Changes in the air - Orient Aviation

PublisherWilson Press LtdGPO Box 11435 Hong KongTel: Editorial (852) 2893 3676Fax: Editorial (852) 2892 2846E-mail: orientav@netvigator.comWeb Site: www.orientaviation.comVOL. 10 NO. 3 DEC 02/JAN 03Chief Executive and Editor-in-ChiefBarry GrindrodE-mail: orientav@netvigator.comPublisherChristine McGeeE-mail: cmcgee@netvigator.comChief CorrespondentTom BallantyneTel: (612) 9638 6895Fax: (612) 9684 2776E-mail: tomball@ozemail.com.auChinaMelody SuTel: (852) 2893 3676E-mail: orientav@netvigator.comJapanDaniel BaronTel: (813) 3203 7106E-mail: dbaron@gol.comPhilippinesRene MallariTel: (632) 413 8726E-mail: renemallari@hotmail.comPhotographersPatrick Dunne (chief photographer),Rob Finlayson, Andrew Hunt, Hiro MuraiDesign & Productionü Design + ProductionColour SeparationsTwinstar Graphic Arts Co.PrintingHop Sze Printing Company LtdAdvertisingSouth East Asia and PacificTankayhui Media, Tan Kay HuiTel: (65) 9790 6090Fax: (65) 6280 2823E-mail: tkhmedia@singnet.com.sgThe Americas/CanadaBarnes Media AssociatesRay BarnesTel: (1) 434 927 5122Fax: (1) 434 927 5101E-mail: rvbarnes@cablenet-va.comEuropeREM InternationalStephane de RemusatTel: (33 5) 34 27 01 30Fax: (33 5) 34 27 01 31E-mail: sremusat@aol.comNew Media & Circulation ManagerLeona Wong Wing LamTel: (852) 2865 1013E-mail: leonawong@orientaviation.comAssociation of Asia Pacific AirlinesSecretariatSuite 9.01, 9/F,Kompleks Antarabangsa,Jalan Sultan Ismail,50250 Kuala Lumpur, Malaysia.Director General: Richard StirlandCommercial Director: Carlos ChuaTechnical Director: Leroy KeithTel: (603) 2145 5600Fax: (603) 2145 7500E-mail: ushav@aapa.org.myPublished 10 times a yearFebruary, March, April, May, June,July/August, September, October,November and December/January.© All rights reservedWilson Press Ltd, Hong Kong, 2002.The views expressed in this magazine are not necessarilythose of the Association of Asia Pacific Airlines.COVER STORYOrient AviationPersonality of the YearJAL CHIEF Page 26KANEKO:MAN OFDECISIONNewsCAAC cancels revenue pooling 8Virgin Blue to go international 8Singapore Airlines’ interim profit up six fold 12Malaysia Airlines slash losses 12Question mark over future of Zhuhai Air Show 14Narita Airport rules out early cuts in user charges 29Stability a key to Philippine Airlines’ survival 31Airlines to spend more on IT says SITA 36Main Story ... The 46th AAPA Assembly of PresidentsWorld beaters, only Europe’s low-cost operatorscan match Asia-Pacific carriers for profits 16Changes in the air 17A year of woe 20AAPA director general slams U.S. ‘threat’ 21Special featureBoeing, Rolls-Royce mark China milestones 32Regular featuresCover photo:Patrick DunneComment 5Perspective 6Inside Greater China 30Business Digest 37Photo: Kurita KakuDec 02/Jan 03, Orient Aviation

COMMENTTHE GREAT HOUDINISThe leading carriers of the Asia-Pacific have once againproved they are the great Houdinis of the airlineworld.According to the Association of Asia Pacific Airlines’2001-2002 annual report, published in November,its 17 member carriers suffered a net loss of US$720.5 millionin the year to March 31. Operating profit slumped 75% toUS$886.3 million.Those figures, of course, were largely the results of theglobal recession and the aftermath of September 11. But theyare now old news.In a quite remarkable recovery, the annual report said thatrecently announced profits of up to 12 carriers in the regionare unequalled anywhere in the world, except for Europe’slow-cost operators.What’s more, all AAPA members are expecting even betterresults to come in the second half of this year. “Revenue from allsources has increased, interest rates, fuel and other costs are undercontrol and forward bookings are strong,” said the report.These kind of words, unthinkable a year ago, must makeairlines in Europe and the U.S. positively green with envy.But, significantly, this is not the first time in recent yearsthat AAPA carriers have executed a great escape act. In 1997-98, as the Asian economic recession bit hard, the collectiveloss of AAPA members topped US$1.2 billion. Within twoyears the loss had turned into an astonishing collective profitof US$1.82billion.The lessons managements learnt during those months fiveyears ago proved invaluable in 2002 as airlines carefully clawedtheir way back from the worst year in aviation history. Executiveswere wiser and their airlines were leaner and meaner. When2001 did its worst, Asia’s airlines were better prepared than mostto cope. And, as the recent financial results have shown, theydid more than cope. They now lead the world recovery.However, there is no room for complacency. There is plentyto occupy the Asia-Pacific airline industry in the coming 12months, including costly security and insurance issues and, notleast, the threat of war in the Middle East.Also, there are aeropolitical and environmental pressuresto tackle. The campaign against the long running and vexingquestions of high airport and overflight charges will continue.AAPA director general, Richard Stirland, forcibly outlined hisviews on this long list of issues during the 46th Assembly ofPresidents in November, in Cebu.Let’s hope some seasonal Christmas cheer and goodwill toall men prevails.Orient Aviation wishes its readers a merry Christmas and ahappy and, hopefully, a peaceful 2003.BARRY GRINDRODChief Executive and Editor-in-ChiefThe Association of Asia Pacific Airlines members and contact list:Air New ZealandChief Executive, Mr Ralph NorrisGeneral Manager Group Communications,Mr David BeatsonTel: (64 9) 336 2770 Fax: (64 9) 336 2759All Nippon AirwaysPresident and CEO, Mr Yoji OhashiSenior VP, Public Relations, Mr Koji OhnoTel: (81 3) 5756 5675 Fax: (81 3) 5756 5679Asiana AirlinesPresident & Chief Executive,Mr Park Chan-bupManaging Director, PR,Mr Hong Lae KimTel: (822) 758 8161 Fax: (822) 758 8008Cathay Pacific AirwaysChief Executive Officer, Mr David TurnbullCorporate Communications GeneralManager, Mr Alan WongTel: (852) 2747 8868 Fax: (852) 2810 6563China AirlinesPresident, Mr Philip Hsing-Hsiung WeiVP, Corp Comms, Mr Roger HanTel: (8862) 2514 5750 Fax: (8862) 2514 5754DragonairChief Executive Officer, Mr Stanley HuiCorporate Communication Manager,Ms Laura CramptonTel: (852) 3193 3193 Fax: (852) 3193 3194EVA AirPresident, Ms Kitty YenDeputy Senior Vice President,Mr K. W. NiehTel: (8862) 8500 2585 Fax: (8862) 2501 7599Garuda IndonesiaPresident, Mr Indra SetiawanVP 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 AirChairman and CEO, Mr Yang Ho ChoManaging VP, Corporate Communications,Mr Jun Jip ChoiTel: (822) 656 7065 Fax: (822) 656 7288/89Malaysia AirlinesChairman, Tan Sri Azizan Zainul AbidinTel: (603) 2165 5154 Fax: (603) 2163 3178Philippine AirlinesPresident, Mr Avelino ZapantaVP Corporate Communications,Mr Rolando EstabilioTel: (632) 817 1234 Fax: (632) 817 8689Qantas AirwaysManaging Director and CEO,Mr Geoff DixonGroup General Manager Public Affairs,Mr Michael SharpTel: (612) 9691 3760 Fax: (612) 9691 4187Royal Brunei AirlinesChairman, Pehin Dato Haji YahyaChief Executive, Mr Peter FosterTel: (673 2) 229 799 Fax: (673 2) 221 230Singapore AirlinesDeputy Chairman and CEO,Dr Cheong Choong KongVP Public Affairs, Mr Rick ClementsTel: (65) 6541 5880 Fax: (65) 6545 6083Thai Airways InternationalPresident, Mr Kanok AbhiradeeDirector, PR,Mrs Sunathee IsvarphornchaiTel: (662) 513 3364 Fax: (662) 545 3891Vietnam AirlinesPresident and CEO,Mr Nguyen Xuan HienDep Director, Corp Affairs,Mr Nguyen Huy HieuTel: (84-4) 873 0928 Fax: (84-4) 827 2291Dec 02/Jan 03, Orient Aviation

DIARYPERSPECTIVE 2002CHRISTINE MCGEE looks at the chief executives who have madethe news in 2002 for the right, or sometimes the wrong, reasonsAs the industry willed itselfthrough the mostdamaging cycle in itshistory, its boardrooms’ ‘revolving’doors were keptbusy at the region’s airlines assome bosses did not survivethe turmoil.First to go in 2002 was theglamorous Christine Tsung,whose short reign as headof Taiwan’s China Airlines(CAL) cameto an abrupth a l t w h e nshe was invitedto joinher nation’sCabinet ase c o n o m i cminister. Shem a y h a v ewished shehad stayed atCAL after shewas forced toChina AirlinespresidentChristine Tsung– OUTresign her Cabinet from post six weeks later,following damning attackson her alleged competencefrom several economists andpolitical commentators. Hersuccessor, the more retiringcompany man, Philip WeiHsing-Hsiung, had barelysettled into the job when aCAL aircraft crashed in Maykilling all 225 passengers andcrew.Not to be outdone, EVAAir, Taiwan’s second internationalcarrier, also appointedEVA Air presidentKittyYen Ruoh-chi– INa woman tothe top jobat the beginningof 2002.Kitty YenRuoh-chi, acareer EVAAir employee,was unexpectedlysummonedto the chairman’sofficeof EVA’s par-ent company, the EvergreenGroup, and within a few minutesof sitting down, chairmanY. F. Chang, invitedher to run EVA. “I never sayno, “ she told Orient Aviation.She is still there, unlikeformer Ansett flight attendant,James Hogan. In January,two Melbourne tycoons,Solomon Lew and LindsayFox, planned to resurrectAnsett and hired Hogan astheir Ansett chief executive.But the deal collapsed severalweeks later and Hoganis now running Gulf Air inthe Middle East. The wheelsturned more slowly at ThaiAirways International(THAI) where the airlineboard took six months to finda permanent successor toThamnoon Wanglee. For thefirst time the selection processtook on some transparency,which eventually resulted inthe March appointment of anairline outsider, leading Thaibusinessman and academic,Kanok Abhirodee, aspresident of THAI, a decisionpersonally sanctioned by theThai prime minister, ThaksinShinawatra. Kanok’s leadershiproad has been rockyas foes on the airline boardjockey for areturn of theirformer influenceat THAI.At press time,he was still incharge. AirNew Zealand(AirNZ)also had itsdifficulties,following itsserious flir-THAI presidentKanok Abhirodee– INmand.In Indonesia, anotherbanker, Abdulgani, relinquishedhis role “for the golfcourse”, but his departure wasnot without controversy. Abdulganihad a preferred successor,who was not chosen.Another contender for the position,Samudera Sukardi,lost out in a case of reversenepotism. Finance ministerfor state enterprises, LaksamanaSukardi, refused totation with bankruptcy in late2001 and the New Zealandgovernment’s US$415 millionpurchase of a majority of itsshares. But the sure hand ofnew chairman, John Palmer,and the appointment of bankerJohn Norris as AirNZ chiefexecutive is bringing results.The airline introduced cheapfares on domestic routes andre-focused its internationalservices to suit current deappointhiswell qualifiedbrother forthe job out offears of beingaccusedof favouritism.Now theflag carrieris being runby a neutralc a n d i d a t e ,Garuda andMerpati “lifer”,Air New Zealandchairman,JohnPalmer – IN52-year-old Indra Setia-wan.Government owned domesticcarrier, Merpati Indonesia,also has a new boss, presidentHotasi Nababan. His predecessor,Wahyu Hidayat, ispresident of the IndonesianAir Carriers Association.By mid-year, Air Nuiginichief executive, Peter Roberts,and his ultimate boss,the New Guinea government,parted ways as the strugglingcarrier turned in anotherdismal annual balance sheet.In China, the succession offormer China SouthernAirlines pilot, Capt. YuanYuan, as head of the CivilAviation Administrationof China (CAAC), was announcedwithout fanfare afew days before the InternationalAir Transport Association(IATA) held its annualgeneral meeting in June,this time in Shanghai. At theAGM, director general PierreJeanniot formally retired andhis successor, Giovanni Bisnig-nani,was introduced tohis industrycolleagues.Since then,Bisnig-nanihas said hewill be payinga lot ofattention toaddressingthe concernsof I A T A ’ sAsia-Pacificmembership,most particu-larly airport user fees and ATCand over-flight charges. In theregion, Andrew Drysdale,who most recently ran regionalAustralian carrier,Hazelton Airlines, is thenew IATA Asia-Pacific director,based in Singapore.During the year, a Malaysianentrepreneur wascommanding attention as hisMalaysian domestic airline,AirAsia, appeared to bepaying its way. Likeable TonyFernandes is running Asia’sfirst no-frills carrier and hassaid he is considering expandingto targeted regionaldestinations. Within days ofthis claim, Denis Adams,AustralianAirlines chiefexecutive DenisAdams – INGaruda presidentIndraSetia-wan– INa long timeQantas Airwaysseniore x e c u t i v e ,had launchedQantas’ fullservice regionalleisureairline,AustralianAirlines outo f C a i r n s .For P e t e rFoster, whomade headlines when he leadan ex-Cathay team that brieflymanaged Philippine Airlines,Asia is once againhome, after stints in Europeand the Middle East. In August,Royal Brunei Airlines(RBA) broke with its traditionof seconding civil servants torun RBI and made Foster itschief executive. Orient Aviation, Dec 02/Jan 03

newsREGIONAL ROUND-UPCAAC scrapsrevenue poolingas deregulationdrive continuesChina’s airlines may haveread it first in the media,but there is no denyingthat regulator, the CivilAviation Administrationof China (CAAC), has calleda halt to a revenue poolingarrangement which was introducedin 2000 to try andcontrol rampant ticket discountingon domestic routes.The news first appearedin the Beijing Business Todaynewspaper, but the airlines,on hearing of the move, saidthe decision was inevitableas China’s airline industryrestructures and distancesitself from its former Beijingmaster.In November, the StateCouncil sanctioned the consolidationof the nine CAACairlines into three groups ledby Air China, China Southernand China Eastern.The CAAC now acts solely asregulator.The revenue pooling arrangementhelped control airfareson about 150 key routesthat made up about 60% ofmainland air traffic, accordingto the Mainland media.The cash pool was controlledby the CAAC, whichre-distributed the money tothe carriers via a complexformula.Now the CAAC is outof the loop and the poolingarrangement has been cancelled,it will allow carriers tobetter manage their networksin the months ahead, oncethey are permitted to freelyset their own airfares.The South China MorningPost reported in Novemberthe CAAC was studying aproposal to allow airlines toset their own fares withina 40% band as a prelude tocompletely deregulating fareswithin a year.The consolidation of China’sairlines also will meanless competition on the keyroutes.Cathay Pacific Airways took delivery from the manufacturerof the first of three Airbus A340-600s on November 30.Cathay plans speedy expansionCathay Pacific Airways (CX), which announced a26.5% increase in passengers for October comparedto the same month last year, said it will “rapidlyincrease capacity in the next 18 months”. The airline tookdelivery of the first of three ultra-long-range A340-600s inNovember and will accept two more by January. It will alsoadd A330 and B777 extended-range airliners to its fleet in2003. In November, Cathay’s chief executive, David Turnbull,said the airline would begin non-stop service fromHong Kong to New York, possibly as soon as April 2003.Earlier in the month, the carrier’s director of corporatedevelopment, Tony Tyler, said the new airplanes will beused “to thicken” the Asian network and add more flights toLondon, Australia and Johannesburg, South Africa.Virgin Blue togo public and internationalSir Richard Branson,founder and 50% owner ofAustralian domestic no-frillscarrier, Virgin Blue, plans tolist the airline in 2003 followinga settlement with SydneyAirport in November overaccess to gates at the formerAnsett Australia terminal.Sir Richard said legal actionagainst the airport companywould be withdrawn nowthat Virgin Blue had beengiven access to six gates immediatelyand another six ata later date. He added theairline had 18 internationaldestinations in its sights, butwould initially consider flyingto six of them. Independently,Virgin Atlantic Airwayshas applied to fly from HongKong to “one or two majorAustralian cities” next year,said Branson.Manila’sTerminal 3still in limboAt press time, the PhilippineGovernment was threateningto assume control ofthe troubled, privately-ownednew international terminalthree at Ninoy Aquino InternationalAirport, toensure it will open as scheduledin December. However,Philippine Airlines (PAL)president, Avelino Zapanta,told Orient Aviation that “noone had signed up to moveinto the new terminal 3” andthat included PAL.Meanwhile, Germany’sFraport AG, which holds30% in the international terminaland has invested US$378.8million in the project, said itstill wants the Philippine Governmentto buy back the facilityfrom all international andlocal shareholders and allowFraport to run the complex ona management contract.Several matters remainunresolved. Fraport partner,Philippine InternationalAir Terminals Co. Inc.(PIATCO), is accused of alteringthe contract after it wassigned by the former PhilippineGovernment. Investorsand the national governmentare considering declaring thecontract void in an attemptto resolve ownership andcontrol of the terminal.AirNZ no-frillsservice a successAir New Zealand (Air-NZ), now in the throes of anetwork-wide restructuring,launched its low-cost domesticExpress Class servicein November and saw mostof the cheapest fares on thenetwork sell out immediately.Average fares across the domesticservices have been cutby an average of 20%, butsome flights have tickets availablefor less than 60% of theirformer prices. Business classseats on the carrier’s domesticB737-300 fleet have beenremoved to increase seats forExpress class travellers andfull service inflight meals havebeen replaced with a snackservice. About 40% of bookingshave been made online,AirNZ said.Boeing launchesChina outlookChina’s domestic aviationmarket will grow by 9% peryear in the next two decades,a figure that will require newaircraft purchases valued atUS$165 billion, Boeing CommercialAirplane Companysaid in its 2002 China CurrentMarket Outlook.The forecast, presentedat the fourth Zhuhai InternationalAir Show inNovember by Boeing vicepresident,marketing, RandyBaseler, said mainland China’soverall aviation marketwas expanding at 7.9% annu- Orient Aviation, Dec 02/Jan 03

ally and would require 1,900new airplanes in the next 20years. Single-aisle aircraftwould provide 77% of totalnew airplane sales, Boeingbelieved. Baseler said the fastestgrowing regional marketwould be between China andJapan (7.1% per annum to2020), China to the U.S. (6.1%growth to 2020) and Chinato Europe (5.4% per year to2020). “Passengers are askingfor comfortable, low fare, convenient,non-stop flights withfrequency options,” he said.CAL makescrash settlementAfter mediation in theJapanese courts, 106 relativesof 38 of the 264 victims of aChina Airlines (CAL) crashnear Nagoya in 1994 have acceptedan undisclosed offerfrom the Taiwanese carrier.The families had demanded4.1 billion yen (US$33 million)from CAL, but are believed tohave accepted an offer of 16.4million yen per crash victimplus a further payment.starting a twice-weekly serviceto Shanghai. Launched inNovember, the carrier hopesthe flights will offset some ofthe decline on its other routes,particularly to Australia andEurope.“China is a lucrative marketand given Shanghai’srise as an economic centre,I am confident the numberof passengers will grow,”said Garuda vice-presidentmarketing and development,Irman Imawan.According to the CivilAviation Administrationof China (CAAC), around300,000 people fly from Chinato Indonesia every year.Shanghai is Garuda’s thirddestination in China. It alsoflies three times a week toTaiwan will operate direct airlinks between Taipei and Moscowfrom next April althoughthe two countries do not haveformal diplomatic relations,the United Daily News reportedin Taiwan in November.Initially China Airlinesand Transaero Airlines willeach offer two flights a week,once the formal agreement tooperate the services is signedin December.AIRPORTS . . . Four ofthe five airports to show increasesin traffic for July 2002are in the Asia-Pacific region,reports Airports CouncilInternational (ACI), withShanghai’s Pudong Airportreported as the fastest-growingairport worldwide. Thefees of US$1,000 per day,the prospectus for the initialpublic offering of the airportrevealed. The Danish airportoperator has agreed to takeup 45% of the IPO. Traffic atHong Kong InternationalAirport recovered to betterthan pre-9/11 levels, theoperators have announced.Passenger throughput increasedby 17.9% comparedto a year ago and freighttraffic increased by 26.4%over the same period in 2001.Shenzhen Airport, just overthe northern border of HongKong, will invest US$3.62billion to add a second runwayand a third passengerterminal to its facilities, theairport authority announcedin November.AVIC II to listin Hong KongChina Aviation IndustryCorp II (AVIC II) willcombine four of its companiesinto a single entity by year endwith the intention of listing thenew company on the HongKong Stock Exchange, saidAVIC II vice-president, LiangZhenhe. The defence, civilaviation and auto conglomeratewill combine HaifeiAviation Industry, HarbinDongan Auto Engines,Hongdu Aviation Industryand Jiangxi Chang-heAutomobile for the HongKong share sale debut. HaifeiAviation has formed a jointventure to produce 30-50seat jet aircraft with Brazilianmanufacturer Embraer.AVIC II intends to produceup to eight new civil aircrafttypes by 2007, including steppingup its helicopter manufacturing.Garuda launchesShanghai operationAs it adjusts its operationsfollowing the October Balibombings, Indonesian flagcarrier, Garuda Indonesia,has refused to allow the dropin passengers to deter it fromGaruda Indonesia: has launched a third China destinationGuangzhou and daily to HongKong.Garuda has adjusted itsroute network in response toevents in Bali, reducing flightsto Australia, the United Kingdom,Japan and South Koreaand halting services to Frankfurt,Fukuoka and Adelaide. Itis understood the measureswill be in place until at leastMarch, although Garuda willmonitor the situation.The Bali attacks have alsopostponed the launch of Bali’sfirst international airline, AirParadise International.The company said it wouldnow inaugurate its servicesto Perth in Western Australiain February next year. Theairline intended to start flyingon October 27, 13 days afterthe bomb attacks that killed190 civilians and maimedmany others, mainly westerntourists.BRIEFLY...AIR SERVICES AGREE-MENTS (ASA): Russia andtop five airports mid-yearwere: Tokyo Narita (up 7%),Hong Kong and Beijing (up5%), Tokyo Haneda (up 2%)and Amsterdam Schiphol (up1%). Macau’s internationalairport recorded its highestnumber of airport movementsfor the year in October, aresult of the Chinese nationalday holidays at the beginningof the month and a surge inair freight business. Passengervolume rose 13.9% comparedto October 2001 andfreight climbed 33.7% overthe same period a year ago.Beijing Capital Airportsaid it would raise airline userfees by up to 290% followingchanges in the structures offees formalised by the CivilAviation Administrationof China (CAAC) earlierthis year. The airport earnsthe bulk of its income fromaeronautical charges. MainlandChina’s Hainan MelianAirport will pay its consultantsand partners, CopenhagenAirport, consultancyCARGO . . . Hong KongbasedDragonair has addeda third freighter, a recentlyconvertedB747-300, to itsdedicated fleet to increaseservices on its Asia-Europeand China routes. The airlinehas seen cargo business increaseby more than 60% todate this year. The big foursmall-pack and package courierservices, DHL, FederalExpress (FedEx), TPG NVand United Parcel Services(UPS), have reached acompromise agreement intheir dispute with mainlandrival China Post. The globalcourier services have agreedto a new licence system thattechnically could allow ChinaPost to restrict growth of theirbusinesses.However the companiessaid they have been assuredby the relevant Chinese authoritiesthat the new ruleswill not stymie their operations.China Post’s Express MailService presently holds about athird of the increasing courierDec 02/Jan 03, Orient Aviation

newsbusiness in China.REGIONAL JETS ...Bombardier Aerospacedelivered the fifth aircraft inan order of six CRJ200 regionaljets to Yunnan Airlines inKunming.ENGINES . . . InternationalAero Engines(IAE) has won a US$100million contract to supply itsV2500 engines for Air China’seight new Airbus A319aircraft. The Beijing carrieris a new customer for IAE’sconsortium partners, Rolls-Royce Engines, Pratt &Whitney, Japanese AeroEngines Corporation andMTU Aero Engines.FLEETS . . . Air NewZealand has ordered an ATR72-500 66-seat aircraft, anacquisition that will bring theAuckland-based carrier’s fleetof the European prop planesto 10. The airliner will be deliveredin January next yearto Mount Cook Airlines,a fully-owned subsidiary ofAir New Zealand. ThaiAirways International’s(THAI) board has approvedthe purchase of two B747 aircraft.Earlier this year THAIagreed the company wouldbuy two long-range aircraftand one mid-size airplane.After 12 months of negotiationsAirbus Industrie andVietnam Airlines (VN) haveconverted the carrier’s commitmentto buy its first Airbusplanes to a firm order for fiveA321s. The jets will be deliveredfrom 2003 to 2005 andwill join the carrier’s fleet often A320 and two A321 leasedairplanes. Australian domesticcarrier, Virgin Blue, isconsidering the purchase ofup to 20 new aircraft to add toits fleet now it has concludeda deal with Sydney Airportfor six gates at the formerAnsett domestic terminal.HELICOPTERS: AnS-300C and two S-300Cbihelicopters, produced at theSikorsky/Shanghai LittleEagle Science and TechnologyCo. joint venturecompany, have been deliveredto the Xinjin division of theChina Civil Aviation FlyingCollege in Sichuan. GuangdongBaiyun GeneralAviation Co. Ltd accepteddelivery of two S-300Cbihelicopters, planned for flighttraining in September.INFORMATION TECH-NOLOGY . . . Mercator hassold its frequent flyer andmarketing IT package, CRIS,to Philippine Airlines, thefirst Asia-Pacific customer forthe Dubai-based company’ssystem.LEASING . . . SingaporeAircraft Leasing Enterprise(S.A.L.E) and LaudaItalia have signed leaseson 10-year terms for twoIAE V2500 powered A321s,scheduled for delivery to theMediterranean carrier beforeSIAEC chief executive, WilliamTan: interim profitmid-2003.MROS . . . SIA EngineeringCompany Ltdrecorded an interim profitof S$101.3 million (US$57million) to September 30 thisyear, a 3.9% increase over thesame period in 2001. Companychief executive, WilliamTan, said MROs must continueto satisfy airline demandsfor cheaper maintenance andfaster turnaround times. Afew weeks earlier, the Singapore-listedcompany said ithad ended talks to buy LockheedMartin’s 25% equityin Guangzhou-based MRO,GAMECO. An SIA Engineeringspokesman told FlightInternational that “consent ofone GAMECO shareholderhas not been secured”, andthe conditional agreementwith Lockheed Martin hasbeen terminated.SR Technics has beenbought by 3i, an investmentcompany, and the managementof the Swiss-headquarteredglobal MRO. The purchaserspaid US$424 millionto the SAir Group in a dealthat will give the former SRTechnics management 12%of the new company. Theremaining 88% equity will beheld by 3i and its partners.Hans Beyeler will remain incharge of the company whilethe new chairman will beFrank Turner, an engineerby profession.SR Technics chief, Hans Beyeler:remains in chargeROUTES ... Month-old,full-service leisure carrierand wholly owned QantasAirways subsidiary, AustralianAirlines, launchedits Cairns-Hong Kong routeon November 22. Air NewZealand has upgraded capacityon several routes sinceNovember including: doubledaily services to Los Angelesfrom Auckland; an extraservice to Sydney (now fivetimes daily), increases todaily services on the Aucklandto Tokyo, Osaka, HongKong and Singapore routes;additional flights to Aucklandfrom Honolulu and toNagoya; flights on to Air NewZealand from Nadi to LosAngeles, Papeete to Los Angeles,Raratonga to Papeeteand Sydney to Los Angeles.Cathay Pacific will launchits direct service to NewYork in a few months nowthat it has taken delivery ofits first A340-600. The HongKong-New York route, whichtraverses the North Pole, requiresa long-range airplanefor the service. The first ofCathay Pacific’s A340-600swas delivered on November30. Taiwan’s China Airlines(CAL) has added anotherservice on the “golden route”between Hong Kong andTaipei as competition for passengersintensifies followingthe entry of Dragonair andthe granting of more servicesto CAL rival, EVA Air. KoreanAir (KE) and VietnamAirlines have signed a jointservices deal to develop andexpand existing code-shareagreements for cargo andpassenger services. Serviceson the Incheon-Ho Chi MinhCity route have increasedfrom six to eight and fromfive to seven from Incheonto Hanoi and return. EmiratesAirline intends to addfour routes to its networkand increase frequencies on17 existing services in 2003,adding capacity of 26% to theairline. New routes are Dubaito Cochin (2002) and Dubai toLagos, Moscow and Shanghai(2003). In 2003, double dailyservices will be introducedto Manchester, Bangkok, Munichand Muscat, services toSydney will increase to dailyand to Hong Kong from 10to 13. There will also be newservices each week to severalMiddle Eastern cities, Istanbul,Paris and Malta. ThaiAirways Internationalnow operates a code sharewith domestic Thai carrierPhuket Air on four routes– Bangkok-Ranong, Bangkok-Mandalay, Chiang Mai-Baganand Ranong-Phuket.TRAINING . . . In aUS$29.8 million investment,Canada’s CAE Inc. hassigned up with China SouthernAirlines to establish ajoint venture flight simulatortraining school, the ZhuhaiXiang Yi Aviation TechnologyCo., in Guangdong. Thecompany is targeting Asianairline customers. Joint venturepartners BombardierAerospace and ShandongAirlines will use the carrier’sfacilities to train its pilots to flytheir newly-acquired CRJ 200regional jets. Qingdao FeiSheng Training Centre hasbeen operating for 18 monthsand is certified for training byCAAC.10 Orient Aviation, Dec 02/Jan 03

newsBUSINESS ROUND-UPSIA’s firsthalf profitleaps six foldSIA Group’s first half2002-03 profit surgedalmost six fold from ayear earlier, to S$773.5 million(US$434.6 million), beatinganalysts’ expectations of aS$422.3 million result. SIAsaid the encouraging resultswere assisted by a tax writebackof S$278 million and improvedcargo operations.An SIA statement saidwithout the tax write-back,a result of a cut in the corporatetax rate from 24.5%to 22%, profit attributed toshareholders would have beenS$499 million, an increase of269.8% over the same periodin 2001.SIA deputy chairman andchief executive, Dr CheongChoong Kong, said revenuerose 10.8% to S$510million and passengers carriedincreased 1.8% to 7.78million. He said travellerswere price conscious in thepresent depressed economicenvironment and they wereopting for economy ratherthan premium seats when theyflew. As a result, yield declined1.1 %, to S$0.9 per passengerkilometre. Combined yieldfor passengers and cargodropped by 4.9%.“It was cargo that madethe difference,” said the SIACEO, who added the divisionhad turned around from a lossa year ago.The group also enjoyedincreased income from its associatedcompanies (up S$76million), its joint venture,Eagle Services Asia, andfrom its 49% equity in VirginAtlantic Airways (up 366%to S$87.6 million).SIA’s ill-fated investmentin Air New Zealand, inwhich the Singapore carrierhad held a 25% stake, produceda loss of S$267 million.SIA’s holding in the re-structuredNew Zealand carrier isnow 4%. The SIA Group statementsaid the combined factorsof political volatility in theSingapore Airlines: exceeded analysts’ expectationsMiddle East, high fuel prices,increased competition in thecargo sector and the effectof terror attacks, along withgrowing uncertainty aboutthe global economy meant thesecond half of the year wouldbe more uncertain.Re-structurehelps MASslash lossesMalaysia Airlines’(MAS) managing director,Mohamad Nor Yusof, reportedin November that thecarrier had cut its losses byalmost 700%, to M$79.68 million(US$20.7 million), for thefirst six months of the year.This compared with a loss ofM$557.6 million for the sameperiod in 2001. Md. Nor saidMAS’s performance improvedin the September quarteras the new measures, introducedto save the carrier frombankruptcy, began takingeffect. Earlier in the month,MAS minority shareholdersapproved the carrier’s debtrestructuring, a plan that allowsMAS to transfer most ofits airline and property assets,plus responsibility for operationsof its domestic routes,to newly created governmentcompanies.Md Nor said he expectedMAS to meet its target of aM$94.2 million profit for theyear to March 2003. In thelatest six-month period, theairline recorded pre-tax lossesof M$79.7 million, MAS cateringposted a M$34.3 millionloss while cargo added profitsof M$21.12 million to there-arranged balance sheet.Cost-cutting and lower fueland finance charges assistedin the improved result.Sharp upswingin KAL earningsKorean Air (KAL), Korea’slargest internationalcarrier, put the effects of‘9/11’ well behind it when itannounced a profit of 86.5billion won (US$70.6 million)for its third quarter, comparedto a loss of 103 billion won 12months ago.The carrier’s revenue forthe first nine months of theyear was 4.61 trillion wonand international airline seatsand cargo contributed 2.26trillion won to that result. AKAL spokesman told the AsianWall Street Journal traffic andyields had increased steadily,with revenue per passengerkilometre up by 7.8%. “Thisis the high season for airlinesand that is the main reason forour revenue picture, but wehave also improved yield byre-allocating our route structure,”the spokesman said. Afall-off in fuel prices and animproving won contributedto the strong result, airlineanalysts said.JAL revises downfull year profitJapan Airlines Group,which recently merged withJapan Air System (JAS),reported in November thatits net profit for the first sixmonths of its fiscal year hadincreased by 105.4%, to 33.7billion yen (US$279.5 million).The airline group said healthycargo earnings plus lowerfuel costs contributed to theresult. However, the groupalso said operating profitfell 27% in the same period,mainly because bookings onJapan-U.S. routes had notreturned to pre-9/11 levels.The newly merged holdingcompany revised down its fullyear profit forecast by 20%, to24 billion yen.PAL backin profitPhilippine Airlines(PAL), a flag carrier thatdoes daily battle in a countryburdened with both a terror-Hainan Airlines: recorded a profit of more than US$13 million inthe first nine months of 200212 Orient Aviation, Dec 02/Jan 03

ist presence and a strugglingeconomy, reported a net profitof 946 million pesos (US$17.9million) in the first six monthsof its fiscal year, comparedto a US$3.5 million loss 12months ago.PAL president, AvelinoZapanta, said the airlinehoped to reach its full yearprofit target of one billionpesos, a projected turnaroundfrom losses of 1.5 billion pesosa year ago. PAL, underthe stewardship of Zapanta,was headed towards its thirdconsecutive year of profits in2001, but went off track afterthe ‘9/11’ terror attacks. Thesetback required the adjustmentof PAL’s 10-year schedulefor repayment of its $2.4billion debt. PAL said it paidback $245 million on its loansin 2001 and will pay downanother $230 million in interestand principle this year. TheManila-based carrier is largelyprivatised, principally ownedby a Philippines billionaire,Lucio Tan. The PhilippinesGovernment has 4% equity inthe airline.Mixed resultson the MainlandMainland China’s islandbasedcarrier, Hainan Airlines,reported third quarterprofits of 54.6 million yuan(US$6.6 million) for its currentfiscal year. The result pushedthe carrier’s profit up to 111.4million yuan for the year todate, an increase of 15% overthe same period last year. Internationalinvestor, GeorgeSoros, through his company,American Aviation, owns14.8% of Hainan.Recently, the ChineseGovernment lifted a ban thatprevented foreign investorssuch as American Aviationselling its shares in the MainlandChinese carrier. At presstime, Hainan Airlines’ chairman,Chen Feng, said in theSouth China Morning Postthat U.S. strategic investorswho specialise in aviationinvestments were interestedin Chinese airlines becausethey have good long-termgrowth prospects. “If all goessmoothly, I think you will seea major development nextyear,” he said in the HongKong newspaper report.However, eastern ChinaTaiwan’s China Airlines (CAL) president, Philip Wei Hsing-hsiung,announced in November that the carrier had met and surpassedits full year profit target of NT$2.2 billion (US$63.32 million) inOctober. He attributed the peak result to increased demand inregional travel.based Shandong Airlinesrevealed its profits declinedby 80%, to 12.7 million yuan,in the first nine months ofthe year as a result of highertaxes and new loans for aircraftpurchases. Shandong,which recently bought severalBombardier CRJ aircraft,said year-end earnings wereexpected to decline by morethan 50%, from the 69.6 million-yuanresult of the lastfiscal year.In the first half of this yearthe carrier recorded net incomeof 11.8 million yuan. Netincome in the third quarterwas 913,900 yuan.High flyingEmiratesDubai-based EmiratesAirline recorded a profit ofDhs 404.2 million (US$110million) for the six months toSeptember 30, an increase of140%, or Dhs 168.2 million, onthe same period in 2001. Emirateschairman, His HighnessSheikh Ahmed bin SaeedAl-Maktoun, said despite an18% capacity increase, loadfactor rose 4% to 78% comparedto the first half of 2001.Cargo income jumped by 38%in the same period.Record showingby SriLankanSouth Asian operator Sri-Lankan Airlines recordedresults among the best in its23-year history in July andAugust (latest figures available).The carrier’s head ofcommercial, G. T. Jeyaseelan,said targets were eitherachieved or surpassed inpassenger load factors, passengernumbers and revenue.“All our planning, risk takingand hard work is yieldingdividends,” he said.Significantly, for the firsttime in many years, profitswere earned purely as an air-line, as opposed to the group.Load factors in August were85.5%, among the highestever achieved by the airline(March 2002 – 86.03% – wasthe highest).Jeyaseelan said virtuallyevery destination contributedto the profit, from the MiddleEast to the Far East, Indiansub continent and Europe.“This proves beyond doubtthat our rationalisation ofroutes late last year, wherewe took a calculated decisionto suspend less profitableroutes and increase frequencieson more profitable oneswas the correct decision at atime when the global aviationindustry was tottering.While the entire airlinehas been working together toimprove its performance, bolddecisions such as restructuringand moving the revenueoptimisation department toDubai to work closely withSriLankan’s strategic partnerEmirates paid rich dividends.It enabled us to ensure thatevery seat on every flight gaveus the maximum yield.”Dec 02/Jan 03, Orient Aviation 13

show newsEdited byChristine McGeeFollowing the poorest attendancein the life of the Zhuhai Air Showin November, speculation continuesin the industry that theshow will peter out due to lackof global interest.Show organisers, speaking to theChina Daily, however, quashed suchsentiment – despite the cancellation ofthe aerobatics show this year – and saidthere will be a fifth Zhuhai show in November2004.One global trade show company isinterested in acquiring the licence to operatethe conference and exhibition witha view to transferring it to a larger andmore accessible city in China.Unofficial attendance figures optimisticallyclaimed there were 200,000 visitorsto the show on its public days and about20,000-30,000 professional and mediaattendees on the trade days.Major announcements made at theshow were:AIRBUS: The European aircraftmanufacturer said three units of AVIC I– Shenyang Aircraft, Xian Aircraft andChengdu Aircraft – are to supply partsvalued at US$169 million to Airbus forinstallation on its A320 airplanes. TheShenyang and Xian AVIC I units willprovide leading edge and trailing edgecomponents for the A320 and Chengduwill supply floor grids for the aircraft.AVIC I executive vice-president YangYuzhong said his company might alsowrite a contract to supply parts for Airbus’new airliner, the A380. Separately,Airbus announced the Jiling Shipyardin Nanjing would build a transport shipto bring A380 components to France forfinal assembly.EMBRAER & AVIC II: Partners inthe joint venture 30-50 seat commuterjet will deliver its first jets by the end of2003, in a schedule aimed at producing24 aircraft a year from the Harbin factoryof the partners, Embraer of Brazil andMainland China’s AVIC II.AVIC I: Displayed its mock-up of the72-79 seat ARJ21 regional jet aircraft thatit is developing following the decision inJune by the Mainland’s State Developmentand Planning Commission to investUS$602 million in the project. Assistantpresident of AVIC I, Tang Xiaoping, saidARJ21 would complement the developmentof the smaller Embraer/AVIC II jetin meeting regional jet market demand.The first ARJ21s are expected off the Xianfactory production line in 2006 and to beflying by 2007. Xiaoping said he expectedthe domestic market to take about halfof the 300 airplanes the company willproduce by 2026. He had hopes for salesof 140 of the airplanes to Asia, Africaand Europe.Organisers denyZhuhai show isto be groundedPictured left to right: Bombardier Business Aircraft president, Peter Edwards, withthe chairman of Poly Technologies, Shan Yihe, senior advisor at China Ocean AviationCorp., Li Changjiang and executive vice-president Poly Technologies, Chen Hongshen,celebrate the delivery of a Bombardier Challenger 800 to China Ocean Aviation Groupat the fourth annual Zhuhai International Air Show. The 34-seat aircraft will be used bysenior Chinese government officialsGE AIRCRAFT ENGINES: Signeda Letter of Intent with AVIC I aviationcompany to provide GE’s CF34-10Aengine for China’s proposed regionaljet, the ARJ21 and reportedly discussedthe possibility of assembling the enginein China. A GE spokesman said thedeal would be worth US$3 billion over20 years. GE Aircraft Engines has longhad a presence in China and currentlybuys engine parts from AVIC I valuedat an average of US$20 million a year, afigure predicted to rise to US$400 millionby 2005. China estimates it will require300-500 regional jets over the next twodecades. GE will open a corporate andresearch development centre in Shanghainext year.MTU Aero Engines: The Germanand Chinese funded joint venture formallyunveiled its multi-million dollaraero engine maintenance facility, basedin Zhuhai, on November 5. Equal partners,China Southern Airlines and MTUAero Engines of Germany, have investedUS$189 million in the 156,000 sq. metrecomplex in the southern China SpecialEconomic Zone. Positioned to servicethe airlines of the Pearl River Delta, MTUZhuhai will initially provide maintenance,repair and overhaul of up to 150 IAEV2500 and CFM56 series engines a year.The facility can service engines up to150,000 pounds thrust. It will test its firstengine in early 2003 at its US$13 milliontesting cell, built by U.S. engine giant,Pratt & Whitney. MTU Zhuhai plans toexpand engine MRO capacity to 300engines per year, starting with modulesplit and fan repair work.ROLLS-ROYCE: Won businessworth US$30 million as its share of anorder to supply V2500 engines to flagcarrier Air China, the manufacturer announcedon November 4. The engines willbe used to power Air China’s eight A319s.Rolls-Royce is a senior shareholder inInternational Aero Engines (IAE) consortiumwhich produces the engines.Eight aviation vendors – Eaton Aerospace,Hamilton Sundstrand, Honeywell,Northrop Grumman, Parker Aerospace,Goodrich, Satair and TPA – signed contractsto supply Airbus customers inChina and the Asia Pacific, via its CASC/Airbus Customer Support Centre, withparts, avionics repair, customer liaisonand training. There are already 20 companiesin partnership with Airbus at thecentre, including Avio-Diepen, MessierServices, Thales Avionics, Smiths Industriesand B/E Aerospace.14 Orient Aviation, Dec 02/Jan 03

AAPA Assembly of presidentsWorldbeatersOne year on from the worst year in aviation history, onlyEurope’s low-cost carriers can match AAPA carriers’ profitsBARRY GRINDROD andTOM BALLANTYNE reporton the 46th AAPA Assemblyof Presidents in CebuAsia’s airlines are back in thebig time with recently announcedprofits unequalledanywhere in the world exceptfor Europe’s low-cost carriers,according to the Association ofAsia Pacific Airlines (AAPA) 2002 annualreport.In November, AAPA director generalRichard Stirland told the association’s As-sembly of Presidents, in Cebu,that in recent months a dozenAAPA carriers (it has 17 members)had announced financialresults with either renewed orsharply increased profits.“Moreover, all carriers announcingtheir results havestated that they expect the secondhalf of this year to be betterwhile some, such as EVA Airand China Airlines, have revisedtheir profits forecasts upwardsby as much as 30%,” he said.According to the annual report:“Revenue from all sourceshas increased, interest rates,fuel and other costs are undercontrol and forward bookingsare strong.”This is in stark contrast toairlines in the U.S. and Europe, whichare still making heavy losses.The recent figures also compare remarkablywell with the AAPA’s 2001-2002financial year, which ended March 31,in which members suffered a net loss ofUS$720.5 million, their first loss since theAsian economic crisis of 1997-1998, andsaw their operating profit slump almost75% to US$886.3 million (see page 20).Just 16 months after the tumultuousevents of September 11, carriers in theAsia-Pacific are carrying twice the numberof international passengers than theirAmerican counterparts. What’s more, Asiais adding more capacity than last year,something no other region is doing.Asia’s recovery is nothing short ofremarkable, particularly when 2001 isviewed as a whole.Director general Stirland said duringthe first eight months of 2001 AAPAmember airlines’ traffic was far fromhealthy. Revenue passenger kilometres(RPKs) barely grew during the period,load factors fell, with long-haul trafficmost depressed. Significantly for Asia’scarriers, freight tonne kilometres (FTKs)Hosts: Philippine Airlines (PAL) president and outgoing AAPAchairman, Avelino Zapanta (left), and PAL chairman, LucioTan. PAL was the host airline at the AAPA’s 46th Assembly ofPresidents in Cebudropped an average of about 10% betweenApril and August.Come September 11, said Stirland,AAPA carriers’ North American trafficslumped by 30%, but, overall, traffic fellonly 6.4%. By October and November thesituation had deteriorated further withNorth American traffic sinking 40% and,overall, a decline of 16%-18%.However, by December there was adramatic improvement. Traffic to NorthAmerica on AAPA carriers was still down22%, but the decline on the Europeanroutes had almost halved, said Stirland.Most significantly passenger numberswithin the Asia-Pacific region were only3.3% below the 2000 level. That meant theoverall passenger decline had moderatedto 6.6%.But it was early in 2002 when significantimprovements in RPKs, freight andload factors were seen.In February RPKs were down only1.8% on the previous year, with intra-Asia Pacific passenger traffic up 5.9%.With a 6% reduction in capacity, loadfactor was up more than three percentagepoints.In April, cargo dramaticallyturned around with 13.6%growth on the previous year.Between May and July2002, RPKs were up more than2% on a year earlier in spite ofno improvement on the Pacificroutes. The growth had comefrom within Asia and on Europeanroutes.Freight rose an extraordinary20% in May and July,June recording a more modest16%!The September 2002 figuresgive the first year-on-year comparisonswith the consequencesof the terrorists’ attacks inthe U.S. The RPKs of AAPAmember carriers increasedby 12.5%, passenger numbersrose 11.3%. Seat kilometres were up4.9%. Passenger load factor climbed byfive percentage points to 74.8%.Freight tonne kilometres rose 17%year-on-year in September 2002, withfreight tonnes increasing 22.9%. Availablecapacity climbed 12.9% with freightload factor up 2.6 percentage points.Passenger traffic on the Transpacificroute grew 20% year-on-year, intra Asia-Pacific travellers increased 14.7% andEuropean traffic was up 8.7%The real test is how the region is do-16 Orient Aviation, Dec 02/Jan 03

ing this year when compared to 2000,said Stirland.Compared to September 2000, passengernumbers in the same month thisyear were up by 5% and RPKs by 1%.Capacity rose 4% which resulted in a fallin load factor of 2.25 percentage pointsto 74.8%.Freight tonne kilometres increased inSeptember 4% over two years ago, butload factor was down 1.4% on 2000.“While there is only a 1% increasein RPKs and a 4% increase in freighttonne kilometres overall, Transpacifictraffic is still way below the level of twoyears ago and there has been a massivetransfer of traffic to the shorter routesof Southeast Asia. Similarly, freight isdown on the Transpacific, exclusively inthe westbound direction, while freight onEuropean routes has grown substantiallyin both directions since two years ago,”he said.Top table. Pictured (from left to right) at the post Assembly press conference are KoreanAir president and incoming AAPA vice-chairman, Yi-Taek Shim; Philippine Airlinespresident and retiring AAPA chairman, Avelino Zapanta; AAPA director general RichardStirland and China Airlines president and incoming AAPA chairman, Philip H. H. Wei.Changes in the airAsia’s airlines may well be leadingthe world recovery, buttop executives attending theAAPA’s Assembly of Presidentsknow their bottomlines are still under threat and that theindustry faces the prospect of dramaticchange in the aeropolitical arena in theyears to come.The spiralling cost of anti-terrorismsecurity measures – a burden beingthrown almost wholly on airlines – dominatedpublic and private discussion. Notfar behind was the contentious issue ofsoaring insurance costs, as well as risingairport and aeronautical charges.The airline chiefs met to map outstrategies for the coming year in an atmospherevastly improved on the gloomof last year’s gathering in Bali, held justweeks after the U.S. terrorist attacks.They were left in no doubt, however, thatthey will need to prepare themselves todeal with serious emerging issues.Among them is a new push towardsliberalisation that will ultimately have amajor impact on how they do business.The International Civil Aviation Organisation(ICAO) has convened a meeting inMontreal in March to consider how (notif) the industry is to be liberalised.And AAPA director general, RichardStirland, outlined a series of other threatsto the region’s carriers. They includedU.S. “open skies” policy and protectionism,subsidies to U.S. airlines and theirability to enter Chapter 11 bankruptcyprotection, giving thema decided business advantageover non-U.S.rivals. A mounting menuof overflight fees andairport charges, potentialrises in fuel costs andenvironmental protectionissues, as well as terrorismand the possibility ofwar, particularly in Iraq,had to be added to themix, warned Stirland (seepage 21).On the other hand,the last 12 months haddemonstrated three importantlessons, he said:• Asian carriers havehuge resilience, flex-ibility and skill in managing adversity.• the Asian region itself is increasinglyinter-dependent on the externaleconomies of Europe and NorthAmerica.• the desire of the people of Asia totravel, explore, trade and to visit theirfriends and relatives is unquenchable.It was the International Air TransportAssociation’s (IATA) Asia-Pacificregional director, Andrew Drysdale,who encapsulated the state of the globalairline industry and some of the majorchallenges it faces. He told Asian airlinechiefs: “This industry is in deep trouble.IATA regional director, Asia-Pacific, Andrew Drysdale:need harmonised, globalsecurity standardsThe Asia-Pacific representsthe one brightspark in an otherwisegloomy picture. Governmentsneed to recognisethe cost of security istheirs to bear – and weneed harmonised, globalsecurity standards.“We need to establisha new partnership betweenairports, airlinesand air traffic controlproviders. Together, weneed to deliver the bestquality of service at areasonable price. Wealso need to liberaliseand modernise the rulesgoverning internationalaviation, to allow this capital intensiveindustry to reach its full economic potential.If we can achieve these goals,then the future of this industry is brightindeed.”On security, the AAPA Assembly wasadamant: governments must shoulder thecost because security is a state responsibility.Airlines and passengers are alreadypaying excessive travel taxes and shouldnot be burdened with additional costs.Korean Air president, Yi-Taek Shim,said terrorism had increased the risk oftravel, with insurance costs rocketingafter ‘9/11’. “The U.S. slapped on anadditional premium of up to US$25 perair traveller following the September 11Dec 02/Jan 03, Orient Aviation 17

AAPA Assembly of presidentstragedy. Asian airlines might be forcedto charge up to US$5 more for each passengerif the carriers remain saddled withsecurity costs.”Stirland said airlines were alreadygiving big discounts on tickets and aUS$5 or US$10 surcharge representeda “pretty major” percentage increase incost. “Obviously, the airlines will haveto pass the cost through, but whetherthey can be successful in doing that andretain the growth in the market seenin the last six and eight months is veryproblematic.”He said AAPA member airlines haveeither implemented or are working ona series of security measures, includingfitting reinforced cockpit doors, establishingvideo surveillance of the cabin,liaising with airports on security immediatelyprior to departure and cooperatingwith governments in providing additionalinformation on their passengers.Hiroshi Tanaka, deputy vice-presidentof Japan Airlines, said new aviation securitymeasures should be standardisedto reduce the costs borne by airlines andpassengers. It was becoming “very difficult”for the industry to cut costs due topoor coordination among countries overaviation security procedures, he said.The cost of added security measuresfor airlines worldwide reached aboutUS$3 billion in 2002. IATA’s Drysdale saidaviation was not the target of the terroristattacks on 9/11. “Nor was the atrocityin Bali, or in Moscow, or in Zamboanga.Terrorism, in whatever its form, is anattack against a state or a society. Andsecurity is the responsibility of states.The airlines and their passengers havepaid their taxes and should not be askedto contribute beyond that to be protectedfrom terrorism,” he said.Meanwhile, Philippine aviation officialscalled for airlines from across the region towork together instead of destroying eachother through unnecessary competition.The chairman and 90% owner of PhilippineAirlines, Dr Lucio Tan, pushed for greaterco-operation. “The issues confronting ourindustry today are critical and pressing. Issueslike security threats, declining traffic,high insurance premiums, rising fuel costs,among others, call for individual strengthsto be aligned towards regional stability.We need to direct our efforts toward onegoal and that is to survive. Competitionmust be replaced by co-operation,” heurged.The message was echoed by Philippinesunder-secretary for transportation,Arturo Valdez, (delivering a speech onbehalf of transportation secretary LeandroMendoza), who said co-operationwithin the industry is imperative to helprationalise airline capacity, make betteruse of aircraft resources and improvesynergies from the combined marketingefforts of airlines.Philippines under-secretary for transportation,Arturo Valdez, speaking on behalf oftransportation secretary Leandro Mendoza,said co-operation within the industrywas imperativeIn a clear swipe at U.S. operators,Valdez said if Asian airlines are to relyonly on help from their individual governments,it may not be enough to help themcompete against “airlines propped up bystate aid and government protection”.“If we want to nurture back to healthour airline industry, we must learn toembrace the necessity of collaboration,instead of fighting each other overshrinking markets. Fortunately, the marketin the Asia-Pacific region has shownundeniable signs of an early recovery,”he said.Airlines are attempting to come toterms with another controversial issueplaying havoc with travel markets – thegrowing propensity for governments toissue travel advisories warning nationalsagainst travel to specific countries inwhich they could be at risk. In general,airline executives understand the reasons,but feel some governments may betaking measures too far. Ultimately, it isan issue outside their control.Asian airline executives are alsoclosely considering the potential impactof a recent landmark European Court ofJustice judgement that could alter theface of international aviation. Accordingto the ruling, any European Union (EU)country that grants rights to a non-EUstate to fly a particular route, must alsogive any EU airline rights to the route.If France, for instance, allowed a designatedairline (such as Air France) tofly Paris-Tokyo, it must now permit anyother EU airline, such as Lufthansa orAlitalia, to also fly the route.Regarded by some analysts as a majorstep towards establishing a Europeanaviation trading bloc, there are obviousimplications for existing bilateral agreementsbetween Asian nations and individualEuropean countries.An aviation law expert, London-basedsolicitor John Balfour, told the Assemblyit is unlikely there will be any early impactbecause of the complex legal questionsraised by the judgement. He said Asia-Pacific countries are not obliged to accepta new EU clause in legislation and that existingair service agreements would likelyhave to be renegotiated and redefined totake into account new rules.However, he said a longer-termconsequence could be that individualAsian nations may have to negotiatewith Europe as a bloc, rather than witheach country. The creation of a liberalEuropean and U.S. aviation bloc wouldalso put pressure on other states, suchas countries in Asia, to forge their ownbloc.Yes, liberalisation is in the air again.Barry Humphreys, director of externalaffairs and route development at VirginAtlantic Airways, told the Assembly hebelieved an EU/U.S. open skies agreementwill happen “and more quickly thansome are forecasting”.Such a pact will not be the end ofthe matter, said Humphreys, who ischairman of IATA’s international aviationissues task force. “There is a goodchance other liberal-minded countriessuch as Australia, Canada, Singaporeand others, would quickly seek to join anEU/U.S. agreement. It is certainly feasiblethat within a relatively short period oftime countries representing a substantialmajority of international air travel wouldhave agreed on real deregulation. Thenat last the economic regulation of airtransport would be dragged into the 21stcentury,” he said.For Asian carriers, now clearly winningtheir recovery battle – for the timebeing at least – it represents anotherpotentially significant shift in the forcesthat rule their markets.China Airlines president, Philip H. H. Wei:the AAPA’s incoming chairman18 Orient Aviation, Dec 02/Jan 03

MajorAssemblyresolutions• A call on governments to pay foraviation security. While airlines arecommitted to taking all possible steps toimprove safety and security they arguea security threat against an airline is athreat against a country and its peopleand governments have a direct responsibilityfor meeting the cost. The AAPAopposed the arming of flight crews andsky marshals and said security threatsmust be thwarted on the ground.• A demand that airport and aeronauticalauthorities adopt fair and equitablecharges according to principles of theInternational Civil Aviation Organisation(ICAO) and in consultation with airlines.• A call to governments to create acompetitive environment in the ComputerisedReservations Systems (CRS)industry. Airlines said CRS bookingfees, a substantial portion of an airline’sdistribution costs, have been “escalatingunabatedly without any proper costjustification in more than a decade”– a direct consequence of the absence ofcompetition.• A demand that the European Union(EU) maintain denied boarding compensationat reasonable levels that do notadversely affect airlines’ inventory andpricing policy. The AAPA argued thereis an imbalance in the airline/passengerobligation favouring passengers whocan simply fail to show up without penalty.Passenger no-shows leave airlinesexposed to the risk of flights departingwith empty seats.• A call to the EU to avoid legislatingunilaterally on airline/passengercontracts. The AAPA said unilateral legislationwould create chaos in the airlineindustry and among the travelling publicas a result of differing conditions in variousparts of the world. It wants global harmonisationof airline/passenger contractsand the EU to work with ICAO and theInternational Air Transport Association(IATA) to achieve this.• A proposal for a harmonised trafficcollision avoidance system (TCAS)standard among regulators around theworld. AAPA said it is committed to safetyenhancement measures, but near-missaccidents and mid-air collisions may occurbecause regulatory standards are notharmonised. Standardisation of TCAScould mitigate the risk.Delegates at the AAPA Assembly of Presidents enjoy a taste of traditional CebuTRAFFIC UPDATE – September 2002Strong growthin telling monthIn the first month to show a directcomparison with the aftermath ofSeptember 11, all AAPA carriers recordedbetter passenger load factors(PLF) and significantly improvedcargo loads, it was revealed atthe 46th AAPA Assembly of Presidentsin Cebu.The facts: revenue passenger kilometres(RPKs) increased 12.5%, passengerscarried rose 11.3%. With seat capacitygrowth confined to 4.9%, the PLF rosefive percentage points to 74.8%.Freight tonne kilometres climbed17%. Freight load factor rose 2.6 percentagepoints to 69.8%.Passenger traffic on trans-Pacificroutes grew by 20%. This was not surprisinggiven the number of services thatwere suspended to the U.S. in Septemberlast year, said the AAPA.Within Southeast Asia, which hadmodest growth in September 2001, trafficsurged 14.7% in the same month thisyear. Traffic in Northeast Asia rose 11%while routes between Asia and Europeincreased 8.7%.Japan Airlines, Asiana Airlines andVietnam Airlines all recorded over 20%RPK growth. Cathay Pacific Airways andThai Airways International saw RPKsclimb about 15%.Freight growth was described by theAAPA as “spectacular”. The 17% rise inSeptember followed 19.5% in July and18% in August.Freight from Asia to North Americagrew 46% in September to 69,000tonnes. The reason was two fold: partlybecause of restrictions on freight lastyear and because of the U.S. dock strikethis year.Freight traffic to Europe rose 28%.Inbound to Asia, growth was much morerestrained. Westbound cargo on thetrans-Pacific routes edged up 2.4% whileEuropean traffic to Asia climbed 8.5%.“There is a strong divergence betweenthe results of the carriers based in[the Asian] region and those in Europeand the U.S., which would tend to indicatethat [AAPA] members are less reliantthan in the past on traffic originatingoutside the region. Asia now has itsown dynamic,” said the AAPA directorgeneral, Richard Stirland.“On the other hand, the strongfreight growth not only to the U.S.,but also to Europe is a reminder thatthe global economy and its health stillremain vital to the overall results of theAsian carriers.”For the year’s traffic figures to Augustsee Business Digest (page 37).Dec 02/Jan 03, Orient Aviation 19

AAPA Assembly of presidentsAAPA Financial Report at a Glance2001/02 AverageDESCRIPTION 1997/98 1998/99 1999/00 2000/01 2001/02 Versus Annual2000/01 GrowthOPERATING REVENUE 49,641.3 41,774.6 48,149.4 53,260.7 47,781.5 (10.3%) (1.0%)Passenger 37,267.0 30,817.7 35,266.0 39,469.0 35,970.5 (8.9%) (0.9%)Cargo 8,023.3 7,196.0 8,516.5 9,007.0 7,606.7 (15.5%) (1.3%)Others 4,351.0 3,760.9 4,366.9 4,784.7 4,204.2 (12.1%) (0.9%)OPERATING EXPENSES 47,647.3 40,970.4 45,494.7 49,784.9 46,895.2 (5.8%) (0.4%)OPERATING PROFIT 1,993.9 804.3 2,654.7 3,475.7 886.3 (74.5%) (18.3%)Other Income (Expenses) (2,889.2) (294.4) (207.5) (2,371.1) (1,302.8) 45.1% 18.1%NET PROFIT (LOSS) AFTER TAX (1,215.7) 317.1 1,816.6 1,220.9 (720.5) (159.0%) 12.3%NOTE: Dragonair and Air New Zealand do not contribute to the statistical report.FINANCIAL YEAR 2001-2002A year of woeAssociation of Asia Pacific Airlines (AAPA) carriersmade their first net loss in the 2001-2002 financialyear since the 1998 Asian economic crisis, as globalrecession and September 11 extracted their tollon the industry.The US$720.5 million loss for the 12 months to March 31,2002, was 159% down on the previous year’s profit of US$1.22billion.Operating profit slumped 74.5% to US$886.3 million, fromUS$3.48 billion in 2000-2001. The operational profit margindropped 4.6 percentage points to 1.9% of operating revenue,the second worst margin in a decade.With reduced traffic and yield, the overall load factor of66.6% was only marginally above break-even point.The AAPA annual report, published in November, saidcost-cutting measures adopted by member airlines before andafter the U.S. 9/11 attacks had allowed them to record a smalloperating profit.Operating revenue of the 15 reporting AAPA carriers in theyear under review fell 10.3% to US$47.8 billion. This was dueto the decline in traffic (RTKs fell 4.4%) and yield (down 6.1% inUS$ terms). However, the drop in yield was attributed to memberairlines’ home country currencies against the US$.The annual report said if the currency effects were factored out,there would have been a 3% increase in yield. After discountingcurrency effects, the operating revenue dropped by 1.6%.Passenger revenue fell by 8.9% in 2001-2002, while its shareof total revenue rose 1.2 percentage points to 75.3%. Cargorevenue (with a revenue share of 15.9%) dropped 15.5%. Otherrevenue sources contributing 8.8% of total revenue, declined12.1%.Operating expenses were down 5.8% in US$ terms, accordingto the annual report, but rose 3.4% when local currencyfluctuations were taken into account. Contributory factors tothe increase were more expensive insurance premiums, highermaintenance and overhaul costs and increased general andadministrative expenses.Direct and indirect operating expenses dropped in US$terms by 3.8% and 8.1% respectively. Using the same currencyrates as the previous fiscal year, direct and indirect expensesincreased by 5.7% and 0.7% respectively.AAPA member airlines trimmed personnel costs during theyear, but without reducing the aggregate head count. Indeed,the employee numbers increased slightly over the previous yearto 183,500. Expenditure on personnel, however, was cut by 9.5%in US$ terms (or -1.3% in constant US$ terms).AAPA yield, unit revenue, unit cost and load factor(in U.S. Cents)66.0YieldUnit Revenue43.942.1Unit Cost66.6%56.536.435.764.4%63.9% 63.2%58.640.238.068.6%61.342.940.169.9%57.638.437.6Overall LF66.6%64.8% 65.4% 65.4%Breakeven LF97/98 98/99 99/00 00/01 01/02RPK growth 2002 international operation5%AAPA0%-5%IATA-10%AEAATA-15%JAN FEB MAR APR MAY JUN JUL20 Orient Aviation, Dec 02/Jan 03

Stirland slams U.S. ‘threats’aviation policies camein for stinging criticism inCebu from the directorgeneral of the AssociationU.S.of Asia-Pacific Airlines(AAPA), Richard Stirland.He spoke of the “threats on the horizon,or even overhead right now” thatface Asia’s aviation industry. “First, theUnited States, in many of its manifestations,is a threat,” he told the Assembly ofPresidents during a presentation whichoutlined the developments in the Asianaviation industry since September 11 andmapped its future.He listed U.S. threats to the industryas “bogus open skies agreements, itsprotectionism, its outright subsidies toits airlines, its bankruptcy arrangements,its arbitrary and unilateral rule-makingand its pilots unions”.“Open skies agreements with theU.S. continue to be extremely one-sidedbargains, with a host of inequalities embeddedin them, not least the inability offoreign carriers to establish any sort ofmeaningful hub in the U.S. and, as partand parcel of this, to operate any sort ofcabotage service,” said Stirland.“Subsidies. We all know about theUS$5 billion and the US$10 billion inloan guarantees, but there are otherareas where assistance is being soughtand given, not least in insurance costs,while carriers elsewhere in the world,including Asia, are obliged to return tothe commercial market for the totalityof their cover.“Chapter 11. The threat here is thatmajor competitors of Asian carriers,based in the United States, will be ableto discard their liabilities like a worn outshirt and emerge with a much lower costbase to compete purely on price with ourmember airlines.“Regulations. Since September 11 wehave had a torrent of unilateral and perhapsunnecessary regulations governingmany different aspects of our operationson the ground and in the air.“Deadlines and penalties have beenestablished without consultation by theU.S. for all carriers, domestic and foreign.The cost imposed falls on the airlinesconcerned.“Unions. Unions in the U.S., such asALPA (Airline Pilots Association) are partand parcel of the protectionist approachto aviation. Not content to severely limitthe foreign ownership of U.S. carriers,ALPA has set out to export its bargainingtactics, its demands, its restrictions andhence its crew costs to foreign carriers,AAPA director general, Richard Stirland:open skies agreements with U.S. onesidedincluding some in this region. Fortunately,so far they have not succeeded. Asia isnot Atlanta, Dallas or Chicago.“Let me turn to other costs. Overflightand airport charges are totallybeyond the control of the airlines andout of control.“The airlines are a captive andcompliant target and charges bear littlerelationship to cost of provision or valueprovided, with a few exceptions. Onemember airline has seen its overall unitcosts drop by 20% in the last 10 years.Its unit overflight charges, meanwhile,have increased 35%, and this at a timewhen on-board navigational aids haverendered many ATC services irrelevantif not counter-productive.“Fuel. No need to state the obvious.Airlines are totally reliant on a smallsegment of the barrel. Believe it or not,Opportunitiesin Asia‘China has onlyjust begun tobe tapped as asource of trafficand a touristdestination’their requirements don’t figure largely inthe calculations of producers, refiners ormarketers. Availability as well as price isalways a threat.”But Europe was not entirely sparedby the director general.“The Environment. Largely ignoredin Asia, environmental pressures inEurope principally, could add millionsto airline costs, either in direct charges,levies and taxes, or indirectly in theform of engine modifications or morelikely, operating procedures and payloadrestriction.“No environmentalist in Europe everpaid for his lunch,” said Stirland.“Under the heading of Political[threats] I have grouped the obvious issuesof war and terrorism and there islittle point in expanding on those.”He also spoke of “the threat of theso-called Asian minnows threatened bymega carriers in the U.S. and Europe,either in terms of negotiating strengthfor traffic rights or marketing muscle”.“I think this is an illusory threat,simply because the financial and socioeconomicfactors favour Asia and secondlybecause if consolidation is goingto take place, it will be, as in all othermajor industries, ultimately on a global,rather than a regional basis and futurecompetition will be between trans-globalcompetitors, with nationality a secondaryconsideration,” said Stirland.And opportunities in Asia?“China has only just begun to betapped as a source of traffic and a touristdestination,” added the directorgeneral.“Freight by air still has a long way todevelop. The recent port dispute on theU.S. West Coast revealed to many theadvantages and favourable result of thecost benefit equation of air freight.“Low cost operations: all I will say isthat this is an opportunity, not a threatfor Asian carriers.“Takeovers and mergers. If everthe rules on ownership and control arerelaxed, it is the Asian carriers who arebest positioned to be the predators, theinitiators of new airlines, the key partnersin mergers and consolidation. Theyhave the traffic base, the track record, theaccess to capital and the initiative andvision to make it happen.“All that stands in their way is anincreasingly anachronistic, ossified systemwhich makes the U.S. steel industrylook like an entity exploring the outerfrontiers of nano-technology by comparison.”Dec 02/Jan 03, Orient Aviation 21

news backgrounderBy Tom BallantyneAfter months of complex negotiationQantas Airways andAir New Zealand finally announcedtheir long awaitedalliance November 25, a dealthat will see the Australian flag carriertake a 22.5% stake in its long-time Aucklandrival for around US$250 million.The agreement has yet to pass itsbiggest hurdle; winning approval fromcompetition authorities on both sides ofthe Tasman.Australia’s second domestic carrier,Virgin Blue, quickly announced it wouldlodge objections to the alliance, whichcould seriously impact its ability to properlycompete in the Australasian market.The new partnership also raises seriousquestions about the two carriers’ alliancestatus. Qantas is a leading memberof oneworld and Air NZ is in the StarAlliance. A Star source has not ruled outa switch by Qantas.Under their agreement, the two airlineswill code-share on all New Zealanddomestic and trans-Tasman flights andon flights between New Zealand and theAmericas.Air NZ will also code-share on QantasAustralian domestic flights and Qantasinternational flights that connect with AirNew Zealand flights.A Star Alliance statement issuedshortly after the announcement by the twocarriers, said its members recognised thebusiness decision of Air NZ. “Throughoutthe process Air New Zealand has keptthe members well informed about therationale behind its considerations andthe possibility of this outcome,” said aspokesman.“Air New Zealand and the other members[of the Star Alliance] are currentlyinvestigating all opportunities arisingfrom this announcement.”Under the arrangement Air NZ willhave one director on the Qantas board,while Qantas will have two directors onthe Air NZ board.The Australian airline chairman,Margaret Jackson, said the Qantas boardbelieved the strategic benefits to bothairlines would ensure they played majorroles in growing the economies of bothcountries.Air NZ chairman, John Palmer, saidthe deal secured long-term opportunitiesfor both airlines. “The establishment of amajor airline grouping in the region providesboth parties with a sound base fromwhich to strengthen their global presencein overseas markets, develop new routesand improve scheduling and frequencyof services. The strategic alliance is abold response to the challenges bothairlines face. The agreement emergedfrom a commonly held view of the futurewhich sustained the lengthy discussionsCould Qantas switchalliance camps nowAirNZ deal is done?Qantas Airways: is to take 22.5% equity in Air New Zealand after 12 months ofnegotiationsbetween the two parties initiated some 12months ago.”He said Air NZ had considered twostrategies: joining with another airlineand competing against Qantas, or workingwith Qantas. “The Qantas allianceoffered the best outcome, both from thecompany perspective and from the nationalinterest.”Qantas chief executive, Geoff Dixon,said the partnership would assist bothairlines to retain their independence in anindustry facing considerable and continuingdifficulties. It was anticipated the alliancewould deliver combined synergies ofup to US$225 million by the third year ofthe agreement, enabling Qantas and AirNZ to make better use of their resourcesand capabilities.International Air Transport Association(IATA) airlines collectively lost overUS$12 billion in 2001 and are forecast tolose a further US$5 billion in 2002, saidDixon. “In this environment, airlines areincreasingly entering alliances and equitypartnerships to secure their long termsurvival.“Qantas and Air New Zealand togethermake up less then 4% of the world aviationmarket and neither airline can ignore theforces of globalisation and consolidationthat characterise this complex and demandingindustry,” Dixon said.Senior Star Alliance sources believethere is a possibility oneworld alliancecarrier Qantas could be lured into theStar camp now it has clinched the equitydeal in AirNZ.“It should not be taken for grantedthat Air NZ will automatically leave Starand join oneworld,” a senior official closeto Star told Orient Aviation at the StarChief Executive Board meeting in Rio deJaneiro in November.He suggested several factors couldheavily influence the alliance course Qantasultimately takes:• A critical joint services agreement betweenQantas and its oneworld partner,British Airways (BA), is due forrenewal early next year. If regulatoryauthorities refuse to sanction it oneof the primary reasons for Qantas’smembership in oneworld would beremoved.• A decision by BA to sell its 25% stakein Qantas, possibly to Singapore Airlines(SIA), although BA chief executive,Rod Eddington, has denied theairline plans to sell its Qantas stake.• A continuing failure by BA and U.S.alliance partner, American Airlines,to win anti-trust protection from U.S.authorities, a situation that preventsoneworld from taking full advantageof alliance opportunities.24 Orient Aviation, Dec 02/Jan 03

cover storyORIENT AVIATION PERSONALITY OF THE YEARKANEKO: MANOF DECISIONWords: Barry GrindrodPictures: Kurita KakuThere was a time Japan Airlines’(JAL) president, Isao Kaneko,used to enjoy coaching the JALwomen’s basketball team, theJAL Rabbits. But no more; todaya much bigger game-plan is occupyinghis time.Normally a voracious reader of books,now in-house reports tend to replacethe biographies and historical works ofwhich Kaneko is so fond.Even the form guide for his belovedhorse racing is yesterday’s news. Today,Kaneko’s time is spent studying performancesof a very different nature – theintegration of the JAL and Japan AirSystem (JAS) airline companies into whatwill become the Japan Airlines Groupin 2004.“Of course, I would like more timeto relax,” said the 64-year-old president.“The pressure is great, but I have toestablish the new company and make itsucceed.”The early signs are that Kaneko willachieve his goal. In sporting parlancehe is a “winner”, a rare breed in Japan’scurrent turbulent economic times. And ina nation noted for its consensus culture,Kaneko is not afraid to stick his neckout and make quick, at times, unpopulardecisions.His no-nonsense approach has notbeen confined to JAL. As a former chairmanof the Scheduled Airlines Associationof Japan (SAAJ) he has spearheaded26 Orient Aviation, Dec 02/Jan 03

the many calls for the reduction of landingcharges and user fees at the country’sairports. He lobbied, too, for a fourthrunway at Haneda Airport which hasnow been approved and should openin 2009.As the chairman of the board of governorsof the International Air TransportAssociation (IATA) Kaneko is playing anactive part in major issues confrontingthe airline industry such as security, thirdparty war-risk insurance and airportcharges.A 42-year veteran at JAL, Kaneko hadhardly settled into the boss’s chair in June,1998, when he announced he would beslashing the number of board membersby half from 30 to 15 to accelerate decision-makingand cut their term of officefrom two years to one.His first priority, he said, was to restoredividends to shareholders who hadnot been paid for the previous six years.He achieved this in his first three years byturning around the company’s financialperformance, only to be denied in thefourth by the events of September 11.JAL lost 36 billion yen (US$295 million),but that was less than had been forecast.He is optimistic that dividends will be paidagain in 2002.Kaneko also managed to turn adversityto his advantage in the early days ofhis tenure. Police revealed racketeers hadbeen supplying pot plants to JAL offices,a business relationship in contraventionof the commercial code. Although thecontract had ended Kaneko set up anin-house audit to establish that all businesslinks with the dubious suppliers hadended and introduced strict new businessrules. One board member responsible forthe contract resigned and other staff werere-assigned.In February 1999, the Ministry ofTransport revealed that JAL’s maintenancedivision had failed to notify theJapan Civil Aviation Bureau within therequired period of irregularities relatingto emergency slides on DC-10 aircraft.There was no threat to safety as the faulthad been already found and rectified.However, a board member who wasalso a top maintenance department executivewas immediately demoted andsubsequently resigned. Kaneko and otherboard members took salary cuts for threeThe livery of the new Japan Airlines Group fleetThe Orient Aviation Personality of the Year Award to JapanAirlines president, Isao Kaneko, reflects four years of strongleadership in which the airline company has restored shareholderconfidence after six barren years. This has culminated inthe merger of Japan Airlines and Japan Air System with Kanekothe lead player in a move designed to make the airlines morecompetitive, particularly in the domestic market.The speed and efficiency of the transition to date – the merger will be completeby April 2004 – has been swift and trouble free.The airline was already restructuring when he became president in 1998,but it was still losing money and the new president inherited a formidable task.Kaneko instilled discipline and purpose into its ranks. He demanded speedydecision-making by reducing the size of top management and introduced hisown blueprint for success. This included focussing on the core business ofthe airline.JAL made a profit in Kaneko’s first three years. Last year the company fellvictim to the events of September 11. But the president is predicting a strong2002 with dividends back on the agenda.Orient Aviation, and many people whose views we sought, believes IsaoKaneko has contributed greatly to the success of Japan Airlines, particularlyin view of Japan’s weak economy, and is a worthy winner of our award.months.“These two negative events made usenhance our transparency,” he said. “Inthis area we have very much improved.”Indeed, to demonstrate the new air ofaccountability and transparency, JAL’ssafety record is published monthly on itswebsite. It shows any flight irregularitiesand the factors that caused them.But whatever Kaneko’s achievementsin the last four years, and they havebeen considerable, his legacy will be themerger with JAS which he and JAS president,Hiromi Funabiki, hatched betweenthem last year.“For a long time, JAS and JAL talkedabout cooperation in a number of fieldsincluding IT and automatic self check-inequipment. I met with Hiromi Funabikimany times,” said Kaneko. “From spring2001 we talked about ground handlingcooperation and some time in the summerwe came to the conclusion that integration,rather than cooperation, was theway to go.“Then September 11 happened andthe impact of the tragedy vindicated ourearlier decision.”Events have moved remarkablyquickly since that time. On October 1,Japan Airline System Corporation, theAWARD CITATIONnew holding company of the combinedairlines, began trading on the Japan StockExchange.JAL has always been strong in theinternational market. Seventy per cent ofits revenue comes from overseas routes.Domestically, All Nippon Airways (ANA)has ruled the roost with 49% passengershare of the lucrative market. JAL andJAS has lagged behind with 25% and23% respectively.“But the international market is unstable,”said the JAL president. “On theBIOGRAPHYIsao Kaneko joined Japan Airlinesin April 1960. After experience in theinternational cargo department, hejoined the airline’s industrial relationsdepartment where he has spent mostof his career.In 1968, he was posted to JAL’sAmerican Region headquarters in NewYork where he worked in administrationwith involvement in local labourissues.Career highlights:1980: deputy vice-president industrialrelations.1985: vice-president industrial relations.1991: elected to the JAL board of directors1995: managing director and seniorvice-president human resources1997: senior managing director andsenior vice-president humanresources1998: appointed JAL president on June26He is married with one daughterand one grandson.Dec 02/Jan 03, Orient Aviation 27

cover storyother hand, the domestic market is muchmore stable so with integration we canincrease our stability by increasing theshare of domestic revenue from 33% toabout 47%.”Deregulation of the domestic marketin February 2000 in terms of fare setting,routes and frequencies did not help JALa great deal. At Haneda, which is used by60% of the domestic market of 90 millionpassengers, slots were limited and meantthat JAL and JAS could not compete withANA, said Kaneko.The JAL president said the toughestpart of the consolidation to date was towin the approval of the Fair Trade Commission(FTC).“It took the view a reduction in thenumber of airlines was bad for competition,”said Kaneko. “So JAL handed backnine round-trip slots at Haneda for newentrants such as Skymark Airways whichis trying to increase the number of itsflights. Also, we promised to reduce basicfares by 10%.”The new company estimates maximumoverall savings of between 48 and53 billion yen by financial year 2005, saidKaneko.There will be a saving of about 31billion yen on rents and property leases,especially through sales branch consolidationand joint use of airport facilities.The reduction of 3,000 jobs, all by naturalattrition, will save about 24 billion yen.Reduced investment in new aircraft andlower aircraft and maintenance costs willsave 12 billion yen.However, there will be investmentcosts, particularly in IT systems, of about20 billion yen.Kaneko said the transition was goingsmoothly. By 2004, three new carrierswill have been created, Japan AirlinesInternational, Japan Airlines Domesticand Japan Airlines Cargo.“So far we have established joint salescompanies for all JAL and JAS productsand we are integrating wholesaling ofinternational and domestic tours,” hesaid.The holding company is currentlyevaluating the fleet needs of the newJAL Group. Before the merger JAL wasrationalising its fleet from seven to fiveaircraft models, by retiring the DC-10s‘Big cut’ possible in Narita feesJapan Airlines (JAL) president, Isao Kaneko, expects to see a lowering inuser charges at Narita Airport “maybe within the next two years”. “We expecta big reduction, perhaps in the area of 30-50%. That’s what we hope,” hesaid. The Narita Airport Authority thinks differently, however (see page 29).A possible breakthrough in the long-running Japan airport charges saga followsa modification in the original plan to jointly privatise Narita, Kansai and theas yet un-built Chubu Airport. It was felt that funds from Narita would be usedto subsidise the other airports, thus keeping its charges high.Following widespread criticism at home and abroad the Japanese Governmenthas had a change of heart and Narita will now be privatised separately.Orient Aviation chief executive and editor-in-chief, Barry Grindrod, presents JALpresident, Isao Kaneko, with the magazine’s Personality of the Year award.and MD-11s, said Kaneko. The mainstayswere to have been the B747-400, otherclassic B747s, the 777 series, the 767 seriesand B737-400. Now, said Kaneko,JAS’s A300s and MD-90s and MD-80shave to be considered.“Contrary to some commentators’ remarks,we have by tradition always beena two-supplier company. It is because ofthe Boeing-McDonnell Douglas mergerthat we are a ‘Boeing only’ customer,”said Kaneko.“We are now studying the types ofaircraft we will need in the future. We areinterested in all new models and types.“We are studying the A380, but Ithink it is very difficult to think of thataircraft effectively in terms of domesticoperation, because of the problem ofturn-around time restriction. We alreadyuse B747-400 aircraft with 568 seats andB777-300s with 470 seats, which is plentyof capacity for us.“We are also using regional jets,Bombardier CRJs, in our regional airline,J-Air, based in Hiroshima West [four inservice and two on order]. And we willbuy more as we need them.”Kaneko said JAL’s subsidiary carrierswould continue under the merger. Thebusiness model of Japan Express (JEX)with its lower salaries was important toJAL, he said.The carrier has seven B737-400s andmay add more in the future, but it is hamperedby a short supply of cockpit crewthat restricts expansion. “We hire someJEX pilots on contracts and from severalother sources,” said Kaneko.The president reported passengertraffic was good on all routes with theexception of the trans-Pacific which hasonly recovered to 80% of the pre-September11 level. This is significant becauseJAL relies on the trans-Pacific for 31%of its international revenue. Kaneko saidhe was expecting a complete recovery in2003, a year when he expected the Japaneseeconomy to rebound.The China services were particularlygood, said Kaneko. Cargo traffic alsowas doing well and compensating on thetrans-Pacific routes for the loss in passengers.Business travel, too, had mostlyrecovered.‘We [JALand JAS]came to theconclusionthatintegration,rather thancooperation, wasthe way to go’28 Orient Aviation, Dec 02/Jan 03

airportsBy Daniel Baronin TokyoFaced with a barrage of protestsboth at home and abroad, Japan’sMinistry of Land, Infrastructureand Transport (MLIT)has scrapped its plan to lumpNarita, Kansai and Chubu airports togetherin a privatisation package thatwould have seen both the Osaka andyet-unbuilt Nagoya area facilities heavilysubsidised with revenue from NaritaAirport. The result, argued the airlineindustry, would be an infinite continuationof, or even a rise in, the sky-high usercharges at Narita.Masahiko Kurono, head of the NaritaAirport Authority (NAA), acknowledgedat a meeting of the MLIT’s Council forTransport Policy that bumping up fees atNarita Airport would be impossible in thecurrent environment.The MLIT will now handle each airportseparately, beginning with Naritain fiscal 2004. Japan’s business daily, NihonKeizai Shimbun, reported that theairport’s management firm would firstbe transformed into a “special government-affiliatedstock firm”, then eventuallyprivatised.But the MLIT also announced plans topay off Kansai’s debts with public funds, tothe tune of 13 billion yen (US$108 million)annually for the next 30 years. To nobody’ssurprise, the government will useproceeds from the initial public offeringof Narita’s new airport entity.As for the issue of fees, the NAA nowsays it is “not in a position to reduce landingcharges” because of the privatisationprocess, which may take up to five years.It also cites a steady increase in costs overthe past 18 years. “The costs of constructingand operating an airport in the Tokyometropolitan area are inevitably highbecause of extremely high populationdensity and limited space,” said an NAAspokesman.The airline industry, however, is notbuying the argument. Anthony Concil, assistantdirector of corporate communicationsfor the International Air TransportAssociation (IATA), said “ there are notmany businesses that can say their costsare more than they were 18 years ago.Most business models evolve to reducecosts over time”.On this point, NAA has implied theindustry should be grateful that fees havenot gone even higher than the present2,400 yen per tonne. “The ability to maintainthe same level of charges without anincrease for so many years is the resultof NAA’s constant efforts to manage theairport efficiently in every respect,” theNAA spokesman said.He neglected to mention that Tokyo’sHaneda Airport, with its inner city,waterfront location and severe spaceNarita rulesout early cutsin user chargesNAA says no hope of reduction duringprivatisation process which could take five yearsconstraints, provides greater capacitythan Narita, charges 25% less and turnsa profit.NAA’s stance reflects the classic caseof a service provider recognising thatdemand – particularly high-yield demand– is inelastic enough to maintain highprices. Given Tokyo’s status as Japan’sprimary centre for commerce and governmentand the greater metropolitan area’spopulation of 30 million, the airport’susers are unlikely to pack up and move.This is particularly true of its four largestoperators, Japan Airlines, All NipponAirways, United Airlines and NorthwestAirlines, all of which depend on Narita fortheir hub and spoke operations.NAA acknowledged that it enjoyedthe advantage of high demand for itsfacility, citing rises in aircraft movementsof 32% in June, 34% July and 37%in August over the same months in theprevious year. The sharp increases cameas a result of the opening of its secondrunway in April.“In spite of IATA’s claims concerninglanding charges, the airlines themselvesare interested in expanding capacity atNarita at the current level of chargeseven under the prevailing difficult circumstances,”said the spokesman.At what cost level will competing airportsbecome attractive enough to counterthe lure of Tokyo? Cheaper rates atIncheon have seen more new China traffichead to Seoul than to Narita. Further, therecently forged bilateral agreement betweenthe United States and Hong Konggives U.S. carriers greater access to a lessexpensive facility.Neither the MLIT nor NAA would saywhat, if anything, would prompt a policyshift. The pressure to relent, however,was raised a notch as Orient Aviationwent to press in November, when the U.S.Government included high airport usercharges in its structural reform dialoguewith Japan. It marked the first time thatsuch fees were raised as a trade issue. Onthis, IATA’s Concil said that his organisationwas “pleased to see the U.S. Governmentshow leadership on the matter”.NAA maintained the position that afee reduction prior to privatisation wasimpossible, and remained non-committalabout the future. “The airport is not in aposition to commit itself to the chargesapplicable after privatisation becauseof a number of uncertainties,” the NAAofficial said.Haneda runway delayBattles both inside and outside Japan’s Ministry of Land, Infrastructure and Transport(MLIT) means the method of construction for the planned fourth runwayat Tokyo’s Haneda Airport will not now be announced by the end of the year.Disagreements have prevented the airport’s planning committee from reaching aconsensus.The MLIT is considering three types of construction: a pier; pier and landfill; or amega-float. A delay in construction will translate into tougher times for Japan’s smallercarriers, which are already constrained by capacity limitations at the airport. One ofthem, Skymark Airlines, is not waiting for the new runway.In an agreement reached in October with All Nippon Airways (ANA), Skymarkwill take over two daily return slots from ANA for flights from Haneda to Aomori andTokushima beginning next April. The deal will allow ANA to focus on higher-yield segments,while giving Skymark an opportunity to expand its current two-route operationserving Fukuoka and Kagoshima.Dec 02/Jan 03, Orient Aviation 29

commentIn November, at the Chinese CommunistParty’s 16th Party Congressin Beijing, Hu Jintao was confirmedas China’s next president to succeedJiang Zemin.But there was an even more interestingstory out of the Party Congress, onewith direct consequences for GreaterChina’s aviation and tourism industries:the emergence of direct cross-straitlinks as a centerpiece of the politicalagenda for China’s next generation ofleaders.The agenda on direct links was setbefore the meetings even began. Onstate television a few nights beforethe opening of the congress, severalformer Taiwanese residents – now Partymembers living in the mainland – werewheeled out to give teary-eyed pleasfor cross-strait travel to be re-opened,so they could visit the island of theirchildhood. Later, President Jiang usedhis opening address to the congress tohighlight that the “three links” – directcross-strait transport, trade and telecommunications– served the commoninterests of Taiwan and the Mainland.He added: “There is every reasonto take practical and positive steps topromote such direct links and open upnew prospects for cross-strait economiccooperation.”Over the ensuing days, talk thata deal on direct links was forthcomingheated up, with feints and parriesfrom both sides of the strait as the ideatook shape. Taiwanese legislator JohnChang, a Kuomintang (KMT)-affiliatedopposition politician, raised the idea ofallowing the island’s carriers to operatecharter services to the mainland in therun-up to Chinese New Year (January31-February 3) to help Taiwanese livingon the mainland journey home for thefestival.The Taipei Government agreed reluctantly,but stipulated only Taiwanesecarriers should be allowed to makethe journey and then through a “thirdcountry”, with all the political baggagethat implied.Beijing first warmed to this idea,but then cooled off somewhat when itwas made clear that Mainland carrierswould not be extended reciprocal rightsto land in Taipei.The Taiwanese military quietly letknown its position that Sungshan airport– Taipei’s domestic hub – wouldnot be suitable for cross-strait flights,on the grounds that it would prove asecurity risk.Rather, it said, such flights should gothrough Chiang Kai-shek InternationalAirport. Neither side seems as yet willingto concede much on the issues ofsovereignty and reunification.Still, as we went to press, eventhose airlines traditionally linked to theCharter flightplan raisescross-strait hopesInside Greater China by Oscar SeowDemocratic Progressive Party (DPP), apro-independence movement that rulesTaiwan through President Chen Shuibian,have begun to support the KMTproposal. All six major airlines joinedMr Chang on a lobbying mission toBeijing in late November. The situationremains highly fluid, with the outcomeon Chinese New Year charter flights stillremotely possible, depending on how thepolitics swing.Forgetting the excitable public andmedia for a moment, nobody should takefor granted that the resumption of directlinks between Beijing and Taipei will beresumed, after a 50 year lapse, on suchshort notice.After all, it has been a dozen yearssince the optimism of the 1991 roundof Asia Pacific Economic Cooperation(APEC) meetings in Seoul – when HongKong, Taiwan and the mainland overcamepolitical differences and officiallyjoined the fraternity – first triggeredexpectations for an imminent resumptionof direct links.Yet it was not until July 1997 thatChina Airlines and the Civil AviationAdministration of China (CAAC) managedto sign a service accord on passengerticketing and transfers at HongKong and Macau that allowed Taiwanesetravellers to more easily fly into theMainland.Far from the talk of militarilyachievedreunification, China, to bringTaiwan back into the fold, has triedto make the issue of direct links morepolitically palatable to Taipei, with aseemingly new willingness to concede,at least for now, that it is a commercialand humanitarian, rather than a politicalmatter. There should be little doubt that,at the end of the day, reunification is stillthe most important issue for Beijing inits dealings with Taiwan. But Beijingseems to realise it must proceed slowlyif it wants reunification to happen.Certainly, there is plenty of groundto begin cross-strait talks, given theirincreasingly close economic links. Sincethe late 1980s, when Taiwan first reopenedcross-strait civil exchanges, theisland has invested more than US$70billion in the mainland, opening factoriesand other businesses.Strangely though, the most ardentopposition to direct air services comesfrom Taiwan, rather than Beijing. Despitethe economic realities, the DPPcontinues to be wary of expandingmainland ties, even economic ones. Theresumption of direct links will depend onwhether or not the Mainland and Taiwancan agree to start discussions solely at aworking level, irrespective of reunificationand sovereignty. It’s anyone’s guesswhen that will happen.Lost in all the present talk has beenthe issue of when Mainland residentswill be allowed to freely travel to Taiwan.This is likely to be approved before directair services across the Strait. And,make no mistake, politics aside, Taiwan’stourism industry is salivating at thatprospect. Tourism, especially visits fromMainland compatriots, is seen as themedicine to overcome the hollowing outof Taiwan’s economy. While an estimated4.6 million Taiwanese visited the Mainlandlast year, little more than 1,000 ofits citizens have visited Taipei.With China’s 1.2 billion plus populationand growing consumer wealth, youcan bet a desire by Mainlanders to see“Ilha Formosa”, or the beautiful islandof Taiwan as the Portuguese explorerscalled it, will emerge as the biggestdriver for direct links.E-mail: oscarseow@hotmail.com30 Orient Aviation, Dec 02/Jan 03

news backgrounderStability a key to PAL revivalBy Tom Ballantynein CebuPhilippine Airlines may still beofficially in receivership, tied toa complex rehabilitation planlaunched four years ago, but itsrecovery path is no longerunder threat, according to senior vicepresidentand chief financial officerAndrew L. Huang. “PAL is on coursefor growth and a stable, profitable year,”he disclosed at a November briefing inCebu.Despite global economic gloom,shaky airline markets, terrorism andwar clouds hovering over Iraq, theairline is maintaining projectionsof net income in the current year ofaround US$20 million.Debt has also been substantiallyreduced, from a crippling $2.4 billionat the height of its troubles, to $1.8billion. The airline has been payingan average of $230 million annuallyon loans.It is a remarkable achievementconsidering PAL’s neurotic 1990s.Staff morale hit rock bottom as thecarrier suffered years of bureaucraticinterference, bad management andcorruption. A string of governmentappointedpresidents failed to reviveits flagging fortunes.Worse, shortly after new majorityowner, tobacco and beer tycoonLucio Tan, took the reins in 1996 andannounced a $3.2 billion re-fleetingexercise, the Asian financial crisisarrived. “Quite frankly, we ran outof cash and had to restructure,” explainedHuang.PAL finally closed down completelyfor 10 days in 1998 followinga pilots’ strike that cost it US$1.5million a day. Despite such trauma,Huang is convinced the experienceforced “the opportunity to do a lot ofsoul searching”.Ultimately that laid the foundationsfor recovery as the airline gotback to basics.“From a fleet of 53 planes we aredown to 29 today,’’ Huang said. “Wewere flying to 40 cities domesticallyand now we are flying to less than18. From 30 international destinationswe are now flying to 20. We areno longer in the business of flyingsomewhere just to wave the Philippineflag.“Staff numbers are down from14,000 to 7,200. Yet from an averagePAL senior vice-president and chief financialofficer Andrew L. Huang: “We are nolonger in the business of flying somewherejust to wave the Philippine flag”of maybe a billion dollars in revenue,we are only down to $820 million or$840 million. While we have significantlyrestructured and down-sizedthe organisation, we have not lostthe kind of income you would thinkwe would lose. Our numbers havestood up.”PAL’s main thrust is in controllingthe bottom line. “You go back tofundamentals, which is contributionmargin and operating margin, makingsure routes you fly and the number oftimes you fly are disciplined.“We have basically said cash isking. The routes have to do well orthey will be cut,” said Huang.None of this means PAL has a“slash and burn” policy, nor is expansionand growth frozen.The airline is looking at additionalcapacity and Huang believes threenew jets will be required; a long-haulaircraft, a fairly large medium-haulregional jet and a single-aisle aircraftfor domestic and short-haul regional.PAL currently operates four B747-400s, four Airbus A340-300s, eightA330-300s, three A320-200s, sevenB737-300s and three B737-400s.PAL wants to reduce the numberof types. “We operate five differenttypes of aircraft and we only have afleet of 29. That’s not acceptable,” saidHuang. Capacity did not only meanbringing in new aircraft.“We have done some things onthe capacity front without spending alot of money over the last two years.We reconfigured all our A330s from278 seats to 302 seats. That’s 24 extraseats on each of eight planes so it’salmost like adding another plane.”A long-haul addition to the fleetwould probably be earmarked for theU.S. market, where Huang said PAL is“leaving money on the table”.With load factors of 90% to theU.S. it often has to turn away customers.“People fly with us becausewe have a fairly good product andwe save four to six hours vis-a-visthe competition because U.S. airlinesmainly operate to Manila via Tokyo.“Out of Manila we are the fastesttrans-Pacific airline and the businesstraveller likes that.“We are not a Cathay Pacific ora Singapore Airlines, but it’s a goodservice and it gets you there the fastest.That’s a valuable thing.”Huang also sees cargo, presently10% to 13% of revenue, as asignificant growth area. PAL wantsto increase this by as much as 40%,although this will take several years.“We are missing out on cargo. Someroutes are bursting at the seams. Webelieve we can build it significantly ifwe do a lot of internal restructuringon how we view cargo,” he said.He is optimistic any impact from awar with Iraq will be muted.“We are shielded from the impactof war because PAL’s core business isthe huge numbers of overseas Filipinoworkers and visiting friends and relativesfrom abroad. We have a steadycash flow and more than sufficientcash on hand as our nest to prepareus for the bad times.”There is another critical elementin Huang’s confidence about PAL’sfuture. The days of “revolving door”management are gone.“There’s been a lot of stability inmanagement, which has not beenchanged since 1999. I have to creditour president, Avelino Zapanta, withthe work he has done. This includesa programme in which he personallyhandles what are essentially townhall-style meetings with staff.“Prior to rehabilitation nobodyknew what was going on. Now, it isthere for everyone to see. It’s all abouttalking to people and making sure youunderstand them and they understandyou,” said Huang.Dec 02/Jan 03, Orient Aviation 31

featureMILESTONESBoeing senior vice-president sales, Larry Dickenson: sees onlypositives for the future in ChinaBy Charles AndersonRolls-Royce is looking forwardto its next 40 years in Chinawith the kind of grand plansthat would have astonishedexecutives overseeing the 1962sale of its first Dart engines to the country.Commercial aviation was still in itsinfancy back then. It was slow goingas the company trod carefully throughthe political upheavals and commercialuncertainties that were the norm in MaoZedong’s republic. It took another eightyears before the Dart, powering a fleetof Vickers Viscounts, was followed bythe Spey 512, on board the Trident, anda further 17 years before the RB211 tooka bow with the Boeing 757.Now Rolls-Royce has 115 engines inoperation with eight major airlines inBy Barry Grindrod andMelody Su, in BeijingMainland China; a joint venture, XianAero Components (XRA), mainly makingturbine blades that has an annual US$6.9million turnover; component manufacturingagreements with the AviationIndustry of China (AVIC) that help supplythe company’s global operations anda training scheme run jointly with theCivil Aviation Administration of China(CAAC) that has just been extended foranother five years.Rod Williams, Rolls-Royce’s presidentChina, puts collaborative programmesand strategic development at the top ofhis list of priorities when he talks aboutthe company’s next 40 years in China.Straight engine sales appear secondary.“China, because of its size, has a civilaviation market which is big enough tosupport and sustain a domestic industry.The work we have done over a numberBoeing: 30 yearsCompared to the old state-run airline industry withits one national carrier, CAAC, aviation in Chinatoday is another world. The recent green lightfrom the State Council for the consolidation of itstop carriers, formerly under the Civil Aviation Administrationof China (CAAC) umbrella, into three groupings,is designed to make the industry more efficient and transparentafter the helter-skelter growth of the 1990s.Boeing Commercial Airplane Company’s senior vice-presidentsales, Larry Dickenson, first visited China 10 years ago ata time when the country’s aviation industry was mushroomingfast, in fact too fast for its own good by the mid-1990s. Chinadid not have the infrastructure to cope with its expandingairline fleets and the country’s premier, Jiang Zemin, askedBoeing for help.On a 1993 visit to Seattle, premier Jiang told Boeing executivesthe country and its airline industry were growing ata pace. “He said he needed Boeing’s assistance to create theinfrastructure that would allow China to take more aircraft, aRolls-Royce: from Mao to a newof years through either a joint venture interms of manufacturing or through jointresearch and technology programmes iscertainly something we want to develop,”he said.“Ultimately, we would like to seethat lead to a situation in which Chinacould become a serious partner withus in maybe a new engine developmentprogramme. We certainly are keen tolook at ways we could develop that kindof strategic development – to have theChinese industry as a partner with us inthe long-term future.“One of our advantages is that, havingbeen here for 40 years already, we cansee how important a long-term commitmentis to this kind of market. I hope theChinese can see we are an organisationthat is not going to go away.”Such talk is light years from the situa-32 Orient Aviation, Dec 02/Jan 03

In early December, a party of top Boeing executives andVIPs will travel to Beijing to commemorate 30 continuousyears of trade and cooperation in China. This year marksan even longer association, 40 years, between engine manufacturer,Rolls-Royce, and China.Orient Aviation spoke to executives of both companiesabout the keys to their success in China; businesses whichstarted in an infant Chinese aviation market and are now set togrow exponentially in the industry’s fastest growing market.U.S. President Richard Nixonmeets Zhou En-Lai in Beijing in 1972on, still working togetherprocess that would, in turn, contribute to the economic growthof the country,” said Dickenson.Since then Boeing has invested about US$300 million in thecountry on programmes aimed at improving safety, increasingcapacity and training management. In the eight years to 2001,Boeing instructed over 15,000 Chinese aviation professionals,half of whom were pilots, maintenance and flight operationspeople. In 1993, a China-Boeing task force was formed tooverhaul its air traffic management (ATM) system and trainair traffic controllers.“Our commitment is just as strong today as it was 30 yearsago,” said Dickenson. “Our president [of the Boeing CommercialAirplane Company] Alan Mulally is very committed to China.”There is an old Chinese saying, according to Dickenson,which says: “When you drink from the well, never forget whohelped you dig the well. We have certainly dug the well forcommercial transportation in China,” he said.One of the cornerstones of the relationship between Boeingand China is it has always been based on the fact that the U.S.company wanted to be a long-term partner, said Dickenson.“Elements change over time, whether it is commercialmanufacturing companies that make parts for our airplanes,millenniumworking with the airlines or cooperating with the CAAC onaspects of training. The common thread is Boeing’s long-termcommitment to the Chinese aviation industry,” he said.When China ordered 10 B707s in 1972, following thegroundbreaking visit of U.S. President Richard Nixon toBeijing earlier in the year, China had one state airline, theCAAC.But in the late 1980s China divided its state airline intoquasi-independent carriers headed by Air China, ChinaSouthern Airlines and China Eastern Airlines. It also allowedprovincial governments to start their own carriers.During the 1990s, China’s aviation industry skyrocketed.And as the number of airlines grew to almost 40, infrastructureand safety was left wanting.As a result, the CAAC has been working in recent yearstowards winning approval for consolidation of its carriersto improve management and fiscal efficiency. The recentgo-ahead from Beijing to start the process means the nineairlines will officially become three independent groupingseventually, reducing the total number of carriers operatingin China to about 12.Again, Boeing has been involved. “The blending of differ-(cont. on next page)tion in 1958 when a Chinese economy andtechnology review delegation to Britainspent two days visiting the company’splant in Derby, England, before the saleof the Dart engines. Mao hats and tunicswere the uniform of the day as thedelegation toured the engine assemblyworkshop, test bed, manufacturing lineand high altitude simulation test bed.Ties were then strengthened in 1972when managing director Dr (later Sir)Stanley Hooker made personal contactthrough diplomatic channels with theChinese industry and made the resultingsale of the product patent of thereheated Spey MK202 turbofan to China,strengthening a Rolls-Royce pattern oftechnology transfer that has continuedever since.Sales of the RB211 family grewthroughout the 80s and 90s, joined bythe Tay 650 on ChinaEastern’s Fokker 100s,IAE’s V2500 on the AirbusA320 [Rolls-Royceis a senior shareholderin the IAE consortium]and, finally, a breakthroughorder in 2000for the new Trent engineon five A340-600s,again ordered by ChinaEastern.James Richards,now Rolls-Royce’sdirector of EuropeanUnion relations, wasdirector of NortheastAsian Affairs for thecompany from 1996 to2000 and was First Secretary to the BritishEmbassy in Beijing in the late 70s.Rolls-Royce China president, RodWilliams: preparing for the next40 yearsHe sees a long-termpattern of engagementas vital to Rolls-Royce’sinterests.“The secret of oursuccess is broad commitment,co-operationand collaboration thatreflects the view inRolls-Royce that Chinais a market of longtermstrategic importancein all areas of ourbusiness,” he said.“If you seriouslyengage with the Chinese,there is much thatis rewarding in businessand at a personallevel. We make a point of engaging at alllevels, at senior levels with senior Chinese(cont. on next page)Dec 02/Jan 03, Orient Aviation 33

featureChina president, Jiang Zemin, tours Boeing’s Everett plantwith chairman, Frank Shrontz, in 1993Cont. from previous pagenessed a marked improvementin the qualityof China’s airline executivesin recent years. “Noquestion about it. It wentfrom ‘let’s make theseaircraft operate efficientlyand safely’ and, havingdramatically improvedthose aspects, it movedon to ‘how can we runour company to make aprofit’, by looking at aspectslike higher aircraftutilisation and revenuemanagement and yields,”he said.Dickenson singlesout Shanghai Airlinesfor special mention. “Itis so well run. It hasa business plan thatworks. It is profitableand it has the full support of the ShanghaiGovernment. It will become a largeairline one day,” he said.Another major aspect of Boeing’slong-term commitment to the countryis its industrial cooperation with China’sfour largest airplane factories inShanghai, Xi’an, Chengdu and Shenyangto make parts for Boeing aircraft.“This work was part of our initial strategyand goes back over 10 years,” saidDickenson. “This is not offset work. Itis manufacturing that Boeing pursuedbecause it expected high quality work ata competitive price.”As of March this year China operated587 aircraft of which 64% were Boeingjets (including McDonnell Douglas).Airbus has 110 planes in China, 19% ofFu Baoxin, former vicepresident,Air China‘ Boeing has made a greatcontribution to air transportationand the aviation industry ingeneral in China. Over the yearsAir China has benefited from, inparticular, pilot and maintenancepersonnel training from Boeing.Also, the company has helped theairline benefit economically byassisting us to analyse our air routenetwork and the aircraft typesthat were best suited to serve theroutes. Boeing even helped ourmarketing department by designingadvertisements for us. China looksforward to continuing its mutualcooperation with Boeing well intothe future.’the total fleet.Competition between the two manufacturersis fierce and probably in Chinamore than anywhere else, politics comesinto play.There had been “bumps in theroad”, said Dickenson when, becauseof strained Sino-U.S. relations, Boeingwas penalised and lost orders. “Therewill always be bumps in the road, but aslong as we progress in the right directionwe will be alright. What drives usis trade and Boeing aircraft. Our goal isfor China to believe we are committedand above political buffeting by the twosides [U.S. and China],” he said.Dickenson said he understood it wasimportant for China to have a secondmajor manufacturer supplying aircraftto the country. The country did not wantto find itself in a situation where it couldCont. from previous pageRolls-Royce milestones1963: Dart engine enters service in China1960s: Dart overhaul technology transferred toChina1970: Spey 512 enters service on the Trident1976: Spey 202 licence agreement with Xian1970s: Spey 512 overhaul technology transferredto China1987: RB211-535E4 enters service with China SouthernAirlines on the Boeing B7571991: RB211-535E4 powered B757 services toLhasa, Tibet1992: Tay 650 enters service on Fokker 100 withChina Eastern Airlines1993: RB211-535E4 overhaul technology transferredto China1994: Twenty MD-90 aircraft purchased, poweredby V25001995: RB211-535 powered B757 services to Bangdaent business cultures into unified units issomething we ourselves have experiencedin the last four or five years. We havespoken to China’s airline managementsabout how this can be achieved. Also, wehave helped airlines with their fleet plansas they prepare to integrate and work outtheir route networks,” said Dickenson.He believes the mergers are a positivemove that will bring a new efficiency tothe airlines in the groupings and allow thegroup leaders, Air China, China Southernand China Eastern Airlines to expandtheir domestic networks. China Southernrecently took delivery of China’s firstB737-800, to be used on local services.The senior Boeing executive has witpersonnelcoming to the UK and withboard members going to China.”Williams, when he does talk aboutsales, echoes the importance of themarket to Rolls-Royce. “China representsan extremely significant marketopportunity for us in the airline sectorover the next 10, 15, 20 years. So it ratesvery, very highly in Rolls-Royce’s orderof priority.”He is especially enthusiastic aboutCAAC’s forecast of the need for between1,500 and 1,800 aircraft in the 200-seaterdown market, which means potentialsales of IAE V2500s on the smallerAirbuses and the RB211-535E4 on theBoeing 757. The only downside is thatRolls-Royce does not power Boeing’s737 family, which uses General Electric’sCFMs.Williams also cited the 10-year fleethour agreement with China Eastern Airlines,announced in August, that coversthe Trent 500s on the Airbus A340-600s,as a breakthrough for Rolls-Royce.V2500 enters service on Airbus A320 with SichuanAirlines1996: New joint venture between Rolls-Royce andAVIC’s Xian Aero Components approvedRB211-524H enters service on the B767-300 withYunnan Airlines1996-7: China orders another 20 A320s poweredby V2500s for the China Southern fleet1997: CAAC and Rolls-Royce open their Tianjintraining centreRB211-535E4 enters service on a B757 with XinjiangAirlinesChina Southwest orders two B757 aircraft, poweredby the RB211-535E41998: Manufacture of aerofils commences at Xianplant2000: AE3007 enters service on Embraer 145 jetwith Sichuan Airlines, Chengdu2002: China Eastern signs 10-year Fleet HourAgreement for Trent 500This is the company’s top “total care”service package, until now only in usein the Mainland for Sichuan Airlines’34 Orient Aviation, Dec 02/Jan 03

e denied aircraft by a sole supplier if,for example, sanctions were imposed. “Ido not like the situation, but I understandit,” he said.In the years to come, Boeing’s leadingsalesman said he could only seepositives. “The economy will be robust,cities like Shanghai will become financialcentres of the world, Pudong airport willbe bustling, growth in the west of Chinawill continue and there will be a greatdeal of emphasis and development atChina’s airports and airlines,” he said.On a personal note, Dickenson saidthe highlight of his work in China was thesale of 50 aircraft, worth US$3 billion, in1997. “It needed a lot of orchestration,”he said.But he has not ruled out an evenbigger coup before he retires. “There isa lot of demand in China. The airlinesneed more planes. But once the leadershipprocess is finalised (the consolidation)the bureaucracy will start to moveagain.”BOEING CHINABoeing established its Boeing Chinaoffice in Beijing in 1995. It has a staffof about 100, with 230 other personnelbased in China’s major cities and at factorieswhich produce parts for Boeingaircraft.Management courses are held at themanufacturer’s Learning Centre in StLouis, in the U.S. Pilot training is carriedout in the U.S. and at the CAAC’sChengdu flying college. Boeing has severalpilots based in China who work inChengdu and visit airlines on a regularbasis.1916: Founder William Boeing hires Beijing bornengineer, Wang Zhu, to design a new seaplane1935: Nemo Pancetti becomes the first Boeing customerservice representative in China. He arrives inChina in time to uncrate the 261 airplane and traincrews in flying and maintaining the aircraft1972: U.S. President Richard Nixon arrives in Beijingin February for an eight day visit, describing itas “a journey of peace”China orders 10 Boeing B707 jetliners1973: China’s first Boeing jet is delivered to China1978: China orders three Boeing B747s for itsexpanding international network1979: Shanghai Aircraft Industrial Corporation(SAIC) begins production of MD-80 main landinggear doors1980: Boeing sets up a Beijing office with one fieldservice representativeFirst Boeing B747 delivered to China1981: Xian Aircraft Company and Boeing signcontract for the Chinese factory to supply machinedparts for the B7471982: Xian Aircraft Company signs contract toproduce B737 Classic forward access doors1983: First B737 deliveredThe first two MD-82s delivered1985: Boeing works with Civil Aviation Institute inTianjin to develop maintenance technician trainingprogramme and a scheme to qualify students forairframe and power plant licences.First B767 deliveredLicence agreement for MD-80 co-production programmesigned by Aviation Industries of China(AVIC)1987: First Boeing B757 deliveredBoeing assists development of Beijing Capital AirportSpares CentreShenyang Aircraft Company signs contract toproduce machined parts and cargo doors for B757airplanes1990: China places the biggest order in Boeing’shistory: 36 aircraft plus 36 options, in a deal valuedat US$9 billion1994: McDonnell Douglas and the China NationalAero-Technology Import and Export Corporation(CATIC) sign MD-90 Trunkliner agreementBoeing delivers 200th aircraft to ChinaBOEING MILESTONESChina flew its first Boeing B747 in 19801995: China Southern becomes first Chinese airlineto order the Boeing B777.Boeing signs B737 next generation manufacturingcontracts with Shenyang Aircraft Corp, SAIC andXian Aircraft Corp. to produce tail sections, horizontalstabilisers and vertical fins respectivelyBoeing begins training Chinese flying instructorsand donates two B737 simulators to the Civil AviationTraining College, Chengdu1996: The first MD-90 is delivered1997: China makes a US$3 billion order for 50Boeing aircraftBoeing invests US$11 million in MRO facility,TAECO, in Xiamen1998: U.S. president, Bill Clinton, visits China.During the visit China converts 20 options for Boeingairplanes to firm orders and signs a purchaseagreement for 10 options for B737 next generationaircraftBoeing delivers 300th aircraft to ChinaBoeing, Hexcel Corp and AVIC set up a company,BHA Composite Parts Co Ltd, to manufacture compositeparts for commercial airline interiors andsecondary structures2001: China Southwest accepts its first B737- 600,the first operator of the aircraft in ChinaChina Aviation Suppliers Import and Export Corp.order 30 B737s2002: Hainan Airlines takes its first 737-800 withwinglets: the first operator of the modified typein AsiaChina Eastern Airlines accepts its first purchased737-700China Southern takes delivery of its first B737-800and one of two B747 freighters44-seater Embraer RJ145s, powered byRolls’ A3007s. The deal, involving China’sfirst Trents, is particularly significant,he said.When it comes to training, Williamsagain stressed Rolls-Royce’s long-termgoals. A joint training centre was setup with CAAC in Tianjin five years ago,with the first of seven protocols signed in1990. Initially, the centre concentrated ontechnical training for the men and womenwho operate Rolls-Royce engines. Nowmanagement training programmes areincluded at that level, as well as seniormanagement and development programmesrun in association with the CivilAviation Management Institute, taggedthe Top 300 programme.Under this, airlines nominate 20 to25 of their senior staff with the mostpotential for promotion. They spendthree months at the Institute in Beijingand six weeks at the Rolls-Royce facilityin Derby.Rolls-Royce managing director, Sir Stanley Hooker, with China’s vice premier, WangZhen, in 1973The advantages to both sides areobvious. The Chinese are trained in theirown language and see managementpractices from another perspective whileRolls-Royce strengthens its relationshipswith potential aviation industry leaders.Williams has no special plans to celebrateRolls-Royce’s 40th anniversary inChina. He sees its presence as an ongoingaffair. But he does have a long-termperspective that links the first 40 yearswith the next.“If we can achieve what we would liketo achieve over the next 10 to 15 years,then we will be here in 40 years’ time,”he said. “We are setting our stall outfor the next 40 years, which very muchbuilds on the good understanding andexperience we have gained over the last40 years.”Dec 02/Jan 03, Orient Aviation 35

information TECHNOLOGYIT spending to growBy a Special CorrespondentIn SingaporeLim Soon Hock, Asia-Pacificpresident of SITA, the integratedinformation and telecommunicationssystems supplier,remains optimistic aboutprospects for 2003, despite the fact thatmany companies have put investment ininformation technology (IT) on hold followingthe events of September 11 andthe global economic slowdown.Airlines, he said, were waiting forthe right time to put existing plans forexpansion in IT into operation.“Even prior to September 11, theeconomic environment was not thatgood. In the first quarter of last year, wehad signals of business and investmentslowing down based on the new orderswe were collecting,” Lim told Orient Aviationin Singapore.IT spending fell to some 2.2% ofindustry revenue, compared to the industry-wide3% that had been consistentlyrecorded in the years precedingSeptember 11, he said. It remains belowexpectations, even though the industry ispulling out of a drastic tailspin.“I guess one reason why they areholding back is the economic uncertaintythat is still present. Secondly, theprospect of a U.S.-led war against Iraqis also making them reconsider if theyshould push ahead with more spending,”he said.However, Lim sees that changing.Airlines have been making plans to increaseinvestment in new systems andapplications, he said, citing the annualsurvey of airline IT trends conducted bySITA and a leading Europe-based aviationmagazine.“It’s just a question of when theywant to push the button. The planningis already there,” he said.The August survey showed that 61%of 90 carriers questioned expected anincrease in IT investment next year.Lim sees better times ahead in theregion. “For Asia-Pacific, airlines havereported an increase in passenger trafficand cargo in the first half of this year,although yields have been low. But ingeneral, business has been getting better,”he said.“There is no doubt that an investmentin IT and a move to the latest opensystems, applications, equipment andnetworks will benefit an airline.“For example, distribution costsaccount for something like 24% ofSITA Asia-Pacific president, Lim Soon Hock:a major focus on security productsoverheads. That’s one big headache allairlines face. Today, with the pervasivenessof the Internet, airlines can exploitthat technology to support their distribution.“Some of the top airlines have announcedbudgets to the tune of US$100million to US$200 million dollars to e-enabletheir businesses over the next fiveto 10 years.”Ironically, one side effect of September11 and the economic downturn isaiding SITA.“Because of the current emphasis oncost reduction and containment, essentiallyit has encouraged a lot of airlinesto look at community-based systems andapplications which do not require a hugecapital investment up front,” said Lim.“This type of initiative was what spurredthe creation of SITA in the first place.“What we expect is to see manyairlines, even first-tier carriers, movingaway from huge legacy systems to anenvironment where they buy servicesVisit our English andChinese web siteorientaviation.comand pay on a per-usage basis. SITA canprovide those services.”Lim also discussed SITA’s contributionto one aspect of air travel underincreased scrutiny: security.SITA was offering a range of productsthat aimed to address the threat,he said.“We have undertaken a huge projectwith the Canadian Government wherewe integrate all existing data pertainingto a customer. All this information is aggregatedtogether and made availableto the relevant authorities so that theycan decide whether to grant him accessor not.”Closer to home, in Singapore, SITA iscurrently working with local authoritieson biometric fingerprint identification toensure that a passenger boarding an aircraftis the same one who checked in.The company has also been engagedto help the European Community toformulate the benchmark, standards andrequirements for secure travel.With a healthy customer base and thelikelihood of an upturn in business nextyear, Lim sees SITA on track to achieveits target of listing its service arm, Sita InformationNetworking Computing (INC),within the next three to five years.“I think it is within reach. I think wehave done well compared to other companiesin the Telco industry,” said Lim.“We are cash rich, have hardly any debtand boast a solid customer base.”Geneva-based SITA began life in1949as the not-for-profit Societe Inter-nationalede Telecommunications Aeronautiqueswhich aimed originally tobring together airlines’ existing communicationsfacilities so all users couldderive cost-efficiencies from a sharedinfrastructure.It now has 1,800 customers including588 airlines and all major computerreservation systems as well as airports,aerospace and airfreight companies. Itrecorded corporate revenue of someUS$1.6 billion last year.36 Orient Aviation, Dec 02/Jan 03

BUSINESS DIGESTAUGUST 2002 STATISTICSINTRA-ASIANTRAFFIC BUOYANTCompiled and presented by Kris Lim of theResearch and Statistics Department of theAssociation of Asia Pacific Airlines SecretariatInternational passenger traffic for Association of Asia PacificAirlines (AAPA) members continued on a growthtrend with revenue passenger kilometres (RPKs) rising1.9% in August compared to the same month in 2001.The number of passengers carried (PAX) was also up,by 3.9%. Capacity increased by 2.7%, resulting in a marginaldecline of 0.6 % in load factor to 77.4%.Vietnam Airlines (VN), Cathay Pacific Airways (CX) andThai Airways International (TG) experienced a double-digitincrease in RPKs. Growth was equally robust for EVA Air(8.0%) and Asiana Airlines (OZ: 7.7%). In contrast, traffic didnot improve for All Nippon Airways (NH: -12.1%) and JapanAirlines (JL: -9.5%).Among the carriers with improved load factors from a yearearlier, Philippine Airlines (PR) registered the biggest increase,at 5.4 percentage points. Cathay Pacific Airways was next, up3.3 percentage points. On the other hand, seven carriers experienceda decline in load factor, with Japan Airlines (-5.8 p.p.)RPK Growth by CarrierPercentage (Aug 02 vs Aug 01)Vietnam Airlines: double digit RPK growth in August over thesame month last yearand All Nippon Airways (-4.0 p.p.) the worst hit.Improved traffic and cautious capacity management enabledall carriers to report healthy load factors in August. Fourcarriers had a load factor of more than 80% – Asiana AirlinesPAX Growth by CarrierPercentage (Aug 02 vs Aug 01)2020151050-5-10151050-5-15NHGA JL CI SQ PR KE OZ BR TG CX VN-10NHJL CI SQ PR GA KETG CX BR OZ VNOLLS-ROYCE NEWS DIGEST“Rolls-Royce has signed a $325 million long-ter termarket supportagreement with Virgin Atlantic, covering the airline’s T ent 500 engines”Dec 02/Jan 03, Orient Aviation 37

BUSINESS DIGESTAll Nippon Airways (12.7%).With the exception of Garuda Indonesia (GA) and KoreanAir (KE), all carriers saw their load factors increase from a yearearlier. At the top of the list, Singapore Airlines’ load factor rose10 percentage points. Asiana Airlines (78.4%), however, had thebest load factor, followed by China Airlines (77.4%) and EVAAir (73%). Garuda Indonesia and Philippine Airlines recordedload factors under the 30% mark.RESULTS OF THE 12 MONTHSTO AUGUST 31, 2002PassengerAAPA consolidated international RPKs and PAX for the12-month period under review contracted by 5.9% and 2.4%respectively. Capacity was down 3.7%, resulting in a load factorof 72.3%, down 1.7 percentage points.CargoThe consolidated international FTKs for the 12-monthperiod grew at an encouraging rate of 4.6%. Capacity was upSingapore Airlines: freight load factor rose 10 percentage pointsin August compared to a year earlier(84%), Cathay Pacific Airways (82.1%), EVA Air (BR: 82.0%)and China Airlines (CI: 81.1%). The remaining eight carriersregistered a load factor in the 70s.FTK Growth by CarrierPercentage (Aug 02 vs Aug 01)5040CargoAAPA international freight tonne kilometres (FTKs) rose18% in August, the fifth consecutive month of double-digitgrowth. Capacity grew 8.1%, resulting in a 5.6-percentage pointgain in load factor, to 67.2%.Driven by strong demand in airfreight, seven carriers experienceda robust growth in FTKs – Cathay Pacific Airways(43.2% – subsidiary Air Hong Kong’s European routes were included,giving rise to an inflated growth rate), EVA Air (24.3%),Singapore Airlines (SIA 23.0%), Asiana Airlines (22.4%), ThaiAirways International (17.5%), Vietnam Airlines (17.2%) and3020100KEPR GA JL CI NH VNTG OZ SQ BR CXPassenger Load Factor Growth by CarrierPercentage Points Change (Aug 02 vs Aug 01)Freight Load Factor Growth by CarrierPercentage Points Change (Aug 02 vs Aug 01)6420-21086420-4-2-4-6JLNH GA CI OZ SQ BR TG KE VN CX PR-6GAKE PR VN TG OZ JL CI NHBRCXSQ38 Orient Aviation, Dec 02/Jan 03

y a marginal 0.4%, resulting in a load factor of 67.8%, up 2.7percentage points.Passenger Load Factor Growth by CarrierPercentage Points Change (Sep 01 - Aug 02 vs Sep 00 - Aug 01)SUMMARYIn the past few months, the AAPA members’ better-thanexpectedpassenger traffic performance was due mainly tobuoyant intra-Asian traffic. In terms of passengers carried,year-to-date the region had seen the number grow by 1.4million, an increase of 3.2% over the comparable period lastyear. Traffic is expected to maintain its momentum of growth,although the recent tragic event in Bali could pose a threat tointra-Asian leisure travel. The indication is that Asians willcontinue to travel and will substitute one destination for anotherif perceived safety is a concern.The freight sector continued to perform well. Many AAPAmembers reported healthy FTK growth and airports in theregion were seeing increased cargo volume flowing through.The shutdown of U.S. West Coast ports helped the carriers toincrease loads as exporters looked to airfreight as an alternativemeans of transporting goods to the U.S.E-mail:krislim@aapa.org.my6420-2-4-6-8NHJL GA OZ KE TG SQ CI VN CX BR PRFTK Growth by CarrierPercentage (Sep 01 - Aug 02 vs Sep 00 - Aug 01)151050-5Philippine Airlines: a 5.4 percentage point rise in passenger loadfactor over one year ago-10NHJL PR GA KE OZ TG CI CX VN SQ BRRPK Growth by CarrierPercentage (Sep 01 - Aug 02 vs Sep 00 - Aug 01)Freight Load Factor Growth by CarrierPercentage Points Change (Sep 01 - Aug 02 vs Sep 00 - Aug 01)206100420-10-20-2-4-6-30NHJL GA CI KE CX BR SQ PR OZ TG VN-8GANH JL CI SQ TG VN KE CXBRPROZDec 02/Jan 03, Orient Aviation 39

BUSINESS DIGESTMonthly international PAX statistics of AAPA members40 Orient Aviation, Dec 02/Jan 03

Monthly international cargo statistics of AAPA membersDec 02/Jan 03, Orient Aviation 41

BUSINESS DIGESTAAPA MONTHLY INTERNATIONAL STATISTICSSummary of Consolidated Results IN THOUSANDS2001 to 2002RPK ASK PLF FTK FATK FLF RTK ATK PAX(000) (000) % (000) (000) % (000) (000) (000)Sep-01 35,601,847 51,038,190 69.76 3,061,243 4,555,532 67.20 6,406,828 9,210,564 8,229Oct-01 31,006,991 50,974,094 60.83 3,277,370 4,793,876 68.37 6,151,064 9,438,030 7,475Nov-01 29,565,610 47,049,593 62.84 3,243,992 4,685,510 69.23 5,978,041 8,974,938 7,211Dec-01 35,267,317 51,023,617 69.12 3,090,062 4,655,223 66.38 6,346,707 9,307,797 8,384Jan-02 37,126,908 50,541,963 73.46 2,723,224 4,352,161 62.57 6,215,154 8,960,696 8,481Feb-02 34,506,659 45,314,221 76.15 2,714,321 4,081,188 66.51 6,343,335 7,842,815 8,298Mar-02 39,611,128 49,729,631 79.65 3,512,735 4,881,714 71.96 7,247,896 9,438,779 9,350Apr-02 37,255,496 49,573,917 75.15 3,203,656 4,738,718 67.61 6,688,035 9,267,518 8,872May-02 37,650,015 52,692,923 71.45 3,315,590 4,960,585 66.84 6,856,231 9,740,280 8,824Jun-02 38,886,391 52,282,994 74.38 3,459,836 4,859,617 71.20 7,121,377 9,635,831 8,761Jul-02 43,053,295 56,186,324 76.63 3,540,061 5,191,938 68.18 7,579,883 10,324,348 9,807Aug-02 44,119,032 57,033,266 77.36 3,515,664 5,231,860 67.20 7,652,749 10,527,528 10,210TOTAL 443,650,689 613,440,733 72.32 38,657,754 56,987,921 67.83 80,587,299 112,669,124 103,9022001 to 2002RPK ASK PLF FTK FATK FLF RTK ATK PAX% % % % % % %Sep-01 -10.31 -0.89 -7.33 -11.22 -6.00 -3.95 -10.86 -3.83 -5.63Oct-01 -20.93 -3.26 -13.59 -7.84 -4.61 -2.40 -15.20 -4.28 -14.88Nov-01 -22.28 -8.73 -10.95 -6.44 -5.21 -0.91 -15.13 -7.22 -16.44Dec-01 -11.27 -5.92 -4.16 -6.55 -4.75 -1.28 -9.93 -5.61 -5.22Jan-02 -8.89 -7.12 -1.42 5.50 -1.72 4.28 -2.94 -4.93 -6.32Feb-02 -1.81 -5.98 3.23 -3.70 -4.95 0.86 3.59 -9.86 3.58Mar-02 -0.52 -6.98 5.18 7.09 0.68 4.31 3.19 -2.95 3.00Apr-02 -1.65 -6.26 3.53 13.62 2.27 6.76 4.85 -1.99 1.82May-02 2.58 -3.31 4.10 20.27 8.30 6.65 10.24 2.04 4.03Jun-02 -0.56 -1.11 0.41 15.75 4.41 6.97 6.83 1.64 -0.93Jul-02 2.25 2.33 -0.06 19.51 8.75 6.26 9.70 5.46 3.51Aug-02 1.85 2.65 -0.61 18.04 8.13 5.62 8.84 6.26 3.92GROWTH -5.91 -3.66 -1.73 4.58 0.41 2.70 -0.86 -2.03 -2.40Calendar Year 4RPK ASK PLF FTK FATK FLF RTK ATK PAX(000) (000) % (000) (000) % (000) (000) (000)1997 387,763,016 561,392,742 69.07 31,741,381 45,688,853 69.47 67,739,088 96,736,079 88,6961998 382,106,292 557,130,177 68.58 30,958,021 46,204,321 67.00 66,141,448 97,199,731 86,1981999 416,820,106 576,253,703 72.33 35,277,459 51,519,550 68.47 74,179,615 104,437,440 94,2422000 462,466,095 617,787,854 74.86 39,020,611 56,255,588 69.36 82,533,153 112,874,721 103,5272001 446,262,043 626,881,408 71.19 35,858,596 55,742,084 64.33 77,638,545 112,962,219 102,7782002 312,208,924 413,355,239 75.53 25,985,087 38,297,780 67.85 55,704,660 75,737,795 72,603Calendar Year 5RPK ASK PLF FTK FATK FLF RTK ATK PAX% % % % % % %1998 -1.46 -0.76 -0.49 -2.47 1.13 -2.47 -2.36 0.48 -2.821999 9.08 3.43 3.75 13.95 11.50 1.47 12.15 7.45 9.332000 10.95 7.21 2.53 10.61 9.19 0.89 11.26 8.08 9.852001 -3.50 1.47 -3.67 -8.10 -0.91 -5.03 -5.93 0.08 -0.732002 5 -0.83 -3.15 1.77 12.07 3.36 5.27 5.59 -0.39 1.57Note:1. The consolidation includes 15 participating airlines. Consolidated results for JAN - AUG 2002 are subject to revision.2. KA and NZ do not participate in this report.3. AN data from JUL 1998 to JUN 2001 only. VN data from JAN 1998 onwards.4. CY denotes Calender Year (January - December): JAN - AUG 2002.5. YTD comparison: JAN - AUG 2002 v JAN - AUG 2001.Dec 02/Jan 03, Orient Aviation 42