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AviationRegister E-Xpert Witness Journal
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Global developments presenting risks and rewards for the aircraft trading and financing market
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Headline News was last updated: December 19, 2009
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B787 graphic pinpointing the wrinkle problem: Click on Aircraft link to view.
JANUARY /February/March 2009
WHO says the first pandemic since 1968 is imminent as it upgrades its alert for H1N1 influenza A to 5 and indicates it may go to 6.
U.S. congress passes a $3.55Tn budget for 2010 which includes significant spending plans that could stimulate airline traffic.
Consumer spending fell in March in the USA for the first time in three months potentially eating into airline revenues.
Personal income fell in April in the USA by 50% more than the Commerce Department had projected.
European unemployment reaches 8.9%, the highest since 2005 and this show up in airline traffic figures for the first quarter.
Airfares fall to a five-year low in the first quarter as travel becomes a buyer’s market.
•The American Express Business Travel Monitor reports that:
The American Express Business Travel Monitor reports that:•Ticket prices fell 13% for domestic U.S. travel.
Ticket prices fell 13% for domestic U.S. travel.•The decline wiped out the 7% gain reported in the first quarter of 2008.
The decline wiped out the 7% gain reported in the first quarter of 2008.•The average price of a domestic ticket is $213 vs. $243 in the same period a year ago.
The average price of a domestic ticket is $213 vs. $243 in the same period a year ago. •The average international ticket price is $1,680 vs. $1,955 a year ago.
The average international ticket price is $1,680 vs. $1,955 a year ago. •The average fare in 2003 was $243 for domestic and $1,469 for international fares.
The average fare in 2003 was $243 for domestic and $1,469 for international fares. Farecompare.com reports that in 2008 U.S. airlines raised fares 15 times to compensate for the rising cost of oil which peaked at $147 $147 a barrel. Oil now is now pricing in the $50 range.
Airlines that provide a total of one million seats per week in the Mexico/U.S. market include:
Aeromexico AerocaribeAeroenlaces Nacionales AerolitoralAeromar Alaska Airlines AVIACSA American AirlinesContinental Airlines InterjetMexicanaUS AirwaysVuela SouthwestBank of America and Citigroup may need to raise additional capital to cover potential future losses.
Wells Faro, Regions Financial and Fifth Third may also need additional capital due to exposure to the commercial real estate market.
Daimler AG, a major shareholder in EADS, the civil and military aircraft manufacturer, reports the first consecutive losses in ten years.
AerCap/Aeroturbine trading activities slow in the first quarter of 2009.
•During the quarter AerCap arranged new debt facilities of $930M.
During the quarter AerCap arranged new debt facilities of $930M.•The company delivered 13 leased aircraft and eight leased engines.
The company delivered 13 leased aircraft and eight leased engines.•AerCap signed lease agreements for two aircraft; purchased 10 aircraft and four engines; sold one aircraft and four engines;
AerCap signed lease agreements for two aircraft; purchased 10 aircraft and four engines; sold one aircraft and four engines; and parted out four aircraft and five engines.•AerCap did not repossess any aircraft in the first quarter.
AerCap did not repossess any aircraft in the first quarter. •AerCap acquired eight new A320s under existing commitments with Airbus.
AerCap acquired eight new A320s under existing commitments with Airbus. •The company acquired two used B767s for further resale by its subsidiary
The company acquired two used B767s for further resale by its subsidiary Aeroturbine.•In the first quarter of 2008 AerCap arranged 23 leases, delivered seven leased aircraft and 10 engines,
In the first quarter of 2008 AerCap arranged 23 leases, delivered seven leased aircraft and 10 engines, acquired 19 aircraft, sold eight and parted out three. •AerCap has a portfolio of 295 aircraft and 75 engines that are owned, managed,
AerCap has a portfolio of 295 aircraft and 75 engines that are owned, managed, on order, under contract or letter of intent.•Nine aircraft were repossessed in 2008 and all but one are back on lease.
Nine aircraft were repossessed in 2008 and all but one are back on lease.White House Military Office, the unit that manages Air Force One, suffered a PR fiasco by flying the president's B747 over New York for a photo op. that scared residents! It begs the question as to how do you fly a B747 and its supporting fighter jets over a large city in secret?
Travel Warning: The European Union's health commissioner urged Europeans to postpone some travel to the United States or Mexico due to swine flu.
Health scare is a major risk for travel, tourism and airline revenues and profits as swine flu spreads.
•In 2003 IATA estimated that airlines lost US$10Bn to $15Bn in revenue due to the twin impacts of the Iraq war and the virus
In 2003 IATA estimated that airlines lost US$10Bn to $15Bn in revenue due to the twin impacts of the Iraq war and the virus based avian flu known as Severe Acute Respiratory Syndrome or SARS. •The World Bank estimates that a pandemic could cost $3Tn and could cut global GDP by 4.8%.
The World Bank estimates that a pandemic could cost $3Tn and could cut global GDP by 4.8%. •SARS and the Iraq war combined financially impacted major carriers such as Air Canada, Cathay Pacific, Qantas and Singapore
SARS and the Iraq war combined financially impacted major carriers such as Air Canada, Cathay Pacific, Qantas and Singapore Airlines. •British Airways and Air France have cut flights to the USA and Mexico in response to the swine flu outbreak.
British Airways and Air France have cut flights to the USA and Mexico in response to the swine flu outbreak.•BA and Air France stock prices fall most in 8 years on concerns about swine flu.
BA and Air France stock prices fall most in 8 years on concerns about swine flu. •American Airlines, Continental and Delta are most at financial-risk from a fall off in traffic to Mexico.
American Airlines, Continental and Delta are most at financial-risk from a fall off in traffic to Mexico. •Rapid action by national and international health authorities can slow transmission and could soften the potential impact on air
Rapid action by national and international health authorities can slow transmission and could soften the potential impact on air travel.•Countries in Asia and Latin America have begun screening airport passengers.
Countries in Asia and Latin America have begun screening airport passengers.•American carriers are on “heightened awareness” for swine flu but plan to maintain flight schedules.
American carriers are on “heightened awareness” for swine flu but plan to maintain flight schedules.•U.S. Airlines waive charge-fees on flights to Mexico but they are no offering refunds.
U.S. Airlines waive charge-fees on flights to Mexico but they are no offering refunds. •Previous swine flu outbreaks were reported in Mexico and the USA in 1976 and worldwide in 1918 (50M deaths).
Previous swine flu outbreaks were reported in Mexico and the USA in 1976 and worldwide in 1918 (50M deaths). •The World Health Organization (WHO) reported that the outbreak in Mexico, the USA, New Zealand and Spain has global
The World Health Organization (WHO) reported that the outbreak in Mexico, the USA, New Zealand and Spain has globalpandemic potential. •The current swine flu outbreak which originated in Mexico has killed 100 and infected at least 1,600 people to date.
The current swine flu outbreak which originated in Mexico has killed 100 and infected at least 1,600 people to date.•The Mexican Authorities have been criticized for the slow response to the crisis.
The Mexican Authorities have been criticized for the slow response to the crisis. •SARS pneumonia-like symptoms originating in China is the most recent near-pandemic to
SARS pneumonia-like symptoms originating in China is the most recent near-pandemic to date lasting from Nov. 2002 to July 2003.•The Chinese authorities failed to advise WHO of the SARS outbreak until February 2003.
The Chinese authorities failed to advise WHO of the SARS outbreak until February 2003.•By March 2003 SARS spread from Guangdong to 37 countries worldwide.
By March 2003 SARS spread from Guangdong to 37 countries worldwide.•8,096 known SARS infected cases caused 774 deaths worldwide (9.6% case-fatality rate).
8,096 known SARS infected cases caused 774 deaths worldwide (9.6% case-fatality rate). •(The case fatality rate for influenza is usually around 0.6%).
(The case fatality rate for influenza is usually around 0.6%).•Scientific evidence suggests that air travel played a role in the transmission of SARS.
Scientific evidence suggests that air travel played a role in the transmission of SARS.The IMF will sell bonds as a way to raise $500Bn to lend to struggling nations as an alternative to providing longer-term loans. The investment is intended to boost their economies.
The global economy will shrink by 1.3% in 2009 - the first global decline since the Depression, according to the IMF suggesting continued travel and tourism weakness through to 2010.
•The world economy should start to stabilize by the end of 2009 and to begin recovering by the end of the first half of 2010 according the to the IMF's World Economic Outlook report.
The world economy should start to stabilize by the end of 2009 and to begin recovering by the end of the first half of 2010 according the to the IMF's World Economic Outlook report.•The IMF reports that this recession is the deepest one since the Depression
The IMF reports that this recession is the deepest one since the Depression •Four global recessions have occurred since World War II - 1975, 1982, 1991 and 2008 and in each one the airline industry suffered
Four global recessions have occurred since World War II - 1975, 1982, 1991 and 2008 and in each one the airline industry suffered badly. •Each of the first three global recessions lasted one year.
Each of the first three global recessions lasted one year.•The current recession began in November 2007.
The current recession began in November 2007.IMF's definition of a global recession:
Global growth of less than 3%.A decline in real per-capita world GDP plus;A decline in key indicators such as capital flows, industrial production, oil consumption, trade and unemployment. Key travel markets are being hard hit by the global recession according to the IMF.
•The USA is to contact by 2.8% in 2009.
The USA is to contact by 2.8% in 2009.•The EC (30% of the global economy) is expected to contract by 4% this year.
The EC (30% of the global economy) is expected to contract by 4% this year.Key economic indicators hint that the U.S. recession may be approaching bottom according to the National Association for Business Economics (NABE).
•The recession will continue through the peak travel summer season but ease after that.
The recession will continue through the peak travel summer season but ease after that.•Key indicators such as industrial demand, employment, capital spending, and profitability are still declining, but the breadth of
Key indicators such as industrial demand, employment, capital spending, and profitability are still declining, but the breadth of decline is narrowing.Federal Reserve reports that the U.S. economy is improving. Five of the 12 regional banks reported the pace of economic decline is easing.
The Dow Jones Transportation Average U.S. stock market index is down 17% year to date and 15% over a three year period.
Durable goods orders fell 0.8%, declining less than economists expected.
Boeing is cutting B777 production by 29% and plans to delay increases in B747 and B767 production rates because the economic down turn has weakened demand and the existing order book. Airlines are cutting flights, delaying new aircraft orders and deliveries, and report problems in financing new aircraft purchases.
B747 production is operating at a loss and Boeing new aircraft prices generally are falling.
CSeries aircraft: Lufthansa is the launch customer for the new CSeries aircraft program, for up to 60 CSeries aircraft.
Dublin-based Lease Corp. Int., Aviation ordered 20 CSeries aircraft and optioned 20.
Cessna 1st Quarter sales dropped 38%.
•Suspended production of the newer and largest 8-passenger Cessna Citation Columbus.
Suspended production of the newer and largest 8-passenger Cessna Citation Columbus.•Will deliver 300 aircraft in 2009 vs. 476 in 2008.
Will deliver 300 aircraft in 2009 vs. 476 in 2008.Embraer’s Phenom 100 entry level executive jet is now certified by:
•the European Aviation Safety Agency (EASA) as of April 2009 and;
the European Aviation Safety Agency (EASA) as of April 2009 and;•the Brazilian National Civil Aviation Agency (Agência Nacional de Aviação Civil – ANAC) and the FAA as of December 2008 for:
the Brazilian National Civil Aviation Agency (Agência Nacional de Aviação Civil – ANAC) and the FAA as of December 2008 for:•day and night operations – Visual Flight Rules (VFR):
day and night operations – Visual Flight Rules (VFR): •Instrument Flight Rules (IFR);
Instrument Flight Rules (IFR); •Reduced Vertical Separation Minimum (RVSM) and;
Reduced Vertical Separation Minimum (RVSM) and;•flight into known icing conditions.
flight into known icing conditions. The Phenom 100 is the first executive jet in its category where the full certification process fell under the responsibility of EASA.
Gulfstream (General Dynamics) business aviation activity is bouncing back on reduced aircraft prices.
•Business jet aircraft production was cut in March due to cancelled orders and defaults in February.
Business jet aircraft production was cut in March due to cancelled orders and defaults in February.•Jet buyers are returning in response to lower prices less aircraft customization.
Jet buyers are returning in response to lower prices less aircraft customization. •The aerospace unit 1st quarter revenues were $1.46Bn on the back of the purchase
The aerospace unit 1st quarter revenues were $1.46Bn on the back of the purchase of a maintenance facility.•Profits fell by 155 to $200M.
Profits fell by 155 to $200M.Honeywell International reported first quarter sales of $7.6Bn vs. $8.9Bn in ‘08, a fall of 14.6%
•Aerospace sales were down 9%, compared with the first quarter of 2008.
Aerospace sales were down 9%, compared with the first quarter of 2008.•Lower sales resulted from lower volumes in commercial aerospace.
Lower sales resulted from lower volumes in commercial aerospace.•The 2009 profits forecast is being revised downward.
The 2009 profits forecast is being revised downward.•The company acknowledged it underestimated the severity of the economic downturn.
The company acknowledged it underestimated the severity of the economic downturn.•Reported a 38% fall in first quarter profits to $397M as recession curbed demand.
Reported a 38% fall in first quarter profits to $397M as recession curbed demand. •Cash flow from operations was $341M vs. $721M in the first quarter of 2008.
Cash flow from operations was $341M vs. $721M in the first quarter of 2008.•Cash flow from operations less capital expenditures) was $232M vs. $571M last year.
Cash flow from operations less capital expenditures) was $232M vs. $571M last year.•Expects full-year sales of $32.3 - 33.2Bn.
Expects full-year sales of $32.3 - 33.2Bn. •Segment profit declined 13%.
Segment profit declined 13%.•Segment margin decreased by 90 bps to 17.7%.
Segment margin decreased by 90 bps to 17.7%.•Honeywell is a Fortune 100 aerospace company based in Morris Township, N.J.
Honeywell is a Fortune 100 aerospace company based in Morris Township, N.J.Textron (Parent of Cessna and Bell Helicopters) 1st quarter revenues fell 24% to $2.53Bn.
•Earnings fell 63% to $86M.
Earnings fell 63% to $86M.•stock price rose 8.3% on expectations of a takeover bid.
stock price rose 8.3% on expectations of a takeover bid.Volvo Aero's sales increased in the first quarter by 12% to $249M on lower volume.
•Sales benefited from a higher US dollar exchange rate.
Sales benefited from a higher US dollar exchange rate. •Operating income was $16.7M and the operating margin was 4.1%.
Operating income was $16.7M and the operating margin was 4.1%. •Income was affected by the global economic downturn.
Income was affected by the global economic downturn. •Demand for new aero engine components was lower in the quarter.
Demand for new aero engine components was lower in the quarter. •Income was impacted by weak demand for new spare parts and by hedging losses.
Income was impacted by weak demand for new spare parts and by hedging losses. •Income was affected by lower volumes and margins in the US aftermarket business.
Income was affected by lower volumes and margins in the US aftermarket business. •Volvo Aero is a risk and revenue sharing partner with Pratt & Whitney
Volvo Aero is a risk and revenue sharing partner with Pratt & Whitney in the geared turbofan PW1000G engine for Bombardier’s CSeries aircraft.
Gatwick Airport owner receives three bids for the sale of this key U.K. airport.
First Quarter 2009 airline losses widen on falling revenues. (First quarter results). [Revenues/Profits(Losses)].
Aer Lingus could run out of cash and may cancel Airbus orders
•Full year losses are projected to hit $140M.
Full year losses are projected to hit $140M.•Revenues fell by 16% in the first quarter of 2009 compared to the same period in 2008.
Revenues fell by 16% in the first quarter of 2009 compared to the same period in 2008.•Passenger numbers fell by 6.5% year on year to 2.09M.
Passenger numbers fell by 6.5% year on year to 2.09M. •Short haul capacity fell by 4.5% and long haul capacity fell by 19.5%.
Short haul capacity fell by 4.5% and long haul capacity fell by 19.5%.•Aer Lingus shares fell17% to 57c on the news.
Aer Lingus shares fell17% to 57c on the news.AirTran Holdings reported that revenues in the first quarter fell by 9% but that profits increased.
American Airlines reported that traffic fell 8% and revenues by 15%. The carrier has $3.6Bn in cash and will cut costs by $100M in 2009.
Lufthansa will cut capacity in 2009, expects operating profits to decline significantly in 2009 as air travel and cargo traffic remain weak.
•Wrote down its stake in BMI (British Midland).
Wrote down its stake in BMI (British Midland).•Reported a 1st quarter loss of $256M vs. a $44M profit in the 1st quarter of 2008.
Reported a 1st quarter loss of $256M vs. a $44M profit in the 1st quarter of 2008.•Revenues fell to $6.7Bn compared to $7.4Bn in the same period last year.
Revenues fell to $6.7Bn compared to $7.4Bn in the same period last year. Qantas is to cut business-class seats because of a significant fall off in demand for premium travel.
Southwest losses resulted from an 8.1% fall in traffic that resulted in an 6.8% fall in revenue. The carrier is cutting capital spending and capacity. New aircraft deliveries from Boeing are being deferred and retirements are being accelerated. Capital spending will be cut by $1.4Bn in 2009 and 2010 and capacity will fall 5%.
Skywest reports that first quarter net-income was short of Wall Street expectations because of weak demand and flight cancellations from Major carrier partners.
Safety: The FAA reports that the number of bird strike incidents is growing.
•Bird strikes remain rare events and most cause little or no damage.
Bird strikes remain rare events and most cause little or no damage.•They occur 20 times a day on average.
They occur 20 times a day on average.•Denver International Airport has the most strikes.
Denver International Airport has the most strikes.•The most common bird involved in strike sis the mourning dove.
The most common bird involved in strike sis the mourning dove.•Most strikes occur at small airports and involve small aircraft.
Most strikes occur at small airports and involve small aircraft.Crude oil ($ per barrel) is averaging $45-$51 and is up 15% year to date. AMR (Parent of American Airlines) stock rose 7.55% when oil prices recently fell below the $50 mark.
Oil Futures Contracts are Priced at ($ per barrel):
May 51.05June 53.38July 55.40December 60.67December 1, 201067.82December 1, 201274.15U.S. regulators closed 29 banks in 2009 to date, 4 more than in all of 2008.
The U.S. Treasury Department has $110Bn from the $700Bn TARP fund to distribute which could increase if banks pay back loans as
seems likely.
Stress Test: Federal Reserve Bank regulators have informed the 19 major banks about how much additional capital they may need.
Bank Stress Test: Uncertainty about the Treasury's "stress tests" analyses of bank finances to determine if they'll need more bailout funds if the economy worsens is weighing on investors. There were statements from administration officials leading up to publication of the results that the funding provided to date is about right.
Stress test report findings: All 19 banks, each with trading portfolios of $100Bn or more, and that were the subject of the test are well capitalized by current standards.
•The test is not a measure of the current solvency or viability of the banks.
The test is not a measure of the current solvency or viability of the banks.•It was designed to calm public anxiety about bank solvency.
It was designed to calm public anxiety about bank solvency.•Several banks may need to bolster capital reserves.
Several banks may need to bolster capital reserves.•Bank of America, Citigroup, JPMorgan Chase and Wells Fargo are among the banks with large off-balance-sheet asset exposure.
Bank of America, Citigroup, JPMorgan Chase and Wells Fargo are among the banks with large off-balance-sheet asset exposure. •Regional banks with large exposures to commercial real estate may need to add capital.
Regional banks with large exposures to commercial real estate may need to add capital.•Major U.S. banks stress test results may disclose higher than expected bad assets. Bad assets could triple!
Major U.S. banks stress test results may disclose higher than expected bad assets. Bad assets could triple!•Banks may add $700Bn to $900Bn of off-balance sheet assets to their balance sheets as a result of the accounting rule changes
Banks may add $700Bn to $900Bn of off-balance sheet assets to their balance sheets as a result of the accounting rule changesproposed by the Financial Accounting Standards Board (FASB). •Banks can add a capital buffer by raising fresh capital from private sources or by converting the government’s currently held
Banks can add a capital buffer by raising fresh capital from private sources or by converting the government’s currently held preferred shares into common equity - temporary nationalization effectively.Regional banks in the USA may struggle to overcome issues raised by the Treasury Department stress test.
Banking benefited from unusually strong bond trading in the quarter of 2009 which is a trend that is not expected to continue because loan problems persist and they are expected to get worse as they year progresses. Results are based on low interest rates, government financial support and changes in accounting rules.
Suntrust may need to raise additional capital.
Stamford Financial receiver claims that $1Bn of bank funds are missing from the accounts. The management system helped hide the deceptions.
American Express quarterly profit results beat market expectations.
Deutsche Bank performance rebounds on securities trading and this is seen as leading to a return to profitability.
Treasury 30-year bond yields climb to a six month high on issuance concerns.
Corporate borrowing costs have reached a six month low as credit markets ease.
