Air France dismisses report of a "black year" in 2010

Air France executives have dismissed a report in the French financial newspaper Les Echos which claims that the airline could face a "liquidity problem" in 2010. The report, published under the headline "Air France: les risques d'une année noire" (the risks of a black year) says that accountants from the accounting firm Secafi, hired by Air France's works council, have painted a couple of pictures regarding the airline's financial strength, none of them very pretty.

Under the first scenario, an upswing in traffic occurs at the end of the 2009-10 financial year and oil stays around $61 a barrel, and Air France, taking advantage of reduced costs, could keep its losses to a minimum, or even break even.

More realistic, says the report, is the second scenario, in which traffic numbers stay sluggish, revenue declines 9%, but oil stays low (around $58 a barrel), which is "more or less" what the airline faced in late May. But the airline would still post a loss that's much higher than the 184 million euro loss posted in the 2008-2009 financial year, and revenue declines in the past month have approached 20%, not 9%.

Then there's the worst scenario, which a decline in revenue of over 9% but oil reaching $70 a barrel. "In this scenario, the operating loss would cause us to consume more than 1.5 billion euros in cash in 2009... this means that it wouldn't be a year before the company runs out of cash," says the report. A "black year" indeed.

Pretty serious stuff, especially as oil is currently trading in the low sixties. Even if oil sticks around $61-63 a barrel, scenario #1 isn't likely, as air traffic probably won't rebound for the airline before the end of the 2009-10 financial year. And it's unlikely that oil prices will be around $58 a barrel for a long period, as they are in scenario #2. Still, it might be taking things too far to say that the airline could run out of cash within a year; the airline issued over 600 million euros worth of bonds last month to finance new aircraft purchases, and perhaps they could do the same in the future if needed.

Unsurprisingly, Air France management isn't buying the gloom-and-doom forecasts. In a statement, the airline said that "the Executive Management of Air France-KLM wishes to make clear that in no respect does it validate any of these imaginary scenarios [and] that its financial position is, and will remain, extremely healthy in the coming years." The statement went on to say that Air France had 4.5 billion euros on hand at the end of June, along with 1.2 billion euros in available credit lines.

photo by caribb from Flickr, licensed under the Creative Commons

WestJet announces largest-ever expansion

If there's a Canadian airline on the rise, it's definitely WestJet. Originally started in Calgary in 1996, it was originally only going to fly to destinations in western Canada (hence the name). But the airline quickly grew in subsequent years, and is now the second largest airline in Canada (behind Air Canada) and the largest Canadian low-cost carrier. WestJet has, more recently, announced plans to introduce a frequent flier program and has announced a codeshare agreement with Southwest Airlines (another one is in the works with Air France/KLM).

And earlier today, the airline announced what it billed as its "largest-ever seasonal non-stop flight schedule" in the company's history, adding 11 destinations for the winter schedule. Pretty much all of them are warm-weather getaways (Miami, Mexico, Cuba, St. Maarten, etc.) although I was rather surprised to see Atlantic City on the list. Year-round service to Yellowknife from Edmonton and San Diego from Calgary was also added. The airline's transborder and international capacity will increase 45% year over year, compared with just 5% domestically.

"This schedule represents significant expansion on both the transborder (U.S.) and international fronts," said Chris Avery, WestJet's VP, Revenue and Planning. "Both are strategic decisions as we continue to aggressively pursue and earn profitable market share in these critical areas. WestJet is well on its way to becoming the market leader in many of the most popular sun destinations in the U.S., Mexico and the Caribbean."

WestJet also has to be taking advantage of the rather precarious situation that its chief rival, Air Canada, finds itself in. Air Canada has been dealing with less-than-stellar relations with some of its unions, and is trying to avert a possible strike during the 2010 Vancouver Olympics. Any significant labor disruption at Air Canada could be enough to push the airline into bankruptcy for the second time in the past ten years - something that WestJet, which is not a unionized carrier, would be sure to exploit.

As BA hurts, Iberia looks to Air France, Lufthansa

photo by jmiguel.rodriguez

The relationship between British Airways and Spanish carrier Iberia runs long and deep. BA owns 13.5% of Iberia and has two seats on its board, and the two airlines are members of the oneworld alliance. The airlines have been pursuing a merger for a while now, and back in February, Iberia chairman Fernando Conte said that a 'preliminary decision' on a merger would be arrived at in March. But only a few weeks ago, Spanish airline Iberia said that it indefinitely postponed the timeline for finishing up merger talks with British Airways; chairman Fernando Conte said that Iberia should instead "concentrate on the reestablishment of its financial solidity." Yet it's interesting how the announcement came right around the time that British Airways announced a record loss and reports emerged about how the carrier is struggling with a pension plan deficit of at least £1.2 billion ($2 billion). BA CEO Willie Walsh has even said that the airline "is in a fight for survival."

Hmm... coincidence?

Probably not. Although talks between BA and Iberia are still continuing, it's clear that Iberia is starting to question the financial viability of its British partner, and so reports that it's looking for a future partner with stronger financial performance aren't surprising. Iberia's finance director, Enrique Dupuy, said Wednesday that Iberia can't hold its own against what he called airline "megagroups", namely, Air France-KLM and Lufthansa. "A merger with BA is a good fit for Iberia, but a merger with Lufthansa or Air France would be quite a good fit as well," Dupuy said. "We have spent a lot of time examining these alternatives, and of course they are not ruled out, perhaps the most attractive aim is British Airways but we also have very attractive alternatives."

In a statement to The Airline Blog, Iberia's international press manager Santiago de Juan made clear that as of now, the only deal being negotiated is between Iberia and BA: "Mr. Dupuy said something Iberia has been saying for some time now, which is that Iberia wants to play an important role in the consolidation process the airline industry is going through. That means that Iberia has analysed the different possibilities for this consolidation process, Air France and Lufthansa included, but at this moment Iberia is in merger talks with British Airways and it is NOT in merger talks with [Lufthansa or Air France]." de Juan would not comment on whether Iberia's recent look at 'different possibilities' had anything to do with BA's financial trouble.

Air France and Delta finalize joint venture

A Boeing 777 in Air France's new livery. Photo courtesy Air France

Air France/KLM and Delta yesterday put the finishing touches on a $12 billion-a-year joint venture deal that would allow them to operate as a single carrier on North Atlantic routes. The pact extends a previous joint venture that KLM and Northwest have had since 1997. Air France merged with KLM in 2004, and Delta recently took over Northwest, allowing for a four-way alliance (all are already members of the SkyTeam alliance).

The deal is a revenue- and profit-sharing venture, and will have antitrust immunity (something that American and British Airways are seeking right now). It affects more than 200 daily transatlantic flights to over 400 destinations in Europe and North America, or around 27% of total trans-Atlantic capacity. It also allows them to more effectively combine operations. For example, if both Delta and Air France have a flight from New York to Paris, but both flights are only 1/3 full, they can be combined and flown on one aircraft. Marketing, pricing, and ticketing will also be shared, and these result in very impressive cost savings (about $150 million per airline).

As previously mentioned, American, Iberia and British Airways in the oneworld alliance and United, Lufthansa (and soon Continental) in the Star Alliance are working on similar deals. This means that airlines without an alliance affiliation - like Virgin Atlantic - might suffer as a result. And while this means that Air France and Delta are cooperating even more closely, they can't actually merge - under US law, a foreign company can't own more than 25% of a US airline, although this rule might end in the future.

Some slides from the Air France/Delta news conference in Paris on Wednesday:

Airbus slows A380 output

photo by NguyenDai

Airbus unsurprisingly announced that it would lower the amount of A380 aircraft it produced this year to 14, down from 18. Originally, the company had planned to increase production this year compared with last (and still is expected to deliver 20 next year), but the weakened economy and recent scare over swine flu has had an impact on travel demand, causing airlines to defer/delay some aircraft deliveries. IATA has estimated that air traffic, which started declining back in September, fell by 11% in March. (The figures for April will be released soon.)

It's only the latest bump in the A380 program, which has not only seen cost overruns (development spending is now at $18 billion, up from the originally planned figure of $12 billion) but also substantial delays. Singapore Airlines, Qantas and Air France are expected to be among the airlines that take delivery of A380s this year. And Airbus is also scaling back production of other models, too - a move that competitors Boeing and Embraer have also followed.

British Airways launches OpenSkies

Although it’s no secret that British Airways has been looking to expand in the transatlantic market, the airline made an announcement yesterday that it is starting an “airline within an airline”. OpenSkies, as the new entity is called, will start flying in June with a single Boeing 757-200 from New York to either Paris or Brussels. Another 757 is planned to join the fleet later this year, with six aircraft in all by 2009. In a statement, Willie Walsh, BA CEO, said that "by naming the airline OpenSkies, we're celebrating the first major step in 60 years towards a liberalized US/EU aviation market which means we can fly between any US and EU destination”. Future cities will probably include Milan, Frankfurt, Amsterdam, and Madrid.

This is a smart move on BA’s part – the Open Skies agreement signed between the US and the EU would add a lot of pressure at BA’s London Heathrow hub. Currently, only United Airlines, American Airlines, BA, and Virgin Atlantic can fly from the US into Heathrow, but this is expected to change soon as more US carriers add the airport. It’s also a smart idea that British Airways decided to buck the “premium transatlantic” trend that pushed MaxJet into bankruptcy last month – OpenSkies will have business class, premium economy, and economy class (each with 24, 28 and 30 seats, respectively). But BA isn’t alone in this area – British carrier bmi, Delta Air Lines, and Air France/KLM are all expected to follow suit with Heathrow-US routes.

MAXjet suspends shares

“Boutique airline” MAXjet Airways today requested that its shares be suspended in advance of a statement from the airline about its rather precarious financial situation. MAXjet flies five Boeing 767-200s from London-Stanstead to three US cities (JFK, Las Vegas, and Los Angeles) with around 100 leather seats apiece and four-course meals (not to mention champagne cocktails and canapés). The airline went public in June, but has since flown into a rough patch (their stock has fallen 50% and new route from London to Washington was axed, in addition to planned service to Miami starting next February).

Not all the news is negative, though. MAXjet carried 47% more passengers last month than it did last November, while the airline’s load factor increased 11% to 69%. But although more seats are being filled, MAXjet is finding it harder to make money. Lots of factors – increased competition with carriers like Silverjet and EOS, high oil prices, and a weak US dollar (which particularly affects an airline with so much UK-based traffic) could be to blame. The airline’s loss increased to $49.5 million in the first half of 2007, up from $30.4 million in the same period a year ago.

According to MAXjet, everything is business as usual, for now. The airline’s announcement about its finances, according to a statement released by the airline, will “be made as soon as possible”. “The company wishes to confirm to its employees, customers and suppliers that business continues to function as normal.” Whether or not MAXjet will be able to get over this remains to be seen – the transatlantic business travel market is notoriously competitive, and with British Airways getting in on the game soon, things aren’t likely to ease up. If BA arch-rivals Air France or Lufthansa also consider entering the premium transatlantic market at a more competitive rate (and Lufthansa has already made moves towards doing this), they could seriously jeopardize the futures of all-business class airlines like MAXjet.

Three interested in Alitalia

photo by WTL photos

Italian Prime Minister Romano Prodi recently said that Air France/KLM, Lufthansa, and Italian domestic carrier Air One were interested in making a bid for struggling Alitalia. (Previously interested Aeroflot has already quit the bidding.) All bidders have until December 6 to make a non-binding offer. In an interview with the German newspaper Frankfurter Allgemeine Sonntagszeitung, Lufthansa CEO Wolfgang Mayrhruber said that "Alitalia has big and barely manageable problems. We are studying whether we can find a recipe (to fix these) and make a bid."

It should be pointed out that Alitalia is losing about 1 million euros a day and is affected by frequent strikes (both inside and outside of the company). If one of those airlines is going to make a bid for Alitalia, they'll have to deal with "big and barely manageable problems" indeed.

Air France and Delta might become closer

photo courtesy of caribb

The AFP and the French newspaper Les Echos are reporting that Air France is in joint-venture talks with Delta Air Lines, which is a fellow SkyTeam partner. A spokeswoman for Air France said that it "is still in negotiations with Delta, but nothing has been finalized". She also said that "the agreement being negotiated should be signed in the autumn."

The joint venture would happen in two stages - the first would start in April 2008 and include New York - Paris flights, as well as flights from Heathrow airport in London to cities in the US. In 2010, the second stage would cover the rest of Air France and Delta's trans-Atlantic flights. Les Echos reports that both airlines would split their profits from their main trans-Atlantic routes 50-50.

Air France-KLM, Northwest, and Delta have also applied for a joint venture agreement. Northwest and KLM have been close partners for more than 15 years, and this venture, if successful, will bring the four much closer together than they already are (all are SkyTeam members).

Last A300 delivered

"I'm the youngest member of the eldest Airbus family." Picture from Airliners.net

The last ever Airbus A300 was delivered today to FedEx, making a total of 821 Airbus A300s and A310s ordered. The A300 was launched in May 1969, with the first airplane entering commercial service with Air France in May 1974. It was the first wide-body, twin-engine aircraft, and it led to the creation of the A310, which was launched in July 1978 and first flew in April 1983 with Swissair and Lufthansa. FedEx is, according to Airbus, the largest customer for the A300/A310, with more than 120 of the types currently in service. Airbus expects that half of the current fleet of 630 A300/A310s will still be in service beyond the year 2025.

Airbus has also released a short video about the A300.

Ryanair to sue EU as EC investigates Ryanair

European discount carrier Ryanair has said that it will sue the European Commission, the antitrust regulatory body of the EU, because it failed to look into complaints about state aid given to Air France and Lufthansa.

Ryanair alleges that Air France received discounted airport fees from the French government and that Munich airport in Germany is building a new terminal for Lufthansa, even while the airport loses money. Ryanair also accuses the EC of approving "mulitbillion bailout packages" for Alitalia, while Olympic Airways has benefited from "massive injections of state aid" from the Greek government.

At the same time, the European Commission has launched an investigation into government aid grants by Finland and Germany for regional airports - the kind that Ryanair typically uses. The EC ruled a few years ago that the airline received illegal aid at Charleroi Airport, in Belgium, and Ryanair had to pay part of it back.

Paris Air Show, Day 3

Airbus has completed another order-filled day at the Paris Air Show, eclipsing rival Boeing yet again in terms of orders. Here's a wrap-up:

United Arab Emirates-based Etihad Airways purchased twelve Airbus wide-bodies, dividing the order between five A330-200s, three A330-200Fs, and four A340-600s. The order provides a bit of a boost for the A340 program, which has seen few orders recently.

As mentioned yesterday, Aeroflot bought five more A321s, as well as ten more A330-200s (which will be leased) and also placed a firm order for 22 A350s, which it had committed to back in March. Aeroflot will be relatively unique in that it will be operating both the A350 and its arch-rival, the Boeing 787.

Mumbai, India-based Kingfisher Airlines, which has been growing rapidly, has signed a Memorandum of Understanding (MoU) to buy up to 50 Airbus planes. The agreement is for 15 A350-800s, 10 A330-200s, 5 A340-500s and 20 A320 family planes.

Two carriers from Libya also placed orders with Airbus today. Afriqiyah Airways placed a firm order for five A320s and signed a MoU to acquire six A350s, with delivery starting in 2017. Libyan Airlines also signed a MoU to buy four A350s, four A330-200s and seven A320s, allowing the airline to modernize its fleet of aging planes.

Yekaterinburg, Russia-based Ural Airlines signed an MoU to purchase five A320s that will allow it to phase out the old Tupolev Tu-134s and -154s that it currently operates on short-to-medium range routes. The airline already operates two leased A320s.

Leasing company CIT Aerospace signed a firm contract for seven A350s and 25 A320 family airplanes.

Turkish cargo operator MNG Airlines placed a firm order for two A330-200Fs, proceeding with the MoU that it signed in January for the planes. MNG, which operates a fleet of A300Fs and F-27s, is seeking to fly to long-range destinations with the new planes.

A subsidiary of Aircastle Limited, a company that leases planes to passenger and cargo airlines, has signed a contract to buy fifteen A330-200Fs.

And the air freight company Flyington Freighters placed an order for six more A330-200Fs. The cargo airline was the first to purchase the A330-200F and will be the first to operate it.

Boeing, on the other hand, only really had one order to announce: Air France will buy nine 777-300ERs and KLM will get seven 737-700s. (Technically it's two orders, but Air France and KLM are two airlines, one company.) The order has a value of $2.7 billion at list prices. This is the first time that the two airlines have bought airplanes together, and it highlights their different fleet strategies: KLM is going Boeing for short-haul while Air France has Airbus airplanes for short-haul and mostly Boeings for long-haul.

Once again, Airbus has come out way on top in terms of orders placed. Boeing's order is important - Air France and KLM are important customers for both manufacturers. But Airbus certainly has stolen the show here with the orders that seem to just keep coming and coming. Even though 'saving up' orders for the air show is a tried and true Airbus practice, it is one that attracts a lot of attention.

Paris Air Show: Day 1

The 47th Annual Paris Air Show opened earlier today in Le Bourget, France. The Air Show is a place where many airlines announce orders for airplanes from the major manufacturers like Boeing and Airbus, and this year, the main focus is on two airplanes in particular: the 787 and the A350. Here are the highlights of the first day's events. This post will also be updated throughout the day - check back later! (Pictures are courtesy of Boeing and Airbus.)

GECAS orders Boeing 777 freighters
GECAS (GE Commercial Finance) announced an order for six Boeing 777 Freighters, although GECAS could substitute some of them for passenger models in the future, if desired. The order is valued at $1.42 billion at list prices (keep in mind that for the majority of these large orders, there's usually a discount).

Lion Air orders Boeing 737-900ER
Indonesian carrier Lion Air announced an order for 40 more Boeing 737-900ER airplanes, an order valued at over $3 billion in list prices. Lion Air now has 100 total orders for the 737-900ER.

Akbar Al-Baker, CEO Qatar Airways, and Louis Gallois, CEO Airbus

Qatar Airways orders 80 A350s, 3 more A380s
Qatar has ordered 80 A350 'XWB' planes and an addition three A380s, meaning that they now have five A380s on order. The A350 order is broken up into 20 of the -800, 40 of the -900, and 20 of the -1000 varieties. Deliveries, according to Airbus, will begin in 2013. This order was a key one for Airbus, whose A350 has been slipping behind the Boeing 787 in terms of orders.

Chairman of Emirates Group Sheikh Ahmed Bin Saeed Al Maktoum and Gallois

Emirates orders 8 more A380s
Dubai-based Emirates has agreed to buy eight more A380s. A launch customer for the type, Emirates has the largest number of A380s on order, with 55. “It gives us a great sense of pride that Emirates Airline are showing such faith in our A380 product and in Airbus," said Airbus chief Louis Gallois. "We thank Emirates Airlines for this."

Jazeera Airways orders 30 A320s
Kuwait-based Jazeera has ordered 30 Airbus A320 aircraft, bringing the number of A320s it has on order up to 40.

US Airways increased A350 order, announces 'fleet renewal'
US Airways has announced that it will buy 92 Airbus aircraft for its fleet renewal in the future. The order is comprised of 22 A350-800s, 10 A330-200s, and 60 A320 family airplanes (a mixture of A319s, A320s and A321s). This is a sign that US Airways is committed to operating a predominantly Airbus fleet - it already operates 205 Airbus aircraft.

Nouvelair orders 2 A320s
Tunisian charter carrier Nouvelair has ordered 2 A320s, complementing the fleet of thirteen A320 airplanes (A320s and A321s) that it already has.

GECAS orders 60 A320 family airplanes
GECAS, which earlier announced an order for the 777F, has also signed a deal with Airbus for 60 more A320 family airplanes, which include the A318, A319, A320 and A321.

ALAFCO chair Ahmed Al Zabin with Airbus COO John Leahy

ALAFCO orders A350, A320
Kuwait-based ALAFCO (Aviation Lease And Finance Co.) has signed a firm contract for 12 A350s and has also ordered seven A320s.

S7 CEO Vladislav Filev with Airbus COO Leahy

S7 orders 25 A320 family planes
Russian carrier S7 has ordered 25 A320-family airplanes, adding to its leased fleet of A319s. Deliveries start in 2009, and the order is worth $1.8 billion at list prices (even though Airbus sales chief John Leahy said the actual price was "somewhat" less than list). Interestingly, S7 also recently ordered new Boeing 737s.

Air France signs MOU for A380, A320
Airbus announced that Air France would sign a 'memorandum of understanding' to buy two A380s and 18 A320s, although it should be noted that this is not yet an official order.

Air France retires Boeing 737

photo courtesy albspotter

Yesterday, French carrier Air France retired the Boeing 737 after 25 years of service. According to a press release issued by the airline, Air France ordered twelve Boeing 737-200s in 1982 - the first aircraft ordered by Air France that required only two pilots.

Yesterday's flight was flown by F-GJND, a Boeing 737-500, which was delivered to Air France in December 1991 and flew over 34,500 hours four the airline. The flight, AF1703, was from Turin to Paris and was flown by Eric Monlouis, the head of the airline's 737 division.

Air France, which has operated the -200, -300 and -500 versions of the 737, now uses an all-Airbus fleet (comprised of the A318, A319, A320 and A321) on its short and medium haul routes.

BA joins premium transatlantic competition

Last year I wrote about so-called 'boutique airlines' - airlines which catered exclusively to the first- and business-class markets - and also looked at the expansion of these types of airlines across the Atlantic, where they have been most prolific. A handful of these 'boutique airlines' include Maxjet, Eos, and Silverjet, which fly between the New York area and London. There's also L'avion, which flies between Paris-Orly and Newark. All four fly specially configured Boeing 757s or 767s in a business or first-class configuration.

Now British Airways is foraying into this group of carriers, which target the upscale leisure traveler but mostly the business traveler. It announced that beginning in the summer of 2008 it would start flying all-premium class transatlantic services. However, the interesting part is that it wouldn't just be to and from the UK - BA is looking at service from a US city (probably New York) to various European cities like Paris, Madrid, Frankfurt, Milan, and Zurich. The chief executive of BA, Willie Walsh, said that the airline would probably - like the 'premium competition' - use Boeing 757s and/or 767s, which are smaller than the 747s and 777s that the airline currently uses on transatlantic routes.

This seems like a natural choice for BA, which has accomplished a lot with its first and business class products. But these have come under increasing pressure from the start-up 'boutiques', so BA is trying to hit back with a 'boutique' of its own. However, the fact that it wants to fly between the US and other European cities, not just the UK, is a bit more surprising, and also a gamble. Analysts have pointed out that BA has lost money before in such moves, so we'll have to see if they will be successful this time round. In any event, the move certainly will increase competition on the transatlantic routes and bring the battle for premium customers beyond the 'boutiques' - airlines like Air France and Lufthansa, BA's main competitors, will have to look out as well.

Possible takeover of Alitalia by Air France?

Air France/KLM, the airline group that's the largest in Europe, said yesterday that it was in talks with Alitalia about a possible takeover of the Italian flag-carrier. Alitalia is half-owned by the Italian government, and hasn't made a profit since 1998, but has instead remained flying over the past few years due to government bailouts.

A potential problem that stands in the way of the airline's profitability is the fact that it has two main hubs: one in Milan and one in Rome. Most European airlines, by comparison, really have one main hub: British Airways in London, Lufthansa in Frankfurt, Air France in Paris, Iberia in Madrid, etc. Alitalia also has to deal with a bunch of new start-up airlines as well.

The chances of such a takeover aren't very good. The Italian unions have voiced their displeasure, as has the Italian prime minister, Romano Prodi. "I would like to know Air France’s real intentions. Does it want to create a big European transport group in which Italy would also have a place, or simply grab the Italian air transport market, which is large and very lucrative?” he said in the French newspaper Le Figaro.

Air France and Alitalia are already members of the SkyTeam Alliance.