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be able to provide on our own, said Singapore Airlines CEO Mr Goh Choon
Phong.
Carsten Spohr, Chairman of the Executive Board and CEO of Deutsche
Lufthansa AG: We can look back already on a long and fruitful partnership
with Singapore Airlines. And were now intensifying this close collaboration
between two world-leading premium air carriers with a new joint venture
that is in the best interests of all our customers, in Europe and in
Southeast Asia. Because by working even closer together, we can both
offer even better connections and even better services. Our intensified
partnership with Singapore Airlines is an excellent addition to our global
joint venture network, and is a cornerstone of our Asia Strategy. And all
these strategic partnerships will help the Lufthansa Group further
consolidate its leading position in all key markets.
Expanded SQ codeshares on LH/LX/OZ services (mostly short haul intraEuropean, limited Latin American, Caribbean and high-yield US
destinations not/limited operated by SQ (solely based on timings)
Expanded LH codeshares on SQ/MI services on directional OR proximate
services from LH/subsidiary operations. Mostly South-East Asia, Australia,
New Zealand (with possible LH codeshares on NZ), and few high-yield
Asian destinations not operated by LH/subsidiaries/partners upon
convenient schedule observance
The rise of the Gulf carriers, and expanding competing European airlines to the
financial hub of Singapore, continues to pressure airlines that were once upon a
time competitors, into aligning businesses beyond multi-airline alliance groups
(in this case Star). And so the Lufthansa and Singapore Airlines groups have been
forced to compromise their previous independence, to pave sustainable
premium/yield generation, succinct operations, and expanse of virtual-airline
catchments tangibly through the JV. 1
Although Lufthansa and SIA account for about 27% of non-stop Western
Europe-Southeast Asia capacity, their share of flown passengers is around
13%. Emirates alone has 12%; adding Etihad and Qatar now has 27% of
the market transiting via the Gulf. But SIA and Lufthansa are the only
airlines operating non-stop service between their respective countries.
The proposed JV will grow the passenger 27% share to 33% (under
conservative figures), while also even further growing the revenue share
thanks to premium placements for both airlines.
Regulatory structures have placed both companies to limited costmanagement capabilities within the mainline, forcing premium-placement
in the marketplace, while creating inherently disharmonized subsidiaries.
This partnership will also enable further diversified products of these
subsidiaries through growth in capacity transfers between Europe and
South East Asia.
New products into the marketplace, with new-delivery aircraft or order
backlog, rebranding, product optimizations and improvements, and cabin
refits for variety of 5th freedom and direct carriers between Europe and
ASEAN.
Oneworld presence improving with British Airways (high capacity A380
and 77W services non-stop to LHR hub), Qantas (with European onward
connections), Qatar Airways and Finnair lifting the bar with the A350s
currently from DOH-SIN, DOH-FRA and DOH-MUC, and soon into service for
HEL-SIN respectively. Cathay Pacific also fight for market presence in SIN.
Skyteam presence inherently strong and rapidly growing catchments
within the ASEAN and Europe. China Eastern and China Southern continue
to expand mainland China destination counts, while increasing capacity to
PVG, PEK, and CAN, while also announcing and growing European long
haul routes and services with growing fleets. Air France and KLM also
operate to Singapore, with very high O/D oriented presence to much of the
ASEAN regions and China. Garuda Indonesia and China Airlines also play
pivotal roles in capacity transfer to Europe in competition of Star carriers.
Strong partnership structure consolidates traffic to stream.
Turkish Airlines, Ethiopian, Thai Airways and Air India largely, and willing to
retain as uncooperative to LH and SQ to shuttle and contribute to JV
operations between the ASEAN and Europe despite large presence in Asia,
and even larger presence in Europe.
The new agreements announced between SIA and Lufthansa should provide
additional weaponry in the two Star Alliance members' competition with the Gulf
carriers on routes between Western Europe and Southeast Asia. It should also
strengthen Lufthansa's access to Australia. The Gulf airlines' extensive networks
of secondary cities in both Europe and South East Asia still mean that
Lufthansa/SIA will often be trying to combat their rivals' one-stop services with a
two stop proposition, but their deeper cooperation will give them better access to
markets and customers and an enhanced ability to use schedule and price to
enhance their position. Moreover, Lufthansa/SIA will also be better placed on the
main trunk routes between the regions. Gulf carriers serve more European points
than SIA, and more Southeast Asian points than Lufthansa. The proposed JV
between SIA and Lufthansa does not solve all their problems on between EuropeSoutheast Asia. To reach its potential the JV will need two elements of :
There is an undeniable trend from this JV and other strategic moves from both
Lufthansa and SIA: long haul low cost operations (Eurowings/Scoot), greater
group integration (Silkair outreach, and Vistara flow-traffic uptake) and a focus
on partnerships, to name a few. The trend is that Lufthansa and SIA are also
demonstrating a greater willingness to take on competition beyond the product,
and price (where few airlines successful, and a bitter example of Malaysia
Airlines, Thai Airways and other ambitious airlines next door) thanks to capital
accessibility, inventory, outreach, corporate accounts pooling and capability to
be flexible over paper changes in internal management.
The internal detachment of the old IAC created unreliable parameters and
non-reflective cabin requirements, often dubbed by competitors as the
Boeing Standard Rules. This is especially seen and used by Airbus (eg
A330neo launch presentation) into exfoliating Boeings failure to develop
and configure aircraft for comparisons, around the flying public. IAC highly
criticized, namely from competitors like Airbus, research on cabin comfort,
and development of the 18 standard.
New parameters configure aircraft with higher seat-pitch and fewer rows in
economy and business, fewer seats abreast on premium economy, and
smaller alternative-placed lavatories, crew-rests and galleys. The
configuration density is also variable on basis of average stage lengths
(good for the 737NG/MAX programs). The number of seats abreast
remains in order to stay competitive on the market. The new parameters
also increase average weight per LD3, more bags per LD3, and higher
capacity for more freight capacity. The standard weight calculation and
extrapolation to payload-range charts internally, are crunched, and
displayed.
Another financial year has come upon us; a time when airlines envision their
future, set direction and sail, materialize big decisions, and rationalize their
business. Consolidation and internal clean-ups of management, assets, and costs
also plays this time around, as will be seen by this weeks news regarding Scoot,
Transaero and SkyGreece.
This allows Scoot to be a true Low-Cost Carrier with lowered costs, which
inherently bank on simple common fleet of high-density aircraft. The common
advantages of this is:
Scoot recently also took delivery of its 787-8 aircraft as a route opening aircraft
for thinner routes, having lower total operating costs, higher CASM/CASK, and
commonality with the 787-9. There is also possibility that many of SQs 787-10
order may be transferred to Scoot (if not all). Scoots neighbours mid/long-range
LCC competitor Air Asia X, predominantly based at Kuala Lumpur, also operate
high density twin-aisle single-type fleet aircraft. The A330-300 of Air Asia X is
configured in 12 premium and 365 economy class seats, while also ordering 55
A330-900 aircraft with 95% commonality with the A330ceo family. Cebu Pacific
also operate high density A330-300s on Oceania and Middle Eastern services.
and might not get a bailout. Airbus Group SE also postponed 4 A380 deliveries
until further notice, and reviewed the outline deal Transaero signed for A330ceo
and A330neo aircraft. Meanwhile Boeing is negotiating deliveries and schedules
as the news evolves for the airline.
All these demonstrate all forms of consolidation (the good, the bad and the ugly)
the airlines faced in the new year, in contrast to the many carriers (majority full
service with high-ancillary revenue portfolios and weak fuel hedges) posting
record-breaking profits, growth projections and subsidiary development.
Saudia Airlines (JED) operates 156 RPT aircraft to 126 destinations Saudi Arabian
Domestic, Middle-Eastern Regional, international mid-haul and long haul
services. It is the third largest Middle-Eastern Airline by revenue, and is an active
member of the Skyteam alliance since 29th May 2012. The airline also holds its
own cargo division. With a history of fragmented operations, high number of
aircraft types, lack of focus beyond the domestic market, safety concerns, and
overall costly mismanaged operations, the airline begins a slow turnaround for
profitability and sustainability in operations after studies of privatization and
restructuring for the carrier since 8th October 2000 (as per signed by Prince
Sultan bin Abdul-Aziz Al Saud).
As regulatory reins resume to liberalize within the kingdom for economic
development, the Saudi Arabian General Authority of Civil Aviation (GACA)
opened the flood gates for new AOCs for airlines to compete within the domestic
market in 2007. Flynas (founded in 2007 as an LCC), Al Maha opening its doors in
2016, privatization bids for major Saudi Arabian Airports, transit rights of local
carriers, and possible future of 8th freedom operations by international airlines,
are some of the liberalized undertakings within the Saudi Arabian marketplace.
This hence resulted in a surge of growth. Saudia is hence placed in an
evolutionary stage where investment, growth, controlled consolidation and
production of efficiencies/scale is desperately needed to keep the airline
infrastructure alive in the region. This has been done through the shedding of
MD-80s, 747s and A300/A310s, simplifications of fleets to induce commonality
and savings, transfer of ownership to other businesses (such as Royal Flight or
freighter-conversions for cargo operations), and announcing newer aircraft with
better products to retain local customer base, and grow the airlines.
Since the Saudi Arabian Government ended the monopoly of national carrier
Saudi Arabian Airlines (Saudia) in 2007, the aviation market in the Kingdom of
Saudi Arabia has been one of the Middle Easts most rapidly evolving, if not
expanding. The country has the largest domestic market in the Middle East, with
a population of 29 million people spread over 2.1 million sq km, but has not been
able to replicate the rapid growth its GCC neighbours have enjoyed because of
regulatory impediments. A longstanding protectionist policy supporting Saudia is
giving way to a scenario in which competition and growth are key elements.
Some of the protections included government mandated domestic fare caps
(heavily travelled routes) for maximized accessibility for domestic flyers on key
trunk services at the expense of profitability and business, forced
consolidation/break-down of government funded airlines with inability to produce
deregulated subsidiaries, and government withholding traffic rights and foreign
investment capability. Other issues include:
1. Unique to the Middle Eastern Airlines, Saudia faces issues on balance of
airport hubs, and the implied operational diversification, yield
management and economies/traffic of scale the airline can produce/retain.
With bases primarily in Jeddah, Riyadh and Dammam, while also operating
domestic and regional-international operations from secondary hubs
across Saudi Arabia, the airline struggles to withhold organic high-yield
O/D nonstop traffic at the expanse of high-volume connecting traffic (and
vice versa). For example, would SV want to fly passengers from Manila to
Riyadh directly, or with a stopover at Jeddah or Dammam? Can passengers
and the airline afford it?
2. From a yield perspective, the balance of capital investment (to retain
operating bases) and high operating costs to retain high-yield traffic has
been a major challenge for the airline. With much of the connecting traffic
market to Saudi Arabia favourable (product and price-wise) to other
carriers such as Emirates/Etihad/Qatar-Airways from the east, and
During the Paris Airshow on the 15th of June, Saudia firmly committed to the
current common family members the airline currently operates regionally within
the Middle East, the subcontinent and Europe. On that day, Saudi Arabian flagcarrier Saudia is committed to 20 of the regional version of the Airbus A330-300,
under an agreement which will also include 30 baseline A320s. The carrier had
already been revealed as an initial customer for the new lower-weight A330
variant A330Regional, which is being aimed at high-density shorter routes thanks
to lower near-200T MTOW (and hence lower landing/parking/apron/over-flight
costs), and 9-abreast regional configuration (upto 16.8 width). Airbus has
confirmed that Saudia, which already has 12 A330s in its fleet, will be the first
operator of the type. The aircraft, which will benefit from technology derived
from the A350 and A380, is being developed to serve routes up to 3,000nm. No
engine selections have been given but Saudias current A330s are all powered by
Rolls-Royce Trent 700s while its A320-family fleet is fitted with CFM International
CFM56s. Saudia has not detailed the intended configuration of the regional A330,
but current A330s feature 36 business (mix flat-bed / recliner) and 250-265
economy class seats already at 16.9 seats and wide aisles (hence compatible
for the 9-abreast seating). The A320 currently feature a relaxed cabin of 12-20
business class and 96-120 economy class seats (although this order, especially
because of being last few batch discounted A320ceos, could be associated to
regional applications, hence denser configurations). Director General Saleh bin
Nasser Al-Jasser says that the unique flexibility of the aircraft, and its high
capacity, will allow the airline to expand its domestic and regional network.
Airbus chief operating officer for customers John Leahy says the airframe sees a
significant market opportunity for the regional version of the twinjet. No
delivery date has been given by either side for the A330s or A320s. Airbus had
expected the regional A330 to enter service in 2015 but, nearly two years since
the types formal launch, Saudia is the only customer for the aircraft to have
emerged. Saudias financing will be under Islamic Financing through the
International Airfinance Corporation (Dubai)
Meanwhile, Saudi is studying and negotiating into a high-density two-class
oriented A380 for high-density services (especially during Hajj). Airbus has
offered Saudia the high-density layout to be pioneered by leading A380 customer
Emirates on its Copenhagen route next week, Habib Fekih, its head of sales for
the Middle East, said in an interview. Just a handful of high-capacity doubledeckers could help ease pressure on Saudi infrastructure by many folds, Fekih
said in Dubai. Before this year, the densest A380 layout -- also at Emirates -featured 517 seats. Saudia Chief Executive Officer Abdul Mohsen Jonaid said last
month that he was evaluating the A380 as part of a plan to swell the fleet to 200
planes by 2020 from 119 now in order to add flights at the new Jeddah airport
opening in 2017. The carrier declined to comment further on Fekihs remarks.
The second hand and lease market also looks soft, with leasing firm Amedeo, the
only new A380 buyer in the past three years, said its involved in campaigns to
find new users for superjumbos due to become available second-hand and views
the plane as the best option for meeting the levels of demand facing Saudia on
Mecca and Umrah pilgrimages. Malaysia Airlines (KUL) also plans on replacing its
A388 fleet with A359/A339 aircraft, hence displaying their A380 on public tender.
Turkish and Saudia are currently studying the aircraft.
The purpose of ordering A330 regionals, A320s and A380s are to ensure:
The expansion is also seen from manpower and training perspectives, with CAE
announcing Boeing widebody simulators (787/777) with Saudias Prince Sultan
Aviation Academy during the Dubai Airshow on 8 th November this year. Prince
Sultan Aviation Academy (PSAA) is the largest aviation training complex in the
Kingdom of Saudi Arabia. PSAA became a Strategic Business Unit (SBU) of Saudia
on the 7th of April 2010 that provides professional Aviation Advanced Training to
Regional and Global commercial air carriers. PSAA has the latest Flight Training
equipment including Full Flight Simulators, Fixed Training Devices, Computer
Based Training work stations / classrooms, Cabin Emergency Evacuation Trainers,
and Door Trainers. PSAA operates EMB-170, A320-200, B777-200, A330/A340,
and B747-400 simulators, covering some of the most widely operated fleet types
in the world; fitted to industry-leading specifications that permit training on most
variants and sub-types. Based on 56 years of extensive training and
management experience, PSAA provides professional and quality training to
commercial air carriers in compliance with regulations of the Kingdom of Saudi
Arabia, General Authority of Civil Aviation [GACA] and International Standards.
The B777 simulator is a CAE 7000XR Series FFS, while the B787 simulator is a
CAE 7000 Series FFS. The training devices include one Boeing 777 and one
Boeing 787 CAE 500XR Series flight training devices. The complete training suite
will be delivered and installed at Prince Sultan Aviation Academy (PSAA) training
centre in Jeddah, Kingdom of Saudi Arabia in 2016.
From a maintenance standpoint, Saudi Arabian Airlines is aiming to swell thirdparty sales at a maintenance arm its building into the biggest in the Middle East
after securing a tie-up with the repair and overhaul division of Deutsche
Lufthansa AG. Saudi Aerospace Engineering has 25 airline clients, and aims to lift
contract values to 8 billion riyals ($2.13 billion) from 5.3 billion riyals after
opening a new 1 million square-meter facility at Jeddah airport by the end of next
year. Complete maintenance, repair and overhaul across more aircraft types in
2016, are planned to be offered. SAEI is also targeting an increase in overhaul
work for the Saudi military, which has a potentially huge requirement, he said.
Saudi Arabia has the largest defence budget in the Middle East and is engaged in
a war in Yemen. The Jeddah facility is currently under development.
All this amounts to Saudias sight for expansive growth, and rationalization of
hubs and operations, with plans to add more than 80 planes to its fleet by 2020,
expanding its size by over two-thirds, a top executive was quoted as saying by
state news agency SPA. Most of these expansions will be ordained by current
aircraft technology at discounts for short hauls, while new innovative
technologies at forefront of efficiencies and comfort for long haul. This all
amounts to aims for Saudia to carry 28 million passengers from 2014, to 50
million conservatively in 2020.
On the 24th of November, a Turkish Air Force F-16 fighter jet shot down a Russian Sukhoi Su-24M
bomber aircraft near the SyriaTurkey border, as the aircraft was returning to Khmeimim Air
Base. According to Turkey, the aircraft was fired upon while in Turkish airspace because it
violated the border up to a depth of 2.19 kilometres (1.36 miles) for about 17 seconds after being
warned to change its heading 10 times over a period of five minutes. The Russia Defence
Ministry denied the aircraft ever left Syrian airspace, counter-claiming that their satellite data
showed that the Sukhoi was about 1,000 metres inside Syrian airspace when it was shot down.
The U.S. State Department said that the U.S. independently confirmed that the aircraft's flight
path violated Turkish territory, and that the Turks gave multiple warnings to the pilot, to which they
received no response. The Turkish government also said that it did not know the nationality of the
aircraft at the time of the incident. Russian president Vladimir Putin said that the U.S. knew the
flight path of the Russian jet and should have informed Turkey; two U.S. officials said that Russia
did not inform the U.S. military of its jet's flight plan.
The Russian pilot and weapon systems officer both ejected from the aircraft. The weapon
systems officer was rescued; the pilot was shot and killed while parachuting in mid-air by Syrian
Turkmen rebels. A Russian naval infantryman from the search-and-rescue team launched to
retrieve the two airmen was also killed when a rescue helicopter was shot down by the rebels.
The shootdown was the first destruction of a Russian or Soviet Air Forces warplane by a NATO
member state since the Korean War. Reactions to the incident included harsh denunciation from
Russia and an attempt to defuse the situation by NATO afterwards. Few hours after the incident,
Russian President Vladimir Putin spoke from Sochi, where he was meeting with King Abdullah II
of Jordan, saying that it was a "stab in the back by terrorist accomplices," and that Russia would
not put up with attacks like this one, hence resulting in RussiaTurkey relations would be
affected. Russia deployed the guided missile cruiser Moskva armed with S-300F (SA-N-6
Grumble) long-range SAM missiles off the Syrian coast near Latakia and S-400 mobile SAM
systems to Khmeimim Air Base.
Some interesting contexts include:
-
After the 2012 shooting of a Turkish F-4 reconnaissance jet, Turkey altered the Rule of
Engagement. "The engagement rules for the Turkish armed forces have been changed
from Syria if there are any military instruments or troops approach to the Turkish borders
from the Syrian side in the form of a threat they will be perceived as military threats and
will be acted accordingly from now on," Erdogan said. While no official reports or details
are publicly announced (which is respected by NATO), it is evident that the Rules of
Engagement swiftly enacted on little relaxation and buffer time, along with less flexibility
for international military-capable aircraft to enter Turkish airspace. Discussions between
top officials to alter the Rules of Engagement was made from 3-15th of October, with little
Serhan Yucel said the company would continue to fly to Russia as usual, despite
deteriorating relations after Turkey shot down a Russian jet in Syria. Pegasus and Borajet
also plans to reconsider their Russian services.
Certainly very interesting cases between Moscow and Ankara on the downing of a Russian SU24 by a Turkish F-16. Both parties will need to be treating this like an accident, with Daesh being
the only greatest threat hindering the investigation.
Market depreciation typically accounts around 30% of total costs, and can go
upto 60% of total operational costs. With depreciation defined as an implicit cost
measure of decline in value of a particular asset over periods of its lifespan, it is
ever so relevant to the aviation industry; namely aircraft assets (diverse
catalysts), currency, and capital stock having coexisting impacts on the bottom
line of aviation supply chain businesses. Despite being a science in its very own
right, this article piece will tap into how different businesses across the chain
handle depreciation of assets (especially aircraft), contextualized to a
macroeconomic industry-wide understanding. This will allow a new spectrum and
understanding of conversation, coexistence and joint-operations between one
supply entity and another.
Depreciation is charged to the profit and loss account in order to reflect
consumption of investment in assets over the period. Tax Depreciation is the
government's procedure for expensing, or "writing off" the change in an asset's
value over time. Tax depreciation is an artificial depreciation based on law, not
the market's treatment of the asset. Book Depreciation is the term commonly
used to refer to the depreciation expense shown on a company's financial
statement (or the "books"). Book Depreciation is tied into legal and accounting
principles. Residual value is the amount an entity could receive for the asset of
age and condition it will be in when disposed of (without inflation). Two
significant accounting estimates management uptakes to estimate depreciation
rates are useful lives and residual values of assets (namely aircraft). Useful life is
the period over which an asset is expected to be available for use by an entity.
Businesses periodically review whether useful lives are appropriately set, and
subsequent alterations are displayed also as an implicit cost.
Market Depreciation is a widely changing variable based on the value of the
asset in the marketplace. Until the asset is sold, no one really knows the exact
market value of the asset. Once an asset is sold, the difference between what
the assets was purchased for and the eventual selling price is referred to as
Market Depreciation. Aircraft, unlike automobiles and other equipment, tend to
retain more of their value for a longer period of time. Timing is a big factor. The
economic markets are in constant flux. Four trends as follows:
Aircraft values hold their own or even increase with strong economic
conditions.
In an economic downturn, aircraft prices call fall as quickly as the stock
market.
As a general rule, aircraft prices tend to follow the larger business cycles.
When businesses are growing and profitable, demand for aircraft
increases.
As demand increases, the available supply will decrease, and then used
prices will rise. When the business cycle declines, the reverse is true.
Inflation helps market depreciation due to the inflated value of money
helping retain aircraft value.
The rule of thumb for depreciation is 4-6% per annum.
fleet deployment plans (rigorous use dictates higher cycles, wear and tear,
higher MRO requirements, lower useful life and hence needs higher
depreciation)
technological change (new technology and presence in the market
quickens replacement requirements)
overall development of aircraft asset portfolio
aircraft related fixed-asset depreciation
Legal constraints.
Depreciation methods by the book include straight line (seldom the case but
most often used) and diminishing (reducing-balance) method. While straight line
is simply original amount minus residual value all over asset life. The reducing
balance takes into account accelerated (or decelerated) rates of depreciation
over time contingent on the differences between net book values over the
period.
For airlines, the best way to go about facilitating greater profit margins is to
depreciate the aircraft, and accumulate tax credits and breaks. The current
methodology for aircraft in the US, in fact for all manufactured capital assets
used in business today, go back to the days of the Reagan Administration and
the Economic Recovery Act of 1984. The law effectively eliminated the old 10%
Investment Tax Credit (some of you may still remember those days) as well as
the old longer term depreciation, with a new, more attractive shorter recovery
period, referred to as the Modified Asset Cost Recovery System (MACRS).
Generally speaking, the interpretation was and still is that aircraft owned and
operated pursuant to FAR Part 91 choose the five year schedule while those
aircraft operated under FAR Part 135 and commercially operated aircraft utilized
the not quite as attractive, seven year methodology. And by the way, the
schedules are not linear. The five year schedule, as an example, does not recover
at 20% per year. Instead, the code is set for the following methodology:
Year
Year
Year
Year
Year
Year
One - 20%
Two - 32%
Three - 19.20%
Four - 11.52%
Five - 11.52 %
Six 5.76%
As we all know, depreciation under the current tax code is a tax deduction for
the benefit of the entity who has placed the asset into service, assuming they
are a current tax payer. This is beginning to roll out across the globe to
sustainably manage domestic industries and facilitate tax cost minimizations.
The US also sports The American Taxpayer Relief Act of 2012 extended the 50%
bonus depreciation allowance through the end of 2013 for qualifying property,
which may allow 50% of the cost of the aircraft to be deductible in the first year
of purchase ( a credit rather than an actual speeded devaluation in assets).
Singapore on the other hand, has liberal rules and tax breaks on aircraft, of
which is classified under machinery and plants depreciation rates rules governing
leniency for both credits and speeded depreciation of aircraft facilitating shorter
useful life. New Zealand regulatory bodies also allow for as little as 5 years till an
aircraft can be fully depreciated with respective tax credits. Many airlines to
date, utilize depreciation capability to sustain lower tax costs from taxable
income demonstrated.
In Australia, the Australian and International Pilots Association has called once
again for depreciation rates on new aircraft to be accelerated to bring Australia
into line with jurisdictions in which foreign competitor airlines operate. AIPA
President Captain Barry Jackson states the concern of stringent depreciation
regulations to protect government revenue streams over the competition
competency of Australian airlines, as follows:
Qantas pilots have been pushing for accelerated depreciation rates as part of a
package of measures to redress the imbalance in the international airline
investment environment for two years. We have conducted this push without the
support of Qantas management, however I was glad to see Corporate Affairs
Spokeswoman Olivia Wirth making a similar call in todays press. It currently
takes 10 years for Australian airlines to write-off a new aircraft. While a
reduction to a five-year write-off would at least match the rate available to Air
New Zealand, it would fall short of matching the investment environment of the
major international airlines flooding our market. For example, Singapore Airlines
can depreciate its aircraft over three years. Accelerating our local depreciation
rate would help Qantas - and indeed all other Australian international airlines
to compete against advantaged foreign competitors. After opening our skies to
foreign airlines Australia should not make it even more difficult for our
international airlines to compete through uncompetitive taxation arrangements.
We need to think of the impact on Australias national interest if we allow this
nation to become a mere stop-over in an air transport system provided entirely
from overseas. When Qantas CEO Alan Joyce grounded the fleet last year the
effect was devastating. One shudders to think about a situation down the track
when such a decision might be made by a CEO offshore without any redress in
Australian courts.
While book depreciation is crucial, airlines are required to preserve their aircraft
efficiently through means of operational rationalization, balancing in-house and
outsourced works, and whether to lease or purchase (with portfolio facilitations
for buy-leaseback for high equity low-prospective carriers). Environmental inputs
of the replacement market (both through lease/purchase market), finance
capability, regulatory structures and fleet requirements drive the write-downs of
aircraft too.
The leasing market has been especially active recently, with an influx of capital
and investors becoming increasing drawn to this lucrative sector. Lessors have a
similar demand by the book, and ensure that the aircraft are not physically
depreciated as from the book. Preservation to reduce overhaul maintenance
requirements, and extend life-span of the aircraft are predominantly done
through supply-agreements (maintenance, services, discounting, deliveryflexibility, options-flexibility, cancellation-capability and guarantees
independently negotiated) and demand-agreements (operations outline,
operational parameters, oversight-capability, de-risk implementations, offsetting
costs, rigorous price-negotiations and guarantees with customers).
For manufacturers, depreciation of their produced aircraft reflects on a frames
ability to remain financially efficient in the marketplace. The rate of depletion in
the sector with many highlighting the acute need for investment in Irans
aviation stock and infrastructure as long overdue.
The prospect of the lifting of US aviation sanctions has sparked a flurry of interest
among investors in the industry who have previously avoided conducting
business in Iran. The difficulty of trading amongst the sanctions has broadly been
two-fold. Firstly, the bars on bringing aircraft parts into Iran has led to an
increasingly out-of-date fleet (the average age being more than 20 years) and
operational safety problems arising from the absence of investment. This also
puts the Irans aviation industry to being unable to have an MRO industry for
post-Revolution aircraft types. Dealings of aircraft trade were also under spotlight
pre-lift of sanctions, with Mahan Air acquiring ex-VS A340-600 aircraft.
An earlier interim nuclear agreement gave Boeing Co. and engine-maker General
Electric Co. the green light to provide some spare parts for U.S.-made planes in
service in Iran since the 1970s. Boeing says it has only sold one spare part along
with some service bulletins and other materials since that deal came into force
last year. The pending agreement upon sanctions being lifted allows for licenses
on the sale of commercial aircraft, and Transportation Minister Abbas Akhoundi
has said his country is prepared to spend about $20 billion to purchase some 400
aircraft over the coming decade. Boeing's Mideast communications head, Fakher
Daghestani, said the company is reviewing the deal "but until the U.S.
government gives us further direction, it would be premature to comment." GE,
which also has U.S. licenses to sell some medical equipment in Iran, said it looks
forward "to reviewing the details of the agreement and will watch the regulatory
landscape that may unfold." Airlines across the Persian Gulf from Iran are
ramping up operations as interest grows.
Current
Future
Historic
Airbus A300
13
Airbus A310
Airbus A320
Airbus A340
Boeing 727
Boeing 737
Boeing 747
Douglas DC-8
Fokker F70 / F100
McDonnell Douglas DC-9
16
1
16
4
1
Aircraft Type
Current
Future
Historic
Total
45
48
Current
Airbus A300
18
Airbus A310
10
Future
His
Airbus A320
Airbus A321
Airbus A340
11
Boeing 747
17
61
Current
Future
Historic
ATR 42/72
Airbus A320
Airbus A340
Boeing 727
Boeing 737
18
33
Total
BUSINESS OPPORTUNITY
But all seems behind (for now) with new announcements for infrastructure
renewal and rapid economic growth upon sanctions being lifted. The decreasing
dependence on road-transit in favour of rail and air based transport gives an
opportunity for modernisation technologies to flourish in the Iranian market. But
with sanctions compliance notwithstanding, businesses and entities seeking to
do trade in Iran must understand the commercial risk of doing business in Iran
through political, financial, legal & security contexts. Areas where the Iranian
economy predominantly lacks is development, design, engineering and joint
investment for production and export. In this aspect Western businesses can help
to bridge the gap by investing in the above sectors and assisting in transfer of
technology through joint venture collaboration and partnership with the private
sector. However, with the most complex sanctions regime still in place,
companies seeking to do business in Iran must conduct crucial due diligence
before entering the Iranian market. Companies and businesses that have failed
to comply with sanctions have been penalised heavily for sanctions breeches
meaning that due diligence and appropriate market-preparation is critical. There
are also plenty of legal tests which must also be overcome, for foreigninvestments to materialize in a law-abiding manner, as will be discussed as
follows.
A Business Opportunity Appendix (inter-industrial) is placed at the end of the
article for reference.
AIRLINES
The big order came through late January, where Iran Air (IR, Tehran Mehrabad)
has signed an agreement with Airbus Industrie (AIB, Toulouse Blagnac) for the
acquisition of 118 aircraft critical to its fleet renewal plans. Announced during
President Hassan Rouhani's ongoing official visit to France, the order entails:
twenty-one A320ceo family jets; twenty-four A320neo family jets; twenty-seven
A330ceo family jets; eighteen A330neo (-900) jets; sixteen A350-1000s; and
twelve A380-800s. The order also includes pilot, maintenance training, and
support services critical to the new fleet's entry into service. Todays
announcement is the start of re-establishing our civil aviation sector into the
envy of the region and along with partners like Airbus well ensure the highest
world standards, Farhad Parvaresh, Iran Air Chairman and CEO, said. Parallel to
that agreement, Iran's Minister of Roads and Urban Development, Dr. Abbas
Ahmad Akhoundi, signed a comprehensive co-operation agreement with the
Europeans which will see Irans civil aviation infrastructure and regulatory
oversight overhauled and modernized. Among the areas involved in the deal are
Iran's air navigation services (ATM), airport and aircraft operations, regulatory
harmonization, technical and academic training, as well as MRO and industrial
cooperation.
There was also a signing an agreement 3 days later with Avions de Transport
Rgional (Toulouse Blagnac) for the acquisition of forty ATR72-600s. Of the
aircraft, twenty are firm orders while the rest are options. The deal was signed in
Tehran this week and follows commercial discussions held in Rome and Paris
during Iranian president Hassan Rouhani and Minister of Transport Abbas Ahmad
Akhoundi's official visits to Italy and France late last month. During the
Irans AWA Airways adds maiden aircraft, and set to begin commercial
operations.
AIRPORTS
Airports around Iran adopted its airport infrastructure around lower capacities
and capabilities in regards to handling variety of aircraft types. Besides Tehrans
Imam Khomeini International Airport, most airports in Iran are in dire need for
development. An agreement with the Iranian Ministry of Roads & Urban
Development and the Iran Airports Company was signed by during the state visit
to France of Irans president, Hassan Rouhani. Mashhad is the countrys secondlargest airport and Isfahan is the fifth-largest. The agreement is the first step in a
process that should result in work to renovate, extend and operate the two
airports. The airport in Mashhad, which recorded 8.2 million passengers in 2014,
is located in the northeast of the country and serves the countrys second-largest
city, a holy city that attracts more than 20 million pilgrims every year. The
Isfahan airport, with 2.6 million passengers in 2014, serves Irans third-largest
city, which was the capital of the Persian empire in the 16th and 17th centuries
and is known for its cultural and historic heritage. The deal follows the recent
effective lifting of international sanctions. Vinci sees airport activity as holding
major economic potential in Iran, given its large population and territory as well
as increases in tourism, which grew more than 35% in 2014.
Another deal was also struck, with Parsabad airport is set to reopen to all traffic
following the upcoming completion of runway resurfacing and terminal expansion
works. Located in Iran's northwest near the border with Azerbaijan, the airfield is
expected to reopen sometime during the second and third quarter of this year.
Tehran has announced an ambitious aviation infrastructure modernization
programme following the recent upliftment of sanctions. During the recently
ended CAPA Iran Aviation Summit 2016, Iranian minister of roads and urban
development Dr Abbas Akhoundi said plans to expand Tehran Imam Khomeini
International Airport were at an advanced stage while noting that only ten of the
more than sixty-five operational airports in Iran, at present, have adequate
infrastructure. This, he said, created tremendous opportunity for foreign
investment and partnerships. For his part, Iran Air (IR, Tehran Mehrabad)
chairman Farhad Parvaresh expressed optimism that the airline would be
readmitted to IATAs billing and payment systems which would tremendously
simplify its revenue collection and payments for overflights, airport fees and
other services. Iran was suspended from IATA's clearing house in 2010 due to
financial sanctions.
Akhoundi also said that Iran would invest USD250 million to modernise its air
traffic management infrastructure with the aim of creating the most secure and
safe airspace in the region. This has been of greater investment due to growing
traffic utilizing the Iran and the Persian Gulf geographies as ideal/safe overflight
regions in contrast of Syria and much parts of Iraq. Intel suggests the
management systems were around enroute control spacing and route
optimization systems, while tender productions are being made for terminal
approach systems and control tower refurbishments.
REGULATORY AUTHORITIES
As we know, things are a little raw at the moment, given;
1. The U.S. government has, by and large, left in place its embargo generally
forbidding U.S. companies, citizens and residents, and others in the United
States to engage in Iran-related activity. European Union authorities, on
the other hand, have rescinded most EU economic sanctions relating to
Iran.
2. The U.S. government has neutralized most so-called "secondary sanctions"
measures that have provided for sanctions against third country
companies that engage in specified types of activities relating to Iran.
3. The U.S. government has also, for the most part, eliminated the embargo's
application to non-U.S. subsidiaries of U.S. companies acting abroad.
Furthermore, the U.S. government has, in limited respects, authorized U.S.
parent companies to permit and, to some limited extent, enable their nonU.S. subsidiaries to engage in Iran-related activity. But U.S. parent
companies will need to be careful to avoid support for their non-U.S.
subsidiaries' Iran-related activity that could expose the parents to liability
for facilitating such activity contrary to sanctions prohibitions even as to
Iran-related activity in which their non-U.S. subsidiaries are permitted to
engage.
4. The U.S. government has announced that it will license certain other
activities that are subject to embargo prohibitions, including supply of civil
aircraft and parts and components to Iran and imports from Iran of Iranianorigin carpets and foodstuffs.
5. As companies evaluate their opportunities under the changed sanctions
regimes, much could depend on how regulatory authorities interpret and
administer the new arrangements. Furthermore, circumstances regarding
Iran sanctions remain fluid and uncertain, particularly given continuing
opposition to the Iran nuclear agreement. Depending on political
developments, one or both of U.S. and EU authorities could expand
sanctions against Iran at any time.
Overview of EU changes; all nuclear-related economic and financial EU sanctions
against Iran have been lifted by the EU. The decision was taken by the EU
following the presentation of the report by the Director-General of the IAEA to the
IAEA Board of Governors and the United Nations Security Council confirming that
Iran has taken the nuclear-related measures as agreed under the JCPOA. The EU
legislative acts listed below terminate and amend the provisions of the EU
nuclear-related sanctions legislation against Iran as set out in Council Decision
2010/413/CFSP and Council Regulation (EU) 267/2012, Council Decision (CFSP)
2015/1863 of 18 October 2015, Council Regulation (EU) 2015/1861 of 18 October
2015, and Council Implementing Regulation (EU) 2015/1862 of 18 October 2015.
More information can be found here
http://eeas.europa.eu/top_stories/pdf/iran_implementation/information_note_eu_
sanctions_jcpoa_en.pdf
Overview of U.S changes; the U.S. government lifted certain sanctions against
Iran in compliance with the Implementation of the JCPOA. The sanctions lifted by
the United States are limited to those set out in Section 17 of Annex V of the
APPENDIX
-
While it will likely be months before sanctions on Iran ease, business and
political leaders are wasting no time in trying to tap into a large and what
they hope will be a lucrative Iranian market.
That means they stand to lose out to European and Asian companies
some that still have business contacts in the country before sanctions
were tightened in recent years. "It's easier to say who is at a
disadvantage. And that will be U.S. firms," said Torbjorn Soltvedt, principal
Mideast analyst at risk advisory company Verisk Maplecroft.
On paper, Iran holds plenty of promise. Two and a half times the size of
Texas, it is home to some 80 million people, sits atop the world's fourthlargest oil reserves and the second-biggest stores of natural gas, and has
well-established manufacturing and agricultural industries contributing to
a $400 billion economy. London-based Capital Economics estimates the
economy could surge ahead by 6-8 percent annually over the next several
years as sanctions ease. "Everything is in place for economic growth," said
Dominic Bokor-Ingram, portfolio adviser at British asset management firm
Charlemagne Capital. His company earlier this year announced a plan to
launch Iranian investment funds in partnership with an Iranian company.
"Iran has infrastructure, it has the institutions, it has the education," he
added. "It has a lot of highly educated people who will go back to Iran if
sanctions are lifted."
Tapping the market won't be easy. The elite Revolutionary Guard is deeply
involved in the economy and corruption is such a problem that President
Hassan Rouhani lamented late last year that once-secret bribes are now
being handed out openly. Iran ranks only 130 out of 189 economies on the
World Bank's ease-of-doing-business list. Assuming the deal goes ahead as
planned it will still take at least several months until nuclear-related
sanctions are lifted. And those sanctions can quickly be slapped back on if
Iran fails to live up to its end of the bargain. That means many
multinationals are unlikely to commit to big investments in the immediate
future, though the staggered sanctions relief also gives companies time to
gear up their operations, analysts say.
The oil industry is one area where Iran could use outside investment. Fitch
Ratings expects it will take years for Iran to get back to the roughly 2.5
million barrels a day it was exporting before 2012, because investment in
the sector has been limited under sanctions. Chevron Corp. spokesman
Kurt Glaubitz said the company is reviewing the nuclear deal to
understand its implications, but for now it remains "in strict compliance"
with U.S. and international laws. Exxon Mobil Corp. declined to comment.
South Korean companies have been building market share in Iran, too,
after the two countries agreed to let Korean businesses use South Korean
currency for financial transactions with their Iranian counterparts. South
Korea's finance ministry said this week that expanding economic
cooperation with Iran would be an opportunity for the country, which is a
buyer of Iranian crude oil and exported $4.2 billion worth of goods to Iran
last year.