HIGHER FARES, LONGER QUEUES - coming soon to Asia-Pacific air travellers in the post pandemic world - Orient Aviation
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Vol. 27 No. 4 May 2020
orientaviation.com
HIGHER FARES,
LONGER QUEUES
coming soon to
Asia-Pacific air travellers in
the post pandemic world
More pain Region’s leading lessor Social distancing’s
for conflicted cashed up to cope with economic impact
AirAsia India airline fallout on airfares
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CONTENTS Volume 27, Issue 4
MAIN STORY
8
ORIENT AVIATION MEDIA GROUP
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Editorial (852) 2865 1013
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Publisher & Editor-in-Chief
Christine McGee
E-mail: christine@orientaviation.com
Associate Editor &
Chief Correspondent
Tom Ballantyne
HIGHER AIRFARES AND LONGER QUEUES
Tel: (612) 9638 6895
Fax: (612) 9684 2776
E-mail: tomball@ozemail.com.au
AWAIT PASSENGERS BEYOND COVID-19
North Asia Correspondent
Impact of coronavirus pandemic could extend to 2023 – in a worst case scenario
Geoffrey Tudor
Tel: (813) 3373 8368
E-mail: tudorgeoffrey47@gmail.com
COMMENT NEWS BACKGROUNDERS
Photographers 5 Long slog to better times 9 Temporary biosecurity measures for passengers
Rob Finlayson, Graham Uden, and crew
Ryan Peters ADDENDUM 10 Social distancing’s economic impact on air fares
Chief Designer
6 Global pandemic to increase pain for conflicted 11 IATA names and shames nations, including in the
Chan Ping Kwan AirAsia India Asia-Pacific, for withholding vital backing for
their aviation industries
Printing
14 Region’s new reality for commercial aerospace
Printing Station(2008)
giants as first Asia-Pacific order revisions
confirmed
ADMINISTRATION 16 Financial “White Knights” enjoin battle for
Virgin Australia
General Manager
Shirley Ho
7 In at the deep end for new Association of Asia-
E-mail: shirley@orientaviation.com
Pacific Airlines boss, Subhas Menon
7 Former Garuda Indonesia president weighs
ADVERTISING option of appeal against eight-year prison
sentence for bribery and money laundering
Asia-Pacific, Europe & Middle East
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E-mail: defne@orientaviation.com 12 Region’s leading aircraft lessor, BOC Aviation,
cashed up to cope with airline fallout from AIR CARGO
The Americas / Canada
COVID-19 18 Configured without economy seats, a Singapore
Barnes Media Associates
Airlines (SIA) A350-900 earns vital cash from
Ray Barnes
Tel: +1 434 770 4108
carrying cargo in the “back of the bus”
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MAY 2020 / ORIENT AVIATION / 3
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COMMENT
Long slog to better times
It is going to be a long haul. That has become certain as Transport Association survey indicates a major challenge will
the devastating damage of the COVID-19 pandemic being be convincing travellers flying is safe and they can get back
done to the global aviation industry and economy becomes on board.
evident. Another issue will be making flights economically viable
February and March were bad. April and May are when load factors are lowered by new rules on distancing
forecast to be worse. Not only are Asia-Pacific airline fleets in the air and on the ground. Many airline chief executives,
and those elsewhere in the world grounded, airports are such as the heads of Emirates Airline and Etihad Airways, are
closing terminals and runways and aircraft manufacturers are talking about no proper recovery until 2023.
cutting production rates by a minimum of 30%. And they had They and others make the point that without more
no choice. government financial aid most of the world's carriers will
Many of their thousands of suppliers have closed shop, be insolvent and facing bankruptcy by year-end. If there is
unable to supply the required parts to build jets. All are a positive to come out all of this could it be a more rational
furloughing thousands of staff. Asia-Pacific LCCs, which have airline industry?
ordered hundreds of single-aisle jets, are likely to be among There will still be competition, but perhaps fewer airlines
the major casualties of the virus outbreak. and more rational competition. In an industry where about
Their ambitious expansion plans, for the time being at 30 carriers from the hundreds of operators flying are truly
least, are in tatters because any hope of a speedy V-shaped profitable perhaps we will see more rational pricing policies
recovery appears gone. Predictions of some sort of return to and greater determination to have the liquidity available to
normal by June or July for the industry are being treated as survive during future crises.
remote. If nothing else, the disastrous impact of COVID-19
And even when the first shoots of recovery emerge should be a wake-up call for an industry that has spent
and airlines are allowed to put aircraft back in the sky there years inflicting damage on itself through irrational practices,
are additional problems to overcome. An International Air uncontrolled pricing policies, fare wars and over-capacity. ■
TOM BALLANTYNE
Associate editor and chief correspondent
Orient Aviation Media Group
The most trusted source of Asia-Pacific commercial aviation news and analysis
ORIENT AVIATION ORIENT AVIATION CHINA
“It has established itself as the primary source of information on industry topics in the Asia-Pacific region”
MAY 2020 / ORIENT AVIATION / 5
ADDENDUM AIRLINES AIRPORTS PEOPLE
Global pandemic to increase pain for AirAsia India?
Airline analysts, observers and since 1996. operandi by querying the LCC’s were they familiar with the Indian
industry executives argue some Yet sometimes the best-laid aircraft leases rates and related environment and its dynamics.
airlines in India – Air Asia India plans go awry. In the case of party transactions [at the carrier]. The first CEO was ousted
(AAI) and Go Air in particular - are AirAsia India, it began with a He alleged they were being and revealed to be involved in
likely to be shakier than others politician and lawyer in India, approved without “reviewing financial wrongdoing at a personal
post the COVID-19 outbreak. Subramanian Swamy, who took to details or verifying commercial level. The second was found in
In 2013, when the joint the courts to argue the licence of terms”. a compromising situation with a
venture between AirAsia the joint venture (JV) was invalid. This situation persisted until female colleague.
Group’s investment arm, AirAsia He said the country’s Foreign November 2018, when Tata was The inexperience of both
Investment Limited, and Tata Direct Investment (FDI) rules forced to increase its holding in CEOs was revealed in almost
Group was proposed, it appeared allowed investment in “existing” the airline and bring on board its every decision they took or failed
to have all the ingredients for Indian carriers and not the own nominee, Sunil Bhaskaran, to to take.
success. The low-fare airline establishment of a new carrier, run the airline. The airline changed its hub
concept – both globally and in a matter that has since been By 2016-2017, the even before it started operations.
India - was a known animal. It resolved. attention of the Central Bureau Routes were haphazardly chosen
had the backing of AirAsia Group Additionally, and soon after of Investigation (CBI) and and abruptly suspended. Launch
co-founder, Tony Fernandes, the LCC’s launch, the JV was Enforcement Directorate had CEO, Mithu Chandliya, announced
and the wealth of experience the accused of violating regulatory been drawn to the workings and ambitious expansion plans that
Malaysian-headquartered LCC laws. Indian FDI rules stipulate alleged financial misdoings of failed to materialize.
company brought with it. both “substantial ownership” and AirAsia India. Losses totted up quickly.
Almost all the systems, “effective control” [of companies] It was alleged there were Towards the end of 2019, the
protocols and procedures of the must rest in Indian hands, a rule many related party transactions airline’s auditors revealed
parent were adopted for AirAsia ignored by the airline from its first and money in excess of reservations about the JV as
India. Oil prices were at a low and flights, from its Bangalore base, in commercial terms dictated a going concern because of
were continuing to fall. June 2014. appearing to be paid to lessors accumulated losses for the year
For Fernandes, who had As early as February 2013, chosen by the AirAsia Group. ended 2018-2019 of Rs 1284
steadily expanded his airline an email written by group legal The airline also was alleged to crore against share capital of Rs
group’s presence with joint counsel for Tata Sons, Bharat be in violation of tax regulations. 534 crore. The company’s current
ventures in Thailand, Indonesia, Vasani, had raised concerns about A demand notice has been issued liabilities exceed current assets by
Japan and Philippines, India was “effective” control of the JV and against the company that is Rs 962 crore.
an obvious gap to be filled. potential non-compliance with pending. Trouble escalated at the
For Tata Group scion, Ratan Indian regulatory laws. Secondly, the airline hired carrier in January when AirAsia
Tata, an aviation enthusiast, it was Vasani raised more alarm agents to help “convince” the Group senior executives, including
a space he’d been looking to enter bells about the JV’s modus government to modify the 5/20 Fernandes, were summoned
rule that only allowed new carriers by India’s investigative agency,
in India to enter the overseas Enforcement Directorate, in
market if they had been flying for connection with the 5/20 rule
five years or had a minimum fleet and other regulatory violations.
of 20 aircraft. Fernandes failed to show up.
These “agents” were Many feel the AirAsia
essentially lobbyists like Deepak India JV venture has been “one
Talwar who had been instrumental long embarrassment” for its
in influencing government Indian partner. Sources have
policy through various means said the Tata Sons board has
that included liberal handouts contemplated shutting down the
of bilaterals, a matter also under LCC to protect the conglomerate
investigation. from reputational and monetary
What was worse for the LCC damage.
was that Fernandes brought in It was against this backdrop
two underwhelming CEOs. Both that COVID-19 happened. Whether
of them proved to be less than Tatas decide to continue with this
capable of running a low-fare unhappy relationship or wriggle out
airline business. of it remains to be seen. Answers
Neither of them had much will be clearer once the skies open
experience in running airlines nor up again. By Anjuli Bhargava. ■
6 / ORIENT AVIATION / MAY 2020
In at the deep end for new Association of Asia Pacific Airlines boss
Spare a thought for Subhas governments on taxes, fees helpful,” he said.
Menon. When the 35-year and charges, are in discussions One challenge airlines are
veteran from Singapore Airlines with manufacturers about likely to face during recovery
(SIA) accepted the director deferrals and delays and are in will be new regulations, possibly
generalship of the Association talks with their banks and their including leaving an empty seat
of Asia Pacific Airlines (AAPA) governments for lifelines. Airlines between passengers. Menon
he was not to know he would be are very busy in survival mode.” is not sure if this is based on
taking charge in the midst of the The AAPA has strongly scientific advice because people
worst crisis in aviation’s history. criticized governments’ travel are not contracting the virus on
He is not even able to restrictions, but Menon aircraft.
confront the challenges of understood the reasoning behind “They are contracting the
his new job from the airline them. “Travel restrictions were virus elsewhere. Airlines are just
association’s Kuala Lumpur imposed because governments taking them to their destinations.
headquarters. As a foreigner, were nervous about imported Mitigation measures on which
Singaporean Menon had to leave development, logistics, country cases, which were on the rise in governments are going to agree
Malaysia and return to Singapore and regional management as well most countries, so they put the should be upstream in the
where he is now working from as a spell as chief executive of travel restrictions in place,” he passenger travel process. In other
home. SilkAir. said. words, before they board the
“It has been a baptism of fire. Menon said no one is talking “Hopefully, they will buy plane. That is crucial,” he said.
Nevertheless, I think sometimes about failure, only about survival time for governments to make “Secondly, the measures
you might as well jump in the of the crisis. “What is unique sure their public health systems must be based on medical advice.
deep end,” he told Orient Aviation about COVID-19 is the nature of and facilities are up to scratch in Whatever mitigation measures
last month. “I would not say the spread and its duration are case there is another spike in the they decide must be scientifically
a crisis was good, but a crisis unknown. At the moment, we virus.” based and on the advice of
focuses the mind. Everybody is have to operate on the premise Surprisingly, Menon agreed public health professionals like
acting in concert to survive it. The it is going to take a bit of time to governments have facilitated the World Health Organisation
learning curve is very sharp. If we abate. And even if it does, the aircraft operations, provided relief (WHO).
can get through this, we will come recovery will be sporadic and from slot use rules for airlines and “Thirdly, they must be
out of it in better shape.” slow,” he said. exempted them from licensing harmonized, coordinated and
Menon is certainly well The priority for airlines is to certification and regulations. coherent. They must make sense.
qualified to lead the AAPA at this earn as much income as possible “They have done this in They should reassure travellers
time. A graduate of the National and conserve cash, Menon said. a timely manner. Of course, their journeys are safeguarded.
University of Singapore, with “They are operating some air we want to see all these things Fourthly, they must be practical
a bachelor of social science cargo flights. They are doing being established with ICAO and easy to implement, be user
(honours) in sociology, he has some repatriation flights to bring (International Civil Aviation friendly and preferably available
worked in a wide spectrum home stranded passengers. It’s Organization) so there is visibility on mobile devices so the
of roles at SIA, including not much, but every little bit and transparency for airlines passenger is not encumbered.”
international and government helps,” he said. to plan their operations. But By associate editor and chief
relations, marketing, product “They have relief from otherwise, they have been very correspondent, Tom Ballantye. ■
Fall from grace of former Garuda Indonesia boss Emirsyah Satar
Fined US$1.4 million and sentenced from 2005 to 2014 and had Prosecutors had asked for a A330 airplanes.
to eight years in prison. previously denied the charges. 12-year sentence for the former Rolls-Royce has paid US$800
Former Garuda Indonesia Also convicted and sentenced Garuda boss, but the judgment million in fines in the U.S. and
president, Emirsyah Satar, was to prison terms were Garuda’s took into account Satar’s Britain in settlement of charges
deciding at press time if he would engineering and management successful efforts in rebuilding of alleged bribery in several
appeal against an eight-year prison director, Hadinoto Soedigno, the flag carrier’s international countries, including nations in the
sentence and US$1.4 million in Garuda executive project reputation during his leadership Asia-Pacific.
fines after he was convicted of manager, Agus Wahjudo, and tenure. Earlier this year, Airbus paid
bribery and money laundering by Soetikno Soedarjo, a former The bribes were related to US$4 million in fines to U.S., UK
Indonesia’s Corruption Eradication president director of one the Garuda Indonesia group’s and French authorities to settle an
Commission on May 8. of Indonesia’s largest retail acquisition of Rolls-Royce Trent alleged bribery for aircraft sales
Satar led the carrier group conglomerates. 700 engines and A320 and prosecution. ■
MAY 2020 / ORIENT AVIATION / 7
MAIN STORY
HIGHER FARES AND
LONGER QUEUES
BEYOND COVID-19
Asia-Pacific aviation’s recovery from the catastrophic
COVID-19 pandemic could well last into 2023 if the most
cautious of the industry’s forecasts prove true. The rehabilitation
will be just as painful as the pandemic for industry sectors
from lessors to manufacturers who are convinced over-extended
carriers in the region will fatally falter. Associate editor
and chief correspondent, Tom Ballantyne, reports.
R
eturning the region’s airline fleets to the sky Airline president, Sir Tim Clark, and Etihad Airways Group
after travel restrictions are lifted may be the CEO, Tony Douglas.
easy part for the industry post COVID-19. In a video conference hosted by the UAE-U.S. Business
Convincing travellers to fly on those airlines Council last month Clark and Douglas warned it could take
will be quite another matter, research to 2023 for passenger demand to recover to pre-crisis levels.
conducted by the International Air Transport Association They believed 85% of the world’s airlines were at risk of
(IATA) in April revealed. insolvency and in danger of going bankrupt before year-end
Its survey of 11 of the world’s largest domestic aviation unless they had state support.
markets, including the Asia-Pacific, found about 40% of At the turn of the month, Qantas Group CEO, Alan
people aimed to wait for at least six months after lockdowns Joyce, said, “Australia has done an amazing job in flattening
were lifted before flying again. Another 47% would wait at the curve and we are optimistic domestic travel will start
least a month or two. Only 14% said they would get straight returning earlier than first thought, but we clearly won’t be
back on board. back to pre-coronavirus levels
Fear of the virus is not the only reason for anytime soon.
the sentiments of respondents. Approximately
69% of those surveyed indicated they could
delay returning to the air until their personal
financial situation stabilizes, a pattern that
may particularly apply to business travel,
given the impact of border shutdowns and
severe losses on the global economy.
“The economic conditions will still be
damaging passenger confidence in the
third quarter,” said IATA chief economist,
Brian Pearce. “The economic environment
we are expecting in the next six months is
not conducive to any substantial return
to air travel, for financial reasons.”
A majority of airline chiefs believe
recovery will take much longer than a
half year. Among them are Emirates
8 / ORIENT AVIATION / MAY 2020
“With the possible exception of New Chinese airlines continued to
Zealand, international travel demand see the steepest declines, with
could take years to return to what it was. domestic demand down 65.5% in
“We are expecting demand recovery March against March 2019. But the
to be gradual and it will be some time numbers were an improvement over
before total demand reaches pre-crisis the 85% year-to-year decline in
levels,” he said. February after the country began
Thailand’s prime minister, restarting domestic air travel. Japan’s
Prayuth Chan-ocha, has announced airlines recorded a 55.8%
the government would support a “last year-over-year decline in domestic
chance” rescue package for Thai RPKs, despite not implementing any
Airways International that would widespread lockdown.
involve job losses and a radical To address passenger concerns
restructuring of the carrier group. about contracting COVID-19 onboard,
“This is an enterprise we have to IATA is supporting the wearing of “face
rehabilitate. It is the last chance to manage the issue so it coverings” for passengers and crew
does not get worse,” he said early this month. inflight “as a critical part of a layered approach to biosecurity
U.S. global consultancy, ICF International, said last to be implemented temporarily when people return to
month its most recent survey among senior and mid-level travelling by air”.
executives worldwide, completed in early April, indicated “Evidence suggests the risk of transmission on board
greater scrutiny will be placed on the health and sanitary aircraft is low. Mask-wearing by passengers and crew will
conditions of individual countries that could impact air reduce the already low risk, while avoiding the dramatic cost
service and passenger demand. increase to air travel onboard social distancing measures
“As to how long business activity will remain depressed, would bring,” it said.
nearly 50% of respondents expected the slowdown to last From January to March this year, IATA said an informal
three to four months and others up to one year. Equally, survey it conducted identified three episodes of suspected
nearly half of respondents expected the recovery take up to inflight transmission of COVID-19, all from passengers to
two years. Just over one-third of respondents anticipate crew and no incidences of passenger to passenger
activity will return to pre-crisis levels within a year,” the transmission.
consultancy said. A more detailed IATA study of 1,100 passengers
ICF itself predicted recovery will be significantly longer confirmed with COVID-19 after travelling, also conducted
than the respondents’ expectations, including as much as from January to March this year, revealed no secondary
60% of the respondents in Asia. It’s analysts believe there transmissions among the more than 100,000 travelers on the
will be a return to pre-COVID-19 levels of business activity flights. Two possible cases were diagnosed among crew
in less than 12 months. “This is related to the relative success members.
many Far East countries have had in containing the For airlines and airports in particular, there is a solid
pandemic, with countries like South Korea and China basis to the fear a resumption of operation will lead to losses
slowly returning to work,” it said. rather than a return to viability because of talk of social
These mixed predictions were underscored by IATA’s distancing or the empty middle seat requirement.
latest traffic statistics, for March, which showed passenger “Either you [airlines] fly at the same price as before and
demand had plunged 52.9% compared with a year earlier you lose an enormous amount of money, so it’s impossible
which was the largest decline in air traffic in recent history.
“March was a disastrous month for aviation. Airlines
progressively felt the growing impact of COVID-19 related Temporary biosecurity
border closings and restrictions on mobility, including in measures for passengers
domestic markets,” said IATA director general and CEO,
Alexandre de Juniac.
and crew
“Demand was at the same level it was in 2006, but we * Temperature screening of passengers and airport workers
have the fleets and employees for double that. Worse, we * Boarding and deplaning processes that reduce contact
know the situation has deteriorated even more in April. with other passengers and crew
* Limiting movement in cabins during flights
Most signs point to a slow recovery.”
* More frequent and deeper cabin cleaning
March international passenger demand shrank 55.8% * Simplified catering procedures that lower crew move-
compared with March 2019, much worse than the 10.3% ment and interaction with passengers
year-to-year decline in February. Asia-Pacific airlines were * Longer term, but also as a temporary measure, immunity
hardest hit, seeing March traffic drop 65.5% compared with passports could be accepted and COVID-19 testing
12 months earlier and more than double the 30.7% decline introduced for aircraft travel.
in February.
MAY 2020 / ORIENT AVIATION / 9
MAIN STORY
for any airline to fly, or you increase the ticket
price by at least 50% and then you are able to
fly with a minimum profit. So if social
distancing is imposed, the era of cheap travel is
over,” IATA’s de Juniac said, and added
affordable aviation is now at least partly in the
hands of governments.
Expectations of these new regulations are not
simply speculation. The Civil Aviation Authority
of Thailand (CAAT) told airlines when they
resumed domestic flights on May 1 they must
adopt social distancing and disease transmission
prevention by leaving empty seats in each row in
cabins, require passengers to wear face masks and
not serve food and drinks.
India’s Central Industrial Security Force (CISF) people could be the “new normal” for air
has suggested to the country’s aviation ministry travelers and expressed interest in station “sanitizing
“permanent” new measures for flights should require tunnels” at airport entrances to clear passengers and
passengers to report before departure wearing protective employees for entry to airports.
masks and gloves and carrying 100ml sanitizers. The In April, Emirates Airline became the first carrier to
submission said flying with a seat vacant between every two conduct trials for in-site COVID-19 testing on passengers,
using properly attired staff to collect blood samples in the
group Check-in area of Dubai International Airport. The
Economic impact of social blood samples results were available in 10 minutes.
distancing on airfares* “We are working on plans to scale up testing capabilities
and extend testing to other flights,’ said the airline’s chief
Calls for social distancing measures on aircraft operating officer, Adel Al Redha.
would fundamentally shift the economics of aviation by In recognition of the challenge this imposes on airlines
slashing the maximum load factor to 62%, well below
IATA has began work on lobbying worldwide to coordinate
the average industry breakeven load factor of 77%, the
International Air Transport Association has calculated.
introduction of new regulations. It is holding regional
With fewer seats to sell, unit costs would rise sharply. summits with governments, industry partners and health
Compared with 2019, airfares would need to increase authorities for the restart of the air transport industry.
by 43% to 54% depending on the region if they were to “We think it should probably commence with domestic
cover costs. then immediately be followed by something like regional,
continental and then move to intercontinental. That’s the
Breakeven Average Average Increase
load fare 2019 fare with in average
approach we have. It is still to be discussed and negotiated
factor social fare with governments,” said de Juniac. “We are advocating
distancing
similar measures globally to avoid a patchwork of complex
Africa and
75% $181 $259 +43% and different measures.”
Middle East
Asia Pacific 81% $141 $217 +54%
Europe 79% $135 $201 +49%
Latin America 79% $146 $219 +50%
North America 75% $202 $289 +43%
North Asia 76% $135 $195 +45%
Eliminating the middle seat would mean the era of
affordable travel will come to an end, IATA predicts. “On
the other hand, if airlines cannot recoup the costs [of
empty middle seats] from higher fares, airlines will go
bust. Neither is a good option when the world will need
strong connectivity to help kick-start the recovery from
COVID-19’s economic devastation,” IATA said.
* Table provided by the International Air Transport Association. May 2020.
10 / ORIENT AVIATION / MAY 2020The Governing Council of the International Civil
Aviation Organization (ICAO) has established a COVID-19
Aviation Recovery Task Force to recommend strategic
priorities and policies for States and industry operators. The
first outcomes of its deliberations are expected by the end of
this month.
Complicating matters is no one can forecast when the
pandemic will end. Already, the relaxation of lockdowns and
other measures that were to limit the spread of COVID-19 is
happening at an uneven pace around the world. Some
countries, believing they have the coronavirus under control,
are easing rules while other nations are standing fast, fearing
any relaxation of preventative measures could spark a second
or third wave of the virus.
Airports are severely affected by the crisis. Airports
Council International (ACI) Asia-Pacific has released IATA outs governments shirking
preliminary traffic data from 18 airports in major aviation support for their airlines
markets in region and in the Middle East that showed a
year-over-year passenger traffic decline of 95% to mid-April. The International Air Transport Association (IATA) has
named several countries in the Asia-Pacific it believed
Initial signals of recovery were reported from China,
were not doing enough to support their struggling airlines
with a gradual resumption of its domestic traffic, and to a
and aviation sectors.
lesser extent, from South Korea. Like airlines, airports want “The situation is deteriorating,” said the airline body’s
a coordinated approach between governments, regulators, regional vice president Asia-Pacific, Conrad Clifford.
health authorities and aviation stakeholders to implement “Airlines are in survival mode. They face a liquidity crisis
sustainable and effective health measures. with a US$61 billion cash burn in the second quarter.
“Airports have been forced to make difficult operational “We have seen the first airline casualty in the region.
decisions, including full or partial closure of terminals and There will be more if governments do not step in urgently
runways and a reduction in frontline employees,” said ACI to ensure airlines have sufficient cash flow to tide them
Asia-Pacific director general, Stefano Baronci. over this period.” Clifford identified India, Indonesia,
Japan, Malaysia, the Philippines, the Republic of Korea, Sri
“Returning to full operational status will not happen
Lanka and Thailand as priority countries that needed to
overnight. With some signals of stabilization and efforts
take action.
towards recovery cautiously starting, governments and IATA is calling for a combination of direct financial
regulators, along with the national health authorities, need backing, loans, loan guarantees, support from the corpo-
to develop a coordinated approach so airports can prepare rate bond market and tax relief. “Providing support for
the appropriate infrastructure, facilities and processes in airlines has a broader economic implication. Jobs across
support of health measures, he said. many sectors will be impacted if airlines do not survive
“The freedom of movement will have to co-exist with the COVID-19 crisis,” he said.
the virus, until a vaccine against COVID-19 is available at a “Every airline job supports another 24 in the travel and
global scale.” ■ tourism value chain. In the Asia-Pacific, 11.2 million jobs
are at risk, including those dependent on the aviation
industry, such as travel and tourism,” Clifford said.
“Airlines continue to perform an important role cur-
rently with the transport of essential goods, including
medical supplies, and the repatriation of thousands of
people stranded around the world by travel restrictions.
“And after the COVID-19 pandemic is contained,
governments will need airlines to support the economic
recovery, connect manufacturing hubs and support tour-
ism. That’s why they need to act now – and urgently –
before it is too late.”
Earlier in April, IATA released updated analysis
showing the COVID-19 crisis will result in a global airline
passenger revenue decline of US$314 billion in 2020, a
55% fall compared with 2019. The Asia-Pacific will
experience the largest revenue drop of $113 billion in 2020
compared with last year. The new figures topped a forecast
of $88 billion in airline losses in the region released in
March.
MAY 2020 / ORIENT AVIATION / 11AIRCRAFT LEASING ASIA-PACIFIC
Cashed up
to cope with
the COVID-19
fallout
With airline fleets worldwide grounded
and around 50% of them leased,
global aircraft lessors are dealing with
customers fast running out of cash. BOC
Aviation CEO and managing director,
Robert Martin, explained the Singapore-
headquartered lessor’s strategy for
handling the COVID-19 crisis to
associate editor and chief correspondent,
Tom Ballantyne.
through difficult times,” he said. and then they pay it back in
“Commencing from the second half of this year. We
W
February, when we could see charge them interest obviously
ith aircraft been incredibly active for them. this coronavirus was coming for the deferral,” he said.
leased to 93 Mainland airlines have raised through Asia, we proactively The lessor puts airlines
airlines in more than US$6 billion in bond went to a number of airlines in into three different categories
41 countries funding in China’s local bond Asia and other parts of the world when it comes to surviving the
worldwide you market. China Eastern [Airlines] and said; ‘look, show us your list crisis. “The first type is those
could be forgiven for believing received about $3 billion. China of unencumbered assets. We owned by governments or
the COVID-19 crisis is hitting Southern [Airlines] has done will start doing purchase and who are benefitting from solid
Singapore-based BOC Aviation as about half that. Air China has leasebacks with you’. government support. Within
hard as its cash-strapped airline tapped it. “So far, we have committed that category I would include
customers. “Even carriers like Spring an extra $5 billion of capital to Singapore Airlines, the Chinese
But the managing director Airlines, Juneyao Airlines, Xiamen the markets supporting sale and carriers and the big U.S. carriers
and CEO of the Bank of the Airlines and Sichuan Airlines leasebacks all over the world the American government has
China-owned lessor, Robert have tapped it, so it’s not just during the coronavirus period. supported. Those guys are
Martin, made it plain to Orient the State carriers. A lot of people The very first deal was here in going to come through relatively
Aviation last month the company around the world have missed the Asia-Pacific where we did six stronger than other carriers,”
was cashed up and well prepared this completely. They don’t realise 777s for Cathay Pacific. It feels Martin said.
to deal with a forecast downturn. China is different on this occasion like a long time ago, but it was The second group are well
About 75% of BOC because of the liquidity in that only two months ago.” run airlines that have been paying
Aviation’s customers have been domestic bond market, which is For other carriers – BOC cash for aircraft during the
asking for support in various basically Renminbi financing.” Aviation has a fleet of 316 owned high part of the cycle and have
ways, Martin said, but it was far Elsewhere, Martin said, the and 40 managed aircraft with unencumbered aircraft on their
from a universal situation. “For approach to customer support is another 205 on order – some balance sheets.
example, the Chinese carriers two-pronged. “Firstly, we are in deferrals have been granted, “They are executing
have not had a liquidity problem this for the long-term. We have generally allowing airlines to pay leasebacks with people like us
during this crisis,” he said. to remember we are a long-term 50% of the rental due for three to raise liquidity. They are the
“Why? Because the Chinese partner for our airline customers. months. people who have moved very
domestic bond market has So we need to support them “That’s our standard deferral quickly with furloughing staff,
12 / ORIENT AVIATION / MAY 2020dealing rapidly with as much of fiscal year, Martin said April has bank group and we have been on the single-aisle side, surprise,
their cost base as they could as been a reasonable cash flow tapping in to some of these surprise, its category three. Big
we went into this downturn.” month. May and June will be the banks to raise financing. And low-cost carriers. AirAsia, Lion
The third group worries months when the impact of the of course, we have the Bank Air, Indigo, GoAir and SpiceJet.
Martin. “They are those newer COVID-19 virus will be revealed, of China. We had a $2 billion “All of these customers do
carriers, set up since the Global the lessor believed. backstop facility from them not want deliveries from the
Financial Crisis and September 11 For a leasing company, the which we had not touched since OEMs and a number of them
(the September 2001 U.S. terror liability side of the balance sheet 2011, but for the first time we were relying on purchase and
attacks). They have not been is its Achilles heel, Martin said. drew on it this month [April], just leasebacks to finance them. The
through a real revenue crisis. “We are very careful to manage to make sure it still works.” question is: do these purchase
Frankly, we do not see them the liability side of our balance In the current climate, and leasebacks stay in place?
taking steps to proactively deal sheet with long-term debt. This customers of all lessors do not “We have very few purchase
with the problem,” said Martin. year, when everyone else was in want to accept new aircraft and leasebacks because we were
They are mainly low-cost Dublin attending the Air Finance they will immediately have to told we were too expensive last
carriers or airlines that are conference, we were raising park. BOC Aviation has 58 year. So we did very few. I know
entrepreneur-led, Martin said. bonds in Asia - 400 million of aircraft scheduled for delivery to a lot of smaller lessors have
“Why are they different? Number them to be exact - because we December 31, 2020. Indeed, on them and we can feel some of
one, they have done sale and could see the coronavirus in the morning of this interview, them are having issues. Both
leasebacks on most of their fleets China by this stage,” he said. it accepted two 787s, from manufacturers are asking us to
so there are no unencumbered “We said ‘safety first’. Get American and United Airlines, help in some of those situations.
assets to raise new financing,” out. Raise some money. At the respectively. Its mainly a narrow-body
he said. close of March we ended up Martin said there was situation. On the wide-body side,
“Secondly, they don’t have with $3.6 billion of cash and supposed to be a lot of older the big carriers in Asia still seem
a sovereign shareholder and the credit lines. We have added to aircraft retired from this year and to be taking those.”
entrepreneurs, so far, have been that since.” As recently as April 2024. “Part of the drop in the Ultimately, said Martin, the
unwilling to put in new capital.” 29, the lessor closed a $1 billion market will be taken up by people survivability of a number of those
In the end, Martin acknowledges five-year bond, the first U.S. when they get to that last heavy carriers was dependent on their
there will be “one or two” bond launched since the start of maintenance visit. They just won’t governments. “This is a very
customers who won’t make it COVID-19. do it. They will park the aircraft. important point. This is different
through. Access to bond markets is That will take up some of the to SARS (Severe Acute Respiratory
“We need to prepare for essential, Martin said. “We do slack but not all of it,” he said. Syndrome 2003-2004) and 9/11
remarketing those aircraft, that by keeping our investment “The manufacturers’ because we did not have the
which we have been doing. Our grade credit rating. In particular, reduction in production will extended crisis we are seeing this
marketing and technical teams we have done a lot of work help. Our feeling is this is going time. The role of governments
are preparing to move the aircraft with Fitch and with Standard to be the toughest year. You are comes in two ways. Number
where we have to,” he said. & Poor’s. The bond we closed not seeing many aircraft being one is supporting airlines. They
“I think we are on the way yesterday was rated A-Minus. moved at the moment because can do that by taking equity in
for consolidation. Consolidation They are comfortable with it takes time for airlines to run them, issuing them with loans,
happens in two ways. One is by the fact we can raise money out of cash. But it will start in the providing salary subsidies for their
carriers merging. For example, we from the market and we are second half of this year. We have employees. All three are being
have seen discussions going on comfortable we have credit to expect that.” used in different ways in different
in Malaysia with the government ratings that mean we can react “If you look at where the big countries,” Martin said.
and the three carriers there. to and access it if we need to. orders were going to be delivered “Crucial in my view is for
Whether it will happen or not, “We have 70 banks in the during this period, particularly governments to determine
who knows? cross-border flows of people. In
“We also will see a number particular the speed at which visa
of weaker airlines fail. You have schemes are re-introduced and
to remember there are more than borders are opened. For airlines
800 airlines around the world and based in small countries or with
more than 400 of them operate small population bases, this is
less than 10 planes. These guys, very important. If you are in a big
I’m afraid, are not going to find a domestic market, Indonesia for
way through this.” example or China, it is different.
As for BOC Aviation, which You could survive domestically.
made a record pre-tax profit of But if you are in a smaller
$775 million and a net profit after country that makes it much more
tax of $702 million for its latest difficult.” ■
MAY 2020 / ORIENT AVIATION / 13NEWS BACKGROUNDER
Downturn sets in
along with the smaller markets of
Europe and North America, has
forced a reduction in headcount.
as first Asia-Pacific
It said it expected the industry’s
recovery from COVID-19 would
take years rather than months.
airline orders revised
After a four-week shutdown,
some 27,000 workers at Boeing
factories in Seattle returned to
work late last month with their
workplaces changed significantly
Production lines at Airbus and Boeing are coming back to life. after deep cleansing but with
But slowly, and at the cost of jobs lost forever for hundreds the jobs of many employees
under threat as aircraft output is
of skilled employees. The aviation behemoths have gone slowed. The company, a storied
cap in hand to financiers for funding to carry them past the American success not so long
COVID-19 crisis. Associate editor and chief correspondent, ago, has announced 10%, or up
Tom Ballantyne, reports. to 16,000, jobs would have to go
at the conglomerate because of
reduced output.
Boeing Company CEO, David
F
Calhoun, said in the final week
or the world’s two largest planes, the LCC business model folding wings, are All Nippon of April, after he announced
aircraft manufacturers, could not survive. Airways and Singapore Airlines. a US$641 million loss for the
the AirAsia Group Airbus is not alone in Of the big three Gulf carriers company in its first fiscal quarter,
decision to cease to preparing for more aircraft with orders for the new wide- the job losses would be achieved
accept deliveries of cancellations and deferrals. In body, Emirates has suspended all by voluntary or involuntary
Airbus jets this year is the first but recent weeks the rumour mill operations and Etihad Airways lay-offs and natural turnover.
will not be the last domino to fall has been churning at top speed is in much the same position but The knife will cut the deepest
in forecast aircraft cancellations with speculation Cathay Pacific carrying a much larger debt load. at Boeing Commercial Airplanes
and deferrals from airline Airways, the Asia-Pacific launch The finances of Qatar Airways (BCA), at 15% of workers, after
customers across the globe. customer for the new 777X are opaque, but it has been the airplane division recorded a
AirAsia Group, an exclusive family, was about to revise its announced it would commence 26% drop in revenue for its first
Airbus customer for 15 years, order for the type to the 787. job adjustments because its fiscal quarter. “The sharp decline
said on April 29 it would not take Other Asia-Pacific global network has evaporated. in demand, a drop of almost
any more deliveries of aircraft customers for the 777X, with At Boeing, the fragility of 40% alone in the Asia-Pacific,
this year and was “relooking” its technologically spectacular the Asia-Pacific’s future market, could not support the present
at its aircraft requirements as a
result of COVID-19’s impact on
its operations. The LCC group
said it would have 242 aircraft at
December 31, one less plane in
its fleet than it had a year ago.
Airbus has sold 660 aircraft to
AirAsia Group.
The OEMs are braced for
more deferrals and cancellations
and know several of them could
come from Asia-Pacific LCCs.
Last month, the International
Air Transport Association (IATA)
director general and CEO,
Alexandre de Juniac, warned if
governments imposed severe
social distancing rules on board
aircraft post COVID-19, such as
empty middle seats on passenger
14 / ORIENT AVIATION / MAY 2020workforce at Renton and Everett long-term impact,” he said.
[BCA Seattle area factories),” “However, it would be
Calhoun said. wrong to reduce everything
“The demand of 2019 to COVID-19. Some more
will not return for two to fundamental issues of the
three years,” he said. To date, commercial aviation industry
Boeing has offered voluntary also are at play. Boeing has
lay-offs to 70,000 members made unfortunate headlines
of its workforce. “We would with massive cancelations of 737
‘need to make deeper cuts in orders this year.
areas exposed to commercial “While some cancellations
customers, including airline have been connected to
services and corporate services’,” COVID-19 and the slowdown
Calhoun said. Already about 25% of the to take delivery of new aircraft. of activity, for example Avolon’s
BCA’s cutbacks were engine OEM’s civil aerospace In reality, the news worsens, 75 737MAX cancellations at the
followed by the announcement workforce has been furloughed and for once, there is little beginning of April, others from
by Airbus CEO, Guillaume Faury, and job losses for the division are disagreement between the U.S. Air Lease Corporation and Air
which said the company’s expected to go beyond the UK to and European rivals about their Canada earlier this year could be
survival was at stake as a result Germany and the OEM’s regional business prospects. “The aviation wider scale strategic decisions
of COVID-19. In a letter to his hub in Singapore. industry will take years to return to slim order books in front of a
135,000 employees, Faury Rival engine OEM, to the levels of traffic we saw pre-COVID-19 slowdown in the
warned there could be more U.S.-headquartered GE Aviation, just a few months ago,” said Asian market.”
job losses to add to announced removed 2,600 staff from its Calhoun. GlobalData added the 737
redundancies and furloughs of payroll in March and at the turn Faury said last month: “We MAX grounding “has made
staff. Airbus reported a loss of of this month said it intended are in the gravest crisis the the type a privileged target for
US$515 million for its first fiscal to eliminate another 10,000 aerospace industry has ever cancellations when things get
quarter of the year. It cancelled aerospace jobs because of known. We need to work as an rough for airlines”.
its dividend and also its outlook the negative impact of the industry to restore passenger “Airbus seems to have
for 2020. coronavirus on its order book. confidence in air travel as we learn decided to employ any means
The one third cut in output But unlike Airbus, Boeing’s to coexist with this pandemic.” necessary to mitigate the
could drop again depending troubles are not only about The reality is commercial jets catastrophic impact of COVID-19
on circumstances and is “being the impact of COVID-19 on its will not be rolling off production on commercial aviation. Jetliners
kept under review”, Faury said. business. It has the MAX issue to lines at the rates seen before represent 70% of Airbus
Airbus narrow-body output is overcome. the COVID-19 crisis. Struggling revenues according to 2019
now 40 a month and wide-body Approximately 37%, or 136 airlines will have no appetite for figures,” Jouan said. “Reducing
jet production has been trimmed aircraft, of the grounded MAX new capacity for some time to production, even temporarily, of
compared with past rates. 737 fleet is in the Asia-Pacific. come, given the International Air the best-selling A320, A330 and
Airbus has furloughed more Top of the list is China, with 97 Transport Association estimated A350 families by 30% to 40%,
than 3,000 workers in France and 737MAXs, followed a long way airline revenues would drop by is virtually renouncing at least a
another 3,200 in Wales, its UK down the line to India with 13. $314 billion this year. A separate quarter of its usual cash flow for
production centre for its aircraft Asia-Pacific aviation is forecast to forecast, released in April by the time being.”
wings. be hardest hit by the coronavirus. the International Civil Aviation “The single-aisle market
Engine manufacturers The MAX’s grounding in Organization, puts the losses is confronted by pressures on
have had to follow the lead March last year, following two at a slightly lower but just as margins. Considering defense
of commercial airplane fatal crashes that took 346 lives, disastrous figure of $254 billion. and space represent less than
manufacturers as the market for is costing the company billions GlobalData aerospace and 20% of Airbus’ revenues, against
their civil aircraft engines has of dollars in compensation defense analyst, Nicolas Jouan, 34% for Boeing, sources of cash
dried up. Later this month, Rolls- claims, revised rates for purchase said the regions to be hardest flow are starting to look meagre
Royce is expected to announce its agreements, order deferrals and hit by the pandemic will be for the [Toulouse] plane maker.”
biggest single reduction in staff cancellations and the long, costly the Asia-Pacific, Europe and In essence, as airlines are
for 30 years, with a restructuring process of the narrow-body’s North America, the dominant forecast to burn through some
that will shed the jobs of 15% of re-certification. engines of air travel growth. “In $61 billion in cash in the second
its 52,000 member workforce. At Airbus, employees were other words, air travel is set to quarter alone, with more to
Rolls-Royce manufactures told a return to full operations disappear almost entirely in 2020. come in the third quarter, they
engines for the 787 and the was not feasible in the short term This projection will likely result in are holding off taking deliveries
A321, A350 and A330 Airbus because of parts shortages and successive cancellations of orders of new aircraft and pausing
aircraft types. the inability of struggling airlines from clients wary of COVID-19’s capital investments like planes. ■
MAY 2020 / ORIENT AVIATION / 15NEWS BACKGROUNDER
Financial “White
that by being around in a healthy,
lean and fit state on the other side
of voluntary administration. And
Knights” enjoin battle
we will continue to do that for
decades to come.”
The biggest Asia-Pacific
aviation casualty to date of the
for Virgin Australia
COVID-19 crisis, VA’s decision,
announced on April 21, was no
surprise to the industry. It has not
made a profit for a decade and is
carrying a debt mountain of more
Short of cash and deluged with debt, Virgin Australia (VA) is in than US$5 billion.
voluntary administration, but the airline group’s management And whatever cash it has
and its administrator are optimistic about its prospects. Associate is vanishing fast as most of
its 130-strong fleet remained
editor and chief correspondent, Tom Ballantyne, reports. parked and unable to bring in
revenue. It did not help that the
Australian government gave the
A
cold shoulder to the company’s
s May arrived, offers in mid-June. Deloitte interested in acquiring VA must overtures for a government
interest in Virgin partner, Vaughan Strawbridge, have been music to the ears of VA backed loan of $800 million to
Australia (VA), told the first meeting of the boss, Paul Scurrah, and his team, carry the airline group through
now in voluntary airline’s creditors he was confident and a vindication of efforts to the COVID-19 crisis.
administration, of finding a buyer by July. return VA to the air. Despite the drama, the initial
had become a stampede. At One of the latest bidders Last month, when it message is “steady as she goes”.
press time, administrator Deloitte to emerge is Australian mining was announced the airline Vaughan Strawbridge, leading the
Australia confirmed it had signed magnate, Andrew “Twiggy” group would enter voluntary team to resurrect VA said there
non-disclosure agreements with Forrest, who controls the administration, he said: “For 20 was an absolute commitment
eight bidders who now have country’s third-largest mining years, Virgin Australia has brought to run a process that will see
access to VA’s data. group, Fortescue Metals. He strong competition to the skies a restructured and financially
The receiver said it also was is reported to have spoken to of Australia. It has forced down strong VA emerge, resulting
negotiating with 12 other parties investment bank Credit Suisse airfares in excess of 37% since our in the company coming out of
interested in VA. Indicative offers about a bid. inception. administration as soon as possible.
are due by May 15 and binding The large number of parties “We intend to keep doing “We’re not planning any
changes to the operations of the
business,” he said. “Paul and his
leadership team will continue to
run and be in control, working
with us as we go through the
restructuring process,” he said. All
staff will continue to be employed
and paid and there were no plans
for redundancies.
Most promising of all are the
large of parties circling VA with
an interest in the carrier. “We
won’t go into specifics about
those parties. Obviously, we have
to keep these parties confidential,
but there are in excess of 10
parties known to us who have a
keen interest in being part of the
restructure,” Strawbridge said.
Besides Fortescue Metals,
separate sources said they include
local conglomerate, Wesfarmers,
16 / ORIENT AVIATION / MAY 2020and banking and investment people at the Virgin Australia
group Macquarie, Australia group. “This is not just something
and New Zealand focused that is hurting Virgin Australia.
equity group, BGH Capital, in “We know it is hurting the
partnership with Australia’s industry globally. It is the worst
largest superannuation fund, aviation industry crisis we have
AustralianSuper, Indigo Partners seen in our history. We’re not
and Boston-headquartered Bain immune to that. Our board made
Capital. a very courageous decision to
Melbourne Airport is pitching put the company into voluntary
itself as the new headquarters for administration and to do so
VA, a shift south from Brisbane quickly with the intention of
for the carrier. Lindsay Fox, a working with our administrator to
member of one of the consortia come through.”
interested in investing in VA, The reality for VA was
wants the company to re-locate that voluntary administration
to privately-owned Avalon was inevitable. It was down to
airport, near Geelong, ironically operating a single domestic route
the airport from where Jetstar between Sydney and Melbourne.
Australia first flew. Eight thousand of its 10,000 staff
In the closing days of April, is stood down.
the Queensland government said The Australian government
it would “stop at nothing to keep had given airlines about $450
VA headquartered in the state, market-based solution. ground and is burning cash as the million in reduced fees and
after it was revealed VA had been This position, said industry crisis continues. And, as Scurrah charges, but these were only
offered $200 million (US$130 observers, seemed to ignore the himself pointed out, in the past of value if planes were flying.
million) to keep the carrier in fact VA’s shareholders also were in decade the airline group has It also has paid $100 million
Brisbane. trouble. Abu Dhabi-based Etihad pumped nearly $4 billion into VA. to underwrite VA and Qantas
There also is a possibility Airways, which holds 21% in VA, After just a year in charge, operating a “minimum domestic
Australia’s Federal government has lost $2 billion in the past two Scurrah did not make any network servicing the most critical
could become involved in some years. Given its failed investments apologies for the position VA is in. metropolitan and regional routes”.
sort of collaboration with two in airberlin, Alitalia and India’s Jet “The fact is we did not trade into But because this money only
governments: Queensland and Airways, it is hardly in a position this position. This caught us by covers the cost of operating the
New South Wales to pump money into VA. surprise in the same way it did any flights it does not improve VA’s
“The intent is to avoid a China’s HNA Group, whose airline in the world. The oxygen financial position.
prolonged, drawn out process,” flagship is Hainan Airlines, also supply of our business was cut While it seems certain,
explained Strawbridge. is a 20% shareholder and is in off,” he said. given the interest in keeping the
“There are a number of very deep financial trouble. Sir Richard “Revenue was cut off by carrier alive, VA will emerge from
sophisticated parties who have Branson’s Virgin Atlantic Group, this crisis. It is not a reflection administration, the question is
the capability to be part of the with equity of 10% in VA, is so on the wonderful management what will Virgin Australia 2.0 look
restructure of the company. We weak financially it has asked the team or the people that work at like?
plan to run that process very hard UK government for a financial the VA group. There was good Returning it to a profitable
to make sure it is as short a time lifeline to keep going. acknowledgement the plan we position almost certainly means
as possible.” Sir Richard receives $15 had going into this crisis was the fleet will be reduced as
An outcome is expected to million a year from VA for use of a good plan to make sure we international and domestic
be reached “over the next two to the Virgin brand. He remained turned a great airline into a great routes are trimmed back. Some
three months”. keen to participate in the business. redundancies are inevitable.
One change that appears restructure process. The fourth “That progress was halted Budget subsidiary, Tigerair
certain is that the airline’s current VA investor is China’s Nanshan somewhat by this unprecedented Australia, now grounded, may
international shareholders are Group, a conglomerate that owns event. So I am confident we can never fly again, although Scurrah
unlikely to be involved in the new Qingdao Airlines and a charter work with Vaughan and his team has indicated he believed VA
airline. When it refused to bailout air business. It also is unlikely to to make sure we have a plan to needed to be in a position to
VA, the federal government cough up cash in the current take this airline into the future and compete with Qantas in all market
argued the airline was 90%- climate. The only shareholder in be as robust and competitive as segments. Much of that, however,
owned by foreign shareholders a strong position is Singapore we possibly can be. will depend on the new owner
with “deep pockets” and the only Airlines, with 20%, but it, like “This has been incredibly and how much they are prepared
answer to VA’s problems was a VA, has most of its fleet on the challenging for the wonderful to pay for VA. ■
MAY 2020 / ORIENT AVIATION / 17You can also read
