Thursday, April 26, 2012

Sanctions and Safety

During a recent conference about Aviation Insurance, Risk Management, Safety and other Legal Requirements and Regimes. The issue of Sanctioned countries came up and the associated difficulties of operating within these countries.

Sanctions are a political reality. The rationale behind them is to make life for the ruling regime and the people so  difficult that the people will get rid of the government and install, for want of a better word, a "GOOD" one. Do sanctions work? sometimes but not very well. After all, there is a disconnect between a repressive regime and its people, so don't expect elections or violent uprisings. All the countries of the Arab Spring/Awakening, with the exception of Syria, did not have any sanctions imposed on them. While countries like Iran, Cuba and North Korea are still there and getting more radical.

Sanctions do affect Civil Aviation and in the worst way; no access to components, maintenance and other services, training, manuals and even insurance. USA and EU sanctions are being enforced more vigorously these days. Service providers are being warned and pushed into compliance.

In 1989 Syria was under a USA embargo, and still is So when the time for their B727 D Checks came due, the question was put to Boeing by the service provider, Royal Jordanian, on how would the sanctions affect the maintenance work. Boeing's answer was, safety and airworthiness issues are exempt but we decide what is a safety or airworthiness issue.  The same treatment was not accorded to Libya. 

One of the discussion papers in the conference was about the difficulty for a western entity to perform incident and/or safety investigations in sanctioned countries (basically Iran) and how the sanctions were taking their toll on the airlines in terms of Safety and Airworthiness.

During one of the round table discussions, sanctions were criticised because of their effect on the movement of people, trade and how they rendered civil aviation unsafe. The call was for the insurance community to stand up and oppose sanctions. I don't think this is likely to happen, but hopefully to work with governments to soften the effects of sanctions. Interestingly, it was brought up during the discussion that Syrian Air is one of the safest airlines if not the safest in the world despite the sanctions. The inference was that Iran's aviation safety record deteriorated because of sanctions.

That maybe the case, but to blame sanctions for the actions or inactions of airlines management and their regulatory authorities is hiding behind politics. Sanctions do have an effect, this why they were imposed in the first place. Why is Syrian Air safe? because their management acts responsibly and grounds aircraft when they cannot be maintained properly. However, most of Iran's aviation incidents are on Russian built aircraft. 

Thursday, April 19, 2012

Royal Jordanian What Next

On 17 April 2012 it was announced that the CEO of Royal Jordanian will be stepping down on 1 June 2012. The reason cited, that "the move came out of his conviction that the time had come to implement “new ideas” to develop the Jordanian carrier." RJ like the rest of the industry in the region and to a certain extent globally has suffered from the effects of the Arab Spring and spiraling fuel cost. The carrier has reported a loss for 2011 of around 80 million USD, not necessarily through the fault of management, in all probability the loss could have been higher if the problems were handled differently.

RJ implemented several improvements to its product and systems to meet the requirements of joining Oneworld. The on board product offered is good, of course there is scope for improvement. The idea of a merger similar to AF/KLM or BA/IB was floated again.

The reason for the CEO's departure is not the most significant issue. The real issue is the new CEO, who will be
appointed by the Board after the General Assembly in June. Whether the new CEO will be tapped from within the airline, the industry or is a political appointee remains to be seen. Regardless of his background, he will influence the future development of the airline and how the "new ideas" will be implemented. It may be a reflection on how the privatisation process in the country is being viewed.

I wish Mr. Hussain Dabbas, a friend and a colleague, the best in his new endeavors.

Monday, April 16, 2012

The Liberalisation of Saudi Aviation

Earlier this year, GACA (Saudi Arabia's aviation regulator) announced its intention to allow foreign carriers, mostly from the GCC, to invest in and operate domestic routes and within the scope of existing bilaterals allow them some international flights. April 2012 is supposed to be the month when all conditions and interested parties will be announced.

So far very little real interest, other than press releases has been expressed by airlines. Emirates, who said that they are interested in investing outside the UAE, are not interested in Saudi Arabia mainly because of the cap on domestic airfares. This makes it very hard to compete. Several airlines including domestic carriers have requested a review of airfares to offset losses and make it more attractive to new entrants.

SAMA's failure and bankruptcy in 2010 was attributed to the cap on airfares.

April 2012 is proving to be still an important milestone. It is reported that GACA recommended to the government to raise the airfares cap, citing that ticket prices in the kingdom are 50% less than those in other Arab Countries. They also felt that the raising of the cap would attract local and foreign investors.

The extent of the increase is still unknown, but it reflects a more realistic view to airline economics in the Kingdom and that subsidies to the national carrier to maintain artificially low ticket prices is unsustainable.

Definitely a step in the right direction.

Wednesday, April 4, 2012

Royal Jordanian .... Merger Again

In an interview with Bloomberg Royal Jordanian's CEO indicated "a merger with a larger carrier is inevitable as high fuel prices, competition from local rivals and a sluggish economy squeeze earnings" (Click here for the full story). 

Ever since the idea of privatising Royal Jordanian started in the 1986, the original intention was to sell 49% of the airline to a strategic partner (BA was mentioned) or a foreign investor. Subsequently BA sponsored Royal Jordanian to join Oneworld in 2007.

Eventually Royal Jordanian was privatised in 2007and its shares listed in the Amman Stock Exchange. 

The idea of a merger with another airline was brought up by the CEO in June 2010 "There is room for airlines like RJ to merge with another carrier," he said. "I think consolidation will happen, but not now and it will be like Air France KLM, British Airways and Iberia, Lufthansa-Swiss…Airlines will maintain their national identity." (Click here)

At one time it was thought the airline will merge with Gulf Air, currently a remote possibility given GF's financial conditions. Another possibility is Etihad Airways which already owns 29.2% of Airberlin another Oneworld airline.

One thing is certain the airline requires a cash injection to cope with the oil prices and to finance its B787s to be delivered starting 2014.

Only time will tell how things will develop in the highly volatile political and economical climate in Jordan and the MENA region in general.


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