CAPA News Briefs

South Africa's Minister of Public Enterprises Pravin Gordhan, in his debate response to President Cyril Ramaphosa's 2019 State of the Nation Address, stated (25-Jun-2019) South African Airways (SAA) "is in a precarious financial position", noting "the airline has persistently incurred losses over the past 12 years" due to "mismanagement", "state capture", the inability to service its debt due to a commercially unsustainable cost structure, "incorrect" fleet configuration and "cumbersome" approval processes. Mr Gordhan said progress has been made under the airline's 2017 long term turnaround strategy, specifically in route optimisation and other cost efficiencies, but added: "We need to create an airline that is 'fit for purpose' and able to compete effectively in a dynamic market and ready to negotiate with a strategic equity partner". Mr Gordhan said the Department of Public Enterprises has reviewed the investment case for SAA and stated: "Based on comparisons with its peers there is an investment case for SAA if reforms are well implemented, and if inefficiencies in its systems are eradicated". Mr Gordhan said the airline must undertake the following "urgent actions":

• An accelerated long term turnaround strategy is in development for approval by 08-Jul-2019;
• The government is strengthening the company executive and board to ensure stability;
• A joint implementation committee was established between airline management, the board and the Public Enterprises Department to accelerate implementation, accountability and enable quick decision making;
• Appoint personnel with "local and global commercial and aviation skills";
• Change the "culture of entitlement";
• Embed accountability;
• Streamline approval processes;
• Secure funding;
• Ensure an accelerated implementation plan. [more - original PR]

IATA, in its Jun-2019 Africa and Middle East regional briefing, stated (25-Jun-2019) Africa was the second strongest performer among all regions in terms of freight demand in Apr-2019, recording a 4.4% year-on-year increase in FTKs. In the Middle East, IATA reported structural changes along with global headwinds contributed to declining FTK growth. The association said FTK growth remains under pressure on most of the region's key international routes. Africa-Asia was the best performing market in Apr-2019 but has shown "high volatility" in recent months. Middle East-Europe recorded an 8.3% decrease in FTKs, which was the market's weakest performance since mid 2014. Freight load factor performance "deteriorated modestly" for both Africa and the Middle East in Apr-2019, compared to Mar-2019. [more - original PR]

Boeing Commercial Airplanes executive director market analysis Wendy Sowers, speaking at the CAPA LCCs in North Asia Summit, said (25-Jun-2019) that when considering long haul narrowbody operations, Boeing's customers are informing it that they want something that is 20% to 40% larger than the narrowbody aircraft they operate today. Airlines are seeking an aircraft that is "a bit bigger to allow for growth" but is still low in trip costs. Boeing's new midsized airplane programme is "addressing the market between the 737 and the 787" and the "trick" with the aircraft will be to "take out the trip costs associated with widebody aircraft and lower the risks on that side".

Association of Asia Pacific Airlines (AAPA) reported (25-Jun-2019) air cargo demand fell further in May-2019, as export activity continued to slow in response to "challenging business conditions". AAPA stated the wider imposition of trade tariffs dampened demand and affected global supply chains, leading to declines in new export orders. AAPA director general Andrew Herdman commented: "Air cargo demand is weak as a result of the slow down in the manufacturing sector and deteriorating business confidence, undermined by the ongoing trade disputes". [more - original PR]

Association of Asia Pacific Airlines (AAPA) reported (25-Jun-2019) moderate growth in international air passenger markets in May-2019, noting the business and leisure travel markets were supported by sustained regional economic expansion. AAPA director general Andrew Herdman commented: "Whilst prospects for growth in travel markets remain positive, operating conditions have become increasingly challenging for the region's carriers. Airlines are grappling with the effects of weaker air cargo demand, volatile oil prices and renewed downward pressure on passenger yields". [more - original PR]

IATA, in its Jun-2019 Asia Pacific regional briefing, reported (25-Jun-2019) year-on-year FTK growth for Asia Pacific carriers "fell further into negative territory" in Apr-2019, following a "short lived improvement" in Mar-2019. IATA commented: "The recent slowdown in part reflects the impact of trade tensions on business activity and sentiment in the region". FTK growth was "under pressure" in the majority of the region's international markets. Asia-Europe volumes decreased 6% and Asia-North America volumes decreased 8%. Within Asia remained "the key underperformer" with a 12% decrease. Africa-Asia was the best performing market, but recorded "high volatility" in recent months, which IATA noted is "not a surprising outcome given its relatively small market size". Asia Pacific freight load factor eased by a "sizeable" 3ppts to 51.8% but remains "well above" the industry average. [more - original PR]

Mitsubishi Heavy Industries (MHI) and Bombardier entered (25-Jun-2019) an agreement for MHI to acquire Bombardier's regional jet programme for USD550 million in cash as well as the assumption by MHI of liabilities amounting to approximately USD200 million. Bombardier's USD180 million Regional Aircraft Securitization Program will be transferred to MHI. MHI will additionally acquire Bombardier's maintenance, support, refurbishment, marketing and sales activities for the CRJ Series aircraft, including related services and support network located in Montréal and Toronto and its service centres in Bridgeport and Tucson, as well as the type certificates. Bombardier will retain a fixed amount of certain liabilities representing a portion of the credit and residual value guarantees, totalling approximately USD400 million. MHI president and CEO Seiji Izumisawa stated the transaction represents "one of the most important steps in our strategic journey to build a strong, global aviation capability". The transaction is scheduled to close in 1H2020. [more - original PR]

IATA, in its Jun-2019 Asia Pacific regional briefing, reported (25-Jun-2019) the RPK growth rate in Asia Pacific "picked up slightly" to 2.1% year-on-year in Apr-2019 but remains "well below" the long term average. IATA noted escalating trade tensions between the US and China "weigh upon the business environment in the region". Domestic RPK growth in India fell into negative territory for the first time since early 2014, following the exit of Jet Airways from the market and rising airfares. Domestic RPK growth in Japan "remained generally unchanged" in Apr-2019 compared to Mar-2019. Domestic RPK growth in Australia "picked up modestly" but remained negative at -0.7% year-on-year. Among international markets, Asia-Europe was the strongest performer with 8.1% growth, followed by within Asia and Southwest Pacific-Americas (both +5.2%). Passenger load factor "rose slightly" to 81.7% but remained below the industry wide outcome. [more - original PR]

IATA, in its Jun-2019 Africa and Middle East regional briefing, stated (25-Jun-2019) year-on-year RPK growth for Middle East carriers "returned to positive territory" in Apr-2019 after two consecutive months of declines, but added: "It is too early to conclude that this month's outcome represents a shift from recently observed downward RPK trend". Africa passenger volumes grew a "meagre" 1.6% in Apr-2019 and IATA noted "faltering business confidence and political uncertainty in some of the region's key economies". Among the key international markets, Africa-Europe remained the best performer in Apr-2019 with a "robust" 9.6% increase in volumes. RPK growth recovered in the Middle East-North America market, which IATA noted "has more to do with weakness a year ago than any clear pick-up in the demand trend". Passenger load factor "rose sharply" in the Middle East and "ticked up" in Africa. [more - original PR]

ACI Europe reported (26-Jun-2019) Europe's direct connectivity increase of 29.7% in the past 10 years was almost entirely attributed to LCCs, (+151.6%), as a result of dynamic expansion and near stagnation (+3.7%) of full service and other carriers (FSOCs). LCCs have increased direct connectivity by 135.6% in the EU market, while FSOCs have decreased by 7%. [more - original PR]

ACI Europe reported (26-Jun-2019) "rather weak" direct connectivity from Europe's airports in 2019, up 1.2% year-on-year. ACI Europe attributed the result to continued airline consolidation, airlines becoming increasingly risk averse in network development and capacity expansion and increasing capacity constraints at European airports. The organisation noted slowed growth in direct connectivity is affecting the larger intra Europe and Europe-North America markets, up 0.7% and down 0.8% respectively. Smaller regional airports handling less than five million passengers p/a are experiencing a "significant drop" in direct connectivity, down 2.9%, due to increasing difficulty of securing route and network development opportunities in riskier operating environments for airlines. [more - original PR]

Airbus senior vice president sales Japan Jean-Pierre Stainnack, speaking at the CAPA LCCs in North Asia Summit, said (25-Jun-2019) the A320 family has two key advantages for airlines: flexibility and commonality. Mr Stainnack said the addition of the A321LR to the A320 family gives Asian airlines a "lot of choices as to what they can do in opening new routes". He added that the A321XLR will allow airlines in the region to "operate routes that they can't fly today". Mr Stainnack noted that from Japan, Airbus expects the A321XLR would allow the operation of 70 to 80 routes to new destinations which would be difficult to serve with a widebody aircraft.