IAG plays it safe as CALC confirms it is not messing about

Eleanor Steed
By Eleanor Steed March 20, 2017 15:38

IAG plays it safe as CALC confirms it is not messing about

There is no question that 2017 is a difficult year for many airlines across the globe: Do they expand? Do they take delivery of new aircraft? Do they rationalise their fleet? Luckily for Willie Walsh the breadth of IAG allows him the luxury to confront many options at once. With its new low-cost, long-haul airline, Level, IAG has backstopped Iberia’s turnaround with a fall-back position, somewhere to deploy Iberia staff and aircraft at a profit (one hopes). At the same time, the IAG profit powerhouse of Vueling is given intercontinental connections backstopping it against attack from any other low-cost, long-haul pretenders to the IAG Atlantic market dominance.

The major prize in European aviation has been and remains a transatlantic low-cost long-haul service that connects Ryanair in Dublin and London Stansted to the USA and Canada. Ryanair could do this with ease and maybe it is missing the opportunity to strike now that its brand image is far better than it was just 24 months ago. Could it be that the big question of: Would you fly Ryanair for five hours or more? is turning from a flat no to a maybe, or a yes? IAG would most likely love to be the airline that connects Ryanair to the Americas under some sort of deal but Ryanair has everything it needs to do the job without agreements with other airlines. Ryanair has the luxury of geography being on its side too – surely this is just a matter of time?

Level has been launched by IAG under the shadow of uncertainty in the airline market. First quarter 2017 revenues were below expectations for most airlines across the globe. Nevertheless, airlines are continuing to grow, from Turkey to the Middle East, the aircraft continue to arrive but yields are falling. In the USA, capacity growth is gaining pace again with United increasing domestic growth, which will lead to an answer from American. United recently increased their 2017 capacity growth plans to between 2.5% – 3.5% from 1% – 2%. This round of incremental capacity growth has been driven by a 200 bps increase in domestic capacity to between 3.5% – 4.5%.

It is looking increasing as though the global economy is pulling out of the wake from the 2007/08 crash, fiscal stimulus seems to have worked as the EU, USA, India, China and Australasia all showing strengthened economic markers. In the UK, economic data has managed to pull the pound out of any hard Brexit hole for now and the outlook is far better than anyone could have hoped for to date. Political shocks have not managed to derail the global economy, spending continues unabated but 2016 saw many across the EU and USA holiday at home more than usual, which has had the effect of driving up prices for short-term holiday rentals in key markets such as the Mediterranean and the south cost of the UK, this in turn might assist with more air transits aboard as holidaying at home because more expensive (check the annual rate of inflation at AirB&B houses for example).

The improved outlook for the global economy will continue to filter through to airline yields but the dual shadows of intense competition and terrorist action lingering, the airline industry continue to drag. Over the coming months, figures from the European tourist industry regarding forward bookings for summer 2017 should be analysed, with data for Mexico/US load factors. The US domestic market remains the most stable with Southwest and Delta both looking good.

Meanwhile, Aircraft Recycling International (ARI), a member company of China Aircraft Leasing Group Holdings (CALC), has acquired a 100% equity interest in Universal Asset Management (UAM), one of the world’s leading global aviation services providers based in Tennessee, USA.

UAM is now a wholly-owned US subsidiary of ARI, responsible for ARI’s aircraft recycling business overseas, and a part of its global disassembly and distribution platform. Together, ARI and UAM will form global solutions for aging aircraft, further consolidating CALC’s status as a full value-chain aircraft solutions provider. UAM will retain its brand name and continue to operate in the same manner with the same management team, while all staff will remain in place across all its business units. While ARI will leverage UAM’s well-established global brand and track record of serving over 1,000 customers in 150 countries to expand into overseas markets, UAM will leverage ARI’s growth capital, and draw upon CALC’s network and resources, to advance changes in the aviation industry through the delivery of technological solutions and the further growth of its portfolio.

All lessors have at one time or another considered the merits of owning an MRO and most have concluded that there just is not enough business to put through an in-house MRO shop to justify ownership. In China however it is a different matter. When leasing in China, fast thinking over taking on aged aircraft as part of a new aircraft lease agreement and making a margin on the same at relative speed is essential in making any deal work. This is not new news, but missing in CALC’s armour has been the ability to inject parts into the global market. The purchase of UAM is another step in the growth of CALC’s global reach. The aircraft recycling facility in Harbin, China, the largest in scale throughout Asia and the world, which is currently under construction coupled with UAM’s Disassembly Center in Tupelo, Mississippi, should in effect mean that CALC is close to having a market lead in aircraft recycling or at least having the clout to dictate pricing in the market. The lessor truly becomes a lifecycle manager.

Make sure you attend the aircraft lifecycle management conference attached to the Dublin Aviation Summit at the RDS, Dublin on the 15, 16 and 17 May 2017. Entry is free for all. There are over 100 stands, a LifeCycle Management conference and a number of forums, including the Management of Maintenance Reserves Seminar and an Aircraft Transitions Seminar. There is also a golf day on the 15 May. For more details see: www.dublinaviationsummit.com

For details contact Email Guy

Eleanor Steed
By Eleanor Steed March 20, 2017 15:38