Tuesday, 26 July 2011

USA- Quick Solution for uncollected taxes and troubles for elegance.

The weekend's revelation that the current US financial standoff meant that pasenger taxes could no longer be applied has given airlines a major headache. The prospect of having to make a mountain of refunds on forward sold tickets is horrific. The administrative task would be monumental and costly. Some carriers have already solved the problem at a stroke. They have simply raised the fares by exactly the same amount as the taxes would have been. Never say the industry isn't capable of swift action when neccesary.

From elsewhere in the States comes a report that the 787-8 is 13ft too long for certification of operations at Chicago, San Francisco, Houston and Newark. Now where is that nice stubby looking A380? Score : Elegance 0. Tubbies 1. Extra time expected.


Saturday, 23 July 2011

US Government funding crisis- an unexpected bonus for air travellers,- especially Grannies.

The ongoing drama and brinksmanship in the USA and Congress' resultant refusal to increase the public borrowing ceiling has claimed its first victims. The FAA has furloughed 4,000 workers, hopefully none of them to do with keeping aircraft safely in the air.

An unusual windfall bonus for passengers, Andrew Lloyd-Williams informs us, is that airlines are no longer authorised to collect passenger fees. That means the average one-way flight is now $60 cheaper. Until any staff cuts start to ground flights now is the time to take that long delayed trip. Spurred on by these substantial reductions ,this summer weekend could suddenly see thousands of flying grandparents on surprise trips to see their children and grandchildren. En route they are likely to pass these good people travelling in the opposite direction to see them. Oh well, it's the thought,-and saving, -that counts.

Wednesday, 20 July 2011

Air France/KLM- The (Parisian) embrace tightens?

According to a recent report in the Netherlands' de Telegraaf , an Air France group reorganisation will see a General Director replace the CEO role in KLM. The paper says that this person will report to a largely French national top level managment in Paris. It is unlikely that this will be welcomed in KLM's Amsterdam headquarters.

At the time of KLM's purchase by the Air France group there were promises of continuity of the brand,- which retains all its value ,-and of essentially the same structures for the next five years. This secured the deal and minimised the fuss. It also allowed KLM people to believe that this arrangement could perhaps continue well into the future , the airlines both having their own cultures as well as brand indentities. Indeed the KLM brand as well as its network is an ideal fit with Air France. KLM is highly regarded in the English speaking world particularly in the UK provinces and former UK territories overseas. To the British it doesn't have a strong national identity and what there is is neutral or friendly. Indeed to many KLM is almost British and no patriotic disloyalty is involved in flying with them. Air France on the other hand is definately French which immediately arouses historic positives and negatives. The combined carriers therefore offer something for everyone,- an assumption of chic style and a taste of something mildly exotic with Air France for the francophiles and something more familiar though less adventurous with KLM for the rest. Those sentiments apart ,the two networks work well both separately and in combination. The KLM brand is therefore unlikely to be tampered with.

If true, the increased centralisation and visible subordination of Amsterdam to Paris is no surprise. Whatever the comforting words spoken and the posed smiling handshakes at the time of the coming together, this sort of move is common in all mergers and aquistions. Sometimes integration is almost painfully slow (vis BEA and BOAC in the 1970s) and sometimes very rapid (Kraft's takeover of Cadburys in 2010). There are arguments for both. Air France/KLM looks as if it has taken a middle course with the aim of making it feel more evolutionary rather than revolutionary and less likely to alarm the Netherlands in particular.

Over at Heathrow and Madrid what was dressed up as a merger between BA (whose bride was twice nearly KLM way back in the 1980s/90s, but that's another story) and Iberia was actually a takeover of both brands by a new (Spanish) company, ICAG, initially owned by the former shareholders of the two companies. There a similar erosion of the independence of not just one but both brands is highly likely. At some time in the future it is reasonable to expect that the illusions of separate CEOs and Boards will also disappear. It does not much matter by which route a merger or takeover is achieved . The need to strip out costs means that the organisational slide into centralisation is almost inevitable. With that of course come savings including the selection of common aircraft and staff reductions . Expensive management numbers are an essential target and those of the junior partner are most vulnerable.

Another major announcement from Paris is that the expected order for around 100 widebodies is likely to be split between Airbus and Boeing. This in reality continues a policy already established in Air France and to a lesser extent in KLM which has had very pronounced Boeing leanings. To the surprise of many, Air France abandoned its A340 purchases after the -300 version and instead went for the Boeing 777 as did most other carriers once it became clear that Boeing could secure long range overwater clearances for the big twin. KLM has long showed a preference for Boeings for both long and short haul with only a small, almost niche, fleet of A330-200s now being augmented by -300s.

A final point of interest is that if some of the Group order were to go to the A350, Rolls Royce would ,through lack of choice, return as an engine supplier after a very long absence from both companies. KLM has not ordered a purely RR engine since the Dart on the F27 and Viscount 800 and neither has Air France since the Avon on the Caravelle. There was no choice on those either.

Tuesday, 12 July 2011

Boeing 787 Dreamliner,- The Nightmare continues....

Just when it looked as if Boeing was about to follow the delivery of the first 787s to All Nippon with a smooth transition to the most recently announced ongoing delivery schedule leading reasonably quickly to full scale uninterrupted production , another hiccup has rolled in.

The manufacturer has now announced a hold of around a month on the final assembly line. (ATI news 12/07).

It is not clear in which order aircraft currently on the line and those parked outside for further pre-delivery work will actually be delivered to the airlines but Ethiopian appear to be indicating a slippage of about three months to its "early 2012" aircraft. The issue of who gets what and when is more complex than just getting aircraft away from Everett as quickly as possible. The timing and order of deliveries also affects the competitive position of one customer vis-a-via another. Whereas until the programe slipped an early customer may have expected to have say two years advantage over a later purchaser ,a reshuffling can close this gap and reduce or even eliminate that advantage altogether with considerable financial consequences. Strategies of route, frequency, capacity or product and brand improvement can be totally thrown into disarray. The frowns therefore go much deeper than being just about the length of delay to delivery.

Hopefully this will be the last production problem, but on past record there will be a lot of crossed fingers,- and some legs.

Monday, 11 July 2011

Air Malawi continues to bleed money. Solutions sought,- and offered.

Air Malawi, historically a good quality but far, far, too small an operator based in its landlocked central African home is, according to the country's newspaper "The Nation" yet again under review after having lost about $7.1 million in 2009/10 and $ 8.3 million the previous year. That is a lot of money for a very small business and a drag on Malawi's already overburdened economy. Passenger numbers and revenue both fell, thanks probably due to the general global economy but also a chaotic and inadequate timetable lacking in any form of coherance and not even delivering a respectable common timed service between the two major domestic cities, Lilongwe and Blantyre. The report also adds that "most of the company's equipment was not operational during the year, forcing it to lease aircraft for its operations." That can't have helped either.

If Finance Minister Ken Kandodo who vows that "government will continue efforts to ensure that parastatals will deliver on the essential goods and services to Malawians efficiently and effectively " had had the opportunity to read Airnthere's 19th April item "AFRAA doesn't get it", he would have had the opportunity to get rid of the furrowed brow and of this ongoing financial drain on the Treasury with little further ado.

To repeat what we said then, the simple solution in cases of small unprofitable and for ever uneconomic national airlines, almost invariably overburdened with historic costs is to let them go to the wall, declare open skies to all comers provided they satisfy safety requirements and let the unsubsidised private sector and foreign carriers invest in filling the gaps. The result is likely to be more frequencies, more destinations, better service and above all, no further demands on the national exchequer.

Air Malawi has long struggled to overcome its high cost past and find a new role from the time that Zimbabwe came into being as a new state replacing Rhodesia under UDI. During the days of both UDI and apartheid in South Africa , Malawi under the late President Banda carved out a unique niche for itself as a crossroads and connecting point for business moving between the various countries which had no direct links with each other. Significant numbers of politically generated passengers travelled to and through Blantyre in particular and for a number of years it had a unique twice weekly hubbing operation on Mondays and Saturdays when aircraft from all of these countries arrived within an hour or so,exchanged passengers and flew out again. During the rest of the week there were a series of other "useful" connections. Air Malawi was also busy flying mine workers to and from South Africa until Banda suddenly halted the business following the crash of a South African Wenela owned DC4 departing Botswana thanks to being erroneously filled with jet rather than piston fuel. At the same time the airline had for a short time gone long haul with the purchase of a surplus VC10 from British Caledonian in the mistaken belief that the London route, profitable for a weekly BA service, could be the same for them despite this trebling route capacity at a stroke. The VC10 was an impressive looking and sounding aircraft but it gobbled both fuel and money at a massive rate especially when flying with low loads. Eventually a seemingly insoluable problem with a centre fuel tank leak and the need for a major overhaul grounded it and a brief flirtation with the idea of replacing it with a brand new $80 million or so Lockheed Tristar 500 was thankfully abandoned.

Psychologically and financially the airline has never really recovered from all these things which happened almost in parallel . The end of the VC10 and long haul aspirations, the collapse of Rhodesian UDI and the emergence of Zimbabwe, and the end of the South African mine labour traffic were a huge impact to absorb and coming close together in time were simply overwhelming. All this was compounded by the virtual closure to international services into and out of Blantyre, the destination of most commercial visitors to the country, to ensure that the new international airport at Lilongwe justified its existence. The costs and bills of this fell on Air Malawi's doormat through no fault of its own.

Ever since the early 1980s therefore, the company has struggled to reach an economic critical mass and to carve out a new role for itself in regional air travel. Despite the best of intentions, a fair product with a good safety record and operational standards and a lot of effort, it has not managed to find itself one. It is the right moment therefore, with no discredit to anyone, for Mr Kandodo to say "Enough is enough" and for the market to provide its own solutions. For sure it will, so don't bother to pay a smart international consultancy provider vast amounts of money to tell you that. Take it from here,- absolutely free.

Thursday, 7 July 2011

Bombardier , the Thameslink Order and the future of train building in the UK.

Thameslink's choice of Siemens electric trains over the rival Bombardier offer has brought immediate huffing and puffing from a number of quarters including the unions who see the loss of 1,400 membership fees as most unwelcome.

True, it is sad to see a potential UK order go abroad .This one could probably have gone to the Derby facility of the Canadian Bombardier company and it probably is true to say that no other EU country would stick so rigidly as the UK to the bidding rules to its own overall disadvantage, but that's not new.

It is not true though that the loss of this large order has resulted in the issue of the 1,400 redundancy notices. The blame/reasons lie largely elsewhere. Bombardier ,right now at pretty much the peak of its production with 5 different contracts trains in the works, was about to face a large orders gap and the redundancies would almost certainly have happened anyway. Four of these current contracts will have been completed by the end of the year and actual construction work on the new Thameslink trains is around eighteen months to two years away.

Why has this production hiatus occured?

There are two basic reasons.

Firstly the UK domestic rail industry does not have a rolling programme of replacements and new builds as it did in nationalised British Rail days when it was much easier to have a co-ordinated national plan which delivered a steady and reliable stream of orders to the engineering arm of the company thereby avoiding the problems of peaks and troughs in work and use of resources. When the Thameslink contract was awarded it was more than 800 days since the previous order by or for any UK rail company. Hence the impending gap regardless of Thameslink.

Secondly, despite knowing that these gaps will occur and working with that as a fact of life, Bombardier UK does not vigorously persue overseas orders and with very few exceptions only builds trains for the British leasing companies and operators at Derby. That is a matter for their corporate strategy people and could therefore be changed if the parent company so desired. They have standard high quality electric and diesel trains, the Electrostar and Turbostar (Clubman to Chiltern Railways customers) for short and medium distances in high or low density layouts. Although optimised for the UK with its sub-EU loading guage these are exportable. For example orders from both the Irish Republic and Northern Ireland are have escaped and gone as far away as South Korea. The British Electrostar has only been exported to South Africa for the Johannesburg-Airport- Pretoria Gautrain project. It could have done better if more strenuously promoted.

On the political side, the UK Government is also to blame for the Bombardier redundancies. This is not though because the Thameslink contract was allowed go to Siemens who after all already suppy a number of UK operators including Heathrow Express with the British version of their Desiro trains. Government culpabilty lies in the very short duration of most franchises making a smooth flow of orders unlikely and co-ordination of them into the most economic sequences difficult. This is despite much micro managment of the train operating companies in other areas of their activity by the Department of Transport.

The unions only solution to any of these problems seems to be to scream for renationalisation but that's about political dogma, not economics. It isn't going to happen so they are wasting energy and breath which would be much better spent working with the companies on new productivity deals to bring down costs and encourage more investment rather than opposing just about anything that managments and the government propose. Certainly the unions are currently adding nothing useful to the debate about the continuation of a train building industry in the UK. They can be as "angry" as they like but that's not going to do anything for anyone, least of all the holders of 1,400 P45s.

As simply described here, Siemens getting the Thameslink contract is not the root of Bombardier's Derby problems. It also need not mean the end of Bombardier's train building in the UK .Indeed they would be foolish to completely walk away when they have other much better options to make a go of the British plant.