Page 1

NNEEWWSSWWAATTCCHH30th September 2011

Volume 11; Issue 37

In this Issue: Lufthansa orders

12 new aircraft to meet soaring demand

India Leads EU Levy on Airlines

O'Leary claims BA

group has sights on stake in Aer Lingus

Boeing’s first 787

Dreamliner lands in Tokyo

Finnair To Slash

155 Jobs As It Cuts Costs

WestJet, Emirates

sign co-operation pact

Tajikistan’s Somon

Air Receives Its First Boeing 737-900ER

IBA Group News

Lufthansa Orders 12 New Aircraft to Meet Soaring Demand

The Board members at Lufthansa have approved the order of 12 new aircraft as the airline seeks to meet soaring demand.

Of the aircraft, two Airbus A380s and one Airbus A330-300 will be deployed for Lufthansa German Airlines on long-haul routes for an interim period.

The decision was taken by the Board at its meeting earlier. There are also plans to order four Airbus A320s for Lufthansa German Airlines.

In addition, five new Embraer 195s will augment the Lufthansa Regional fleet.

The new, modern, fuel-efficient aircraft will be delivered to the Group in stages from 2012.

The order has a list-price value of about one billion euros.

Commenting on the decision, Lufthansa Chief Executive Christoph Franz, said: “The moderate expansion of Lufthansa’s passenger fleet will serve primarily to ensure that we can meet short-term requirements while modernising and consolidating our European fleet until such time as new aircraft technologies are available.

“It is the latest step in our ongoing strategy of deploying a modern fleet in terms of fuel efficiency, operating costs, noise and emissions.

“At the same time, the additional order for the Airbus A380 and A330 will underpin our plans on long-haul routes in the medium term.

“Along with the aircraft we have already ordered, which will join our fleet over the next few years, it will increase our ability to take targeted action and respond flexibly to fluctuations in demand or market changes.”

The order will be financed from the group’s cash reserves or from external sources.

Lufthansa was recently recognised as Europe’s Leading Airline by the prestigious World Travel Awards.

Source: breakingtravelnews.com – 30th September 2011

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NNEEWWSSWWAATTCCHH30th September 2011

Volume 11; Issue 37

India Leads EU Levy on Airlines India has gathered with more than 30 nations to create a strategy to oppose the European Union’s Emissions Trading Scheme (EU ETS), which will begin imposing charges on carriers that fly into the 27 member states at the turn of the year. Indian civil aviation minister Vayalar Ravi questioned how the EU can dictate terms to other nations. He also questioned why everyone would simply accept that.

The EU made the decision in 2008 that airlines should become part of its ETS after discharges in Europe grew twice over in 20 years. It says emissions from international carriers now account for 2%-3% of global greenhouse gas discharges. The programme already covers more than 11,000 power stations and factories located within the EU.

Airlines that fly into the EU will be made to purchase carbon permits from January 2012 if they exceed the emission caps set by the group of member states. Under the scheme, 85% of the emission cap for airlines will be allocated free, and the balance will be auctioned next year. These benchmarks were set this week. European Commission director-general for climate Jos Delbeke says the cost to meet emissions targets could increase airfares for transatlantic services by between €2 and €12.

Measures by the EU to impose the carbon caps have garnered protests from airline groups in the US, China, Russia and the Middle East. In June, the China Air Transport Association said that the plan is illegal and unreasonable. The International Air Transport Association (IATA) said earlier this week that it’s the EU’s plan to break international law and attack the sovereignty of other nations. Chief executive Tony Tyler said that the legislation will add $1.2 billion to airline costs next year. The organisation has forecasted carriers to make only a combined $4.9 billion profit for the year.

Over 30 members of the International Civil Aviation Organization (ICAO) met in New Delhi this week to discuss the EU ETS. The group has 190 members states, including China and the US. Ravi said that his country’s aviation ministry was hosting the two-day meeting, but he didn’t name any of the nations that were to participate. He has called the ETS a penalty on all foreign airlines operating to Europe. The

IBA’s Comment:

“The ETS has

met with a high

level of

opposition from

IATA and some

on-European

countries. It is

surprising that

this opposition

has been raised

so late. The ETS

guidelines have

been in the

pipeline for

some time now”

– David Rushe

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NNEEWWSSWWAATTCCHH30th September 2011

Volume 11; Issue 37

O'Leary claims BA group has sights on stake in Aer Lingus

IBA’s Comment: “A BA stake in Aer Lingus has

been long rumoured and would make

sense from BA’s point of view, particularly given Aer

Lingus’ strong branding in the

UK and its dominance of the London

Heathrow-Dublin route – one of the world’s

busiest – which has historically

provided connections to BA long haul

flights for Irish passengers”

– David Rushe

The owner of British Airways may snap up the Irish government's quarter stake in Aer Lingus, according to rival airline boss Michael O'Leary.

O'Leary, chief executive of Ryanair, said International Airlines Group, which owns BA and Spanish flag carrier Iberia, appeared to be the most likely buyer of Dublin's 25 per cent stake in the Irish airline.

Ryanair, which owns 29 per cent of its rival, said IAG would, however, only buy Aer Lingus if the company's board made clear it was not liable for a €400 million (£347.9m) pension scheme deficit for Aer Lingus staff.

IAG plans to expand by buying other carriers, but it has not publicly expressed interest in buying the Aer Lingus stake and declined to elaborate on O'Leary's comments. An IAG spokeswoman said: "We're not really commenting on it."

Aer Lingus is understood to be considering joining a transatlantic airline venture, such as those involving BA, Lufthansa and Air France-KLM, in the next few years after dropping plans to become a member of a global airline alliance such as Star Alliance. But Aer Lingus has warned the government against selling its stake to a larger rival, saying this could undermine it by damaging existing partnerships.

Ireland's transport minister was quoted as saying last week that the government had received expressions of interest from airlines and investment firms in its stake in the former state carrier.

aviation industry is growing in India, and they can’t be penalised for that, he added.

Binit Somaia, the director of South Asia for the Centre for Asia Pacific Aviation (CAPA), said that, by making the ETS apply to non-EU carriers, there is a feeling that the EU is stepping over its authority. Retribution may take the form of equivalent retaliation of taxes, restrictions on traffic rights for European airlines and an impact on European planemakers.

Source: news.carrentals.co.uk – 30th September 2011

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NNEEWWSSWWAATTCCHH30th September 2011

Volume 11; Issue 37

Chief Executive Christoph Mueller said Aer Lingus would prefer a sale to an institutional investor as it would allow it to stay outside major alliances and keep several bilateral deals.

Ryanair has twice had takeover bids for Aer Lingus rebuffed and says it would be ready to sell its 30 per cent stake, allowing another airline to take majority control.

Dublin has not yet decided whether to sell its stake, but it has hinted it is open to a sale.

Source: Philip Waller, The Scotsman – 30th September 2011

Boeing’s first 787 Dreamliner lands in Tokyo

“Shinichiro Ito,

president and

CEO of ANA, who

travelled on the

aircraft from the

US after

receiving it from

Boeing, declared

himself

“delighted” with

the aircraft’s

first

touchdown...

after a “trouble-

free flight.”

The first 787 Dreamliner to go into service landed in Japan yesterday, greeted by media, excited plane spotters and high hopes that Boeing’s gamble on a mid-sized, lightweight aircraft will pay off.

The plane — painted in the blue and white All Nippon Airways livery with red highlights — touched down at Tokyo’s Haneda airport shortly after 9:00 am (0000 GMT), three years after it was originally promised to ANA.

The delivery comes after a string of technical mishaps and delays that have cost US-based Boeing billions of dollars in lost or cancelled orders and seen it give ground to fierce rival Airbus.

But Shinichiro Ito, president and CEO of ANA, who travelled on the aircraft from the US after receiving it from Boeing, declared himself “delighted” with “the aircraft’s first touchdown... after a trouble-free flight”.

Boeing says the twin-aisle 787’s construction, partly from lightweight composite materials, means it consumes 20 per cent less fuel than comparable planes, an attractive proposition for airlines facing soaring fuel costs. The company has also been touting the larger windows, bigger luggage storage bins and greater cabin humidity than conventional jets, a factor it says will reduce passenger fatigue.

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NNEEWWSSWWAATTCCHH30th September 2011

Volume 11; Issue 37

“It is an honour to have participated in an historic programme for ANA and I have been extremely moved,” pilot Hideaki Hayakawa told a news conference following the arrival.

“I feel there is a potential that the aircraft will make changes in the aviation industry,” Hayakawa said, citing its fuel economy, cost performance and comfort.

The windows are 30 per cent larger than those on the similar-sized Boeing 767 and have an electric sunshade function that enables passengers to control the amount of sunlight coming in at the touch of a button.

One of the plane’s more striking features are the toilets which are equipped with electric seats with a bidet function commonly found across Japan, but not usually on international flights.

“The bidet toilets are actually an option for ANA. But this is something that obviously Japanese customers are used to having at their home,” said Rob Henderson, communications director at Boeing Japan.

“So I suppose what we could say is that flying in the air is now an experience that’s much closer to their homes than it would have been before,” Henderson said.

The 787 represents a big bet by Chicago-based aerospace and defence giant Boeing on cutting-edge technology and materials for commercial aircraft.

The mid-sized, long-haul plane — which has an average list price of $202 million — is crucial to the company’s future. It is the firm’s first new design in more than a decade, drawing on huge advances in aviation technology.

With seating for up to 330 passengers, the 787 is Boeing’s gamble that airlines will demand mid-size aircraft, rather than planes in the category of the mammoth A380, Airbus’s star.

Its development has been far from smooth — ANA had originally been told to expect the first of its 55 ordered planes in early 2008.

But Boeing says that by the end of July this year it had 827 of the new aircraft on order from dozens of carriers and leasing companies around the world.

ANA president Ito said the new fleet of 787s will play a “key part” in his plans for international expansion.

“The mid-sized,

long-haul plane

— which has an

average list

price of $202

million — is

crucial to the

company’s

future. It is the

firm’s first new

design in more

than a decade,

drawing on huge

advances in

aviation

technology.”

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NNEEWWSSWWAATTCCHH30th September 2011

Volume 11; Issue 37

The Japanese carrier is planning to begin the world’s first commercial 787 service on the Tokyo to Hong Kong route in October, followed by regular flights to Beijing and Frankfurt.

ANA, in common with other high-end carriers, is facing increasing competition from budget airlines and is banking on the 787 to boost demand and cut costs.

Source: main.omanobserver.om – 29th September 2011

Finnair To Slash 155 Jobs As It Cuts Costs

“Finnair simply

has to change to

be able to meet

the increasingly

tougher

competition and

take our share of

market growth.”

- Mika

Vehvilainen

Finnair said yesterday it will lay off 155 more workers as it streamlines operations to cut costs and retain its competitive edge.

The layoffs will mainly be in support functions and the marketing and distribution sectors, the airline said.

CEO Mika Vehvilainen said it was necessary to increase efficiency as "Finnair simply has to change to be able to meet the increasingly tougher competition and take our share of market growth."

Finnair's share price was down slightly, closing at €2.98 ($4.06) on the Helsinki Stock Exchange.

In March, the national carrier announced 450 layoffs in technical services, and the transfer of dozens of other jobs as it outsourced services.

Finnair has been struggling to cut costs amid declining demand, competition from budget airlines and overcapacity in the European airline sector. It has laid off hundreds of workers and last year was plagued by several strikes, including by cabin crews, that cost it more than €25 million in lost earnings.

It also doubled an annual savings program to €200 million with most cuts aimed at personnel costs.

Last month, Finnair reported a second-quarter loss of €23 million and announced a new savings target of €140 million ($191 million) by 2014. It said that profitability had not

matched expectations, citing increased competition from budget airlines as "more efficient business models" had entered the market.

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Volume 11; Issue 37

Finnair PLC, which is 56 percent government-owned, flies to about 50 destinations with a fleet of 65 aircraft. It employs 7,500 people — down from 7,600 a year earlier.

Source: The Associated Press – 29th September 2011

WestJet, Emirates sign co-operation pact

“Emirates’

partnership with

WestJet will

allow travellers

to explore our

vast network of

diverse and

remarkable

destinations with

added ease and

seamless

connections” -

Don McWilliam

On Thursday, Emirates said its new “interline” agreement paves the way for consumers departing on a WestJet flight for Toronto to more easily catch Emirates at Pearson International Airport. Bags will be transferred for Dubai-bound travellers making such bookings.

The deal comes a year after Emirates lost a bid to expand on its own in Canada because of Ottawa’s refusal to grant new landing rights. Transport Canada has defended the federal policy to restrict Emirates, arguing that there is sufficient passenger seat capacity already between the United Arab Emirates and Canada.

“Emirates’ partnership with WestJet will allow travellers to explore our vast network of diverse and remarkable destinations with added ease and seamless connections,” Emirates Canadian manager Don McWilliam said in a statement.

Emirates, owned by the Dubai government and Calgary-based WestJet are independent carriers that don’t belong to an airline alliance. Air Canada and Germany’s Lufthansa are part of the Star Alliance, which competes against Emirates for transatlantic traffic.

Emirates and the UAE feuded last year with Air Canada and Ottawa over the Dubai airline’s quest to gain more access to Canada. The foreign carrier operates three round-trips a week between Toronto and Dubai, but wants to boost its Pearson schedule to a minimum of daily service, as well as target Calgary and Vancouver in the long term as it expands in North America. Earlier this week, Emirates said it plans to start daily service to Dubai from Dallas in February and from Seattle in March.

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Volume 11; Issue 37

WestJet and Emirates said their commercial deal means that consumers will be able to make reservations more easily by calling their travel agent or securing a single booking through Emirates instead of separate itineraries.

“The new arrangement makes global travel more accessible for outbound passengers who can now connect to the Emirates network via WestJet, travelling to Dubai and beyond to any of the 114 destinations that Emirates flies,” the carriers said.

Consumers can also book through Emirates for flights from Dubai to connect to WestJet’s Canadian network.

WestJet noted that passengers will need to take the train at Pearson between its Terminal 3 and Emirates at Terminal 1.

West Jet’s other interline pacts include those from the Oneworld alliance (British Airways, Qantas, Japan Airlines and Dragonair), SkyTeam (Air France, Delta Air Lines, China Airlines, China Eastern, Alitalia and Korean Air) and independent carrier El Al Israel.

The Calgary carrier has forged even closer partnerships through “code-sharing” deals with two Oneworld members, American Airlines and Cathay Pacific, and as of this week, SkyTeam’s KLM.

Ottawa refused demands by Emirates and Abu Dhabi-based Etihad Airways for new landing rights at Pearson last October. The UAE responded by ousting Canadian soldiers in November from Camp Mirage, a staging base near Dubai that had been used for nine years to supply the Afghanistan war.

Last December, the UAE imposed visa fees of up to $1,000 on Canadian visitors, further escalating tensions between Canada and the Arab country.

Air Canada and Lufthansa are seeking to protect their Frankfurt hub, complaining that Emirates is unfairly siphoning off lucrative international traffic by funnelling passengers through Dubai and transferring them to destinations such as India and China.

Source: Brent Jang, theglobeandmail.com – 29th September 2011

“The new

arrangement

makes global

travel more

accessible for

outbound

passengers who

can now connect

to the Emirates

network via

WestJet,

travelling to

Dubai and

beyond to any of

the 114

destinations that

Emirates flies”

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NNEEWWSSWWAATTCCHH30th September 2011

Volume 11; Issue 37

Tajikistan’s Somon Air Receives Its First Boeing 737-900ER

IBA’s Comment:

“The operator

base of the 737-

900ER continues

to grow in what

has been a

strong 12

months for the

aircraft. It can

now be seen as

the second most

attractive 737NG

asset after the

737-800”

– David Rushe

Boeing has delivered Tajikistan-based Somon Air’s first 737-900ER, the carrier becoming in the process the first Central Asian carrier to operate an aircraft featuring the new Boeing Sky Interior.

The Boeing 737-900ER delivery also represents Somon Air’s first direct purchase of a 737.

“This new interior will set Somon Air apart from other regional operators by bringing a new, unmatched flying experience to our valued customers,” says Jamshed Rahmonberdiev, chief executive officer of Somon Capital, which owns Somon Air. “Reliability and fuel efficiency are key considerations and the 737-900ER will contribute to our financial performance as well as help us maintain our high standards of safety in accordance with international air transportation standards.”

“We congratulate Somon Air on becoming the first carrier in Central Asia to offer the enhanced 737 cabin experience to its passengers,” says Marty Bentrott, Boeing Commercial Airplanes’ vice president of sales for Middle East, Russia and Central Asia. “We look forward to playing a role in Somon’s future as it continues to expand its network.”

The Boeing 737-900ER is the newest member of the Next-Generation 737 family and is also the highest capacity, longest-range aircraft in Boeing’s single-aisle fleet. The 737 Boeing Sky Interior improves the passenger experience by providing new overhead bins, LED lighting, new designs for window reveals and sculpted sidewalls.

As part of Boeing’s Humanitarian Delivery Flights program, Boeing partnered with Somon Air, the U.S. Department of State’s Humanitarian Program and Project HOPE to transport medical supplies to Tajikistan’s capital Dushanbe.

The relief shipment of 2,852 pounds of medical supplies will improve the quality of medical care for the less-privileged in Tajikistan and help alleviate the shortage of medicines needed for oncology, psychiatric health and in the treatment of infectious diseases, according to Boeing.

“Boeing, through its Global Corporate Citizenship (GCC) organization, supports humanitarian efforts around the world in partnership with non-governmental agencies and non-profits like Project HOPE,” says Liz Warman, director of GCC for the

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NNEEWWSSWWAATTCCHH30th September 2011

Volume 11; Issue 37

“Newswatch” is a free weekly round-up collated by IBA Group Ltd. Go to our website to find the last year editions of Newswatch archived.

To either SUBSCRIBE or UNSUBSCRIBE to this newsletter, please send an email to marketing@ibagroup.com with your request.

The items in this document do not necessarily represent the opinion of IBA, and is intended to be for information purposes only. Therefore, IBA assumes no responsibility or legal liability for any action taken, or not taken, by the addressee, or by any other

party, with regard to the information and views contained.

IBA Group News

Press Releases & Presentations can be viewed in the News & Views section of our website, www.ibagroup.com Conference Dates

5th – 6th October 2011 – UBM Aviation, Aircraft & Engine Finance & Leasing USA Conference, Chicago – Phil Seymour will be speaking

31st October – 2nd November 2011 – Euromoney Asia Pacific School of International Aviation Finance, Hong Kong – Stuart Hatcher will be presenting

3rd – 4th November – 12th Annual Asia Pacific AirFinance Conference – IBA will be speaking

7th - 8th November - Aircraft Asset Management Training Seminar, Dublin, Ireland

1st – 2nd December 2011 – Aviation Investors Summit, London – Phil Seymour and Owen Geach will be speaking

24th – 26th January 2012 – Euromoney 14th Annual International Aviation Finance Conference, Dublin – IBA is sponsoring and will be speaking Country Visits

- Owen Geach and Steve Fisk will be in Tokyo from 25th to 30th September 2011 - Please contact Owen Geach if you would like to arrange a meeting: owen.geach@ibagroup.com

Phil Seymour’s Notes on the Week Sometimes in life it is easy to be fast, and fast can be easy. It can also become confusing. Stelios appears to be putting pressure on Easyjet, which he founded and still owns a considerable slice of, by threatening to create Fast Jet. We await details but he cannot be serious surely? Is it not easier/cheaper to buy a few more shares and regain control? Perhaps it is too complex an issue for me to comprehend.

Meanwhile, the first 787 really did deliver this week. It’s about 3 and a half years later than expected, and a little bit heavier than envisaged. Let’s see if it delivers the passenger appeal that is promised. In summary, the delivery was not fast or easy.

Publications – 2011 Editions Please contact marketing@ibagroup.com for more information.

Aircraft Values Book Published in February 2011 & August 2011 £660 per year Lease Rate Digest Published in February 2011 & August 2011 £360 per year Engine Values Book Published in April 2011 £650 per year Maintenance Cost Journal Published Quarterly £200 per year

Northwest Region. “Our Humanitarian Delivery Flights program is another way we can continue leveraging our resources to help those in need.”

Source: airlinesanddestinations.com – 28th September 2011

As a leading independent aviation consultancy, IBA Group Ltd. offers technical advice, commercial business solutions & asset valuations for our worldwide client base.

Compiled & Edited by Mike Yeomanswww.ibagroup.com

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London Aviation Investors’ Summit 20111-2 December 2011, Cumberland Hotel, LondonCPD Credits Available

Key Benefits of attending:

Important Transport Industry Developments and Progress in Aircraft/Airline Finance

Analysing what potential investors want to know about active involvement in aviation finance

How to support airlines & lessors Comparisons with other investments, tax implications and type

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Key Speakers Boeing Airbus Hello AG IBA Norton Rose ECGD Etihad Airways KLM Jordan Aviation And many others

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