ANALYSIS: Philippines On The Verge Of Tourism Boom After Aviation Upgrades


MNL
Central Business District of Makati City, Philippines

MANILA – With local carriers cleared to expand in the US and Europe, the Philippines is on the verge of a tourism boom.

After more than six years in Category 2, the Federal Aviation Administration earlier today announced the Philippines’ return to Category 1 safety rating, allowing local airlines to mount more flights to the US.

Hours later, the European Union delivered the day’s second good news: Cebu Pacific can now fly to Europe.

Brussels’ decision comes months after it allowed Philippine Airlines (PAL) to resume flights following a three-year absence, and almost a year since the International Civil Aviation Office (ICAO) lifted the significant safety concerns on the Philippines’ main international gateway, the Ninoy Aquino International Airport (NAIA).

CEB

Tourism Secretary Ramon Jimenez Jr. told Interaksyon.com that the latest two certifications are going to have a “massive” impact on Philippine tourism.

“Connectivity and accessibility are crucial to growth. We are ecstatic with these developments.  We are back on track,” Jimenez said.

He said the Department of Tourism (DOT) may revise its targets because of the upgrades even though there’s “not enough data yet to change projections.”

“We shall see how travel operators react and then we will know,” he said.

To be sure, the government hasn’t been waiting on the sidelines for tourists to come.

The DOT has been promoting the country through a campaign dubbed as “More Fun in the Philippines,” which has won international plaudits and allowed tourist arrivals to hit fresh records.

Last year, the country attracted 4.68 million foreign visitors, up 9.56 percent year-on-year.

For this year and next, the government is aiming for 6.8 million and 8.2 million, respectively, so that by the end of President Benigno Aquino III’s term,  arrivals would have reached 10 million, with receipts of P455 billion.

The top visitors so far have been the Koreans, Chinese and Japanese – the result of the Philippines’ efforts to liberalize the country’s airspace, allowing local carriers to fly across Asia and Asian airlines to enter more points in the country.

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Optimal connectivity

The aviation safety upgrades from the US and EU would further open these markets. Data from DOT show that visitors from the US reached 674,564 in 2013, up by 3.36 percent year-on-year, while those from European markets like the United Kingdom and Germany reaching 122,759 and 70,949 arrivals, respectively.

Rosanna Tuason-Fores, president of the Tourism Congress of the Philippines, said the country’s Category 1 status and the removal from the EU blacklist would provide more optimal connectivity in the trans-Pacific region.

“This will also allow us to be competitive as a route not just in the Philippines but also in the whole Asian region. We believe that with this new development, there will be a marked increase in the number of tourist arrivals both from the USA and Europe,” Fores said.

Carmelo Arcilla, executive director of Civil Aeronautics Board (CAB) said the FAA upgrade and the removal from the EU blacklist would benefit the riding public, who will have improved options for air travel that are world class.

“It will also be a boost to our tourism efforts, because it will open up foreign markets for new and expanded services by Philippine carriers, not only in terms of direct services, but also for other cooperative arrangements like code sharing and interline,” Arcilla said.

Apart from ushering a new era in its trans-Pacific service, the upgrade will also allow PAL to explore possible airline partnerships with foreign carriers in order to maximize its growth potential, said the flag carrier’s president Ramon S. Ang.

“This latest development allows us to deploy our modern and fuel-efficient Boeing 777-300ER fleet to the US, and enables us to explore new destination opportunities in one of the Philippines’ largest passenger markets,” Ang said.

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“Back on global aviation map”

Transport Secretary Joseph Emilio Abaya said the upgrade will have significant economic dividends, as carriers mount more direct flights, boosting not only tourism, but also trade and business relations between the Philippines on the one hand, and the US and the EU on the other.

For example, “Philippine air carriers can now open more flights to the United States and have additional routes such as flying to the East Coast,” he added.

Henry J. Schumacher, vice president for external affairs of the European Chamber of Commerce of the Philippines, agreed.

“Tourism will definitely benefit creating more direct connections. Business travel will also gain with more direct flights – that will lead to more business activities between Europe and the Philippines,” Schumacher said.

“This is a great day for Philippine tourism,” he added.

Ang said the FAA upgrade means the Philippines has joined an elite group of only 79 countries that meet the US safety standards.

“This country is definitely back on the global aviation map,” he said.

Following the re-classification, the flag carrier would deploy six Boeing 777-300ERs, acquired at a cost of $1.2 billion, for US flights within a month’s time.

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More infrastructure needed 

But while increasing connectivity is important, the Philippines still has its work cut out in terms of improving infrastructure.

“Building better airports for those flights to arrive at and many other improvements are needed before the full potential of tourism in the Philippines is realized,” John D. Forbes, American Chamber of Commerce of the Philippines (AmCham) senior adviser told Interaksyon.com.

He said “latent demand” stands at 12 million, thus “continued improvements in policies, infrastructure, and promotion are essential.”

Tourism Congress of the Philippines’ Fores agrees: “Infrastructure development must be accelerated.”

“More airports must be made available to international flights; more hotel rooms must be on hand to accommodate the increase in tourist arrivals,” she added.

To date, the NAIA has already exceeded it maximum annual capacity of 30 million passengers.

The government is well aware of this challenge.

It is looking at building a new international airport either in Sangley Point or Laguna de Bay. PAL also plans to put up a $10 billion airport near Manila – albeit the Department of Transportation and Communications (DOTC) said it won’t entertain unsolicited proposals.

Big-ticket projects are being pursued under the Aquino administration’s Public-Private Partnership (PPP) scheme, but this has been slow to take off amid technical and other difficulties.

The government last week awarded its largest PPP airport project to date: the P17.2-billion upgrade of the Mactan Cebu International Airport, which next to NAIA is the country’s second biggest international gateway.

Already delayed, the project is now faced with a legal challenge, after a senator asked the Supreme Court to void its award. Whether the High Tribunal would oblige, remains to be seen.

Source: Darwin G. Amojelar, InterAksyon.com

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New Airport Proves To Be Bane in Region 10


Laguindingan
Laguindingan Airport: boon or bane?

MAMBAJAO, Camiguin Island—For most provinces, a new airport spells more flights and higher visitor arrivals that would boost the tourism industry in their respective areas.

But in the case of Region 10, or Northern Mindanao, the much-heralded new Laguindingan International Airport in Misamis Oriental may have cost it at least 7 percent in visitor arrivals in 2013.

This was the assessment of Catalino Chan III, regional director for Northern Mindanao of the Department of Tourism. In an interview over the weekend during Camiguin’s Panaad Festival 2014, he said “there was decrease by 7 percent in visitors last year due to the decrease in flights [at the Laguindingan Airport].”

“Partial data” from the region, which covers the provinces of Bukidnon, Camiguin, Lanao del Norte, Misamis Oriental and Misamis Occidental indicated an 11-percent drop in visitors in 2013 to 1.32 million, from 2012’s 1.48 million. Foreigners accounted for some 4.11 percent of total visitor arrivals in the region in 2012. Most visitors to Northern Mindanao attend conventions, seminars and conferences.

Unlike the old Lumbia airport in Cagayan de Oro, the new Laguindingan Airport has no night landing facilities like runway lights, navigational equipment and a control tower. According to the Civil Aviation Authority of the Philippines (Caap), daily flights to Laguindingan have dropped to 17 (Philippine Airlines and Cebu Pacific) compared to 28 to 32 daily flights at the old Lumbia airport, which was night-rated.

The good news, though, according to Chan, is that visitor arrivals in Camiguin —Region 10’s most popular tourism destination—are likely to rise by 10 percent to 15 percent in 2014, with new daily flights from Manila via Cebu.

During the Holy Week, Cebu Pacific had an almost full passenger load on its ATR 72-500, with foreign visitors —mostly Europeans, Americans and some South Koreans—accounting for nearly 10 percent of the passengers.

Camiguin is famous for its Lanzones Festival, which happens every October; the still active Mount Hibok-Hibok, which attracts mountaineers; a variety of hot and cold springs, Spanish-era heritage homes and church ruins, the Sunken Cemetery, the C-shaped White Island, and snorkeling/scuba diving off Mantigue Island.

In an interview with select reporters, Candice Borromeo-Dael, provincial tourism officer of Camiguin, said they are targetting some 500,000 visitors in 2014.

Last year Camiguin registered only 400,000 visitors due to weather disturbances that hit the province. Foreign tourists coming mostly from Europe accounted for some 10 percent of total visitor arrivals, she said.

Curiously, Dael said many of their foreign visitors don’t want to promote the province even to their friends. “When we ask them to tell their friends about Camiguin, they say they want the island to remain a secret [so it doesn’t become overrun with tourists].”

Camiguin has been compared to the Boracay, which was also first “discovered” by Europeans. Unrelenting construction of new resorts on Boracay and the swelling of tourists, especially during the summer and Christmas breaks, have sent foreign and domestic tourists scurrying to find alternative beach destinations in the country.

Many foreigners have already found a home in Camiguin and are operating restaurants, bed and breakfasts, resorts and dive tours.

In March 2012, the UK’s Essential Travel Magazine named Camiguin’s White Island as the “best for tanning,” while Yahoo! News PH named the same as No. 1 of its Top 7 Philippine beaches for 2013.

Prior to the daily flights by Cebu Pacific, the island was reached via Cagayan de Oro (flight from Manila is an hour and 20 minutes), a five-hour land trip from the Languindingan Airport to the Balingoan port (used to be 2.5-3 hours from Lumbia), and a one-hour ferry ride to Benoni Port in Camiguin.

Other tourism destinations in Northern Mindanao include: the first Christian settlement in Bayug, Lanao del Norte, as well as the Maria Cristina Falls; the pineapple plantations and the Monastery of the Transfiguration in Bukidnon; Lake Duminagat and the Immaculate Concepcion Cathedral  in Misamis Occidental; and dolphin- and whale-shark watching, as well as the Divine Mercy Shrine in Misamis Oriental.

 

Source: Ma. Stella F. Arnaldo / Special to the BusinessMirror

Davao-Japan Direct Flights If…


ANA

DAVAO CITY  – A Japanese airline company may open direct flights to and from Japan if there is a visible demand of passengers flying out of Davao City, a business leader said.

Japanese Chamber of Commerce president Keisuke Nakao said in an interview Monday that All Nippon Airlines (ANA) would consider having direct flights from Japan in case the proposed Davao-Japan Tourism Development and Investment Promotion Council is approved.

“These are some provisions by the ANA. They may extend flights here but there should be a big demand to accelerate investment and tourism here,” Nakao said at the sidelines of the Kapehan sa SM weekly media forum.

“The flights cannot operate if there are no passengers,” he said.

He said passengers from Japan still come to Davao via connecting flights serviced by Philippine Airlines, Cebu Pacific, and Japan Airlines.

The city council committee on tourism is conducting hearings on the creation of the promotion council.

Nakao said the city needs to increase its marketing efforts of tourism destinations to attract investors and tourists from Japan.

He said plans of creating the investment and tourism council are still in the early stages, as of last week’s committee hearing at the Sangguniang Panlungsod.

Nakao noted that while there were already destinations in the city that could be of interest to Japanese tourists and investors, the city needed to promote more of its destinations.

“Visitors to Davao always look out for Samal or Mount Apo because they don’t notice some of the other attractions when they are in Japan,” he said.

Barangay Mintal, which has been aggressively marketing its area as an important Japanese heritage site, is already doing this.

However, Nakao said Japanese citizens might not be that easily attracted if that is the only thing the city could offer.

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Davao International Airport

Mintal barangay chief Ramon Bargamento has pushed for the recognition of attractions such as the Ohta Kyozaburo Monument, Peace Monument, and old style Japanese houses in the area, to tourists and investors from the Philippines and abroad.

“Yes, we have history there in Mintal because of our shared history of Japanese settlers, but it is not the only one. We have other settlements in other nearby countries,” Nakao added.

Source: Mindanews

Longer Airport Runway Pushed


BCD
Bacolod-Silay Airport

BACOLOD City Representative Evelio Leonardia (lone district) and Negros Occidental Occidental Representative Alfredo Benitez (third district), along with their colleagues in the House of Representatives, vowed to strongly endorse the proposed extension of the Bacolod-Silay Airport runway from two kilometers to 2.5 kilometers with an estimated cost of P100 million.

Both legislators joined the House Contingent of the Congressional Oversight Committee on Civil Aviation Authority of the Philippines (COCCAAP) and House committee on transportation chaired by Catanduanes Rep. Cesar Sarmiento during an ocular visit at the airport yesterday.

Also present were Manila Second District Rep. Carlo Lopez and Kabataan party-list Rep. Terry Ridon.

Leonardia is the vice chairman of the House committee on transportation.

During the inspection, they were briefed by airport officials on the concerns, needs and status of the Bacolod-Silay Airport being positioned to become an international airport.

Consultative meetings and ocular inspections of airports are being done nationwide in line with the goal of ensuring the retention of the Philippines’ recently regained Category 1 safety rating from the Federal Aviation Authority of the United States.

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“It’s good that we knew about the needs and status of the Bacolod-Silay Airport and we have to do something about it. I was told that Congressman Leonardia similarly undertook action to see to it that the airport runway is extended. This was validated by the presentation made by the airport authorities,” Sarmiento said.

Sarmiento was the Assistant Secretary of the Department of Transportation and Communication (DOTC) when the Bacolod-Silay Airport was constructed and inaugurated.

Airport authorities are in a better position to know what is best for the airport, he said, particularly also on the need to expand the passenger terminal building.

“Since the volume of traffic is increasing then we need to support their recommendation,” Sarmiento said.

For his part, Leonardia said: “We are happy to note that while I made a recommendation to the DOTC Secretary way back in July or August last year to have the runway extended and terminal expanded, the local CAAP people are also of the same position which is a factor in the ultimate decision of the DOTC.”

Meanwhile, Himelie Fernandez, chief of the Air Traffic Control, said the income and expenses of the Bacolod-Silay Airport for 2013 amounted to P200.320 million with expenditures amounting to P112.291 million.

They have collected P136.374 million and their receivables from several airlines amount to P37.642 million.

“This airport is gaining and we have an P88 million net income for the year 2013,” Fernandez said.

The Bacolod-Silay Airport can now accommodate flights for 24 hours unlike before when airlines and private plane owners have to pay P5,000 per hour if they land or take off beyond 9 p.m.

Benitez said the Department of Public Works and Highways has also started the concreting of the Bacolod Silay-Airport Access Road with a budget of more than P65 million.

The extension project would be until Barangay E. Lopez in Silay City and the extension up to Victorias City is under process.

 

Source: Carla N. Canet, Sun Star Bacolod

OPINION: Flaunting In The Air


QR
  Flaunting in the air.

 The Civil Aeronautics Board, the policeman of air transport here, seems to be under attack in media for its rejection of the bid of this foreign airline to add more flights in and out of Manila. Hmmm.

The foreign airline is none other than Qatar Airways, which is the 19-year-old state-owned flag carrier of the Middle East monarchy called Qatar, and based on recent media reports, the airline is accusing the CAB of “protectionism.” In particular the reports flaunt for their targets none other than the CAB executive director, a lawyer named Carmelo Arcilla, who must be stupid or whatever, because Qatar Airways supposedly only has the best interest of the Philippines at heart. Fine!

But it is not as if air rights are just things floating in the air, and any Tom, Dick and Harry named Qatar Airways can just grab them. In fact, all the countries in Asia are now quite determined in getting “reciprocity” when they give away air rights. At present, Qatar already has authority in the Philippines for some eight flights a week, or roughly one flight a day, and it wants the CAB to increase its frequencies, well, to about three flights a day—or almost triple the present frequency.

Not too long ago, however, the same Qatar Airways that is only after the welfare of the Philippines, well, already canceled its flights between Cebu and Doha, citing as reason the “high costs of operating in the Philippines”—i.e. it was not making money. And so the guys down here in my barangay can quickly doubt the noble selfless motive of Qatar Airways in wanting the additional frequencies in the Philippines. After all, as shown by its cancellation of the Cebu flights, the airline is also after profits.

From what I gathered, the noise in media against the CAB misses out on one important issue in the bid of Qatar Airways, and that is, the airline wants the so-called 6th freedom right. That is a rarity in the international airline business since it basically steals the market of the flag carriers of the host country. In fact, the issue over 5th and 6th freedom rights of huge dominating foreign airlines has become explosive in Asia. In the case of Qatar Airways, it wants the CAB to give it the “right” to add 13 more flights a week on its Manila-Qatar-Europe routes at the expense of the country’s flag carrier Philippine Airlines.

By establishing the Manila–Qatar–Europe route, Qatar Airways in effect can offer Europe-bound passengers from Manila some ridiculously cheap rates, cutting a bit of its profit to corner the market, since the Manila-Qatar leg is already lucrative enough. In fact, the 6th freedom rights of Middle East airlines such as Qatar Airways has been blamed by Europe-based airlines for their cancellation of direct flights between Manila and European cities, which ultimately would have a dampening effect on the country’s tourism market in Europe.

The question is this: If the CAB grants Qatar Airways its simple wish, with the Philippine government sacrificing its own flag carriers like PAL and Cebu Pacific, what is the upside for the Philippine side? From what I gathered, the Aquino (Part II) administration from the start has been mindful of “bilateral” benefits in its decision to give additional frequencies here to foreign airlines. It seems that the CAB has other considerations in denying the application of Qatar Airways, such as the all-important “potential” for developing a two-way (as against one-sided) arrangements between two countries, particularly in tourism.

The last time I checked, the population of Qatar remains at less than 2 million and based on official figures, less than 4,000 of them actually visit the Philippines every year, which does not exactly make the Department of Tourism jump for joy.

In the airline business, they think that the 6th freedom rights of Middle East airlines like Qatar Airways may even tend to discourage the resumption of “direct” (i.e. fast and convenient) flights between Manila and Europe. As it is, PAL, which last year boldly resumed direct flights between Manila and London, is seen to face an uphill climb in reestablishing itself in Europe because Middle Eastern carriers—somehow—can mysteriously offer ridiculously low rates.

Media reports also missed out on another crucial point: Air rights are always a matter of reciprocity. In the case of Philippine carriers, they claim to face impossible odds in getting air rights in Qatar. The reports also note that the Philippine government looks more kindly to the airline of Saudi Arabia, known as Saudia Airlines. Well, they forget that the air agreement between the Philippines and Saudi Arabia has been in existence for the past 30 years or so. At one time, in fact, Saudi Arabia was the only country in the Middle East that allowed PAL to serve its market. There are also 1.3 million OFWs in Saudi Arabia, plus more than 600,000 in the United Arab Emirates, compared to 175,000 OFWs in Qatar.

You know—that kind of reciprocity! Mutual benefits, in short!

Now according to the International Air Transport Association, or Iata, which groups some 240 international airlines, the airline business is becoming a major factor in the expansion of the global market. Air cargo now accounts for 35 percent of world trade. In fact, the data on air cargo are always linked to the level of business confidence in any country. They are now economic indicators.

Based on the Iata forecast, the rapid growth in both passenger and cargo will mostly like come from the emerging markets. You know—countries like the Philippines. The association also foresees an increase in international passengers of some 215 million international passengers this year, and about about half of the increase will be in the Asia-Pacific region, which by the way includes the Philippines.

To the guys down here in my barangay, it seems that those are the things that Qatar wants, with the help of certain media reports, of course. In the end, contrary to claims of selfless and undying devotion to the host country, foreign airlines want more and more flights to the Philippines, giving nothing in return, in order to raid the Philippine market.


Source: Conrado R. Banal III, Philippine Daily Inquirer

Analysis: Is Small The Next Big Thing?


Cebu Pacific Air
Cebu Pacific Air

 

Asia’s airline industry is booming as local competition heats up with fleet expansions, new routes and an array of financing options. “In terms of aircraft numbers, Asia-Pacific has become a bigger market than Europe, second only to North America, and the projections are that it will grow at a really fast rate,” says Saugata Mukherjee, an aviation finance specialist and asset and structured finance partner at Stephenson Harwood in Singapore. Southeast Asian low-cost carriers like AirAsia, Lion Air, and Cebu Pacific have driven much of the growth, placing orders for hundreds of Airbus A320s and Boeing 737s. VietJet Aviation Joint Stock Co, Vietnam’s first private airline, agreed last September to a provisional order for up to 92 Airbus jets worth $9 billion, while Singapore’s Tiger Aiways placed an order in March for 37 Airbus A320neo aircraft valued at $3.8 billion at list prices. “The established legacy carriers are under increasing pressure from low-cost carriers,” says Leo Fattorini, a partner in Bird & Bird’s international aviation group in Singapore.

Vietnam in particular is tipped to spark competition among airlines and manufacturers. Even as the nation’s local economy grows at about 5 percent – its slowest pace in 13 years – demand for domestic air travel is experiencing double-digit growth. The International Air Transport Association expects Vietnam to become the world’s third-fastest growing market for international passengers and freight next year, and second-fastest for domestic passengers.  While this is likely to translate into a robust new source of business for aircraft makers like Boeing and Airbus, regional manufacturers like Canada’s Bombardier, Brazil’s Embraer, European joint venture ATR, Russia’s Sukhoi and Japan’s Mitsubishi Aircraft also stand to benefit.

 

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Tiger Airways

Carving Out a Niche

After flying under the radar for many years, manufacturers of smaller jet and propeller-driven passenger aircraft are gaining traction in Asia. Embraer forecast that the region will take delivery of 1,500 new jets of 70 to 130 seats over the next 20 years. That translates, it says, to a staggering $70 billion worth of business. The Singapore Airshow in February underscored this trend, with smaller aircraft makers picking up a slew of new orders. Thai low-cost carrier Nok Air said that it would order up to eight of Bombardier’s Q400 turboprop aircraft. ATR meanwhile, inked a deal to sell up to eight of its 72-600 aircraft to Thai carrier Bangkok Airways. It also agreed to sell 20 aircraft to leasing firm Dubai Aerospace Enterprise, with options for 20 more, in a deal valued at $1 billion. Substantial numbers of ATR aircraft are being acquired by airlines in Indonesia, Malaysia, the Philippines and Myanmar, where a lot of routes aren’t yet developed enough to warrant an Airbus A320 or a Boeing 737, says Fattorini. “These ATR aircraft are ideal for these countries. They are relatively fuel efficient, robust and versatile, and can fly into airports where perhaps some of the larger jets can’t,” adds Fattorini.

Growing demand for services to and between smaller second- and third-tier cities has created a unique market suited to smaller aircraft. In a country like India, where Airbus and Boeing aircraft have saturated the market with airlines like IndiGo, SpiceJet and GoAir, start-up carrier Air Costa, which began operations last October, is trying to carve out a niche for itself by connecting the smaller cities with Embraer jets. “You don’t need larger aircraft. Regional air services have enormous potential in India,” Ramesh Lingamaneni, chairman of Air Costa, told Reuters. In February, the airline ordered 50 jets valued at $2.94 billion from Embraer, in what was the aircraft maker’s first major Indian deal. “The Air Costa model of looking at secondary cities is a very interesting one. It is a trend that we have and will continue to see across the entire region,” says Mukherjee.

Importantly, for the likes of Embraer and ATR, the world’s two largest aircraft manufacturers do not make aircraft that compete in the below-130 seat segment. “Right now, there are two different markets for aircraft. If you look at Lion Air for example, they use their Boeing 737s for the bigger primary city connections, but they also have an ATR fleet which captures a different market segment,” says Mukherjee. There is, however, some overlap between markets. Bombardier’s C Series offers a competitive alternative to the Airbus A320 and Boeing 737, but it is still yet to make an impression in the Asian market, says Mukherjee.

 

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AirAsia

Financing Options

As more carriers enter Asia’s lucrative aviation market, a range of financing options are readily available to fund fleet expansions. The choice of funding depends quite heavily on the carrier, says Fattorini. “Some of the top-tier established carriers still have very strong cash positions, despite increased pressure on their balance sheets. They often buy aircraft outright, or have the credit rating to be able to access loan finance at attractive rates,” says Fattorini.

For less-established carriers that do not boast the strongest balance sheets or the highest credit ratings, export credit agency (ECA) financing is often a preferred alternative. “Carriers typically start off with ECA financing because they either don’t have access to commercial funding, or they find commercial funding too expensive. But as they mature, commercial financiers come in and start helping them out, and their terms are usually more flexible than those offered by the ECA lenders,” says Mukherjee. For his part, Fattorini says that ECA finance has become more expensive and fallen slightly out of favour among airlines and lessors with stronger balance sheets as a result. But he adds that  a lot of historic orders still exist that are being backed by ECAs, as well as hybrid ECA deals which, depending on the ECA involved, could either be pre-funded or refinanced in the capital markets.

As the market matures, lawyers say the range of financing will extend increasingly into the capital markets space. “Right now, money is cheap. But, if the pricing environment changes – and it will – you will see enhanced equipment trust certificate (EETC) issuance increasingly by non-U.S. issuers. Non-ECA-backed airline bond financing will possibly start to play a role in Asia as well in the medium term,” says Mukherjee.

Another alternative for airlines is leasing, which is gaining popularity in Asia as carriers look to avoid owning a large fleet in favour of leaner balance sheets. In 2011, leased planes accounted for 36.5 percent of the worldwide fleet, according to Boeing data, up from less than 15 percent 20 years earlier. “The generally accepted view is that leasing will increase to about 40 or 50 percent of the market in the not too distant future,” says Fattorini.

A number of new leasing companies too have entered the Asian market, keen to increase and develop their portfolios. “There is definitely more competition between lessors now, and this is good news for airlines. As can be expected, there has also been some amount of consolidation between lessors through M&A activity and it is possible that there will be some further activity as the market evens out,” says Mukherjee.

 

Sharklet-fitted Airbus A320
VietJet

Shakeup For State Carrier

VietJet Aviation Joint Stock Co, Vietnam’s first private airline, agreed last month to a provisional order for up to 92 Airbus jets worth $9 billion at list prices. The low-cost carrier is aiming for a stock market listing in either Hong Kong or Singapore in 2015 to fund the expansion, Managing Director Luu Duc Khanh said. VietJet plans to double its fleet by 2015 to 20 jets, and is speeding up work to get three joint ventures in the air, including one with an undisclosed carrier in Myanmar and another agreed with Thailand’s KanAir, to operate in early 2014.

VietJet’s bold expansion after less than two years in business could raise the stakes not only at home, but also in Southeast Asia’s fast-growing low-cost market, dominated by Malaysia’s AirAsia Bhd and Indonesia’s Lion Air.

Those ambitious plans may have shaken state-run flag carrier Vietnam Airlines (VNA) into expediting its long-awaited initial public offering and fleet expansion. VNA dominates the local market and will increase its fleet by 28 percent to 101 aircraft by 2015. It has been preparing for an IPO in the second quarter of 2014.

Its fleet includes both Airbus and Boeing jets, and it has ordered the Boeing 787 Dreamliner and the Airbus A350. According to Boeing, VNA has existing orders for eight 787s and 11 more through leasing companies. The airline also has its hand in the low-cost market through a stake in JetStar Pacific, a joint venture with Australia’s Qantas Airways. JetStar plans to more than triple its fleet of five Airbus A320s to 16 in the next few years, a spokesman says.

VietJet’s joint venture plans were therefore a smart move, says Timothy Ross, an air transport analyst at Credit Suisse in Singapore. “I can’t imagine they have much on their balance sheet … so in terms of building a new business, it’s far better to give away some of the potential upside and invest less,” he says. JetStar has not been profitable and is likely to struggle as competition increases, Ross says, while VNA has not done itself any favours delaying privatisation. “We should have seen the Vietnam Airlines IPO three to five years ago, but it sat on its hands,” he says. “Competition in the airline industry is inevitable.”

Traditionally, lessors call the shots on leasing agreements, especially when dealing with newer carriers, says Fattorini. “But with a number of new lessors in the market, especially those from China who are eager to quickly build up their portfolios, airlines have more options than in recent years. As a result they should be in a relatively stronger negotiating position,” he says. Airlines should consider their pressure points and not be afraid to push hard for positions which make their lives operationally easier. An experienced lessor will never compromise on its ability to quickly recover its asset in a default scenario but on issues such as maintenance and use covenants, there’s likely to be much more flexibility, adds Fattorini.

For his part, Mukherjee thinks that a lessee negotiating contract terms also sends positive signals to the lessor. Lessors and lessees should pay attention to the operational or technical covenants of a lease. “When you maintain your fleet you have one standard and one technical team. If there is a higher standard on your operating lease you suddenly have a mismatch, which raises the standards that your technical team needs to have across the fleet,” says Mukherjee. “The technical team is not going to differentiate between the owned and leased aircraft because they use the same standard across the board. So from a lawyer’s perspective, you need to make sure that those covenants are as evenly set across the financing and leasing documents.”

In addition, Mukherjee highlights the aircraft return conditions of a lease as an important area for lessees to consider. “Lessors and lessees alike must ensure that the lessee’s technical team are well versed in the maintenance and return conditions set out in the lease. Return conditions, in particular, should be negotiated and agreed in relative detail by the lessors’ and lessees’ technical teams. What you don’t want is for a mismatch in contractual expectations and what the lessee’s technical team are capable of delivering. This is neither in the lessee’s interest nor is it good news for the lessor. For example the lessor may have arranged a re-lease of the aircraft with a third party airline. A failure to redeliver on time will lead to losses, and while the lessor can try and claim back its losses from the defaulting airline, it does not present a pretty picture,” he says.

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Lion Air

Boom Times Ahead

As the rivalry among airlines and aircraft manufacturers intensifies in Asia, it is bringing with it an increasing volume of business to the handful of law firms in the region that have aviation finance and aircraft leasing expertise. Some carriers, lessors and financiers in Asia still use lawyers who are based in London or New York, says Fattorini. “This is surprising as there are a number of firms with the right expertise in this region, and it makes the logistics of doing a deal much easier.” But this could change rather quickly as more business flows into Asia. And in an industry as niche as aviation finance and aircraft leasing, on-the-ground experience in the region is vital. For the year ahead at least, especially in Southeast Asia, leasing companies, financial institutions and law firms with dedicated aviation finance specialists are poised to profit from a booming airline industry as low-cost carrier activity surges and regional aircraft makers come to the fore.

Source:  Kanishk Verghese, Reuters

SEAIR Name Change Bid Approved


SEAIR International
From SEAIR to GO AIR

 

THE country’s air-services regulator has approved the petition of the South East Asian Airlines Inc. (Seair), the operator of Tigerair Philippines, to change its corporate name.

Civil Aeronautics Board Executive Director Carmelo L. Arcilla said in a phone interview that along with the approval comes the agency’s endorsement of the said move to the Securities and Exchange Commission (SEC).

“We approved their petition for endorsement to the SEC. We did not see any violation or any legal implication based on our review,” he told the BusinessMirror. Seair is changing its corporate name to Go Air Inc., as part of its agreement with the new parent company, Tigerair Philippines President Olive C. Ramos said.

“We are changing our corporate name [from] Seair to Go Air Inc. because we have to return the company name to its original owner,” she said.

Seair was rebranded as Tigerair Philippines early last year after Singapore-based Tiger Airways Holdings Pte. Ltd.—through subsidiary Roar Aviation II Pte. Ltd.—acquired a 40-percent interest in the local low-cost carrier in 2012.

The entire shareholding in Tigerair Philippines was then bought by dominant budget carrier operator Cebu Air Inc. in a $15-million deal, which involves a strategic alliance between the two airlines.

“The change in corporate name is part of the agreement between Cebu Pacific and Tigerair Singapore when we acquired the airline,” Cebu Pacific Spokesman Jorenz T. Tañada explained.

According to the Corporation Code of the Philippines, once the SEC-approval has been secured the agency must issue an amended certificate of incorporation under the amended name.

“But we will keep the branding,” Ramos said.

Part of the deal involves Tigerair Philippines keeping its own airline operator’s certificate and functioning as a separate carrier. This means that flights of Tigerair Philippines will continue to be operated out of the Ninoy Aquino International Airport (Naia) Terminal 4, while Cebu Pacific flights will be mounted from the Naia Terminal 3.

Cebu Pacific currently operates over 2,200 flights per week with 51 planes servicing the 24 international and 33 Philippines destinations in its network.

Tigerair Philippines operates about 118 flights per week with five planes going to 11 domestic and international destinations.

The original owners of the Seair brand and corporate name formed Seair International Inc. to service missionary and leisure routes in the country.

It is led by former Philippine Airlines President Avelino L. Zapanta.

 

Source: Lorenz S. Marasigan, BusinessMirror

Philippine Airlines To Stop Shipment of Shark Fins


Batch 62 225

MANILA, Philippines—After environment groups lambasted the Philippines’ flag-bearer in the aviation industry, the Philippine Airlines on Wednesday evening has vowed to stop its shipping operations of shark fins.

According to a report from the South China Morning Post, conservation group Wild Life Risk and ocean advocacy group Fins Attached discovered PAL of delivering 136 bags each containing 50 kilograms of dried shark fins on April 16.

“It’s a total stop,” PAL spokeswoman Cielo Villaluna said. “We are stopping the shipment on all fronts…not just to Hong Kong.”

“PAL takes the issue of protection and conservation of endangered marine life seriously,” the airline said in a statement.

Alex Hofford, Wild Life Risk director, in the report said that they are “delighted” of PAL’s new actions.

“Obviously we’re delighted that Philippine Airlines has seen fit to turn its back on the dirty shark fin trade by joining a growing family of airlines that take their corporate social responsibilities seriously,” he said.

PAL said in its statement that it would formalize a policy to stop the shipping operations of the marine resource.

“PAL takes the issue on protection and conservation of endangered marine life seriously, recognizing that the company’s long-term interest is and should be consistent with sustainable and responsible business practices.”

Source: Bong Lozada, INQUIRER.net

A Younger Philippine Airlines


Goodbye aging Boeing 747-400! It's time to go.
Goodbye aging Boeing 747-400! It’s time to go.

In many ways, marketing an airline is similar to a beauty contest: age—or more specifically, the lack of it—can be a strong selling point.

This is especially true nowadays for Philippine Airlines which recently took the painful, but important decision, to write off its aging flagship, the Boeing 747-400.

The airline has four of these ‘Queen of the Skies’ aircraft acquired during its refleeting effort in the early 1990s.

But PAL recently decided to write off these 747s as part of a batch of 20 old aircraft that had become too expensive to operate and maintain. The hit to the airline’s bottomline was a one-time hit of $261 million or about P11.7 billion at current exchange rates.

(Biz Buzz learned that, were it not for this write-off, PAL would have actually reported a small profit for the first nine months of their current fiscal year.)

The gas-guzzling four-engined giants are set to be replaced on PAL’s US routes by fuel-sipping Boeing 777s, which need only two engines to make the 13-hour trans-Pacific hops.

PAL chief Ramon Ang said that the airline’s six Boeing 777s would be “enough, for now” to replace the old quad jets, but did not rule out more acquisitions in the future, especially when they launch their flights to the US East Coast.

And how would PAL dispose of its aging and fully depreciated 747s (which have, understandably, very few takers on the used plane market)? “Already sold,” revealed Ang, who described the 2013 fiscal period as a “clean-up year.” Wow.

After the refleeting program, PAL’s average fleet age would fall from around 15 years to a mere 3.5 years—one of the youngest fleets in Asia.

Well, just like in the beauty industry, everyone knows that staying young is an expensive —but often, necessary—investment.


Source: Daxim Lucas, Philippine Daily Inquirer

Philippine Airlines New Jets Cut Fleet Age to 3.5 years; 2014 Outlook Strong


Image Source: Darryl Morrell, planespotters.net
Image Source: Darryl Morrell, planespotters.net

MANILA, Philippines–Flag carrier Philippine Airlines (PAL) will own one of Asia’s youngest fleet at 3.5 years with the completion of a modernization program that involves, among others, the replacement of 20 aging aircraft with modern, fuel-efficient planes that are seen to reduce costs amid expected productivity gains.

The retirement of PAL’s old fleet is part of a turnaround strategy aimed at transforming the flag carrier into Asia’s airline of choice through a simple game-changing program of fleet modernization, network expansion and service innovation, a statement issued by PAL on Tuesday said.

PAL reported comprehensive loss amounting to $229.7M for the first nine months of 2013 following a one-off expense of $261M covering the retirement of its aging jets.

With the significant one-off expense out of its way, PAL is confident it will end 2014 healthier with a more efficient fleet planning program from the deployment of its various new aircraft, an expanded network and further upgrading of service standards on the ground and in the air.

“2013 was a clean-up year for PAL as we go through the costly yet necessary fleet renewal process but we are on track with our goals and we remain committed to improving your airline’s financial and operational performance,” PAL president and COO Ramon S. Ang said.

He added that with the lifting of the country’s category 2 status, PAL can now deploy its new planes to the US and explore vast opportunities, including network expansion and partnership with other airlines, in one of the Philippines’ largest passenger markets.

With the upgrade, PAL expects to generate substantial annual savings from lower maintenance and fuel costs, among others.

More than 70 years after PAL first took to the sky, the story of PAL continues to unfold and evolve under a new management that has a track record for successfully growing businesses virtually every growth sector of the Philippines.

 

Source: Inquirer.net