"The Cracked Record"........ Legacy Carriers vs. GCC Carriers

It flared up again, the accusations and arguments and counter arguments in the IATA AGM in Singapore (click here for full story). Mr. Giovanni Bsignani the outgoing Director General of IATA called for an end of the dispute between Gulf carriers and European/North American carriers in a civilized manner. He pointed out that the solution to call governments as advocates or referees has not worked and will not work and as responsible leaders of this global industry we should find a resolution by ourselves.

Of course, Air Canada will not have any of this and the litany of the Gulf carriers being supported by their governments as if Air Canada is not the darling of the Canadian Government the only difference is that the governments of the UAE and Qatar embrace an open sky regime while the government of Canada has one of the most noncompetitive and restrictive policy (read my blog Canada's Air Transport Competitiveness) Air Canada was supported by Austrian, a subsidiary of Lufthansa that has a record of opposing entry allowed under EU open sky agreements.

The problem lies in the fact that the Legacy carriers of Europe and North America are not able to match the growth of the Gulf carriers. I agree that they are at a disadvantage but it is not caused by government, it is caused by location, location location. The Ultra Range aircraft shifted the geographical center of aviation from Europe to MENA and the Gulf and allowed the carriers of the region to become real global airlines. The UAE and Qatar have always been open economies, yes they have requirements for local partners but they also have free zones that allow foreign companies to operate without a local partner.

So far the Europeans and the North American carriers have elected to lobby their governments to limit access for almost every airline from MENA. This is a failed policy, they forget that the Gulf carriers are developing markets in South America, Africa, the CIS and Asia locations where their governments have no influence.

The lack of innovative thinking and problem solving is indicative of organisations that have been very comfortable for a long time with the status quo and are at loss when the world changed. As long as these carriers bury their heads in the sand and go screaming to their governments there will be no solution. These Gulf carrier add value to the destinations they serve, they advertise them as holiday destinations something that the European and North American governments on the whole don't do.

So far no one knows exactly what they want other than stop the rapid growth of the Gulf carriers, in their countries, but would the threat go away when these carriers dominate traffic in Africa, South America and shut them out of there. I don't think so

The solution is to stop accusations and counter accusations and sit down and work equitable solutions that are win win.

Emirates Airlines Brighter Prospects

Emirates Airlines must be very happy with the news of the last couple of weeks. Having posted its best ever profit results of USD 1.5 Billions (click here for details) in 2010, the airline had more good news;


1. Emirates closed a USD 1 Billion Bond Issue which was indicative of the investor community confidence in
    the airline financial health and strength.


2. The Oxford Economics Report concluded that the success of Emirates is not the result of unfair
    competition or government support but because of effective aviation policy. The report concluded that
    the aviation  sector in Dubai  generates 125000 jobs  and their spending supports an additional 134000
    jobs which contribute an additional USD 7.9 Billions in Dubai's GDP. In total  the aviation sector's 
    contribution to Dubai's economy is 250000 jobs and USD 22 billion representing around 19% of total 
    employment and 22% of GDP.

3. MasterCard Index of Global Destination Cities ranked Dubai as the #9 most popular destination City 

    in the world in 2011 with 7.9 million visitors and a USD 7.8 Billion spend.


All the above and the rebound of passengers growth in April compared to March is validating Emirates policies and plans 

Challenges Facing MROs in MENA

Last week (24 -25 May 2011) I attended the Airline Engineering and Maintenance Middle East Conference at Abu Dhabi organized by UBM Aviation. This conference came at a time the region faces political turmoil and rising oil prices that may affect the global economic recovery. The turnout was exceptional with several major airlines in the region attending. 
As usual the conference offered thought provoking ideas. discussed below are a few that I found interesting;


Global MROs was something pursued by Mubadala Aerospace and Turkish Technic where the idea of leveraging and aligning several MROs and JVs with OEMs to provide a full service to the extent that Mr. Abdulla Shadid, Manager Business Development, Mubadala Aerospace said in the keynote address of the conference "The days of the independent non aligned MROs are over", declaring the demise of the Independent MRO.


AACO  expanded on the dangers facing the MROs of the region and summed them up as follows:
1. Regulations and educating the regulators in the needs of the industry and how the lack of harmonised 
     regulations is affecting the business.
2. Shortage of maintenance personnel not only in the region but worldwide.
The issue of  manpower development was addressed by the Gulf Aviation Academy and the shortage of  human capital was considered one of the main issues facing the region.


Operating engines in the harsh environment of MENA especially the Gulf region was discussed by Saudi Arabian Airlines and Etihad, both outlining their experience in that regards.


Managing inventories and all related activities were put in perspective from  different points of view. Emirates shared their efforts on managing the inventory to support a fleet of 152 aircraft over a network of 100+ stations. AJ Walter Aviation discussed how they can provide support for airlines in this regard.


The dilemma of outsourcing or developing inhouse capabilities was discussed by the low cost carriers of the region Jazeera Airways, Air India Express and Jordan Aviation. The pitfalls associated with outsourcing, power by the hour versus time and material and the importance of paying attention to aircraft and engine return conditions.


Thanks again to UBM Aviation for providing a venue for networking and sharing ideas affecting the MENA region.

Global MROs

A year ago I blogged about Hub MROs (click here for blog). ADAT was advocating this one stop shop as the wave of the future. One year later in the same venue, The Middle East Airlines Engineering and Maintenance conference, Mubadala Aerospace the parent company of ADAT and SRT put forward the concept of a Global MRO. Mr. Abdulla Shadid, Manager Business Development, Mubadala Aerospace said in the keynote address of the conference "The days of the independent non aligned MROs are over". These are powerful words and they were echoed by Turkish Technic.

So what is an aligned MRO, well it does not exist as one physical entity, but rather several MROs offering different services aligned together (not independent) as an example ADAT, SANAD, SRT and several Joint Ventures with OEMs (Landing gear, engines etc..) offering services jointly. Mubadala is trying to create a leading edge concept by aligning all its holdings and so is Turkish Technic. This is made possible through leveraging large aircraft orders by Etihad and deep pockets of Mubadala, and THY orders .

This alignment is not as easy as it sounds there are several challenges facing this and they have not changed from last year:
1 Human capital, there is a world shortage of technicians and releasing engineers and this has not been
   resolved in the UAE and many other countries in the region. Not enough trained Emaratis are available to
   run these JVs and will not be available for a long time;
2 There is a tremendous management challenge in aligning several JVs and entities to work together to
   provide a competitive single all encompassing quotation to an airline. The tendency is for each one to go its own way.

Is it impossible?  of course not; is it needed? we will have to see. In the mean time and I beg to differ, the Independent MROs will survive and thrive. Not every airline wants all the services or wants all the services from one entity and are happy to deal with an efficient independent MRO.

Will this concept catch up and become the norm of the industry, we will need to wait ad see.
The Independent MROs are here to stay.

2011 A Challenging Year

2011 started with several challenges that did not only affect airlines in MENA and GCC, but the whole industry globally;

1. The natural disasters in Japan and the ensuing damage and problems;

2. The deepening Euro zone financial woes;

3. The political upheavals in MENA and GCC; and

4. The increase of fuel prices.

According to IATA air traffic shrunk in March (read story here) due to events in MENA and Japan. Traffic shrunk in MENA with growth measured in single digits which in April improved with Dubai and Abu Dhabi posting double digit passengers increase.

Political upheaval has struck Tunisia, Egypt, Yemen, Libya and Syria very hard while other countries were affected to a lesser degrees. In any case these most of these countries are tourist destinations predominantly from Europe. Jordan had tours cancellations and I am sure other MENA countries experienced the same. As a result flights to places like Cairo and Tunis have been reduced and of course totally stopped to Libya.

The airlines did not cancel or defer any aircraft deliveries, Yemenia took delivery of its first A320 on  28 April 2011 and RJ its 32nd Aircraft an A320 on 29 April 2011. This is an indication that they consider the medium and long term prospects as being good. Oil prices are fluctuating and trending downwards, at this time, to the extent that Emirates reduced its fares as a response to that reduction after having increased them.

The airlines will do what they always do in times of crisis, expand their networks to maintain their existing capacity; Emirates is planning Geneva and Copenhagen this Summer and Rio de Janeiro and Buenos Aires in January 2012, Royal Jordanian is planning flights to Berlin in June, a code share with BA for closer ties with a One World partner has been signed and has increased frequencies to compensate for the reduction in other areas, Etihad has a code share with Virgin Blue Group and ANZ and that goes for most the airlines of the region.

As Summer starts the movement of expatriates to their home countries will start and this is not politically very sensitive. People will go home regardless of the political situation in their home countries.

Oil is the biggest challenge that faces the airline industry not only in the region but globally. Oil prices are not only a rising cost to airlines they also represent a threat to recovering economies, that might falter and as a result experience less travel.