Thai Airlines: Interview with Teerapol Chotichanapibal

Thai people are famed for their friendly smiles, but given the violent political protests afflicting the country since 2008, one could forgive Thai Airways International employees if they were less than optimistic about travel demand in the coming year.

This article orginally appeared in Asian Aviation magazine, February 2011

Thai people are famed for their friendly smiles, but given the violent political protests afflicting the country since 2008, one could forgive Thai Airways International employees if they were less than optimistic about travel demand in the coming year.

Yet Teerapol Chotichanapibal, the airline’s acting commercial executive vice-president, is decidedly upbeat. The airline reported a net profit of 136.4 million baht (US$4.5 million) for the third quarter of 2010 – its first positive quarterly result since 2008. The carrier had previously never run at a loss.

The profit figure, although about seven times less than most Thai analysts predicted, came largely because of a recovery in tourist demand and aggressive cost-cutting. In the same July-September quarter a year earlier, the carrier lost 4.03 billion baht.

“We are not doing badly, despite everything, and we are looking forward to 2011,” Terrapol says.

He describes the protests by the United Front for Democracy Against Dictatorship, commonly known as the ‘red shirts,’ as being one of the biggest “dents” in annual figures for the 2010 business year. But he adds that the flight disruptions caused early in the year by the ash cloud from Icelandic volcano Mount Eyjafjallajökull caused a dent of equal or greater size.
Regardless of the protests and volcanic eruption, Thai had already had an eventful few years, including battling natural disasters and a coup d’état. Indeed, things could be much worse, Teerapol says.

“If you look at our books, we’ve not been doing too badly. We’ve been doing very well at controlling costs,” he says.

Catering –a department in which Teerapol is also managing director – was one element of the business affected by cost-cutting plans. Thai’s kitchens in Bangkok produce up to 80,000 meals per day for the airline’s own flights and for 50 other carriers. Many of those airlines have re-tendered recently, putting more pressure on the commercial kitchen to have lower costs while maintaining quality, the executive says.

But Teerapol is most proud of the 10 billion baht saved in fuel and indirect costs this year, which came in addition to 14.8 billion baht saved over the past two years. Better fuel-management has been the result of data reporting and analysis of the way the carrier uses jet fuel. Thai has managed to bring its average fuel burn down to 388ml/km, from 406ml/km in 2006.

All costs, including fuel, are down by 5 percent per available seat kilometre, he says. Much of this has been achieved by procedural changes to reduce controllable elements like off-block taxiing time and better use of flexible flight plans, he said. Minimising on-ground use of auxiliary power units was also given priority at Suvarnabhumi, which itself has energy saving design built in.

The carrier, which celebrated its 50th anniversary in May, has embarked on a plan for the next half-century, which it is calling its TG100 Strategy. The plan builds upon Thai’s heritage as an aviation pioneer in Asia to combat new threats – chiefly competition from low-cost carriers – and reduce its environmental impact.

Part of TG100 is the joint venture being formed with Singapore’s Tiger Airways to form Thai Tiger Airways, announced in August. This plan comes despite Thai already being a major shareholder in no frills airline Nok Air, which is based at Bangkok’s older Don Muang airport, Thai’s former base. In contrast to Boeing 737 operator Nok Air, Suvarnabhumi-based Thai Tiger will operate 14 Airbus A320 narrowbodies and is expected to commence services around March next year.

Thai Tiger will allow route expansion without overstretching the mainline carrier. Teerapol says that during the mid-2000s the airline got caught up in a race to announce new routes, in part to satisfy investors and the press.

“It’s not economical to have thin routes. Instead, we will solidify our existing routes, adding more frequencies,” he says. Services to Moscow’s Domodedovo airport will increase to a daily frequency, for example, as will flights to Madrid and Munich.

The slow, steady fleet expansion will go hand-in-hand with fleet renewal.

The carrier is momentarily stuck with its Airbus A340-500s, which are used for services to New York’s Newark Airport, where fellow Star Alliance carrier Continental Airlines has a hub. But under a government-backed four-year aircraft acquisition plan, Thai will retire its six ageing Boeing 747-400s, ten A300-600s, four Airbus A340-500s and three Boeing 737-400s.

To replace these, the airline will acquire seven A330-300s, eight 777-300ERs and a rumoured six A380-800s. A parallel aircraft-refurbishment program will see the entire fleet refitted over the coming five years.

Teerapol acknowledges that Thailand has been experiencing turbulent times. But he also knows that Bangkok remains one of Asia’s foremost cities with world-class onward air connections, allowing the Thai flag carrier to face the future with confident optimism.

Air New Zealand taps viral marketing to raise profile

As an end-of-the-line carrier located in a small country, Air New Zealand might well be expected to be a follower rather than a leader in the industry. But, as the online viral success of its latest television commercials show, innovation does sometimes originate in unexpected places

This article originally appeared in Asian Aviation magazine January 2011

The television spots showcase Rico, an unspecified South American rodent, whose clumsy English leads to double entendres, sexual innuendo and other risqué humour that most national carriers would baulk at endorsing.

Jim Henson’s Creature Shop in Los Angeles created Rico at no small cost. But the investment appears to be paying off, with Air New Zealand’s adverts among the most popular items on the video-sharing website YouTube.

The reason for the big marketing push is the arrival of the carrier’s six Boeing 777-300ERs, the first of which was delivered in late December, and which will be pressed into action from 2 April on services to London via Los Angeles from the airline’s Auckland base, currently flown using 747-400s. The aircraft are laid out in several new seating configurations that are the result of a lengthy covert design programme begun in 2007 and transferred to the -300ER from Air New Zealand’s original order for 787-9 Dreamliners.

With some of the longest stage lengths of any international airline, Air New Zealand was keenly focused on improving passengers’ long-haul experience, explains Rob Fyfe, the airline’s chief executive. New Zealanders’ egalitarian streak also meant equal effort was put into economy class cabins as premium. Over 30 concepts, including bunk beds and cluster seats, were considered before the airline’s technical design team settled on a lie-flat seat dubbed the Sky Couch.

Stretched over three seats, the Recaro-built Sky Couch allows a couple flying together to purchase the middle seat in a row at half price, allowing them to stretch out.

The banks of premium economy Space Seats in the centre of the aircraft are angled together for couples, while those on the outside of the cabin are angled apart for solo business travellers. Built by Contour Aircraft Seating, the Space Seat design is owned by Air New Zealand, which aims to license the seats to other carriers. The -300ERs have new business premier seats too, which Fyfe claims move the carrier into the “hybrid first-business class territory” pioneered by Virgin Atlantic.

Fyfe’s joke-peppered speech hints at the unconventional thinking required to approve a mascot like Rico. He is also an aviation outsider, despite starting his career with the Royal New Zealand Air Force and being a graduate in Aerosystems Engineering from the UK’s Royal Air Force College. For over a decade, Fyfe has worked his way up the marketing departments of New Zealand and Australian banks before moving to London where he headed up the ill-fated digital television network ITV Digital.

Due to its South Pacific location, over 70 percent of Air New Zealand’s passengers are New Zealanders returning home, with the rest being tourists. There is very little transit traffic from long-haul services, Fyfe says. So the challenge is to market to the far-flung Kiwi community the advantages of flying with New Zealand’s national carrier, whose fares are unlikely to match Middle Eastern and Asian carriers on the routes.

“There is a sense of identity with the airline among New Zealanders, but that is not enough,” he says. “It must be mitigated by a clear business strategy [to be] able to compete.”

Part of this strategy is to team up with Australia’s second largest carrier, Virgin Blue. The alliance was approved in late December by Australian competition authorities, reversing an earlier interim ruling.

Air New Zealand previously had a close relationship with Ansett Australia.

Fyfe says that full code-sharing on trans-Tasman services will allow both Virgin Blue and Air New Zealand to increase services rather than shelve them, despite the combined entity now set to control the majority of capacity between the neighbouring countries, with Qantas and its low-cost subsidiary Jetstar reduced to second position.

Fifth-freedom rights allow offshore carriers to extend Australia-bound services onward to New Zealand. That right is being exploited by Emirates, whose Airbus A380 services to Auckland now account for around one-tenth of all capacity.

In this fiercely competitive market, Air New Zealand has responded by launching its Seats to Suit branded fare classes. Replacing two-classes of fares, the new single-class services are available on a seat-only basis, a seat-plus-baggage, a standard all-inclusive economy ticket branded The Works, or the Works Deluxe package that guarantees a spare seat next to the passenger.

Fyfe believes the branded fares provide a more sustainable revenue stream than simply stripping out ancillary services, as many US airlines have done.

Yet for all the renewed focus on long-haul and Australian services, Air New Zealand remains hostage to its country’s overseas appeal. Last year, long-haul tourism fell dramatically, especially in the UK, a core source market for New Zealand.

This was reflected in a 6 percent profit drop to NZ$137 million (US$105 million) for the carrier’s business year, ended June 2010. More drastically, passenger revenue fell by NZ$429 million, due to a 7.1 percent reduction in yield and a 4.7 percent drop in revenue passenger kilometres.

This September, New Zealand will host the Rugby World Cup, when an estimated 70,000 spectators are expected to visit the country. Despite his bawdy humour, Rico has over 15,000 followers on Facebook and over 350,000 people have viewed his best-loved video clip on YouTube.

The trick will now be to convert Rico’s fans into Air New Zealand passengers.

Summit Report: The 54th Assembly of Presidents of the Association of Asia Pacific Airlines

The folloiwng article originally appeared in

AAPA Summit Report

Even as the Asia-Pacific is poised to be a driver in global aviation growth over the next 20 years, airlines in the region are suffering from regulations being imposed overseas, writes Justin Wastnage

Asian aviation is in the ascendancy, but it risks leaving its regulation to other parts of the world. This, in essence, was the message given to delegates at the 54th Assembly of Presidents of the Association of Asia Pacific Airlines (AAPA), held in Brunei in November.

Statistics from the International Air Transport Association (IATA) show that the Asia-Pacific region will overtake the world’s busiest air-traffic regions, North America and Europe, within 20 years. This year, passenger traffic in the Asia-Pacific region will grow by 15 percent and air cargo by some 30 percent, compared with more sluggish growth of 1-3 percent expected from the two mature markets.

The AAPA comprises some of the region’s biggest carriers: All Nippon Airways, Asiana Airlines, Cathay Pacific Airways, China Airlines, Dragonair, EVA Airways, Garuda Indonesia, Japan Airlines, Korean Air, Malaysia Airlines, Philippine Airlines, Royal Brunei Airlines, Singapore Airlines, Thai Airways International and Vietnam Airlines.

These carriers will see growth accelerate over the coming decades, said Chris Buckley, Airbus executive vice-president for Europe, Asia and the Pacific. “North America is actually saturated, and thus almost no growth will happen over the next two decades and most aircraft sales will be for replacement. Europe still has room to grow, but our focus is now on Asia,” he said.

New-aircraft demand

Over a third of the world’s requirement for 16,977 single-aisle aircraft will come from the Asia-Pacific region, Airbus estimates, and almost half of all demand for A380 or Boeing 747-class very-large airliners.
US airframer Boeing agreed, with Dr Fariba Aladari, Asian vice-president for the Chicago-based manufacturer describing the airlines of this region as “standout” in terms of traffic growth. “The airline industry made US$9 billion globally last year, of which US$5 billion was from Asia Pacific,” she said.

AAPA membership encompasses 60 percent of the Asia-Pacific region’s capacity, similar to its counterparts the US Air Transport Association (ATA) and the Association of European Airlines (AEA).

Yet unlike those groups, the AAPA has no single government to lobby for regulatory change. Most new aviation rulemaking comes either from Washington DC or Brussels, where the association now focuses most of its efforts. This leaves AAPA carriers at a disadvantage, notably since much of the regulation passed by the US Department of Transportation and the European authorities become global standards, said the association’s Director General Andrew Herdman.

There are several lead aviation safety regulators in the region, notably those from Australia, Hong Kong and Singapore, but little common lobbying against the raft of what Herdman views as "well-intentioned", but "ill-conceived and counterproductive" aviation legislation emanating from the old world.

“Aviation is a heavily regulated industry and this regulation is dominated by the US and European Union, because together they represent 60 percent of the industry. But as the emergence of the G20 [group of twenty finance ministers from major economies] as the world’s primary economic forum rather than the G8 [group of eight leading industrialised nations] shows, there’s a new world economic order. Asia has shown it can lead commercially, but it needs to take a larger role in shaping regulation,” he said.
The AAPA passed five resolutions at the assembly, all aimed at fighting a more concerted campaign in the face of this mounting legislative pressure. “Governments need to rethink unwarranted and ineffective policies on the environment, taxation and passenger services,” Herdman said in the assembly communiqué.

Passenger rights

The association’s chief fear is the spread of mandatory passenger protection rules. The European Union was the first to guarantee minimum customer service and compensation guarantees in the event of flight delays and cancellations.
The EU Regulation 261 on air-passenger rights has drawn criticism not only from low-cost carriers (Ryanair is locked in a court battle over its refusal to compensate for delayed flights) but also from Asian carriers. This irritation turned to anger during the volcanic-ash related European airspace shut-down earlier this year.

Tony Tyler, chief executive officer of Cathay Pacific pointed to the "absurdity" of his Hong Kong-based carrier having to pay for two weeks’ hotel accommodation in London for stranded passengers.

Brian Johnson, the European Parliament's transport-committee chairman, defended the regulation, which guarantees stranded passengers between 125 euros and 600 euros compensation, depending on flight distance and the delays incurred when rerouted.
“It’s like drunk-driving laws. I would never drink and drive, but laws let people know it’s wrong. So airlines now know it’s wrong to overbook and then bump passengers off,” he said.

However, he also admitted that the rules as they stand were not designed for such extended periods of disruption as the ash cloud and said that “his bet” was that 261 would now be altered to limit the duration of any payments as well as being extended to other forms of transport, levelling the playing field.

Nonetheless, Herdman points out that in the US there is a notice of proposed rulemaking passing through Congress on similar broad passenger-protection regulations for US airlines. The rulemaking on enhancing airline-passenger protection proposes a minimum of US$650 compensation for overbooked flights and similar penalties for severe delays and lost bags.

Within the AAPA’s own region, China, the Philippines and Thailand are all, for example, tentatively considering passenger-protection rules.

Herdman said these minimum levels of compensation amount to a "compulsory insurance" that would raise air fares and effectively take choice away from consumers. Asian airlines are known for better service than US and European carriers, but these rules could make them lose that competitive advantage, he warned.

"Introducing overly prescriptive legislation to regulate customer care constrains the airlines' ability to innovate and use superior level as a point of difference," he said.

Urging restraint

“The AAPA calls on governments to refrain from introducing legislation that would act as a disincentive to compete freely on customer service standards, and also [to] ensure mandated regulations related to passenger processing and treatment are designed from the outset to be practical, cost-effective, efficient and sustainable,” the 17-member association agreed.

Many of the calls for passenger-protection regulations arise from the varying service standards allowed by airline deregulation.

“We used to have standardised baggage allowance rules but we were accused of collusion, so every airline went [its] own way and now we see passengers confused when they interline from one carrier to another and get fined when there are different allowances. So now the regulators say we should standardise our baggage allowances,” Herdman said.

He further argued that if any denied-boarding compensation standards or passenger-protection regulations are needed, the right forum for such discussions would be the International Civil Aviation Organization (ICAO), ensuring that globally harmonised rules can be formulated.

The AAPA’s preferred solution would be to push for better adoption of travel insurance that covers force majeure and other airline eventualities. “If you want to stop bad things happening, then you have to insure against it. In other areas of life people take chances, risking not insuring, so why not travel?” Herdman said.

Discriminatory taxes

The AAPA also railed against a series of new taxes being imposed, largely by European countries, many of which are distance-based, thus discriminating against Asian carriers flying into the Old Continent. Austria, Germany and the UK were singled out as worst offenders.

The taxes, often dressed up as security charges or departure fees, do not go to fund airport infrastructure or even rival transportation like fast trains, instead ending up in general consolidated government revenue, Herdman said.

“These taxes are paid by the passenger and collected by the airline on their behalf. They come under a number of different labels and are contained within the ticket price, so whether it’s an arrival fee, a departure fee, security surcharge, airport passenger duty, visa processing fee or whatever, these all appear to the passenger as being part of the ticket. Around 15 percent of most tickets are taxes of some kind,” he added.

The AAPA is “very concerned about the proliferation of new taxes,” he continued. Such government charges are counterproductive and could lead to fewer new routes as the cost of flying rises. It is now cheaper, for example, for passengers travelling to London from much of the Asia-Pacific to fly into Brussels and take the Eurostar high-speed train.

The Netherlands is alone among European nations to realise the negative impact of high airport taxes. The country was praised at the Brunei meeting for having scrapped its passenger-movement charge after a study showed its negative effect on business traffic.
"Unjustified taxes do untold damage to the economy of the state imposing [them]," Herdman said. “Fortunately economies in this part of the world know the value of tourism and aviation to their economies.”

Environmental rules

Another example of European legislation that has generated much industry opposition is the emissions trading scheme, which will apply to airlines for the first time from 2012.

All airlines must buy carbon credits for the entire duration of any flight entering the EU, not just that part flown over European airspace. Asian airlines object to the plan, arguing that on a flight from Seoul to Paris, for example, the majority of the emissions would occur outside EU airspace.

Singapore Airlines' outgoing Chief Executive Chew Choon Seng, said the scheme discriminated against Asian carriers whose journey into Europe was far longer than those of their Middle-Eastern rivals. "We are halfway around the world. Why not pay at point of entry [into the EU]?" he asked European parliamentarian Johnson.

Johnson replied that the emissions trading scheme was the responsibility of the parliament’s environmental committee, not his own transport committee. The environmental committee comprises ecological fundamentalists, he said.
His is the voice of reason within the European Parliament, watering down the initial proposals for a 100% charge for aviation, he claimed. "You want to see what the Taliban – I mean the environmental committee – first proposed and believe me, this is a whole lot better," he said.

No matter. The AAPA wants a global approach for the global industry. ICAO should be the forum where a new global standard should be decided, Herdman said.

Rather than shy away from the need to control emissions, Asian carriers have more incentive to work towards greener fuel initiatives, since they fly longer stage lengths than European and North American counterparts, he said. Just as with passenger-rights legislation, the AAPA fears emissions trading schemes in Australia and California may seek to include aviation and could be followed by a series of other such schemes.

“Even though governments reached a consensus at the ICAO 37th Assembly last month, this may not prevent the introduction of a patchwork of nationally- or regionally-imposed, market-based measures,” Herdman said.

Aviation safety

The final two resolutions passed by AAPA covered safety and security. On safety, too, European and US legislation putting pressure on Asian carriers. But unlike the costly consumer-protection or emissions-trading legislation, the AAPA is broadly supportive of the US Federal Aviation Administration’s (FAA’s) Category 2 watch-list of airlines and even the blacklist of carriers banned from European airspace due to fears over their safety records.

But safety problems often originate not with airlines themselves, but with national aviation safety agencies and their relative lack of oversight, Herdman argued. “You’re only as good as your regulator,” he said.

Johnson, who personally signs off the blacklist after consultation with the European Aviation Safety Agency (EASA), pointed to the case of Garuda Indonesia, which undertook the International Air Transport Association’s Operational Safety Audit (IOSA) and was able to demonstrate acceptable standards using its own procedures-led safety standards, despite the country’s overall record being poor.

As a result, Garuda became the first Indonesian carrier to resume flying to Europe after the country’s airlines received a blanket ban from the EU in 2007, due to concerns over the safety culture within Indonesia’s National Transportation Safety Committee.
Johnson said the EU’s latest area of concern is the Philippines, where the national carrier Philippine Airlines (PAL) has been subject to Category 2 status since 2008, despite completing its own IOSA. PAL’s tentative plans to return to Europe with the restoration of it services to Zurich and Paris was dealt a blow in September when all Philippines-based airlines were prohibited from operating within the EU. Similar concerns exist for a number of other, smaller Asian nations, Johnson said.

Herdman said the Asia-Pacific region needs properly resourced safety regulators. “All our member countries are signatories of ICAO, but the track record in implementing its aviation safety regulations has been imperfect and some need help to pull up,” he said. A pooling of oversight capabilities across the region, similar to what has happened in Europe and is now taking place in the South Pacific would be one potential solution, albeit politically unlikely.

Staff secondment from the region’s leading oversight bodies was another short-term option, he proposed. However, since much of the role of the aviation authorities is to ensure international treaty obligations are met and that the intricate texts of annexes are made into national law, Herdman said the issue remains largely about recruiting and retaining good government employees.

“[In the] long term, the pay scales need to be high enough to retain staff and take away the temptation for corruption,” he said.

Airline security

Similarly, Asia must work with Europe and the US on the issue of security, Herdman said.

The presidents’ assembly came just days after the attempt to ship liquid explosives hidden inside printers from Yemen to two Chicago synagogues using airline belly freight and the association was anxious that governments should not leap to rash decisions. Martin Eran-Tasker, the AAPA’s technical director, said airlines should be grateful that key lawmakers including the US secretary of homeland security Janet Napolitano, were attending the IATA aviation security conference AvSec World in Frankfurt when the attempt took place, allowing experts to counsel them immediately.

The fear of knee-jerk reactions to the latest attempted act of terrorism is greatest for Asian carriers, who together carry some 40 percent of all air cargo. Eran-Tasker said the most extreme counter-terrorism idea being considered in some world capitals is to ban all unaccompanied cargo from passenger aircraft.

In the US, where there are dedicated freighters and a vast segregated air-cargo infrastructure, this would be a terrible idea, he said, but in Asia it would be catastrophic. Only half of all air cargo is carried by freighters, he said.
Luckily, Herdman said, reaction to the latest incident appears calmer than in the past.

“We long ago learned that it is human nature that each new security incident prompts a desire to introduce yet more security measures, but it takes a certain political maturity to remain calm and not fall into the trap of knee-jerk reactions by the imposition of new security measures of unproven effectiveness,” he said.

Need for co-operation

The AAPA has consistently emphasised the need for government agencies and the aviation industry to work together to ensure a secure supply chain.

“This plot was foiled after Saudi Arabia tipped off British authorities. The lesson from this incident is that the biggest pay-offs come from intelligence gathering and sharing,” Herdman said.

The US is now calling for 100 percent cargo screening, which would also place Asia at a disadvantage, since few airport terminals have the equipment to process LD3 containers. Similarly, much freight starts off in remote locations, consolidated only at major hubs. Total freight screening would further complicate and delay procedures, Herdman said.

Much of the Asia-Pacific region’s exports are fresh produce or perishable goods, which would spoil if left in containers awaiting scanning, he said.

“The Americans are great believers in technological solutions, not procedural. But a technology that works in the US might not work in Fiji and might not be affordable across our region,” he said.

The fear of unfeasible security regulations being imposed from afar symbolises the AAPA’s wider struggle to be heard. There is no central regulator in Asia, although those in Hong Kong and Singapore act as leading regulators for the region and are “more engaged in the international debate,” Herdman said.

One potential heavyweight national regulator is the Civil Aviation Administration of China (CAAC). However, the problem for the AAPA is that it has no mainland Chinese member airlines. On this, Herdman is pragmatic: the association was set up for international airlines, and the Chinese market, while representing some 7 percent of global passenger traffic in revenue passenger kilometres (RPK) and 2 percent of cargo traffic in freight tonne kilometres (FTK), is still largely domestic in focus.

Herdman said that while “obviously” he would like a Chinese carrier “or two” to join the AAPA, he is prepared to wait for them to see the value the association brings.

Open to LCCs

The same view holds for the lack of low-cost carriers in the association. The AAPA was established as a flag-carriers’ club 54 years ago and today its members still reflect the old world order of full-service, scheduled international airlines.

Herdman said he would like to see Asia’s new long-haul low-cost carriers join, just as hybrid airlines have joined the EAA. However, rather than recruit new members, his focus this year has been to prevent existing members from leaving. Australia’s national carrier Qantas Airways let its membership lapse earlier this year, citing lack of value for money. Herdman said the door is still open to Qantas to cooperate in any AAPA meetings.

With no regional regulator to lobby, the association needs to try and influence each national regulator to move in the same direction.

“We are not naive enough to think that the world will change as a result of our resolutions. We’re part of a debate and we try to engage in dialogue and at a time when most regulation in our region is still domestic, we would like to help shape sensible policy in the region,” Herdman said.

The AAPA is certain about one thing: next year, fares will rise across the region. After a year of super-low fares, the association expects to see ticket prices rise as demand for air travel outstrips supply next year.

Still, many other external factors, in the form of taxes and charges, still lie beyond the control of an Asia-Pacific association, leaving the AAPA still beating a path to Brussels and Washington.

JAL’s Onishi targets turnaround

Japan’s most recognisable recent Prime Minister, Junichiro Koizumi, succeeded in large part because he was a pragmatist. By confronting several of Japan’s structural problems, he won a landslide election for his Liberal Democratic Party.

This article orignally appeared in Asian Aviation magazine in December 2010

Masaru Onishi, president of Japan Airlines (JAL), has a similar task ahead of him: facing up to the structural issues that saw the former national carrier of Japan file for bankruptcy protection in January, after losses of nearly 100 billion yen (US$1.2 billion) in a single quarter. His main priority is to change the mindset of JAL employees from that of quasi-governmental salarymen to employees of a competitive, efficient airline.

Onishi avoids comparisons with US Chapter 11 bankruptcy-protection laws that have been criticised for unfairly sheltering failed carriers from outside competition.

“I don’t know Chapter 11 rules well enough. I know our own corporate rehabilitation law better,” he says. These conditions include a pledge to repay the 300 billion yen cash injection the company has received within seven years and slash its workforce by a third.
JAL’s 730 billion yen debts were also wiped out as part of the deal with the government-backed stimulus fund, the Enterprise Turnaround Initiative Corporation of Japan, thus reducing working capital to zero.
Onishi has experience in working with cash-strapped entities, having come in to the presidency from running JAL’s regional airline subsidiary Japan Air Commuter. He is joined at the helm of JAL by new Chief Executive Kazuo Inamori, founder of both ceramics giant Kyocera and telecommunications supplier KDDI.

While Inamori has an outsider’s view of the restructuring, Onishi has the aviation experience to ensure the carrier does lose more market share to All Nippon Airways (ANA), which already leads domestically. Onishi and his board are waiting for the Japanese courts to authorise JAL going into administration, although work has started already to transform the company.

Onishi is bullish. “We will try to repay the loan quicker than the seven years,” he says. He adds he is confident that other developments in Japan’s aviation sector, such as the opening up of Tokyo’s Haneda airport to international routes, will help in reviving the carrier’s fortunes.

The airport’s new international terminal opened in October and airlines were queuing up to get their services into the airport, which is just 14km away from central Tokyo, compared with 58km for Narita International Airport. Around 100 new services to points in Europe, North America and Asia are scheduled to start before mid-2011.

JAL is in the best position to capitalise on the airport’s development, Onishi says. “We have the biggest domestic network and our hub is Haneda,” he points out.

Still, Onishi’s top priority is to change the mindset of the workforce, which will be a challenge given JAL’s history as a government-owned carrier. “The mentality was not only to pursue profit but only to be cautious. We have to realise that we’re a commercial business and this needs to be the priority for all staff,” Onishi says.

There will be casualties, with the workforce set to be reduced by 15,700 employees. Onishi and Inamori must then try to expand the business without replacing these staff members. The airline chief’s second priority is to keep the business as small as possible, running on minimal costs.

“We need to be a very lean company; at a business unit level and at an individual level as well as an enterprise,” he says.

The third priority on Onishi’s list is to establish a system of communicating feedback throughout the company, so that every employee knows the current standing of their business unit, their department and the entire company. “Everyone needs to know the results to be involved,” he says.

Such thinking would be typical of a US firm, but is still radical in a Japanese business, especially one that started out as a government-owned enterprise. Onishi’s plan is to reset the priorities of workers more familiar with bureaucratic procedures than chasing business opportunities.

Onishi would clearly like to go further than the airline’s rather conservative restructuring programme sets out. He talks of setting up California-style thinking cells within business units to drive new projects, and the ruthless pursuit of cost savings. Yet he says no other airline in the world offers an adequate business model to follow.

“Our management studied lots of models but did not find one to base ourselves on,” he says.

The new board of JAL is promoting a “bottom-up” flow of ideas, attempting to shape an agile, lean company that takes good ideas from workers on the ground. Such practices work at egalitarian outfits like Ireland’s Ryanair, but in a hierarchical structure such as JAL’s this may be tougher to put into practice.

Yet Koizumi proved that the Japanese can accept change – once convinced, coerced or charmed into doing so. The former prime minister was capable of all three approaches. At JAL, Onishi will have to emulate Koizumi’s skills if he is to turn the business around.

Virgin Blue, Etihad announce alliance plan

Virgin Blue has been counting on alliances to help it compete with larger rival Qantas

This article orginally appeared in Asian Aviation magazine in October 2010

Australian airline Virgin Blue is famously proud of its transformation from low-cost carrier to hybrid mainline carrier. The company invented the term “new-world carrier” that is now being applied to the mixed business model around the Asia-Pacific region.

For this reason, many industry analysts were keenly observing Virgin Blue’s latest project: to become a virtual-network carrier with hubs on three continents.

Excitement mounted as John Borghetti, chief executive officer of the Virgin Blue Group of airlines, brought with him a special guest to the company’s annual results briefing to the Australian Securities Exchange: Etihad CEO James Hogan.

The airline’s financial results were positive: A$34 million (US$33 million) of pre-tax profit in a tough year, reversing the year-earlier loss of A$226.2 million. Then, offering an insight into the future potential of Australia’s second airline, Hogan announced a wide-ranging partnership deal between the carriers.

Under the terms of the alliance, Virgin Blue’s long-haul offshoot V Australia would launch services to Etihad’s Abu Dhabi hub, while both airlines would extensively share codes on each others’ services. Etihad was thus poised to become the third and potentially most significant of the Brisbane-based carrier’s alliance partners.

Borghetti knows that the only serious way to make a dent in Qantas’s market dominance is to pick off its European and North American routes, which underpin much of the carrier’s profits.

Unable to deploy fleets of long-haul aircraft due to a smaller market capitalisation, Virgin Blue must instead form strategic alliances with carriers around the world in a virtual network. Etihad is one of those alliance partners, alongside Delta Air Lines and Air New Zealand.

“What we want is international services that feed domestic [routes]. Abu Dhabi and Los Angeles are strategic points that open up the possibility to fly to hundreds of destinations, while New Zealand remains a huge feeder market,” Borghetti said.

V Australia thus announced that it would drop its services to Johannesburg from Melbourne, barely three months old, for not fitting into this quasi-network strategy. “It wasn’t making money and also it wasn’t a strategic fit,” the Virgin Blue chief said.

Similarly, a long-standing deal with Etihad’s Dubai-based rival Emirates is to be shelved as a result of the partnership. Virgin America, a natural US partner, is also being left out in the cold, in favour of Delta’s enhanced network from V Australia’s gateway of Los Angeles.

Code-sharing is nothing new in the Australian market. Indeed, one of Qantas’s best-performing European services, to Paris Charles de Gaulle, is flown halfway by Air France, a founder member of the SkyTeam global alliance, a rival to Qantas’s Oneworld airline grouping.

Still, two weeks after the announcement of the Virgin Blue-Etihad deal the mood had soured at the Australian carrier, punctured by a series of announcements from anti-trust bodies around the world.

First came news that the US Department of Transportation (DoT) had rejected in principle the Virgin Blue collaboration with Delta, for failing to demonstrate “benefits for consumers that are not already available”. This was a draft ruling, but one that is understood to be likely to translate into a final rejection of anti-trust immunity.

Insiders say Virgin Blue relied too much on Delta’s lobbyists in Washington DC and failed to understand the rigour with which the DoT investigates competition cases. Air fares on Pacific services have fallen by about half since 2008, following V Australia and Delta’s entrance into the market once shared between Qantas and United Airlines. What worries the DoT is the possibility of fewer flights pushing prices back up, if Virgin were to concentrate on Brisbane and Melbourne and leave Sydney flights to Delta, as seems commercially feasible.

The same week, the Australian Competition and Consumer Commission (ACCC) revealed it was also inclined to reject Virgin Blue’s tie-up with Air New Zealand. The joint venture would have made the combined entity the dominant carrier between the two countries and effectively reduced competition, despite promises not to cut services. The ACCC is a fierce protector of consumer interests and dislikes any move to trim the number of competitors in any market.

Simple code-shares often do not need ACCC approval, as demonstrated with impeccable timing by Qantas and South African Airways, who had a mildly controversial code share deal re-approved, under which the carriers agree not to compete with each other on the two biggest routes between Australia and South Africa.

The code-share in this instance is covered by bilateral air services agreements and thus under the jurisdiction of Australia’s International Air Services Commission.

It was a little political naïveté on the part of Virgin Blue that contributed to its falling foul of authorities, people familiar with the situation say.
Qantas, which deploys a small army of well-connected lobbyists in Australia’s capital Canberra to discuss aviation issues, vigorously objected to the Etihad deal. The carrier’s voice is generally heard loud and clear in Canberra, if not always agreed with. Yet the likely final rejections of the Delta and Air New Zealand deals may weigh in Qantas’s favour here.

Virgin Blue still has the option of watered-down alliances with Delta and Air New Zealand, perhaps limited to code-sharing and interlining, although this would fail to deliver the benefits of a full alliance. The Etihad deal, meanwhile, is still on the table for a few more months and Virgin Blue is sure to be more prepared during the final ACCC deliberations.

Aviation Outlook Summit 2010

Market liberalisation and evolving business models were in the spotlight at this year’s Australia Pacific Aviation Outlook Summit, held in Sydney at the end of July

As originally published in Asian Aviation September 2010

Politicians facing upcoming elections generally like to flatter their audience. Yet there was some credibility to the claim by Anthony Albanese, the current Australian transport minister, that the Australia Pacific Aviation Outlook Summit had become one of the highlights of his diary.

The Labor government that took power in 2007 has delivered on its promise to hold a root-and-branch review of the country’s aviation sector, the minister said, with the resulting ‘Flight Path to the Future’ white paper policy document benefitting from some 600 industry submissions.

The 130 policy shifts proposed in the white paper – some minor, some far-reaching – will be monitored closely across the Asia-Pacific region, not least since Australia has been among the most liberal and reformist aviation regimes for the past decade. Before that, recalled Andrew Parker, senior Vice-President of Public Affairs for Dubai-based Emirates Airline, the country had a perception of being a “hard nut to crack” as flag-carrier Qantas Airways feared any foreign airline in the market was “just trying to steal some of the London-Heathrow business”.

Emirates only prospered by convincing Australian authorities that their countrymen might like to travel to points in Europe other than London, and that there was pent-up demand in other markets for travel to Australia.

Embracing liberalisation

This message of liberalisation has now been embraced by the Australian authorities and is slowly being adopted by more countries around the region.
Singapore-based low-cost carrier Tiger Airways competes aggressively on Australian domestic routes, while domestically run Regional Express Airlines and British investor-led Skywest Airlines compete with Qantas Link in the regional markets on the east and west coasts, respectively. According to Peter Harbison, executive chairman of the Sydney-based think tank Centre for Asia Pacific Aviation, this proves that allowing foreign ownership of Australia-based airlines is good for competition.

The Gulf Cooperation Council, the Arabian Peninsula’s prototype free trade zone, aims to become the next region to implement full seventh-freedom rights within its confines.

Fathi Atti, head of government affairs at Abu Dhabi-based Etihad, said that, while there is still speculation over which countries will join the proposed Gulf single aviation market, it will come into existence by 2015. The United Arab Emirates, home to both Etihad and Emirates, is well-advanced in aviation liberalisation, as are nearby Qatar, Bahrain and Kuwait. Other states’ participation is less certain, however, Atti said.

Asia is not a unified market like the USA, nor is it a single market like the European Union. City pairs are further apart and the populations less wealthy than in those developed markets. These well-established points were highlighted at the summit by a succession of senior-executive speakers from Asia’s low-cost carriers (LCCs). Theirs is a different market, with different rules and different ways of making money, they stressed.

Azran Osman-Rani, the charismatic head of low-cost long-haul operator AirAsia X, used the conference to promote the airline’s lie-flat business class seats. The carrier has retrofitted 12 of the second-hand beds into its fleet with industry trend-bucking swiftness.

Two delegates at the summit had flown on the business class service from London to Australia via Air Asia X’s Kuala Lumpur hub, paying a little over US$1000. Osman-Rani pointed to such flyers as typical of his target market: professionals who would consider premium economy on a full-service carrier and who value a restful journey.

Breaking rules

“The business-class seats symbolise us breaking every rule in the LCC business,” said Osman-Rani. For him, the LCC norms of operating single-class services, point-to-point routes and a single aircraft type are more flexible than budget-airline pioneers such as Michael O’Leary would countenance.

Crawford Rix, incoming managing director of Tiger Airways Australia sees himself as being cut from the same cloth as O’Leary. He launched a tirade against frequent flyer points, the kind of market distribution not normally allowed under competition rules, he said.

“The industry loves to give labels to every airline, so are we a ‘low-cost, long-haul,’ or a ‘hybrid,’ or a ‘value full service’ or whatever?” he asked. Such tags were bunkum, Rix ventured, adding that success depends not on a strict adherence to a prescribed model, but by efficient execution of the business.

Restrictive bilateral air-services agreements between Malaysia and some other south-east Asian nations mean AirAsia X tendered for some route rights by offering a fully-inclusive product. “We became a full-service carrier, with baggage allowance and meals,” he said.

Osman-Rani’s counterpart at Thai LCC Nok Air, Patee Sarasin pointed to the carrier’s introduction of ticket distribution and payment via branches of the convenience store 7-Eleven as another example of innovation beyond the US-European LCC model, which stipulates only internet distribution.

In truth, many LCCs around the world have already broken free of the orthodoxy, mostly by signing deals with global distribution systems (GDS). Liz Savage, incoming chief commercial officer at Australia’s self-styled “new-world carrier” Virgin Blue, recalled her days at UK budget carrier easyJet, which has made inroads in the corporate market thanks in part to its GDS ties.

There is a growing realisation in Europe that, while the on-line sales channel allows airlines to trim spending on ancillary services, the trade channel still offers higher yields, Savage said.

“Successful airlines adapt to change no matter where they started,” she added.
Headlines
Export credit agencies (ECAs), like household insurers, used to have the reputation of being conspicuously absent during a crisis, only to reappear again at buoyant times. Yet aircraft leasing companies are finding it fiendishly difficult to shake off the insurers-of-last-resort after they were pressed into action by governments during the 2009 credit crunch.

The problem, as outlined during this year’s Australia Pacific Aviation Outlook Summit by Peter Harbison, executive chairman of the Sydney-based consultancy Centre for Asia Pacific Aviation, is that the ECAs “plugged the gap” left after suddenly risk-averse credit-rating agencies downgraded the creditworthiness of aircraft lessors, inflating the cost of aircraft acquisition for airlines. Governments then stepped in to safeguard the fleet expansion plans of their national and regional carriers, offering bond-backed guarantees.

According to Tony Ramage, executive vice-president for the Asia-Pacific and Middle East at Singapore-based lessor BOC Aviation, now that the market has more or less stabilised, it is time for the ECAs to leave the market, lest permanent distortion occurs.

“As part of our business model, we’re a speculative aircraft buyer; we buy in the bad times, lease in the good times,” Ramage explains. Yet the extension of favourable credit lines from ECAs has created a different market dynamic, one where airlines can purchase their own aircraft and actually compete with the lessors by leasing back any surplus from their fleets.

Spoilt for choice

David Phillips, capital markets fund executive at the global aircraft fund of share-portfolio management firm Investec, goes further.
“Since the start of 2010 there has been a change in the finance available to airlines. They are spoilt for choice now, as the ECAs have gone beyond their mandate and now offer government-backed credit,” he explained.

Recently, Singapore Airlines (SIA) regional subsidiary SilkAir received 22 bids for its sale-and-leaseback fleet expansion proposal. “We’re concerned that the market is a bit hot at the moment and the returns some of the mainstream lessors will make from deals this year make them unattractive companies in which to invest [our fund’s] money,” Phillips said.

What worries analysts is the prospect of airlines having immovable assets and rising debt. If a second recession hits Europe, this often fatal combination could push many airlines to bankruptcy, Phillips warns.

“The capital expenditure of some airlines back in 2007 was greater than revenue,” he says. The easy credit of 2010 risks sparking a similar rush to purchase, which should worry airline chief executives, he adds.

The benefit of leasing, though, is not lost on Patee Sarasin, chief executive of Thai low-cost carrier Nok Air, whose various crises – from avian flu, through tsunamis and political street protests – have reinforced a desire for flexibility.

“We’ve had operating leases since we started [in 2007], which have given us the flexibility to respond to the ups and downs of our environment,” he said. While start-up airlines are not usually offered the chance to purchase aircraft, Patee said the Thai government has extended a loan guarantee offer to Nok Air in a bid to stimulate the aviation sector.

“Even as we expand and even after we have taken the airline to its initial public offering, we will still lease, because we are debt-free and want to stay that way,” he says. Nok may even lease some of its Next Generation Boeing 737s from arch rival Thai International Airways, which acquired them with ECA backing.

Lessors have the edge

Phillips points out that lessors should outperform sale-and-leaseback deals in terms of total cost over the useful life of the aircraft. Not least since asset-management is a key task for lessors, rather than just one department within a sprawling organisation.

Ramage estimates most leasing companies to have a cost of equity of around 12 percent, whereas even with ECA-backed credit, airlines struggle to achieve 14 percent. He adds that there is a parallel in the retail sector, where stores exited the property purchase and management space two decades ago, as shopping mall developers proved more adept.

But an aircraft appears as a depreciating asset on the profit and loss sheet – easy to explain and easier to amortise. Lease repayments, on the other hand, just appear as heavy costs.

There is another perk for airlines too. Aircraft leased to other carriers provide carriers with capital gains, which are a handy revenue stream in uncertain times and fiscally beneficial in many regimes.

Yet there has been a quiet shift in the type of carrier leasing aircraft. Conventional wisdom had it that large airlines, normally former flag carriers, bought, while those further down the food chain had to contend themselves with renting.

“It’s very hard for a start-up to buy aircraft, whereas a top tier airline is spoilt for choice,” Philips says. However, for some years SIA has been moving steadily into the lease market and has been followed recently by carriers such as Qantas.

Ramage says this partly reflects the desire to ape the flexibility of low-cost carriers and partly comes down to capital management.

Don’t mention the VLJ

The term ‘VLJ’ has become tainted by association with excessive expectations and high-profile bankruptcies. Yet the concept may still prove sound

This article appeared in the September 2010 issue of Asian Aviation

The global financial meltdown hit general and business aviation harder than perhaps any other sector of the industry. And within those sectors, the worst-affected programmes were very-light jets (VLJs), which had been seen as having so much promise for much of the past decade.

VLJs, defined by the US Federal Aviation Administration (FAA) as having a maximum take-off weight of less than 10,000lb (4.540kg), were seen as a way for those rich enough to afford a personal aircraft to avoid airport hassles. At the same time, the public was excited by the idea of personal aircraft and aerospace enthusiasts were enthralled by the advanced engine technology.

The VLJs did have their opponents, however, who feared the consequences of a surge in the number of private owner-pilots as the entry-level price of the aircraft fell to about US$1 million. At the same time, environmentalists warned of the ecological consequences of a boom in private jet ownership.

The aircraft ranged in capacity between 4 and 10 seats, but most seated six people, including the pilot. The VLJ aircraft category was seen as easy to enter, and market forecasts from Honeywell suggested demand for more than 10,000 units over a decade.

But then the credit crunched, and the VLJ bubble burst. In late 2008, the sector’s poster-child Eclipse Aviation – a start-up manufacturer seen as the very cutting edge of an aviation revolution – went into bankruptcy protection. By March, the company ‘s assets were up for sale.

By the time the company collapsed, it had already sold 2,000 of its Eclipse 500 jets and delivered 260.

The aircraft had been favoured by many companies that wanted to operate it as an air taxi, with about two-thirds of orders coming from charter operators interested in the pay-per-segment taxi business model. Most of the customers – many in the USA and Western Europe, some in Asia – had paid a non-refundable deposit of US$100,000 per aircraft.

Hope remains

But hope remains for the programme. In September 2009, a group of Eclipse owners, former deposit holders and investors formed Eclipse Aerospace (EAI), which purchased the assets of the former Eclipse Aviation for US$20 million in cash and an additional US$20 million in notes. The new company’s goal was to restart production of the EA-500.

“To date, our efforts have met with great success,” said EAI Chairman and Chief Executive Officer Mason Holland. “Eclipse jets are flying around the world and have accumulated over 42,000 safe flight hours. Our factory and factory-authorised service centres are supporting the fleet and our vendors are working with EAI as parts are now available to support the fleet of over 260 Eclipse jets.”

Holland added that the company is now offering a limited number of factory-reconditioned Total Eclipse 500 aircraft for sale.

Priced at US$2.15 million, the aircraft includes four major upgrades, allowing flight into known icing conditions, a 41,000ft ceiling, a 20,000-cycle airframe lifespan and additional new systems such as colour radar, Jeppesen eCharts and a moving map display.

No firm decision has yet been taken on restarting production of the VLJ, which will depend on the results of a fresh market analysis and the results of negotiations with suppliers.

EAI has been offering a guaranteed buy-back to a limited number of Total Eclipse customers – promising to allow the buyer to trade in the upgraded aircraft in part payment for a new-build aircraft once production is underway. Current EA-500 owners are also being offered US$1-1.7 million to trade their aircraft in for a Total Eclipse variant.

According to the manufacturer, the EA-500 can cruise at speeds of 370 knots (685kmh), travelling further than 1,100 nautical miles non-stop, while burning as little as 48 gallons of fuel per hour. The aircraft is powered by twin Pratt & Whitney Canada (P&WC) PW610F turbofans.

‘Tainted’ name

Apart from the EA-500, only two VLJs are certificated and delivered to customers: the Cessna Citation Mustang and Embraer’s Phenom 100. Although the manufacturers prefer to even avoid referring to them as VLJs.

In the words of analyst and National Business Aviation Association (NBAA) member Brian Foley: “The term VLJ was at times tainted by ... unrealistic expectations and eve failure. The industry would do well to drop hyped words in order to improve credibility with users.”

True to this philosophy, both Cessna and Embraer use the term “entry-level” jet to describe their products.

Cessna’s Citation Mustang recently achieved a milestone in Asia, gaining certification from India’s Director General of Civil Aviation. Originally certificated by the FAA in 2006, the Mustang now has approval in more than 60 countries.

“The Mustang is well suited for operations in India, due to its range and performance,” said Trevor Esling, Cessna’s vice-president of international Citation sales.
Powered by two P&WC PW615F engines, the 4-5 passenger Mustang can cruise at 340 knots and offers a range of 1,167 nautical miles at its maximum take-off weight of 8,645lb. The aircraft has a service ceiling of 41,000ft and comes equipped with a Garmin G1000 flight-instrument system.

Cessna also recently announced that it is offering a new ‘High Sierra Edition’ of the jet, which are fitted with luxury versions of the three currently offered interiors, a special paint scheme, a version of the G1000 with Synthetic Vision Technology, electronic charts, locking fuel caps and unique service and parts programmes.

“The special High Sierra Edition gives our customers more luxurious interior and exterior options to outfit their Mustang,” said Roger Whyte, Cessna’s senior vice-president of sales and marketing.

More than 300 Mustangs have been delivered since the first was handed over in April 2007, Cessna said.

Brazilian contender

Embraer’s Phenom 100 is designed to transport four to six passengers at speeds of up to 390 knots over a maximum range of 1,178 nautical miles. The aircraft, powered by P&WC PW617F-E engines, offers a maximum take-off weight of 10,472lb and a service ceiling of 41,000ft.

The aircraft is offered with Embraer’s Prodigy Flight Deck 100, based on the Garmin G1000 also found in Cessna’s Mustang.

By the end of the first quarter of 2010, the Brazilian manufacturer had delivered 115 of the jets – two in 2008, 97 in 2009 and 16 in the first quarter of this year.
Deliveries for the past two years fell short of Embraer’s expectations because of the crisis and some production issues in early 2009 – the company had originally planned to deliver 15 in 2008 and 120-150 last year, but trimmed its 2009 target to 110.

Now the manufacturer insists it is on track to meet its 2010 target of 120 Phenom-family aircraft. The number of deliveries in the first three months of this year seems small, but that was because the factory was emptied in December 2009 with 42 Phenom 100 deliveries in a month.

Deliveries were set to accelerate after the first quarter of this year. The company said it has more than 600 firm orders for the aircraft.

The type has proved to be a huge success in its home market. Since the first Phenom 100 was delivered to a Brazilian customer in June 2009, the domestic fleet has grown to 46 aircraft, making the VLJ Brazil’s most popular business jet.

Brazil accounts for about 30 percent of the Phenom market, second only to the USA. Local customers also account for about 15 percent of the manufacturer’s outstanding orders for the jet family.

Spectrum in limbo

Spectrum Aeronautical began test flying its S-33 Independence VLJ in 2006. However, the S-33’s certification has been delayed from 2009 without a clear explanation from the manufacturer, which seems to have shifted its focus to the larger S-40 Freedom mid-size jet.

The S-33 uses a carbon-fibre construction that makes the aircraft weight about two-thirds as much as a comparable aluminium structure. Designed to cruise at 415 knots at altitudes up to 45,000ft, with a range of up to 2,000 nautical miles, the aircraft is also supposed to burn about half as much fuel as its aluminium rivals.

The aircraft is intended to carry five to six passengers and offer a maximum take-off weight of 7.300lb, selling at a retail price of US$3.65 million. It is powered by twin Williams FJ33-4 turbofans.

The S-33 flight-test programme was marred by a crash in July 2006, which killed both test pilots on board and was caused by the control linkage having been incorrectly connected during maintenance after the previous flight, reversing the control output.

Diamond Aircraft Industries also began flying its VLJ competitor, the D-Jet in 2006, with a second prototype taking to the air in September 2007, followed by a third in April 2008.

Certification of the Williams FJ-33-4A-19-powered aircraft has been much delayed however, and is now unlikely to happen before 2012, according to unofficial reports. The hold-ups have arisen because of a combination of factors, including funding issues and changes in the engine and de-icing system.

The manufacturer itself has given no formal update on the programme since last year, when it announced a certification delay until 2011. The flight-test aircraft have logged about 700 flight hours to date.

Preparing for flight

North Carolina-based Honda Aircraft has said it is preparing to fly its HA-420 HondaJet for the first time in November, with the first flight-test aircraft having already completed power-on tests. The company said it is now focusing on avionics and electrical systems integration before the start of flight-testing.

Engine integration work is expected to begin in the third quarter of this year, once the first batch of GE Honda HF120 turbofans is received.

The aircraft is designed to accommodate five to six passengers, offering a maximum take-off weight of 9,200lb, a cruise speed of 420 knots and a range of 1,400 nautical miles. The service ceiling is 43,000ft and the aircraft is being offered with a Garmin G3000 glass cockpit.

Other programmes – such as the Cirrus Vision SF50 and the Piper Aircraft PiperJet – also remain in the pipeline.

Although the sector is now shying away from the VLJ name, it is possible that the concept may get a new lease of life. Demand was stifled by the worst recession in living memory, but only when the recovery is stable will manufacturers truly know how much of a market remains for these ‘entry-level’ jets.