Down but not out!

Watch this space

Gol-Varig / Air Berlin-LTU tie-ups

And what a massive couple of weeks it has been. For Homo Aviatus, that is. Two pure weeks of being submerged underwater, with today being my first day to come upfor air. Apologies for anyone (anyone?) who was hoping for updates.

Anyway, happy Thursday to you all.

The Plane Lane’s focus today is on a potential trend emerging – LCCs (or carriers working towards a low cost model) moving into long-haul. The Plane Lane reported some time back about the ticketing tie-in between Aer Lingus and JetBlue, which is probably the least risky way of expanding one’s scope. A couple of other more tangible examples have emerged in the last week:

• In Brazil, GOL has reached an agreement to buy Varig for $320m ($275m plus the assumption of $45m in debt). This looks like a predominantly slots / routes play, bearing in mind that most of the assets (and, more importantly, the liabilities) have already been worked out of the company. GOL stands to acquire valuable Sao Paolo-Rio slots and route rights to the US and Europe from this acquisition. However, one might question the price tag here, especially when GOL’s current main competitor TAM has very similar intentions to maximise revenue off those routes.
• In Germany, Air Berlin bought LTU for €140m (plus debt of about €200m). LTU is a charter operator which operates flights to New York and Las Vegas.

Integration will pose a substantial challenge for both GOL and Air Berlin. Although both have stated that the target’s existing structure will stay principally the same, one has to imagine that the acquirer would be seeking to maximise value by implementing its management style and cost-effective measures, which is bound to shake up staff in the target. I’m not sure if either Varig’s or LTU’s labour force is unionised – if so, expect more teething pains ahead.

Till next time (sooner than the last time!),

Homo Aviatus

BMI-BMED update #2

Finally, something tangible about the BMI-BMED acquisition, as BMI announced its plans for BMED. In a nutshell:

• BMED will operate under the BA franchise (and livery) until 28 October 2007;
• a BMI/BA codeshare is anticipated (subject to regulatory approval and agreement with BA) from Q2 2007; and
• from 28 October, all BMED services will move from Heathrow T4 to T1, and the head office of BMED will close.

The head office closure will have job loss implications (although, at the very least, BMI had previously indicated that BMED CEO David Richardson would remain (in what capacity, though? I had read that he would continue as CEO, but how would that be possible post-10/28 when BMED gets subsumed into BMI?)), and news of the shift of slots is unclear on whether the combined number of slots will remain constant or be reduced. The press release is also silent on whether any routes will be closed – this will probably be subject to further review.

Till next time,

Homo Aviatus

The Minsheng-Airbus Chinese JV leasing company

It was inevitable that Dragon Aviation Leasing was not going to be the last leasing joint venture to be established in China. News fed into the Plane Lane today of a potential joint venture between China Mnsheng Bank and Airbus taking shape.

Following on from Airbus’s Power8 plan of restructuring, the move looks (at least in theory) to be a sensible one – Airbus’s Tianjin venture is obviously catered to the Chinese market, and obtaining Chinese capital to facilitate leasing of Chinese Airbus aircraft to Chinese airlines would appear to make sense. However, Homo Aviatus cannot help but be troubled by the sense that Airbus is once again wrapping itself up in its favourite trapping – red tape.

Till next time,

Homo Aviatus

APA clears regulatory hurdles in bid for Qantas

Aviation Partners Australia (APA) today cleared the second of two governmental hurdles which were laid before it in its bid to purchase Qantas when the Australian Foreign Investment Review Board (FIRB) ruled that the potential acquisition of Qantas by APA was not contrary to national interest.

The approval was granted based on covenants by APA to, amongst other things, maintain domestic regional routes and to protect the current frequent flyer programme.

So, all they have to do now is to convince Qantas’s shareholders, which may prove to be the most challenging battleground. The Bloomberg article which is linked to above suggests unsubstantiated claims by the Australian Financial Review that UBS Global Asset Management and Balanced Equity Management, which owns about 10% of Qantas’s stock (6%, according to the Australian Financial Review article itself), believes APA’s bid to be undervalued.

Till next time,

Homo Aviatus  

A380F: and then there were none…

And a very good Friday to all of you from the Plane Lane. How has Geneva been, for those who are in attendance?

It appears that, following the Plane Lane’s previous post that UPS looked set to cancel its A380F order, UPS has now actually cancelled its A380F order. UPS’s complaint, that Airbus appeared to be diverting resources into work on the A380 passenger variant, would actually make sense on Airbus’s part post-Power8 as it looks to focus resources on projects and campaigns that look more likely to bear fruit.

Till next time,

Homo Aviatus

Power8 powers ahead

Airbus today issued a press release on its Power8 restructuring plan which is an achievement in business writing for its delivery of very bad news in as innocuous a form as is probably humanly possible.

Some notable points:

• job cuts of about 10,000 people (which is split 50/50 between permanent and contract workers, and will consist of 3,700 jobs in Germany, 3,200 in France (plus another 1,100 at the HQ level), 1,600 in the UK and 400 in Spain). The press release states that:

“At this stage, the Airbus management proposes no forced redundancies.”

Very noble, if probably unachievable.

• An attempt to shorten the cycle time of new aircraft development from 7.5 to 6 years (probably an admission by Airbus that it waited too long to launch the A350XWB to compete against the B787).
• The workshare responsibility for the A350XWB will be split 35-35% Germany-France, 20% UK and 10% Spain.
• Assembly of the A350XWB in Toulouse, ramp-up of A320 activity in Hamburg with one eye to assembling the “New Single Aisle family” aircraft there.
• “Industrial partnerships” at Airbus plants in Filton, Meaulte and Nordenham (this article in Business Week interprets “industrial partnerships” as “outright sales” in the case of Meaulte and Nordenham).
• A “fully integrated and transnational organisation to support the implementation of Power8 and the establishment of the new business model”, where the “national entity leaders will assume a strong representative role, acting as Airbus ambassadors”, which Homo Aviatus can’t help but think sounds like business as usual.

The proof is in the pudding, and this will be one very difficult pudding to cook. Expect there to be stricks at plants marked for “industrial partnerships”, at the very least.

With the risk of losing the UPS A380F order (which has recently been postponed), having lost out to Boeing in British Airways in the bid to supply 4 long-haul aircraft, and the continuing A380 debacle, Airbus has very little room left to maneouvre and the relatively robust Power8 plan is a reflection of Airbus’s awareness of this. However, the BA news should not be taken out of proportion, as this part of its fleet renewal plan was always anticipated to be won by Boeing because of BA’s existing B777 operations, and there is a long way (and a lot of aircraft) to go before BA is done. BA itself (like other airlines) has it in its interest to prevent the emergence of Boeing as a monopoly manufacturer, so it is highly likely that Airbus will have a part in BA’s plan.

Till next time,

Homo Aviatus 

BMI-BMED update #1

Homo Aviatus has heard these mutterings about BMI-BMED:

• BMI acted very quickly to acquire BMED because of BMED’s very precarious position at the beginning of this year (it looked to be unable to service its obligations unless an investor injected cash in), and had not actually devised a plan of what exactly to do with the airline.
• David Richardson, CEO of BMED, will retain his position.
• BMED will continue to fly for British Airways at least until the end of summer.

Anybody else have any other news on this?

Till next time,

Homo Aviatus

American Airlines in need of more cash

There have been rumours circulating for some time that American Airlines is planning a fleet renewal. This article in USA Today is the first that the Plane Lane has seen in the public domain. The article suggests that AA will look to replace some of its MD-80s. AA has about 300 MD-80s and the article is unclear about how many of these AA would like to take out, but even a replacement of a small proportion of these would likely be a significant exercise.

This news is likely to interest financiers, with the major caveat that AA would probably be requesting a solution for those MD-80s as part of the package. Financiers’ interest may be tempered with caution however, as the tone of AA’s announcement seems to suggest that some financial turmoil ahead, for instance:

“(T)he company said the availability of financing is jeopardized by its level of indebtedness – it had $16.3 billion in net debt at the end of 2006 – and by historically weak revenues, high fuel prices and low credit ratings.”

Current creditors should take note, although it may be difficult to concentrate what with the sound of all those pencils being sharpened in the background.

Till next time,

Homo Aviatus

Chelsea’s Stamford Bridge stadium to be renamed the Malev Stadium?

A good Monday to you all from the Plane Lane.

There are some other relatively bigger items of news that the Plane Lane would like to report today, but Homo Aviatus couldn’t resist running this headline when it read the news about the acquisition of Malev by Russia’s AirBridge, which is owned by one Mr Abramovich. However, the Mr A in question here is Boris and not Roman, and we would like to say that we are not actually aware of any connection between the two.

This move appears on the face of it to make sense for Mr Abramovich, who appears to intend to link this with the SkyExpress Russian low cost airline (we understand that Malev will maintain its brand). Stage lengths would probably prevent a 737-800 aircraft from Russian cities to Europe, so flying into Hungary and an ability to connect to Malev flights might be the next best alternative for a low cost airline. Malev had previously served a gateway function in its link-up with Hainan Airlines.

Till next time,

Homo Aviatus