChargeSEL TPE HKG BKK SIN SYD FRA LHR PAR NYC LAXCommon User ChargeImport Cargo Handling ChargeOffice Rent and AdminNavigation ChargeLanding Charge, etcKIX NGO FUK SEL TPE HKG BKK SIN SYD FRA LHR PAR NYC LAX48 | Orient Aviation | February 2000

a i r p o r t swould continue to campaign for a reduction incharges. “We will not go away,” he said.None of the services cancelled in the lastyear had been resumed, he said. Cathay cutfour flights from its Japan schedule last year.“Many of us are just hanging in there withmarginal profitability or we are losing money.In these circumstances foreign airlines willhave fewer services. The Japanese carriersfaced with high costs and low air fares alsowill continue to struggle.“The government claims it is losingmoney, but we just don’t know. I feel theamount of information revealed to us isinsufficient.”British Airways (BA) cut nine flights lastyear and has pulled out of Western Japanaltogether. “We had been flying to Osaka forclose to 30 years, it was a hard decision tomake,” said BA’s regional manager and FAAJsecond vice-chairman, Tony Marwick.“One of the big drivers in the industrytoday is that people are demanding lowerand lower fares. We have to find ways ofbecoming more efficient. Airports have todo the same.“We, the airlines, have to look at theairports as partners and work together alongthose lines.”Mr Marwick said airport authoritiesin Japan needed to look at how airportsoverseas maximise their opportunities. “LookIATA in ‘relentless’push for fee cutsThe International Air Transport Association (IATA) Japan User Charges TaskForce, the group tasked by IATA member airlinesto negotiate Japan’s charges, is activelyinvolved in discussions with the airportauthorities in Kansai and Narita to secure areduction in both airports’ charges.“The IATA Japan User Charges Board willpress on relentlessly until we get concrete resultsand a more favourable outcome for theairline industry,” said an IATA spokesman.IATA and the Association of Asia PacificAirlines (AAPA) have been active in recentyears in both campaigning and lobbying forlower airport user charges in the region.In September last year, after prolongednegotiations with IATA, the AAPA and theairlines, the Hong Kong Airport Authorityagreed to reduce landing and parkingcharges at the new Chek Lap Kok airport by15% from January 1. It also reduced rents byat London Heathrow. It is a very big airport,has very good services and it is managing toreduce its costs,” he said.“Gatwick is a single runway airport, Naritacould learn from it.”At the end of the day, any decisions restwith the Japanese Government. Orient Aviation’ssource did not give cause for optimism:“The number of ministers of transport overthe last 30 years has been astounding. Theyhave never been in the job long enough toachieve anything.“Many of them are not even botheredabout aviation. They let the bureaucrats geton with it.“It’s not like the Department of Finance orthe Department of Trade and Industry which,politically, are important offices. With theMoT, as long as the trains run on time theyare happy.”But JAL’s spokesperson was more upbeat.“We argue that the infusion of additionalgovernment funds is needed to enhancefacilities at core airports. Increasing the operationalcapacity of these airports would leadto lowering the unit cost of airport chargesper flight.“Landing fees and other public charges atclass one airports continue to be conspicuouslyhigh by global standards. But public supportis growing and further cost mitigation is expectedin the future.”23% in the passenger terminal.This followed a decision earlier in theyear by Singapore to lower landing chargesand retail rents by 10% at Changi Airportuntil the end of 2000.The AAPA’s 42nd Assembly of Presidents,held in Manila in December, 1998,passed a resolution calling for tighter controlof airport and aeronautical charges. It urgedgovernments, airport owners and air trafficservice providers to adhere to the ICAO principlesfor governing charges and to avoidlevying other fees, like fuel surcharges andterminal building charges, which are notattributable to airline users.It also urged governments to establishan oversight or control scheme for supervisingand monitoring the activities of airportoperators, air traffic services and airportauthorities to ensure charges remained trueto ICAO principles.FAAJclaimsdiscriminationIn October 1999, the Ministry of Transport announced it was to reduce landing charges from 15% to 40% at NewKansai International Airport in June thisyear for new flights. For existing flightsa “volume discount” is planned rangingfrom zero to 7%.The FAAJ said the volume discountswere “highly discriminatory” in favourof national carriers. An airline with dailyflights to Kansai will receive no benefit, itsaid. Those with three daily flights will receivea 1% advantage. Only Japan Airlinesand All Nippon Airways have sufficientflights to benefit by higher reductions ofup to 7%. “It is unfair, discriminatory andcontrary to the principles of ICAO of whichJapan is a member, said the FAAJ.Landing charges at Kansai for internationalflights are 2,300 yen a tonne and1,900 yen a tonne for domestic flights. Insome cases it can be as low as 1,300 yen atonne for local flights. “These discriminatorycharges represent reductions of 17%to 43% in favour of domestic flights,” saidthe FAAJ.“The FAAJ deplores the fact that theMoT has still not corrected this non-compliancewith ICAO principles, but instead hasannounced a new charging structure whichdeviates even further from them.”It was also angry the MoT did notconsult the International Air TransportAssociation or the Board of Airline Representativeswhich, said the FAAJ, is standardprocedure.The group’s position paper also pointedout that the reduction in landing chargesat category two airports, the Air NavigationFacilities Charge and the introductionof the overflight charges had benefitedthe local carriers as domestic flights at thecategory two airports far exceeded internationalservices.Landing charges also were lower fordomestic flights at Haneda airport.“This is discriminatory,” said a Japanesesource. “It is a most unsatisfactory way todo things. But local carriers, because oftheir volume of traffic and frequencies,do pay more than the international carriers.”50 | Orient Aviation | February 2000

n e w sAIRPORT EXTRAAirlines to beoffered incentivesfor Pudong moveSHANGHAI’S new Pudong InternationalAirport is gearing up for a bigincrease in international flights thisyear as more services are transferred fromthe old Hongqiao Airport.According to Du Chuncai, executive vicepresidentof the Shanghai Airport GroupCompany, nearly half of the flights operatinginto Hongqiao will be moved to Pudongduring the coming summer.The two facilities had a combined totalof 451 daily flights during 1999, a figureexpected to rise to 480 in 2000.Mr Du said the company will soon recommendnew policies to the Civil AviationAdministration of China (CAAC) to encourageairlines to make the move to Pudong. Itwill include a suggestion to increase ticketprices for flights at Hongqiao while reducingprices for flights at Pudong.Despite the opening of Pudong last year,Honqiao will not be closed. It will undergoa major renovation this year.Pudong Airport will eventually havefour runways capable of handling 320,000flights and about 80 million passengersannually. After refurbishment, HongqiaoAirport will have the capacity to handlemore than 30 million passengers a year.Inchon hopes to cashin on casino planTHE Korean Government thinks it mayhave hit on a gilt-edged idea to attract moretravellers to Seoul’s massive new airport atInchon, scheduled to open at the beginningof 2001.It may allow casinos to be built at thefacility, adding gambling to the lures it hopeswill help the airport become the new air hubof northeast Asia.The Ministry of Construction and Transportationhas confirmed a request has beenmade to the Ministry of Culture and Tourismto allow casinos at the airport.An official said casinos have beensuccessfully implemented at several internationalairports, including Amsterdam’sSchiphol as well as several airports in thestate of Nevada in the U.S.The ministry’s proposal calls for the operationof small casinos at the airport’s passengerterminals. If the plan wins approvalit may take some time. Several regulationsin the Tourism Promotion Law may have tobe rewritten.Under the law, casinos for foreigners canonly operate at five-star hotels in the country’smajor tourist centres, including Seoul,Pusan, Inchon and Cheju Island.February 2000 | Orient Aviation | 51

g e n e r a l a v i a t i o nContaminated fuel creates havoc in AustraliaCASA grounds 5,000 planesBy Tom BallantyneContaminated fuel has ravaged easternAustralia’s general aviation (GA) sectorwith at least 5,000 aircraft groundedand dozens of small companies facing closureamid mounting losses.At press time, the Civil Aviation Safety Authorityof Australia (CASA) disclosed the planeswould remain grounded for at least anotherweek, despite earlier hopes that a fuel safetytest might have been available quickly.CASA ordered the groundings on January10 – the second time it has taken such actionin two months – after a problem involvingcontaminated fuel from oil giant Mobil,first discovered in December, had not beenresolved.The Aircraft Owners and Pilots Association(AOPA) believes the crisis could cost theindustry more than US$30 million and threaten7,000 jobs.The acting Prime Minister and TransportMinister, John Anderson, said he respected therecommendation of an independent scientificexpert, Professor David Trimm, that planes staygrounded. “We don’t want to get this wrong.The consequences could be disastrous,” saidMr Anderson.Mobil has already put together a compensationpackage. The external relationsmanager for Mobil, Ms Samantha Potts, saidthe delay in the development of a safety testfor fuel made the company’s A$15 million(US$9.75 million) compensation packageeven more important. “We totally supportthe decision that the planes stay groundeduntil everyone is satisfied we have the righttest,” she said.A CASA spokesman, Peter Gibson, describedthe contamination as possibly theworst in the world.The big airline’s jet fleets are notaffected.The fuel involved is Mobil 100/130 Avgas,used in piston-engined aircraft. Mobil producesmore than 30% of Australia’s aviationfuel and the tainted supplies come from the‘There are hardly anyaircraft left flying inthe eastern states’company’s Altona plant, near Melbourne.Hundreds of businesses throughout Australia’seastern states, from crop sprayers topilot training schools, freight operators, smallair commuter firms and charter companies,had their operations brought to a standstill.“This whole thing is so serious and thefinancial ramifications are horrendous. Thereare hardly any aircraft left flying in the easternstates,” said AOPA president Bill Hamilton.He said it could take months before allcontaminated aircraft were ready to fly again.The crisis was costing the industry A$5 million(US$3.25 million) a day, with many businessesforced to close down.The problem first arose after a light planesuffered engine failure during take off at anairfield near Melbourne. After an investigationCASA grounded aircraft and ordered ownersand operators to look for black deposits in fuelsystems as evidence of the contamination,now identified as Ethylene Di-Amine. The depositsform when the contaminant in the fuelreacts with the copper in aircraft fuel systemparts made from bronze or brass.But after thousands of aircraft had theirfuel systems drained and businesses putplanes back in the sky, problems re-surfacedearly in the New Year.CASA is working urgently with Mobil todevelop a standard field test that engineerscan use to determine if aircraft have beencontaminated. It also is urgently developingprocedures for cleaning the contaminationfrom fuel systems, but said this might takesome time.None of this helps small aviation companiesforced to meet the costs of operations.The crisis could not have come at a worsetime for crop spraying firms and farmers, whoare in the middle of the spraying season.And Victoria’s largest flying school, theRoyal Victorian Aero Club, is typical of trainingestablishments. In December club president,Peter Dwyer, estimated the cost of groundingthe fleet of 20 planes at around US$26,000.With the latest grounding that will soar intohundreds of thousands of dollars in losses,he said.52 | Orient Aviation | February 2000

n e w sNew carrierstake to theskies in IndonesiaAfledgling scheduled domestic Indonesian operator,Indonesian Airlines, has announced it will launchservices in March, serving 30 local destinations with10 Boeing B737-200s. Two other new carriers, former chartercompany, Pelita Air Services and Mentari Airlines, intend tofollow suit later in the year.The new airline’s president, Rudy Setyopurnomo said thecompany was set up early this year with investment totallingUS$40 million. It acquired its licence from the Directorate Generalof Air Communication in September.“We plan to operate only one type of low-cost aircraft, theBoeing 737-200. The fleet will be extended to a more recentmodel of the 737 in the future,” he said.Mr Setyopurnomo, a former vice-president for corporateplanning at Garuda Indonesia, said the airline would be flying tomost of the destinations served by the now defunct Sempati Air.Meanwhile, another prospective new entrant has emergedwith plans to enter Indonesia’s skies in February. Private charteroperator, Camar Nuansa Airservice, said it is confident of generatingUS$2.44 million in net profit in 2000.“The prospects for this business are very good, especiallyin relation to cargo. We also are expecting some profit frompassenger services. We have received orders to take Indonesianworkers to regional countries like Malaysia,” said commercialdirector Jasman Karimin.The company will initially operate cargo services fromJakarta to Balikpapan and Batam with stopovers at Kuchingin Malaysia and Seletar in Singapore. Passenger services willinclude flights from Jakarta to Bandung in West Java, Bandarlampung,West Nusa Tenggara, East Nusa Tenggara and IrianJaya.Camar’s president, Captain Almirul Bawono, said the airlinewas also negotiating with Royal Air Cambodge to providechartered services for Cambodians residing in Australia and NewZealand to fly to Phnom Penh.“The passengers will be flown by Ansett Australia or AirNew Zealand to Bali, where they will be transferred to ourplanes to go to Phnom Penh via Singapore,” he said.The company has invested US$1.5 million to finance theinitial preparation, including the procurement of three BoeingB737-200s and two Russian Antonov An-12s for operations in2000. It plans to increase the number of planes to 15 within fiveyears.February 2000 | Orient Aviation | 53

f e a t u r e25 years after the fall of Saigon, Orient Aviation speaks to ...On April 8, 1975 Captain Nguyen Thanh Trung entered Vietnam’shistory books with an incredible act of daring that is credited with acceleratingthe end of the Vietnam War – one of the South VietnameseAir Force’s most experienced fighter pilots bombed his president’spalace before defecting to North Vietnam.Saigon fell to the Communists three weeks later.Capt. Trung, now chief pilot with Vietnam Airlines, became a nationalicon. But until this extraordinary interview only his close familyand friends knew his act was also a personal crusade to avenge thedeath of his Viet Cong father who was killed by the South VietnameseArmy 13 years earlier.He also told Orient Aviation that between daily bombing missionshe was secretly planning, at great risk, the great symbolic act of theVietnam War with the Communist top brass. In the end, as he sat inhis F-5 fighter on the runway at the Bien Hua air base, he had only a10 second window to activate or abort the one-chance mission.The man whobombed thepresidentialpalaceEXCLUSIVE: BARRY GRINDROD speaks to Vietnam Airlines’ chief pilotwhose mission in the Vietnam War made him a national iconCOUNTDOWNIt was 1963 and 15-year-old Nguyen ThanhTrung was sitting in class taking a geographylesson at his boarding school inmy Tho.As usual, school started at 8am, but thisday was going to be like no other for theteenager. It changed the young Trung’s lifeforever.At about 9am a friend entered theclassroom and quietly came over to him. Hewhispered in his ear: “Your father has beenkilled.”“My father was a Viet Cong. We knew helived a dangerous life. The South VietnameseSpecial Forces had tortured another Viet Congand he had given my father’s name,” saidCapt. Trung.“They hid by the side of the road andwaited for my father to pass and then theyshot him.“When my friend told me I felt terrible,I loved my father very much, but I couldnot do anything. I just looked ahead at theblackboard. There were 50 children in myclass. I could not tell them my father was aViet Cong.“As I sat there I made a decision. I askedmyself who was responsible. I decided I couldCapt. Trung points to the spot on the roof of the former presidential palace where one ofhis two bombs hit56 | Orient Aviation | February 2000

f e a t u r enot blame the man who shot my father. TheSouth Vietnamese Government and PresidentDiem were to blame.“I decided there and then that when I wasolder, if I had the opportunity, I would bombthe President in his palace.”Even at the end of the day he could nottalk to anyone. Not even his family. He caughtthe ferry to go home to Banh Tre that night,but before he reached the family’s house afriend told him his mother and young sisterhad been thrown in jail and the army waswatching the house.“I could not go back to school because thedormitories was closed. I stay on the ferry allnight sailing to and fro across the MekongRiver thinking about my father and my motherand sisters in prison.”In those days the U.S. presence in Vietnamwas small. But in each province there were U.S.advisors helping the South Vietnamese andits unpopular regime under President Diembattle against the threat of invasion from theCommunists in the North.Some time later the president was killedin a military led coup, but Capt. Trung wasstill determined to make the regime pay forhis father’s death and bomb whoever was inoffice in the palace.“There was a lot of killing going on. Iwould walk to school and sometimes see thebodies in the road. They used to hang thedead women on fences along the road. It wasa warning to others who might turn againstthe regime,” he said.Capt. Trung spent the next six years atschool, by which time the Vietnam War wasdominating the world headlines.He joined the South Vietnamese Air Forceand trained at U.S. air bases in Texas, Louisianaand Mississippi.When he returned to Vietnam he becamea first lieutenant and a member of the elite534 Squadron. He flew two to three bombingmissions daily on the Viet Cong and later theadvancing North Vietnamese Army in SouthVietnam. But a day never passed without Capt.Trung thinking about his eventual goal.“An old and trusted friend of my fatherapproached me and asked me to go into thejungle and speak to the Viet Cong commaner.I told him my plan. He agreed with it, but saidthe time must be right and he would chooseit,” said Capt. Trung.Towards the end of 1974 as the war wasturning against the South Vietnamese, Capt.Trung and the North Vietnamese began planningthe palace attack. A 10-day period fromApril 1-10 was chosen.Capt. Trung faced two major hurdles.Happy family: Capt. Trung poses at home with his wife Thi Cam and youngest daught ThanhMuong, who was only eight months old when she was imprisoned with her mother after herfather bombed the presidential palaceFirstly, the most difficult problem had to beresolved – how to seize an F-5 fighter jet tocarry out the raid. Secondly, Capt.Trung had tohave a safe place to land after the mission.Only three people was aware of the plan,including the prime minister of North Vietnam.He wanted Capt. Trung to fly to Hanoi. Thiswas ruled out because it would be easy forhim to be intercepted and shot down.There were no runways long enoughfor an F-5 to land in the southern provincesoccupied by the North. At first, it was decidedCapt Trung would fly to Loc Ninh, eject fromhis plane and be picked up on the ground.Then, on January 10, the Communistscaptured Phuoc Long. It had a badly damagedrunway, but it was a short flight from Saigonfor an F-5. However, the runway was only3000 feet long, very short for the fighter.For the next two months, 200 Viet Congworked non-stop repairing the runway forCapt Trung’s arrival. To keep the secret theworkers were told the runway was to be usedby North Vietnam planes flying South.“I managed to get the information Ineeded about the runway: the length, thewidth and the surrounding terrain,” said CaptTrung. “I then started to practise stoppingmy F-5 within 3,000-feet on my return frommissions.“The first time I tried a short field landingin an F-5 one side of the main landing gearcollapsed. The second time the main geartyres burst. The third time the nose gearcollapsed.“I was summoned by the head of theSouth Vietnam Air Force, Gen. Minh. Hewanted to know why one of his top pilots,who had never damaged an aircraft, had hadthree accidents with F-5 planes on landing insuch a short time.“I told him I was very upset that the SouthVietnamese had withdrawn and left our landto the Viet Cong. I said I was not sleeping well,I was worrying. He said he was not happyabout the withdrawal either and acceptedmy explanation.”About this time word had reached theSouth Vietnamese that the Communists hada man inside the air force and a special missionwas being organised. A Viet Cong under interrogationhad said he did not know the man’srank, name or mission but he was from BienHoa, Capt. Trung’s town.“There were 10-15 pilots in the air forcefrom Bien Hoa, but only one other was in 534Squadron,” said Capt. Trung. “They chose tointerview him first because he had a sisterwhose husband had taken part in an antigovernmentdemonstration and spent timein jail.“He knew all about me, but he did notsay a word. I told my contact in the Viet Congabout this and he said not to worry. He wouldknow as soon as any decision was taken todrop the interview with the first pilot andinterview me and would get me out beforethe South Vietnamese Intelligence had time to58 | Orient Aviation | February 2000

pick me up. I was never interviewed.”Capt. Trung had devised an ingeniousway to ‘hi-jack’ his F-5 for the mission thanksto an idea thought up by the U.S. “In thosedays, there were many planes in the air at anyone time. It was very difficult to understandpilots when they were all talking on the radioat once.“It was decided that only the fleet captainshould talk on the air and the wingmen shoulduse sign language with their hands or theirhead to communicate with each other.”On the morning of April 8 everythingwas ready for the most audacious raid of thewar. For it to work it depended on 10 crucialseconds.“Four aircraft at a time would normallyline up on the runway to take off for a mission.The captain would take off first and atfive-second intervals the others would follow,one by one.“If we had a problem we would showone, two or three fingers to the next aircraftand they would take off ahead of you. Youhad five seconds to rectify the problem or elseyou stayed behind.“There were only three planes takingoff on the morning of April 8. I was numbertwo. A lot was rushing through my mind; myfamily, who I thought would suffer most formy actions and my father. But when I pulledthe cockpit shut I shouted to myself: ‘GO!’“I signalled two fingers to the captain– electric problem – and to number three pilot.I was worried the leader would say somthingCapt. Trung at work with VietnamAirlines where he is chief pilotU.S. Embassy wason initial ‘hit’ listIt was a beautiful January day in HoChi Minh City as Capt. Nguyen ThanhTrung drove his car to the formerpresidential palace. It is now a museumand a monument to the dramatic eventsof April 1975.His wife, Thi Cam, who was thrown injail with her two young children within 50minutes of her husband’s attack on thepalace, sat beside him.Orient Aviation and aviation consultantJim Eckes, were in the back seat.He received a warm welcome bystaff in the gatepost office and his caris waved into the grounds – vehicles arenot normally allowed in. The Vietnamesenational flag flutters atop the grandstructure and fountains dance amid theperfectly manicured lawns.But look around and the relics of warare not far away. In one corner, shadedby a clump of trees is a tank. This is noordinary tank. It’s the one captured forposterity by the newsreel cameras of theday as it broke down the front gates ofthe palace on April 30, 1975.Nearby is an F-5 jet, not the one usedby Capt. Trung in his historic attack – hisplane has pride of place outside the legislativebuilding in Ho Chi Minh City – butone like it.In this peaceful setting it is hard toimagine the confusion that reigned onthe day Capt. Trung made his first runon the palace.The first two bombs missed their targetand exploded in the gardens wherewe now stood.“I was surprised because the F-5 wasusually so accurate. Then I noticed the“mill sight” was set at 30 degrees forstrafing. It should have been at 80 degreesfor bombing,” said Capt. Trung.He re-set the sight and made hissecond run. His two bombs crashed intothe roof of the palace.As we enter the building he pointsto the grand staircases. “They have beenre-built. The bombs came through threefloors and completely destroyed theoriginal stairs,” he said.Casualties, he said, were very low.President Thieu escaped unhurt.In fact, said Capt. Trung, no one wasseriously injured or killed.Capt. Trung leads the way to the flatroof where two large circles are paintedon the ground. Inscribed in the circles,one in Vietnamese and the other in English,it states that these are the exact spotswhere Capt. Trung’s bombs dropped.A twisted section of shrapnel fromone of the bomb casings stands on aplinth near one of the circles.But then, 25 years on, Capt. Trungdrops another hitherto unknown bombshell.Two of his four bombs were earmarkedfor the nearby U.S. Embassy. Buthis plans changed when his first run onthe palace failed.Three weeks later the U.S. Embassyrooftop was used to evacuate staff andtheir relatives in helicopters, a dramaticand now famous scene captured by pressphotographer, Hugh Van Es. It has beenused thousands of times over the yearsas the definitive picture of the end ofthe war.“It’s amazing. I watched Capt Trungattack the palace from my hangar at TanSun Nhat Airport,” said Mr Eckes, whowas vice-president of charter operator,Continental Air Services, in Saigon duringthe war.“I could see the smoke and rang myfriends at the U.S. Embassy to find out justwhat was going on. Little did they know,even to this day, that they too had beenin Capt. Trung’s sights until the first twobombs missed their target.“Many people believe that the palacebombing may have hastened the end ofthe war. It had been thought it may notcome till June.”February 2000 | Orient Aviation | 59

f e a t u r eto the tower. He did not.”“The captain thought I had stayed behind,the tower thought I was joining the others onthe mission. Nothing was said.”Within a matter of minutes he was homingin on the building that had been the objectof his attention for almost 13 years.But while so much had churned throughhis mind before take-off, Capt. Trung said hefelt no emotion during the mission. “I had tokeep my mind on the task ahead,” he said.The plan was for the first two bombs tostrike the palace, the second two – a fact neverrevealed before – to hit the US Embassy (seeseparate story) and then for him to strafe afuel dump on his way to Phuoc Long.When the first two bombs fell shortof the palace, the two earmarked for theembassy were used on a second run at theprized target.His incident-packed practices on 3000-feetlandings paid off. He landed at Phuoc Long onhis third attempt.He spent the next 12 days at a Viet Congjungle camp and in line with his hero statushe was promoted to captain in the NorthVietnamese Air Force and decorated. He wasthen summoned to Danang.But Capt. Trung had little time to celebrate.With the Communists now on the outskirts ofSaigon, he was called upon to return to thecity and bomb Tan Sun Nhat airport.His co-fighter pilots, hand-picked for him,had previously flown Russian Mig-17s. For theattack, they were to fly Cessna A-37s whichhad been captured from the South Vietnameseair force. It was to be their first bombingmission in skies they had never flown.After three days of intense ground schooland flight training, the flyers moved fromDanang to Phu Cat, where four attack aircrafthad been prepared. On April 28 they took offfor Saigon. “The weather was terrible. Weflew at 500 feet in a straight-line formation.“My pilots vowed that if I was shot downthey would follow and die with me,” saidCapt Trung.Because we were in South Vietnameseaircraft we came under anti-aircraft fire fromthe Viet Cong. Luckily, they did not hit us,”he said.But the aircraft made it to Saigon areaand, remarkably the air was clear over theairport. Each dropped their four bombs on theairport, causing extensive damage. Twentyeight aircraft were destroyed.Thirty-six hours later the North Vietnamesemarched into Saigon and raised their flagabove the bomb-damaged palace.On April 13 Saigon fell to the North Vietnamese.Confusion raged in the city. Prisonersin the Saigon jail managed to release themselvesafter the guards ran away. Among theprisoners were Capt. Trung’s wife, Thi Cam,and her two daughters, five-year-old Thi Thvongand 8-month-old Thanh Muong.They had been arrested within 50 minutesof the palace bombing. Thi Cam had beentortured as the South Vietnamese attemptedto find out the whereabouts of her husbandfrom her. She did not know where he was, nordid she know of his mission.The family joined thousands of refugeeson the road out of Saigon. They walked foralmost two days to Mrs Trung’s family home inMy Tho. Later, on May 2, she had an emotionalreunion with her husband in Bien Hua.“My actions were not only for my father. Iwanted to end the killing of my people. Theyhad suffered so much for so long,” said Capt.Trung. “It’s like a game of chess. If somebodywins the game stops, but if nobody wins thegame goes on.“It was obvious to me that South Vietnamwas going to lose the war. If I had thoughtthe South would win, I would have helpedthe South. It was about ending the game,stopping the killing.”Capt. Trung, now the father of four children,was in the air force for 18 years. He sawaction again in 1978, flying combat missionsduring Vietnam’s ‘seven day war’ in Cambodia.Unlike many of his friends and compatriots hehas never thought of leaving Vietnam. A filmhas been made of his life story.He joined Vietnam Airlines in 1990 as aTupelov 134 captain. Today the airline hasa modern fleet of Boeing B767s and AirbusA320s. Capt. Trung flies the B767 on VietnamAirlines’ international routes. His two daughtersare flight attendants with the airline andone of his two sons is a pilot cadet.25 year wait for face-to-face meetingAviation consultant Jim Eckes haswaited 25 years to meet Capt.Nguyen Thanh Trung face-to-face.He last came into contact with him ashe escaped in a Beechcraft Baron from TanSun Nhat airport, two days before the fall ofSaigon when Capt Trung and his attack teamswooped in to bomb the airfield. One of theaircraft made two passes on the Beechcraft,but the pilot, Gene Rainville, now senior vicepresidentmarketing for Gulfstream, avoidedthe fire.“We saw the South Vietnamese markingson the aircraft, but we knew a number ofthem had been captured by the North,” saidMr Eckes, who was vice-president of charteroperator Continental Air Services. Days earlier,he had arranged for Pan Am’s last commercialflight out which took off with almost 800people on board. It was a feat that Hollywoodmade into the movie Last Flight Out.Two days later, in Bangkok, Mr Eckes readthe raid on Saigon airport was led by CaptTrung.Last year, Orient Aviation told Mr Eckes’story. The Hong Kong-based consultant said hewould like to meet Capt. Trung to talk over oldtimes. Several weeks later, Capt. Trung rang OrientAviation and invited us to Vietnam.In January, the two men met and struckup an instant friendship. Surrounded by oldmaps, photographs and other memorabilia,they talked about their last ‘meeting’. “I think Iknow which of my aircraft shot at you. Numberfour was out of radio contact for five minutes.I thought he had been shot down, but he musthave seen you. He is still in the air force I will askhim,” said Capt. Trung as he poured Mr Eckesanother cup of tea in his chief pilot’s office, atthe airport he bombed 25 years ago.“When I talk about these happenings, it allseems such a short time ago.”Capt. Trung and Jim Eckes talk over old times60 | Orient Aviation | February 2000

n e w sJapan Express: JAL is doubling the fleet of its subsidiary with the addition of four B737-400sJAL opts forlow cost routewith JEX, JALwaysBy Tom BallantyneJapan Airlines (JAL) has opted for a bigincrease in the use of low-cost subsidiariesin its efforts to cope with the industry’sfast changing business environment, amove it hopes will offer more flexibility to reactrapidly to events.The strategy, announced in the carrier’splans for the upcoming fiscal year to March31, 2001, will include transferring more BoeingB737-400 aircraft to domestic subsidiary, JALExpress (JEX), to build more productive regionalflight operations.It also will develop J-Air, the JAL Group’sHiroshima-based regional commuter airline,by introducing Bombardier CRJ-200 50-seatregional jets, the first airline in Japan to usesuch aircraft.On the international front, JAL will transfermore routes to subsidiary JALways, formerlyknown as Japan Air Charter (JAZ). JALways,which has been operating JAL routes predominantlybetween regional cities in Japan andHawaii on a wet-lease basis, will now fly theseroutes under its own name and will expandits operations to Guam and Saipan during thecoming financial year.“Expanded use of lower cost subsidiarieswill strengthen JAL Group airline management,in line with JAL’s current 1991-2001 mid-termcorporate plan announced in March 1999,” saidan airline spokesman.JAL itself also will be lifting frequency andcapacity on international routes in response tosigns of economic recovery. On trans-Pacificroutes, frequency from Tokyo to Los Angelesand to Honolulu will increase. It will use moreflights or higher capacity to lift its presence onsome European services.“On certain Asian routes, where there isclear evidence of economic recovery, biggeraircraft will be introduced, such as the B747-400on the Tokyo-Bangkok route. Frequency will beincreased on the Nagoya-Tianjin (China) serviceand during the year frequency on the Osaka-Seoul route will be increased by five to sevenflights a week, eventually reaching 14 flights perweek (twice daily),” said the spokesman.Additional capacity provided by the new Brunway at Haneda Airport will allow expansionof domestic routes after July.“By making more use of lower cost subsidiaries,JAL Express (JEX) and Japan TransoceanAir (JTA), JAL will improve productivity. Duringthe year, JAL will transfer four B737-400 aircraftto JEX, which will be put into service on localroutes.” This will double the fledgling carrier’sfleet to eight B737 jets.JAL’s fleet will remain at 134 airplanesduring the year. This will comprise of 78 ininternational service, 47 aircraft on domesticroutes, a reduction of one, with the freighterfleet increasing by one to nine.62 | Orient Aviation | February 2000

EngineeringandS p e c i a l R e p o r tGOODBy Tom Ballantyne,in MelbourneMILEAGEDistance is no object as new Ansett/Air NZ venturepitches its MRO expertise worldwideThe formula sounds simple. Take twomedium-sized aircraft maintenance divisions,merge their operations and endup with a significant player in Asia’s regionalmaintenance, repair and overhaul (MRO)market. So big, in fact, it could even grab agrowing share of business from Europe andthe Americas.For Ansett Australia and its half owner,Air New Zealand (AirNZ), doing just that hasalready involved two years of meticulousplanning, a handful of unique challenges andthe prospect of several more years of effortbefore the parts become a genuine whole.Not that the new Ansett Australia and AirNew Zealand Engineering Services (ANNZES)will be waiting until then to convince customersto take advantage of its MRO offerings.According to John Vincent, the company’schief operating officer, one of the first tasks ofa newly appointed trans-Tasman managerialteam – under American-born chief executiveofficer Bill Jacobson – has been putting togethera commercial department, including asales and marketing team.While the two separate airline engineeringdivisions shared a stand at Asian Aerospace inSingapore two years ago, at the same eventin February they will debut as a single entityunder the ANNZES banner.As the phased merger of the two divisionscontinues, the aim is to drive expansion bychasing new third-party customers with thepromise of quality work, competitive pricingand speedy turn-around times.By putting the two businesses together,Ansett and Air NZ already have introduceda significant market player. The combinedturnover of Ansett Australia Engineeringand Air New Zealand Engineering Services isaround US$490 million. The plan is to lift thatfigure to around US$650 million within fiveyears, with 40%, or nearly US$200 millionannually, coming from third-party contracts.Yet while ANNZES has officially beenestablished on both sides of the Tasman Sea,its only employees will be the combined managementteam of executives co-ordinating thefirm’s various MRO centres.Maintenance and engineering staff willremain on the payroll of the two airlinesand assets such as hangars, spare parts andspecialised tooling equipment will belong tothe carriers.That is because of the unique issues involvedin a merger of companies in differentcountries, not to mention union concerns andregulatory issues.“No one has done this before that we areaware of,” explained Mr Vincent. “A numberof airlines have separated their engineeringbusiness, but we are not aware of anyone whohas done it and then combined two businessesin two sovereign states.“We are being very careful and workingthrough the issues cautiously with the unionsand with organisations like Australia’s CivilAviation Safety Authority (CASA) and CivilAviation New Zealand to ensure we meet thebusiness regulatory requirements.”No one involved doubts the move makessense. “This is not a downsizing exercise,” saidMr Vincent. “The whole thrust of ANNZESis that we want to create a maintenancerepair and overhaul business that is worldclass competitive, that will take on increasedthird-party work and will actually expand. Thewhole thrust of it is job expansionary.”February 2000 | Orient Aviation | 63

s p e c i a l r e p o r tThe two airlines each have a strongengineering product line with surprisinglylittle duplication.Ansett works on Boeing B737-300s, B767sand Airbus A320s in Melbourne. In Auckland,Air NZ has Boeing B747 and B767 lines. Underthe plan, all heavy D-checks on B767s willbe moved across the Tasman to Auckland,although lighter checks will continue in Australia.New B737s being purchased by Air NZwill be supported in Melbourne.Similarly, engines and components will besupported substantially at their current locations;the CFM56 in Melbourne, the CF6-80C2at Auckland and the JD8 in Christchurch.“It all fits together very well,” commentedMr Vincent. “Even if you look in the componentarea we have highly specialised capabilityhere in Melbourne around hydraulics, mainlybecause of the A320, which has sophisticatedelectro-hydraulics systems.“Similarly we have a lot of avionicscapability, mainly driven by A320 technology.If you look at Air NZ, they have a lot ofcapability in pneumatic systems which wedon’t have.“There will be some work that’s taken outof one location and put into another, but thecommitment we have given to our people isthat for each parcel of work that’s moved oneway there will be a parcel of work of roughlyequivalent size moved the other way.”ANNZES aims to create Centres of Excellenceaimed at doubling the volume in eachgeographical location, driving efficiency andmaking pricing more competitive.Mr Vincent said customers’ priorities arequality, price and turn time. Quality is numberone. Price and turn time are equal second.“In the areas of engines and componentswe believe we are already world class orapproaching world class on quality and price.We recognise we must improve our turn timesand we have a significant programme in placethat will achieve this end.“At Ansett we achieve our current turntimes in most cases with only one shift; a fiveday,Monday to Friday day time shift.“We know we can drive our turn timedown hugely when we put on additionalshifts – afternoon shifts and seven-day-aweekshifts. The business plan provides forthis move forward.”Where is ANNZES right now? The managementteam will be in place by February,co-ordinating activities on either side of theTasman. There will be a progressive roll-outof production units over the next 12 to 18months, beginning with materials management,then components, engines, airframesand support areas such as technical servicesand quality assurance.The two airlines rejected a ‘Big Bang’approach – a virtual overnight merger – mostlybecause of concerns amongst workers aboutleaving the employment of establishedcarriers many had worked with for years.According to Mr Vincent, the transfer ofthe workforce to the ANNZES payroll couldtake two or three years.“We decided that doesn’t have to happenon day one. There is no reason why we can’tput the management team in place and leavethe employees where they are and, over aperiod of time, demonstrate that we can makea success of the business.“One of the challenges we are going tohave is to convince people that working fora successful aircraft engineering business isANNZES chief operating officer,John Vincent: third party contractscrucial to future successbetter than working for a successful airline.That’s not going to be easy.”Mr Vincent stressed the joint venturedid not emerge as a result of the twoairlines joining the Star Alliance last year, butwas more about global trends in the MRObusiness.“We recognised the world of MRO israpidly becoming global... by putting thetwo organisations together we becomea significant player in this region. That isnecessary because if we don’t, whether itsLufthansa or GE or Pratt & Whitney or Boeing,then we are going to wake up one day andfind these big players are well and trulyestablished in our backyard.“The objective of us joining forces is tocreate an organisation which has a significantcritical mass in the region.”ANNZES does not fear competition withthe big guns. The airlines’ recognition in thethird-party MRO market is quite strong. MrVincent said Ansett carries out a reasonableamount of engine work in Asia and points toAir NZ engineering as proof of the pudding.“They have been able to go into the veryhighly competitive JD8 market in the U.S.,right into the heartland of competition. Theysource engines from all over the U.S. They getJD8s from everywhere, including Europe andSouth America.”Mr Vincent does not view location as ahuge competitive disadvantage. “There isno doubt it is an issue. It may be for Europe,particularly with airframes, although I thinkwe are close enough to Asia to be able tobring airframes down here and still be competitive.“But we don’t think it is a real issue whenit comes to components and engines. Allowingfor the relative cost of shipping a component,even an engine which is physically muchbigger, when compared with the value, webelieve in terms of price and turn time we canjustify work being delivered here.“Once you have the volume and demonstrateto people you are viable, havegood quality and are reliable, then you cannegotiate some good shipping deals. Youcan reach the point where the cost of shippingthe engine there and back is reasonablyattractive in the context of total cost to thesupplier,” he said.ANNZES will not be restricting its salesdrive purely to airline work. It will be lookingfor as many opportunities as possible. Air NZ,for example, overhauls industrial jet enginesused in such facilities as pumping stations.What has not been decided to date ishow to brand the company. While ANNZESis the shorthand name for the merged entity,a logo will have to be chosen as a banner forthe company’s wares.“We are being very cautious in lookingat how best to use the recognised brands ofthe two airlines so people know they not onlysending work to a high quality engineeringcompany, but also to a company with rootsin two airlines which understands an airline’sneeds.“As an airline we know that if yourmaintenance providers do not have an airlinebackground they do not really understandwhat drives you, what frustrates you andwhat makes you tick,” said Mr Vincent.As it sets out to lift its presence on theglobal MRO front, ANNZES wants everyoneto know its airline roots.64 | Orient Aviation | February 2000

s p e c i a l r e p o r tPratt & Whitneyon the prowlAt Singapore’s Asian Aerospace ’98Pratt & Whitney (P&W) president KarlKrapek made some firm predictions.He admitted that until 1997, Pratt had neveroverhauled one of its own JT8D engines.With some 12,000 in service, this was a vastmarket left untapped, which he described as“amazing”. The company, he added, shouldhave attacked it “years ago”.He predicted the after-market wouldprove a growth area for a good five years,into the early years of this new millennium,and that Asian crisis-related deferrals couldfree up factory space that would be occupiedby this expansion.And he added that P&W was now goingout there to claim for itself 10% of thatsizeable JT8D after-market.As Asian Aerospace 2000 neared, P&Wgrabbed a last minute addition to its orderbook from Asia with a 10-year agreementfrom Japan Air System (JAS) for a fleetmanagement programme for their JT8D-200-powered MD-80 aircraft.Previously Ishikawajima Harima HeavyIndustries (IHI) in Japan had done the work.Robert Weiner, P&W’s vice-president engineservices, said they were particularly pleasedto win the contract against strong localcompetition.Signed in late November, the deal offeredcost savings and turn time improvements,which reduced the cost per engine-flighthourfor the customer, said Mr Weiner. Thefleet management programme is based on“power by the hour” with JAS paying perengine flight hour.As part of the agreement, dedicated P&Wtechnical staff are assigned to JAS’s base inTokyo and the engine-maker’s overhaul centreto focus entirely on JAS work.The new agreement covers 63 engines inthe JAS fleet and has an estimated value ofnearly US$150 million.The full-scale overhaul and maintenancework will be performed at P&W’s Columbusengine centre in Georgia, USA, Columbusopened in 1996 and is dedicated to the JT8Dengine family. Since its opening the centrehas handled about 200 engines, 70% of themSIA Engineering: successful joint venture with P&Wduring 1999.“We’re doing very well in Columbus,” MrWeiner told Orient Aviation. “We’ve done atremendous amount of work implementingflow lines and reducing our turn time. In fact,turn time is down to 45-50 days. We’re doingabout 15 8Ds each month and we’ll ramp thisup significantly over the next few years. We’llat least double last year’s total in 2000.”Mr Weiner said he expected to achieve thetargeted 10% share of the 8D market by theend of this year. However, he said P&W’s 1999share had only been 3% to 4%, which clearlyunderlines the benefits awaited from the ongoingturn time reduction programme.At Asian Aerospace ’98, Mr Krapek contrastedhis company’s strategy to that of GEEngine Services, which aggressively targetsmaintenance work on rivals’ products. “Prattisn’t interested in doing the other guy’s engines... I’ve got plenty of growth in my ownengine market to take care of first,” he said,but added that when P&W take on an airlinewith a mixed fleet of engines, it will handlerivals’ powerplants.Now it seems that P&W is taking moreinterest in competitors’ engines and thatis what has happened in Singapore. P&Wbought a 51% stake in SIA Engineering’sengine overhaul business in 1998 and amongthe 240 engines handled last year was its firstheavy overhaul of a rival engine.The first CFM56-5 went through theshop in November, although the companyhad handled light overhaul of the engine theprevious year. Now it is handling two heavyoverhauls each month and is beginning tolook for third party CFM56-5 clients andpossibly a repair capability“That’s our first non-Pratt engine andit won’t be the last!” said Mr Weiner. “TheSingapore joint venture is the first step. Nowwe’re looking at many other opportunitiesaround the world to go well beyond theCFM56-5. We already do a fair amount of GEand Rolls-Royce engine repairs and we’ll beexpanding that, too.”The Singapore joint venture was originallyregistered under P&W’s old Eagle Servicesbrand name and it still goes by that title, eventhough the rest of the business switched toPratt & Whitney Engine Services last year. Like66 | Orient Aviation | February 2000

the rest of its global business, the Singaporecentre employs flow lines to boost quality andturn-around times.“Flow lines are unique to P&W. We firsttested them in our military manufacturingbusiness. We used to take 72 days to builda military engine, but with flow lines it wasdown to just 17 days by the end of the year.We took the same concept and applied it tothe overhaul world,” said Mr Weiner.The standard approach was for an engineto sit in a bay while the mechanics came inwith their tools and a bin for parts. They tooka bunch of parts off and then the tools andparts went out and the mechanics fetchedmore tools for the next operation. Everythingcame in and out of one bay. Flow lines aredifferent.“It’s more like a Toyota or GM assemblyline ... the engine moves from one station toanother so there is five stations to tear downan engine and each station has dedicatedmechanics, dedicated tooling, dedicated partrack, dedicated everything. Every day, every 22hours roughly, the engine moves to the nextstation. After disassembly the sixth station isre-assembly so it’s everything in reverse.”According to Mr Weiner the flow linemethod requires significantly less shop space,because in the bay concept you have to havean individual bay for every engine in process.“In flow line there’s no limit to volume. Whenvolume increases you just turn up the speedand put more people on them. Flow line isdependent solely on your manpower.”Instead of moving every 22 hours, increaseddemand would mean engines hadto move down the chain every 11 or even5 hours. But even with flow lines, turn timeimprovements cannot surely continue indefinitely?Mr Weiner disagrees.“In my view the limit becomes just the‘touch-time’ on an overhaul or repair. Whenwe started on turn time reductions, a statortook about 50 days. We are on about 25 daysnow. But the ‘touch-time’ on stators is probablyonly about 1.5 days, so the limit becomes1.5 days. When you get down to 1.5 days youcan implement process improvements too.There’s a long way between where we arenow and reaching ‘the end’.”Although 1999 was Singapore’s first fullyear of operation improvements have beensignificant. “We reduced turn time significantlyon the PW4000s. We were overhaulingthem in a little over 50 days at the end of theyear. It was more than double that when wetook over.”Such productivity increases are openingup capacity in the 800-worker shop. P&W isaggressively seeking third party business ina shop that was once purely handling theSingapore Airlines fleet.Flow lines for the JT9Ds also are inprogress, through which Mr Weiner wantsto funnel the Asia-Pacific fleet. “There’s stilla good market there for JT9Ds,” he said.Flow lines for the CFM56 engine will also beintroduced this year.Last year there were rumours of a planfor a P&W joint venture for the JT8D andV2500 in mainland China, but Mr Weiner putthem into perspective. “We are expandingextremely quickly right now, so we’re lookingat overhaul facilities all over the world,including possibilities in China.”A busy P&W sales team also recentlysigned contracts with Asian carrier Air Maldivesand Aloha Airlines in Hawaii. Air Maldivesopted for a US$30 million powerplantJapan Air System: signed a 10-year deal with Pratt & Whitneyfleet management programme as part of itsplan to expand its mixed PW4000 / JT8D drivenA310-300 fleet. P&W will provide a completearray of off-wing maintenance and engineoverhauls under a five-year agreement announcedlast December.Earlier in the year Aloha Airlines choseP&W’s Columbus centre for overhaul and repairof its JT8D engines and engine modules.John C. Buckingham, vice-president maintenanceat Aloha, said he was pleased the OEMwas now involved in JT8D MRO. “As a smallerairline we count on our ability to develop integral,mutually beneficial relationships withour vendors.”The engine services division has becomeincreasingly important to the P&W bottomline. By 1999, Mr Weiner said it brought in“over US$1 billion” – excluding parts – comparedto about US$200m annually in themid-nineties.“We have come a very long way in justa few years as a truly full-service engine supplier,”Mr Weiner added. “These airlines andothers like British Airways, America West,Delta and American Airlines are seeing thevalue we can bring to their operations as wemove from being simply a supplier of enginesand parts to an integrated partner in managingairline engine fleets.”The P&W vice-president also was keento set the record straight on his division’s sizecompared to rival GE Engine Services. “Whenyou compare overhaul and repair work ofPratt & Whitney Engine Services with GE EngineServices we are very close. If you includeUnited Technologies Corporation aerospaceservices [Pratt & Whitney, Pratt & WhitneyCanada and Hamilton Sundstrand] we’reslightly bigger than GE.”Mr Weiner was tight-lipped about whatannouncements are in store for February’sAsian Aerospace, but more third party contractswould seem to be a good bet. “Lastyear we reduced turn time by an average 50%across the world. This year we plan to do thesame, becoming the fastest across the worldon all our overhaul and repair businesses.“That sets the stage for P&W to go outand really grow the business. We’ve packagedour services so that we are really a full serviceprovider to the airlines through flight managementprogrammes and material managementprogrammes. This year promises furthergrowth and programmes in place in the worldwhere we’re not at today.”February 2000 | Orient Aviation | 67

s p e c i a l r e p o r tJAA approval for GAMECOThe Southern China maintenance facility, Guangzhou AircraftMaintenance Engineering Company (GAMECO) has had its JAR-145certification renewed by Europe’s Joint Airworthiness Authority.Included in the new certification are Airbus A320 and A321 aircraftup to C-3 Check level and MD-11 series line maintenance. GAMECO wasoriginally certified by the JAA in 1998. Since 1998 it has carried out 25C checks on A320s and a similar check on a A321 for mainland carriers,China Southern Airlines, CNAC Zhejiang and Sichuan Airlines.GAMECO is approved by the U.S. Federal Aviation Administration,the Civil Aviation Administration of China and JAA to perform all levelsof maintenance checks for B737, B757, B767, B777 as well as A320 andA321 aircraft.Based at Guangzhou’s Baiyun International Airport, GAMECO isa joint venture between China Southern Airlines, Lockheed MartinAeronautics International of the U.S. and Hong Kong-based HutchisonWhampoa (China) Ltd.R-R’s global viewPATRICK GARRETT spoke to Rolls-Royce aero repair and overhaul’ssenior vice-president, Bill Madison,about business prospects for MROin the new millennium.According to statistics from managementconsultants The Canaan Groupthe aero engine maintenance, repairand overhaul (MRO) business is booming. Itcalculates the industry generated income ofUS$24.48 billion globally in 1997.Rolls-Royce’s Bill Madison said over thenext decade the figure is expected to growby more than US$1 billion annually and willtop US$40 billion.In the next 20 years, based on predicteddeliveries of nearly 17,000 jet aircraft, MrMadison pegs demand at more than 43,000engines, including spares, valued at US$251billion.Corporate aircraft could account for an additionalUS$19 billion of engines. Spare partsalone for the period could be worth US$150billion, he said.Although the Asia-Pacific, including China,is not top of the predicted aircraft deliveriesleague, it is the highest value market to theengine makers because of the higher proportionof large, widebody aircraft required,with larger (above 45,000lb), more expensivepowerplants. The aftermarket potential isimmense. “With such staggering revenuebeing forecast, the race for market share hascaused all MRO providers to re-evaluate theirstrategies,” said Mr Madison.A Rolls-Royce Aerospace Repair andOverhaul Council (AROC) was formed in1997 consisting of senior managementfrom the world-wide repair and overhaulsubsidiaries and affiliates, the Rolls-RoyceOEM Customer Facing Business Units,BMW Rolls-Royce and Industria de TurboPropulsores. The council defines policy onglobal issues and measures performanceof individual businesses against thesestandards.Rolls-Royce has reacted to the effectsof major industry rationalisation – mergers,acquisitions, industry-wide consolidationand changing alliances and structures withinairlines – with a series of partnerships and jointventures. Their strategy is particularly evidentin Asia-Pacific.HAESL, a 50:50 joint venture with HongKong Aircraft Engineering Company (HAECO),a sister company of Cathay Pacific Airways,was launched in Hong Kong in 1997.In 1998, another joint venture was announcedin Singapore – SAESL – owned 50%by SIA Engineering Company, 30% by Rolls-Royce and 20% by HAESL. It will becomeoperational in 2002.And last year International Engine ComponentOverhaul Pte Limited (IECO), a jointventure company owned equally by Rolls-Royce and SIA Engineering Company startedin Singapore.The 4,000 sq metre facility boasts a fullrange of processes, including the refurbishmentof nozzle guide vanes and compressorstators for the region’s sizeable RB211 andTrent fleet.Mr Madison said the major aero engineOEMs have all identified MRO services as asignificant business opportunity and haveorganised aftermarket services ranging fromline maintenance to world-wide logistics andfrom engine buy-back and lease to servicingrival OEM products.Among its many products Rolls-Royceclaims to operate “the world’s largest, specialist,aero gas turbine leasing company”,Rolls-Royce & Partners, with a portfolio of 91engines. GATX Capital took a 50% stake in thebusiness in 1998.The evolving MRO strategy seems to bebearing fruit.In a growing market for repair andoverhaul Mr Madison said that about half ofRolls-Royce civil aero engines world-wide gothrough its own shops.68 | Orient Aviation | February 2000

s p e c i a l r e p o r tImproved year for HAESLHong Kong Aero Engine ServicesLimited (HAESL) handled around 175engines in 1999, up from 146 theprevious year, an increase of 20%. The engineswere a combination of Trent 700, Trent800, RB211-524, RB211-22B, and RB211-535s.At the end of the year it also received itsfirst pair of V2500 engines, one of whichhas been completed for client South AfricanAirways.The gains are certainly impressive. HAESLgeneral manager commercial, Stephen Chu,puts it down to a combination of “biggerdemand, more aggressive marketing and animprovement in our ability to take in moreand still deliver”.In addition to local Hong Kong carriersCathay Pacific Airways and Dragonair, HAESLclients include China Southern Airlines,Xiamen Airlines, China Yunnan Airlines, XinjiangAirlines, Singapore Airlines, MalaysiaAirlines, Thai Airways International, GarudaIndonesia, South African Airways, Emirates,Air Transat, Air New Zealand, QantasAirways, Kitty Hawk, Royal Brunei Airlines,Air Atlanta Icelandic, International Air Lease,Orient Thai, Britannia Airways, MonarchAirlines, and Inter Lease.“Our shop had been kept fairly busy allthroughout 1999, with work coming in fromcustomers in our designated territory as wellas from Europe, the U.S. and Canada,” saidMr Chu. “We worked closely with [Rolls-Royce overhaul] Derby to optimise utilisationof available capacity in the two shops.“Business will continue to be looked at ina global context. Everybody is operating in avery competitive environment wherever theyare located.”Commenting on the receding economicproblems within Asia, Mr Chu said: “There areencouraging signs the worst is over, but it islikely the road to full recovery will be fairlylengthy and not without new challenges.”HAESL also performed work on the Trentfor Cathay Pacific, Garuda, Malaysia Airlinesand THAI.After discussion with both Emirates Airlineand Gulf Air, the former signed a contract inJuly last year for its Trent 700 and 800s.Nothing has yet been signed with Gulf.HAESL continued machining casings forQantas Airways’ 524-Hs 03 module to allowfor installation of Trent 04 modules. HAESLalso is repairing two RB211-524 engines forthe Australian flag carrier.HAESL technicians inspect a Rolls-Royce Trent 800 engine in its Hong Kong test cellA proposed joint marketing agreementdiscussed last year with Taiwanese carrier,EVA Air, for services on the V2500-D5 hasnot yet progressed. HAESL can handle theD5 modules, which are identical to those onthe A5. However, It would have to use theproposed partner’s test cell as a D5 does not fitthe HAESL cell without alternative adapters.Phase one (the finance sub-system) ofa complete Enterprise Resource Planning(ERP) suite of systems from German softwarecompany, SAP, was implemented in mid-1999at HAESL.Company plans for an ISO 9000 certificationhave been delayed until sometime in2001, but in the meantime it has embarkedon a turn-time reduction project to improveproductivity in the engine shop. HAESL saysit also is looking at “business re-engineering”and evaluating Rolls-Royce “better performancefaster” initiatives to see what works bestin its organisation.“Competition has been, and will remain,strong in the industry,” said Mr Chu. “The MRObusiness [is being] given increasing attentionbecause of the need for integration andreducing margins on sales of the engines.”GE expands in MalaysiaGE Engine Services consolidated its ties with Malaysia late last year when subsidiary GEOn Wing Support, Inc., launched its operation in Subang.Bill Vareschi, president of GE Engine Services, said the company’s successful maintenanceand overhaul joint venture with Malaysia Airlines, Aero ’97, and Malaysia’s growing aerospaceindustry were key factors in forming GE On Wing Support Malaysia Sdn Bhd.GE also has an overhaul and repair Centre of Excellence in Kuala Lumpur along withsimilar centres in Xiamen, China and Singapore in Asia as part of its global network.Its on-wing support network also has facilities in China and most recently opened inSeoul, Korea.Initially, the Malaysian on-wing operation will work on CFM56, CF6-80C and Pratt& Whitney PW4000 engines, but plans also include support of GE’s GE90-115B, the solepowerplant for Boeing’s proposed 777X twinjet.February 2000 | Orient Aviation | 69

e x e c u t i v e i n t e r v i e wBishop’s move ablessing for StarBritish Midland opens up Heathrow slots for alliance’s Asian carriersBy Tom BallantyneIt is hardly surprising that Sir MichaelBishop, chairman of the UK’s secondlargest airline, British Midland (BM),should opt for the luxury of the Ritz CarltonHotel when he visits Sydney, in Australia.The exclusive property overlooking the leafysplendour of the city’s botanical gardens ismost definitely his style.When in London the dapper, quietly spokenand cultured executive always checks intothe Savoy, a hotel synonymous world-wide forstyle. It is therefore perhaps not surprising heshould stamp his own very special individualityon his airline’s headquarters – a splendidstately mansion surrounded by extensivegrounds at Castle Donington in the EnglishMidlands.But beyond these cultured surrounds, notto mention his avid passion for opera and, inparticular, the famed D’Oyle Carte company,there is no mistaking the driven businessmanwith an eye for success.The hard, no-nonsense edge may resultfrom an Antipodean connection; a Wellington,New Zealand-born grandmother and a fatherwho hails from Melbourne, Australia.Many in Asia may regard BM as a purelyEuropean regional operator, but it is about tobecome a major player in the region’s airlinescene, even though there are no plans tolaunch flights into the region.What is drawing BM into Asia’s web isits imminent arrival as the latest member ofthe United Airlines-led Star Alliance, a moveexpected to take place officially in April.For Star partners such as All NipponAirways, Air New Zealand (Air NZ), AnsettAustralia and Thai Airways International(THAI), it opens up significant opportunitiesfor expansion of code-share opportunities andEuropean feed through a carrier controllingthe second largest number of slots at Europe’smost vital hub, London’s Heathrow Airport.BM code-shares previously in place withairlines belonging to Star rival oneworldBritish Midland chief Sir Michael Bishop: man of style70 | Orient Aviation | February 2000

– Qantas Airways, Cathay Pacific Airways andAmerican Airlines among them – have alreadybeen halted, Sir Michael explained in an exclusiveinterview with Orient Aviation.Often accused of being decidedly undynamicin his development of BM, Sir Michael,who along with partners owns 60% of theairline, has shrewdly manoeuvred his chargeinto a prime position.Courted by a swag of suitors, he optedfor Star late last year. Under the deal, 40%stakeholder Scandinavian Airlines System(SAS) agreed to sell half its stock to Starstalwart Lufthansa German Airlines forUS$148.2 million, giving it a 20% holding inBM and valuing the airline at around US$740million.The decision shook UK big gun and oneworldleader British Airways (BA) to the core.It reacted by accusing Sir Michael of “sellingout to the Germans”, a comment Sir Michaeldescribed as “unfortunate”, although BAquickly toned down its language.“I think they were just frustrated. Theyare a pretty good business, but now findthemselves in a more competitive position atHeathrow than many other European airlinesdo in their home bases,” he said.The reason is the Heathrow slot situation.BA has dominated Heathrow for years,currently holding around 38% of slots, movingnearly 27 million passengers annually throughthe airport.BM had 13.7% of slots, carrying 5.4 millionpassengers a year. Add its new Star partners– until now the alliance had no British member– and the coalition has 27% of Heathrowslots, dramatically altering the competitivepicture.For BA, it was already a torrid market. Inthe UK there are not only major scheduled airlineswith which to contend. “There is a wholetier of charter airlines operating packageholidays also offering seat-only sales, such asBritannia and Airtours. Then there is anothertier of low-cost airlines such as EasyJet, Ryanairand Virgin Express,” said the BM chief.Sir Michael revealed BM looked carefullyat entering the low-cost market. “We decidedto remain a full-service airline mainly becauseour network hub at Heathrow is a full-serviceairline hub. It is an airport where people arechanging flights and where the majority ofhigh yield traffic in the UK actually flows, soit would be incongruous for us to have a lowcostairline at a high-cost airport.“To make money in low-cost airlines youactually have to have a very tailored specificbusiness which you can really only start froma fresh piece of paper. You can’t convert anexisting full-service airline into a low-costairline,” he argued.BM’s entry into Star will lay accusations oflack of dynamic expansion to rest, althoughSir Michael smiled and suggested in hisexperience “most dynamic airlines go bust ...Virgin being the exception to the rule”.In a ruthlessly competitive business BMhas stayed the course, he added.“The business plan we have adopted ingoing into Star will mean BM will double insize. Over the next five to seven years staffwill rise from the present level of 6,500 to12,000 and the fleet will increase from 52 to90 aeroplanes,” said Sir Michael.That growth depends on a new bilateralair service agreement between the UK andthe U.S. Sir Michael plans to launch flightsacross the Atlantic this year. Already, withclearance from the UK Government to operateto Boston, New York, Washington and Miami,BM has lodged applications for six otherU.S. routes. Approval from Washington ispending.To achieve all this BM will need long-haulaircraft to supplement its current fleet ofshorter haul Boeing B737 and Airbus A320types, which serve 29 cities in Europe and 17British domestic destinations. A bidding war isunderway between the two big planemakersfor six jets – either B767-300s or A330-200s– for likely delivery in the second quarter of2000.“We have no plans to operate our ownservices into Asia at the moment. But weshall have to see how the industry developslong-term. From what I hear down here inAustralia there is quite enough competitionalready,” said Sir Michael.With Star, however, BM will have no problemsoffering its customers Asian capacity. Italready has extensive commercial arrangements,some involving code-shares, with carriers such asSingapore Airlines, Ansett, Air NZ, THAI, MalaysiaAirlines and Royal Brunei Airlines. Arrangementswith Star partners will be strengthenedand expanded.“With the alliance there is a whole cocktailof different commercial arrangements whichwill be much easier to enter into. I think it is theplatform for a very dynamic period of growthfor BM,” said Sir Michael.In his mid-fifties, Sir Michael has broughta new, younger generation of managers intothe company to underscore this new vitality.Chief operating officer James Hogan, appointedlast year, is in his early 40s. A range of othernew executives are in their mid to late 30s andearly 40s.One of their tasks may be preparing thecompany for a stock market listing. “As far asBritish Midland’s entry into the Star Alliance will put pressure on British Airways at HeathrowAirportBM is concerned a flotation is now an option,but we have no timetable planned for when itmight be,” said Sir Michael.The cash is not required to buy aircraft. Resourcesare in place for that. Nevertheless, therehas been much speculation in British marketsabout a listing.Sir Michael said a flotation would onlybecome a reality if there is regular incrementalprofits; a good and increasing profit stream isrequired to meet the criteria of the market.In the past, he has always ploughed incomeback into the business for subsequent stages ofdevelopment, a manoeuvre which has servedBM well since it was established in 1983.“The prospect of going into the Star Allianceand the business plan we have adoptedfor the first time, provides us with the potentialto produce the kind of results which the stockmarket would want to see to justify criteria foran Initial Public Offering (IPO).”February 2000 | Orient Aviation | 71

C o m m e n tThe airline industry breathed a huge sighof relief as 2000 arrived without anysign of the you-know-what bug. Santa,however, did not deliver any turn of thecentury ‘big bang’ solutions to the issuesfacing carriers in coming years.Everyone remains cautious about growthlevels and there is still a great deal of uncertaintyover the pace of economic recovery invarious parts of the world, including Asia.The volatile path of global stock marketspost January 1 is clear evidence of this. Shareprices soared to record levels as a wave ofY2K relief enveloped investors, then dippedalarmingly before picking up again.Of greater concern is markets everywherereact immediately to the whims of the NewYork Stock Exchange. They do so becausewhat happens in New York underlines thereality that a recovering Asia can have itsprogress severely dented by developmentselsewhere and that they are matters overwhich the region has absolutely no control.These are factors airline managements arelearning to live with. Putting Y2K to rest mustnot detract industry focus from the task ahead,which in many ways is far more formidable.The issues have been well covered inthe pages of this magazine; the pace ofliberalisation, dealing with the challengesof information technology, achieving globalstandardisation on the safety and regulatoryfronts and finding sustained profitability inviciously competitive markets.Also there are regional issues which refuseto go away and have the potential to impactdetrimentally on the smooth development ofairline operations in Asia and beyond.The China/Taiwan question is a perfectexample, as is ongoing friction betweenNorth and South Korea and social unrest inparts of Indonesia. These political issues posea constant threat to regional stability. If theyget out of hand they can do serious damageto business, tourism and airlines.There are internal airline issues too.While it has made extraordinary progress onthe aviation front, Beijing continues to placepowerful official brakes on the expansion andemergence of its carriers.Asia’s airline industry will never be entirelycomplete until mainland operators aretruly immersed in the regional aeropoliticallandscape, with all the freedoms and operationalflexibility their regional counterpartshave.After a horrendous fiscal period in thelate 1990s, incumbent airlines also face newthreats of competition from unexpectedquarters.RECOVERY YES, BUTBIG CHALLENGES AHEADIn Australia, changes to foreign investmentrules will allow a foreign airline, Britain’sVirgin Atlantic, to launch a wholly-owneddomestic carrier in the country.This move takes on added significance forQantas Airways and Ansett Australia, airlineswhich at the same time may have to face twoother start-ups, Impulse and Spirit, on theirprimary trunk routes.In Indonesia, a handful of charter carriersare being given scheduled status to enterthe domestic market at a time when it hasbeen severely depressed by the economicdownturn.The Philippines continues to buck openskies trends through its ongoing battle withTaiwan over direct air routes. None of this maymake sense to many observers, but that doesnot really matter. It is happening anyway andhas to be dealt with.Several IATA ‘report cards’ issued overthe turn of the year clearly show indicatorsfor future industry expansion are mixed andthat these developments are not occurringat a time when airlines are at the peak of aneconomic cycle.While IATA’s Annual Average Growth Rate(AAGR) forecast for scheduled internationaltraffic over the five years to 2003 is estimatedat 5.02%, the figure is down by 0.5 percentagepoints on the passenger forecast from 1998-2002 and 1.5 percentage points lower on the1997-2001 figure.Passenger growth prospects vary significantlybetween regions, driven by differingeconomic expectations. In Asia, traffic growthforecasts are driven by the increasingly evidentupswing in economies such as Thailandand Korea, but also they have been offsetby the continued stagnancy of the JapaneseTURBULENCEBy Tom Ballantyneeconomy.The AAGR for Japan is estimated to be just2.6%, a drop of 1.5 percentage points on the1998-2002 forecast.Economic problems in South America,previously one of the high growth areas ofIATA’s Passenger Forecast, have had a significantimpact on airlines. The five-year AAGRfor traffic to and from Brazil, for example, isprojected at just 3.9% compared with 8.4%12 months earlier.The 1999-2003 Passenger Forecast is derivedfrom IATA’s annual survey of the world’smajor airlines, airports and civil aviation authorities,so it provides a good barometer ofindustry sentiment, representing the consensusopinion of aviation’s leading forecastingand strategic planning experts.On another front, the association’s 1999Corporate Air Travel Survey said growth inthis sector would continue, which is goodnews. It pointed out that in 1997 some 40%of corporate air travellers expected to be usingthe Internet for their travel arrangements by2002. Now, more than 50% expect to be doingso by 2004. In addition, 43% of corporatetravellers used electronic ticketing in 1999, a60% growth from 1997 levels.There is another point the industry needsto make, particularly to those who, in theabsence of Y2K problems, suggest the hundredsof millions of dollars spent on anti-bugmeasures represents money wasted.Maybe we shall never know what mighthave happened if the money had not beenspent, but the exercise has been invaluable.Perhaps for the first time in history it hasshown the global aviation industry and all itsvarious components can work together witha single goal.72 | Orient Aviation | February 2000