AIR TRANSPORT: QUARTERLY REPORT NO 10 - European Commission · AIR TRANSPORT: QUARTERLY REPORT NO.10 1ST QUARTER 2006 (January to March) 1. ... • AEA scheduled traffic, measured

Sir Freddie Laker’s SKYTRAIN. Sir Freddie, a pioneer of low cost travel, died on 9 February 2006.

AIR TRANSPORT: QUARTERLY REPORT NO.10

1ST QUARTER 2006 (January to March)

1. Highlights and key developments................................................................................................................................... 2 1.1 Regulatory.................................................................................................................................................................... 2 1.2 Capacity ....................................................................................................................................................................... 2 1.3 Traffic........................................................................................................................................................................... 2 1.4 Financial Results .......................................................................................................................................................... 3 1.5 Airports ........................................................................................................................................................................ 3 1.6 Aircraft and manufacturers .......................................................................................................................................... 3

2. Scheduled capacity........................................................................................................................................................... 4 3. Air traffic .......................................................................................................................................................................... 7

3.1 Passengers .................................................................................................................................................................... 7 3.2 Air Cargo...................................................................................................................................................................... 9

4. Airline financial performance ...................................................................................................................................... 11 4.1 European Airlines ...................................................................................................................................................... 11 4.2 Other major world airlines......................................................................................................................................... 15

5. Airports ........................................................................................................................................................................... 16 5.1 General traffic trends ................................................................................................................................................. 16 5.2 Traffic growth at individual airports ......................................................................................................................... 17 5.3 Developments in airport ownership........................................................................................................................... 18 5.4 General airport developments.................................................................................................................................... 19 5.5 AEA delays ................................................................................................................................................................ 19

6. Air Traffic Control ........................................................................................................................................................ 20 6.1 Airspace management................................................................................................................................................ 20 6.2 ATC delays ................................................................................................................................................................ 20 6.3 Single European Sky ATM Research (SESAR)........................................................................................................ 20

7. Environmental developments: EU ETS....................................................................................................................... 21 8. Special topic: air safety.................................................................................................................................................. 22

Cranfield University: Quarterly Report Q1/2006 for DG TREN 1

1. Highlights and key developments

1.1 Regulatory

• The Commission authorised rescue aid for the Italian airline, Volare Airlines. This is intended to allow the airline to continue operating by means of a €25 million six-month duration guarantee from the Italian government.

• The European Court of Justice backed rules agreed by the Parliament and ministers aiming to provide better protection to passengers. The rules were challenged in the British court by the European Low Fares Airline Association and IATA. The British High Court asked the EU court to rule on whether the legislation infringes EU rules.

• The Commission will authorise rescue aid for Cyprus Airways. The aid consists of a €51 million loan guarantee for the next six months to allow restructuring of the airline. The Commission has examined the rescue aid for Cyprus Airways and checked that it complies with Community rules.

• The EC adopted the first EU list of airlines banned in the EU. This blacklist of unsafe airlines is published on the Commission’s website. (http://europa.eu.int/comm/transport/air/safety/doc/flywell/2006_03_22_flywell_list_en.pdf)

1.2 Capacity

• Measured in terms of the number of scheduled flights operated per week, air transport capacity within Europe increased by 4.3% between January 2004 and January 2005.

• Accession states and candidate states continued to lead this increased activity, albeit from relatively low base levels.

• The number of airports involved in intra-European, cross-border air services increased, often as a result of the activity of low-cost carriers.

1.3 Traffic

• AEA scheduled traffic, measured in RPK, was up 2% in the three-month period to end February 2006 compared to the same period in 2004/5. Capacity was up only 2.3% such that the average seat factor fell by 0.2% points to 72.6%.

• Strongest growth in RPK was recorded in this period on Europe to/from the Far East/Australasia (11.3%), followed by sub-Saharan Africa at 5% and Mid- and South Atlantic (4%). The North Atlantic recorded a fall of 4.4% in RPK, and a drop of almost two percentage points in load-factor.

• Europe’s major low-cost airlines easyJet and Ryanair posted passenger traffic increases of 9.1% and 20.8% respectively for Q1.


1.4 Financial Results

• Of the major European network carriers, only Austrian made an operating loss for the quarter to end December 2005, but they were joined by Alitalia and Swiss in losing money for the full calendar year 2005. Only a few carriers returned better results than for the previous last quarter, for example Air France-KLM and British Airways. Alitalia improved but was still far from breakeven. Lufthansa, Finnair, Iberia and Austrian fared worse.

• Ryanair’s operating profit for the last quarter of 2005 was down slightly, with its operating margin still a healthy 13% in one of the off-peak quarters. For the full calendar year 2005, Ryanair’s operating margin was 23%. EasyJet did not report fourth quarter, but posted net profits of £68 million for the full year to end September 2005, up 9.1% over the previous year.

• A large proportion of European airlines has been involved in discussing labour agreements with their unions with different degrees of success. Alitalia and SAS both suffered as a result of strikes by sections of their labour forces.

1.5 Airports

• Ferrovial launched a takeover bid for UK airports company BAA. The bid was rejected by BAA.

• Lufthansa raised its stake in German airport operator Fraport from 5% to 9.1%.

1.6 Aircraft and manufacturers

• Airbus announced that it had managed to beat Boeing in terms of net orders for 2005 – their total being 1,055 against 1,002 for the US manufacturer. However, Boeing were on top in terms of revenue generated. Overall the total for all airliner orders was the largest in history, exceeding the previous highest figure of 1,594 (for aircraft with more than 100 seats) of 1989.

• Airbus announced they would cease production of the A300/310 family of aircraft in July 2007. This marks a milestone in the history of the pan-European manufacturer since its first aircraft was the A300, delivered in 1974. Assuming production ceases as planned in 2007, a total of 561 A300s and 255 A310s will have been produced in 33 years.

• Boeing Commercial Aircraft improved its results dramatically for full year 2005 compared to 2004 with an almost doubling in income and an increase in backlog to unprecedented levels.

• Bombardier suspended its plans for the C-Series aircraft having failed to secure any orders for the all-new 110-130 seater. While not abandoning the idea totally, the Canadian manufacturer re-deployed many staff and has decided in the short term to concentrate on sales of the Q400 and CRJ900 aircraft.

• ATR received a total of 90 orders for its turboprop aircraft making it joint leader with Embraer in terms of net orders for regional aircraft. Whether this marks a


renaissance for the turboprop following years of domination by the regional jets remains to be confirmed by orders in 2006.

• The number of western-built aircraft in store was still 2,156 as at 14 March 2006, 11% of the world fleet. This had scarcely changed from just over 12% in September 2002.

2. Scheduled capacity

Over the twelve months between January 2005 and January 2006 scheduled air transport, measured as the number of flights per week within and between European countries, increased by 4.3%. The analysis includes EC states, Bulgaria, Croatia, Iceland, Norway, Romania, Switzerland and Turkey. There was a very small difference between the rates of increase of domestic and cross-border services (4.7% and 4.1% respectively), but the Europe-wide statistics hide very large difference between countries and country-pairs.

For international services, the greatest increases involve the less well developed air transport markets of some accession states and candidate states. For example, scheduled international departures from Bulgarian airports increased by 40%, year-on-year to January 2006, and by over 20% from Polish and Slovakian airports. In part, these growth rates reflect the activities of low-cost airlines and their search for new destinations and operating bases.

Weekly European flight departures, January 2006 v January 2005 Domestic Intra-Europe Domestic Intra-Europe

flights per increase flights per increase flights per increase flights per increase week over 2005 week over 2005 week over 2005 week over 2005

Austria 397 12% 1,916 2% Latvia 0 0% 236 15%Belgium 0 0% 1,759 1% Lithuania 0 0% 214Bulgaria 21 50% 254 40% Luxembourg 0 0% 355Croatia 114 -5% 214 11% Malta 56 0% 117 4%Cyprus 0 0% 254 -2% Netherlands 40 -25% 2,833 2%

Czech Republic 78 50% 1,039 2% Norway 4,374 2% 1,215 14%Denmark 692 11% 2,070 -8% Poland 530 20% 1,297 25%

Estonia 46 109% 173 -1% Portugal 692 -8% 1,170 8%Finland 1,326 3% 910 -2% Romania 177 26% 508 18%France 5,789 -1% 5,296 3% Slovakia 28 -39% 208 23%

Germany 6,192 14% 9,011 4% Slovenia 0 0% 192 14%Greece 1,652 -6% 647 -9% Spain 8,555 12% 5,199 8%

Hungary 0 0% 818 -1% Sweden 2,245 -12% 1,591 -10%Iceland 209 -25% 83 4% Switzerland 301 31% 2,972 -1%Ireland 302 -2% 1,602 5% Turkey 1,353 18% 666 9%

Italy 5,290 1% 4,873 7% United Kingdom 8,192 4% 9,287 6%

-3%5%

Source: OAG

Domestic activity grew strongly in many states, and fell just as strongly in others. However, the more dramatic rates of change generally reflected movement around very low levels of activity. Solid growth in absolute numbers was seen in the more mature markets of Germany and the UK, but there was a slight reduction in domestic activity in France. Spain logged the highest increase in absolute numbers with an extra one thousand domestic flights scheduled for January 2006 than in the same month of 2005. At the other extreme, domestic traffic in Sweden dropped by 12% or close to three-hundred flights per week over the same period.

Most states have seen an increase in the number of airports serving European cross-border destinations over the twelve months between January 2005 and January 2006. While this measure of connectivity is clearly weighted towards larger countries, its year-on-year change indicates how well air transport networks are decentralizing and


connecting regional centres. The accession states and candidate states are again prominent, although states with the highest levels of connectivity, Germany, France, Spain and the UK, also increased their network of airports with international connections. Sweden and Finland were the two countries recording falls in this measure of international connectivity.

Airports with cross-border services

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20052006

Number of airports with international destinations

A second measure of connectivity records the number of cities served in other European states. Again, the year-on-year change helps understand how well international air transport networks are developing. Over the twelve months covered in this report, most countries maintained their levels of international connections. States recording a fall in this measure of connectivity were Denmark, Finland, Greece, Lithuania, Luxembourg and Sweden. A large number of changes were the result of low-cost carrier activity – or closure. For example, Greece registered the greatest proportional loss of international destinations. Although these included the SAS service between the Greek and Swedish capitals, most destinations had been served by low-cost carriers: between Athens and Glasgow (Air Scotland), Katowice (Wizz) and between the northern city of Thessaloniki and Hamburg (Germania) and Nuremberg (Hapag Lloyd).

Number of international (European) destinations served

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Destination cities

A further connectivity indicator records air transport links on a state to state level. Of the thirty-two countries within this study’s definition of Europe, only three maintained


scheduled air services to one or more destinations in each of the other states: Germany, the Netherlands and the United Kingdom. In most of the remaining countries connectivity with the rest of Europe was either maintained at the 2005 level, or increased over the period under study. Just eight states registered a fall in this measure.

Connectivity among European countries

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Destination states

LCC activity The first quarter of 2006 saw the launch of 57 new routes by European low-cost carriers, representing the addition of around 298 additional weekly departures (see the table in appendix B1). Ryanair and easyJet account for nearly 50% of these new frequencies with Flybe being the next biggest provider of new flights thanks to the development of new domestic services at Manchester.

Ryanair’s new base at Nottingham East Midlands airport became active on 7 February. New routes to France (Bergerac, Limoges) and Poland (Wroclaw, Lodz) were started. easyJet also started a new base at Milan Malpensa on 10 March, with initial flights to Athens, Malaga and Paris.

Spanish airline Vueling based its second aircraft at Madrid Airport from February with the launch of daily services to Amsterdam, Lisbon and Milan Malpensa.

Paris received new LCC services from Paris CDG to Dusseldorf (Air Berlin), Lisbon (easyJet) and Milan Malpensa (easyJet), while dba managed to secure slots as a new entrant at Paris Orly to start double-daily services to its main base in Munich. Amsterdam also benefited from several new LCC services with the start of services to Basel (easyJet), Glasgow (Flyglobespan), Oslo (Sterling) and Madrid (Vueling). New routes to/from German airports were relatively few with Air Berlin, dba, Germanwings and hlx launching just four routes between them during this period.


3. Air traffic

3.1 Passengers

3.1.1 Scheduled Passengers carried by AEA members in the three-month period to February 2006 totalled 69 million, of which 76% were carried on domestic or European services (a region not much larger than the EU25). However, in terms of passenger-kms Europe accounted for only 27%.

Although traffic fell overall, measured as year-on-year passengers carried in the three months, there was strong traffic growth on routes to some regions. Those to the Far East and Australia grew strongest, as they did in the preceding quarter, reflecting recovery from the negative impact of the SARS epidemic in 2004. The South Atlantic continued to show relatively strong growth, and routes to sub-Saharan Africa, North Africa and the Middle-East also increased traffic.

Scheduled services of AEA members, December 05 to February 06 Passengers ASK RPK Load factor thousands millions millions % Domestic 21,937 19,052 11,820 62.0 Geographical Europe 30,413 51,248 30,820 60.1 Europe / N Africa Mid East 2,434 10,321 7,154 69.3 North Atlantic 5,432 48,928 37,087 75.8 South/Mid Atlantic 2,798 26,982 22,815 84.6 Europe/rest Africa 1,963 16,846 13,349 79.2 Europe /Far East, Australasia 4,144 43,623 34,491 79.1 Other 46 161 112 69.8

TOTAL 69,167 217,161 157,648 72.6

Passenger load factors fell overall, with the greatest drop seen on the North Atlantic. Here, although capacity was reined in, passenger demand fell by a greater amount.

Scheduled services of AEA members, 12/05 to 02/06 vs 12/04 to 02/05 Passengers ASK RPK Load factor (% points) Domestic -2.3% -1.7% -0.8% 0.5 Geographical Europe -1.7% -0.7% -1.4% -0.4 Europe / N Africa Mid East 3.8% 3.7% 3.2% -0.3 North Atlantic -4.3% -2.0% -4.4% -1.9 South/Mid Atlantic 4.0% 4.9% 4.0% -0.7 Europe/rest Africa 6.0% 4.6% 5.0% 0.4 Europe /Far East, Australasia 12.2% 10.2% 11.3% 0.8

TOTAL -0.7% 2.3% 2.0% -0.2

Of the ten AEA carriers featured in the following chart, Alitalia and SAS were the only ones recording a reduction in capacity (measured in ASK) over the twelve month period. This was reflected in significant increases in load factor for both airlines. Air


France increased capacity by 10%, but succeeded in boosting RPK by an even greater amount, improving its overall load factor by 1.4 percentage points.

Passenger traffic for IATA member airlines increased by 6.4% in the first two months of 2006 compared to the same period of 2005. The Middle East was the area of strongest growth, followed by Europe and Japan.

Passenger traffic for member airlines of the Air Transport Association of America increased by only 1.1% in the first two months of 2006 compared to the same period of 2005. Capacity declined by 2.2%, resulting in a marked advance in average passenger load factor of 2.5% points to 75.1%.

Passenger traffic for the Association of Asia Pacific Airlines members increased by 4.5% in the first two months of 2006 compared to the same period of 2005. Capacity rose by only 2.5% in the same period, giving an improvement in average passenger load factor of 1.5% points to 74.5%.

Scheduled service RPKs of selected AEA members, 12/05 to 02/06 vs 12/04 to 02/05

0 5,000 10,000 15,000 20,000 25,000 30,000

Turkish

Austrian

SAS

Virgin

Alitalia

Iberia

KLM

Lufthansa

British Airways

Air France

RPK (million)

2004 / 05

2005 / 06

Source: AEA

3.1.2 Low cost carriers

Selected LCCs: Traffic, January to March 2006 (Q1) Passengers Load factor (%)

thousands % change (%) Change (% points)

Ryanair 8,131 20.8 77.0 -1.0

EasyJet 7,446 9.1 81.0 -3.0

Norwegian 1,014 84.5 76.7 9.0

Flybe 971 12.2 n/a n/a

SkyEurope 457 63.3 70.9 4.1

Flynordic 284 n/a n/a n/a

Flyme 206 57.0 60.0 1.3

Wizz Air carried 1.9 million passengers in 2005, in its first full year of operation. Polish airports continued to see steady growth in low-cost services as Ryanair and Wizz Air each started three new routes during this quarter.


BmiBaby announced modest rises in passenger number (2-3%) while its mainline parent announced significant losses in passenger numbers. It is likely that the structure of both may change in coming months as the products are realigned

Norwegian carried 3.3 million passengers, up from 2.1 million in 2004. The carrier is expecting to add two aircraft this year, taking it to an 18-strong fleet.

3.1.3 Regional airlines ERAA member airlines’ traffic grew by an average of 6.3% in 2005, and the average scheduled passenger load factor carried was 61.5%, the highest reported by the association since its formation in 1987. It should be noted that membership of ERAA covers airlines acting as subsidiaries to network airlines, as well as carriers not based in the EU; additionally there are airlines who could be described as regional who are not members. As ERAA was announcing the positive figures for 2005, two of its members were fairing less well, Air Wales announced their withdrawal from scheduled passenger services and Styrian Spirit suspended operations entirely.

3.2 Air Cargo

3.2.1 European airlines Air cargo traffic carried by AEA members increased by 3% overall for the latest three month period to the end of February 2006. Traffic on the North Atlantic was little changed, with an 8% drop on Mid- and South Atlantic routes, offset by a 9% growth on routes to/from Asia and the Far East. Traffic out of Asia is growing stronger than volumes into Asia, with upward pressure on yields for traffic from the region.

Air Freight Traffic of AEA carriers by region, 12/05 to 02/06 vs 12/04 to 02/05

Dec 04-Feb 05

TFTK (millions) Dec 05-Feb 06

TFTK (millions) change

Domestic 33.2 31.1 -6.4% Geographical Europe 184.0 183.2 -0.4% Europe / N Africa Mid East 270.2 291.9 8.0% North Atlantic 2,393.6 2,412.2 0.8% South/Mid Atlantic 972.0 896.4 -7.8% Europe/rest Africa 677.9 732.8 8.1% Europe /Far East, Australasia 3,656.9 3,992.0 9.2% Other 105.3 1.2 -98.9%

TOTAL 8,293.2 8,540.8 3.0%

Looking at the major AEA carriers, Lufthansa experienced a fall in traffic, while Cargolux and Air France advanced. Iberia, which is a major carrier on the Latin American routes (see above), also reported lower cargo traffic.


Air Freight Traffic of largest AEA carriers,12/05 to 02/06 vs 12/04 to 02/05

0 500 1,000 1,500 2,000

SAS

Iberia

Sw iss

Alitalia

Virgin

KLM

British Airw ays

Cargolux

Air France

Lufthansa

FTK (million)

2004 / 05

2005 / 06

Source: AEA

3.2.2 Integrators FedEx International Parcels (IP) revenue grew 12% for the three months to end February 2006. IP average daily package volume grew 10%, due to strong growth in Asia and Europe and continuing growth in U.S. exports. IP revenue per package grew 2% due to higher fuel surcharges and improved regional mix, partially offset by currency exchange rate impacts. U.S. domestic revenue per package increased 8%, while U.S. domestic volume was down 3% resulting from yield management actions in lower-yielding U.S. deferred services. The increase in U.S. domestic revenue per package was mainly driven by higher fuel surcharges, the January 2006 price increases and yield management actions.

FedEx Express will begin utilizing three new flight frequencies into China later this month. This will provide the company a total of 26 weekly flights to China, the most of any U.S.-based cargo carrier.

DHL reported 8.2% higher volumes from their global air freight forwarding for the full year 2005, reaching 2.38 million tonnes handled. Their European express division experienced almost unchanged revenues (up 0.1% to €11.75 billion), with a fall in consumer product volumes offset by growth in international parcels and freight.

UPS reported an increase in international package revenue of 18.3% to $2.22 billion for the quarter to end December 2005. International package volumes advanced by 25.1% to 1.8 million packages a day. Export volume grew 15.4% with double-digit growth across Asia, Europe and the U.S. International domestic volume climbed 31.7% aided by acquisitions in Europe during the year.

3.2.3 Other world regions Freight traffic for IATA member airlines increased by 5.3% in the first two months of 2006 compared to the same period of 2005. The Middle East was the area of strongest growth, followed by Latin America.

Freight traffic for the Association of Asia Pacific Airlines members increased by 5.3% in the first two months of 2006 compared to the same period of 2005. Freight load factor improved by 1.1% points to 64.6%.


4. Airline financial performance

4.1 European Airlines

Results for the last quarter of calendar year 2005 were available for the majority of larger EU airlines, and are shown in the table below. This quarter is off-peak, without the advantage of Easter that the first quarter sometimes has, but with some pre-Christmas and New Year benefits. It is probably the second worst quarter financially for many European airlines, when Easter falls in April. Taking this into account, British Airways’ 8% operating margin was remarkably good, and Air France-KLM not far behind. The Lufthansa Group was still suffering from poor returns from its catering and leisure divisions. Finnair reported an operating loss, more dependent as it is than others on the peaked leisure traffic.

Only a few carriers returned better results than for the previous last quarter, for example Air France-KLM and British Airways. Alitalia improved but was still far from breakeven. Lufthansa, Finnair, Iberia and Austrian fared worse.

Operating costs (other than fuel) were down for most network airlines and yields firm, helped by fuel surcharges which IATA reported to recoup around 40% of fuel cost increases. Load factors were also significantly higher.

Financial performance of major EU carriers: October to December, 2005 vs 2004 October to December 2005 October to December 2004

Revenues ($m)

Operating result ($m)

Net result ($m)

Op.margin %

Net margin %


Net result ($m)

Op.margin %

Air France-KLM 6,460 226.1 91.6 3.5 1.4 38.3 80.6 0.6

Alitalia 1,488 81.2 -47.1 5.5 -3.2 -116.9 -137.5 -8.6

Austrian Airlines 594 -68.5 -59.5 -11.5 -10.0 30.7 23.9 4.6

British Airways 3,709 304.9 203.8 8.2 5.5 207.3 92.3 5.6

Finnair 591 0.5 -3.5 0.1 -0.6 7.1 0.7 1.2

Iberia 1,450 8.5 -7.1 0.6 -0.5 52.7 70.5 3.3

Lufthansa Group 5,773 2.5 65.7 0.0 1.1 404.2 317.0 7.2

Ryanair 441 58.5 43.8 13.3 9.9 64.3 45.6 16.5

SAS Group 2,041 84.0 18.0 4.1 0.9 -21.0 -93.4 -1.0

Swiss n/a -106.3 -106.3 -13.7

Total above 22,548 697.7 305.6 3.1 1.4 560.4 293.4 2.4

The results for the twelve months to December 2005 were also better for the carriers as a whole, but a deterioration was noted for Lufthansa, Austrian and Iberia. Alitalia’s operating loss was much reduced, while SAS moved into operating proft. Swiss’s operating margin was little changed, but its loss reduced. But for higher fuel prices network carriers would have had a much better nine months.

bmi announced a growth in pre-tax profit from £2.6m to £10m for their financial year ending 31 December 2005. These results were boosted by the sale of a pair of slots at Heathrow to Emirates, suggesting that their underlying business may still be running at a net loss, although overall the operating profit was £5.5m compared to a loss of £3.2m the previous year.

Ryanair recorded a third-quarter profit of €36.8 million, nearly 6% up on Q3 2004. Overall margins were similar to 2004, in spite of continued strong expansion.


Ryanair attributes the performance to an increase in average revenue per passenger and tight cost controls. Net and operating results were higher on increased turnover.

Financial performance of major EU carriers: January to December, 2005 vs 2004 January to December 2005 January to December 2004


Net result ($m)

Op.margin %


Net result ($m)

Op.margin %

Air France-KLM 1,157 1,092 4.5 658 1,026 2.8Alitalia -57 -199 -1.0 -495 -954 -9.7

Austrian Airlines -119 -154 -4.2 92 50 3.3British Airways 1,167 689 7.8 938 414 6.6

Finnair 94 77 4.0 20 22 1.0

Iberia 140 480 2.4 230 253 3.9Lufthansa Group 715 562 3.2 1,232 518 5.8

Ryanair 462 376 22.8 352 285 22.7SAS Group 193 26 2.2 -105 -248 -1.3

Swiss -59 -222 -2.0 -106 -111 -2.1

Total above 3,694 2,727 3.9 2,816 1,254 2.4

Sources: Airline Business, airline websites

EasyJet did not report fourth quarter, but posted net profits of £68 million for the full year to end September 2005, up 9.1% over the previous year.

Few of the other European LCCs report financial results. SkyEurope reported a net loss before tax of €33.9 million for the year ending 30 September 2005, compared to €11.9 for the previous year: this amounted to a net margin of -30% (and an identical operating margin, since it pays negligible interest costs). Its net margin for the previous financial year was -26%. SkyEurope turned in first-quarter 2006 net losses of €12 million while achieving a 42% rise in operating revenues to €26.2 million. Net losses for the period were almost unchanged from first quarter 2005.

Spanish start-up Vueling reported full-year 2005 revenues of €136 million, and carried 2 million passengers. It has raised €30 million through a capital increase, which it will use to fund its expansion. Norwegian moved from a pre-tax net loss of NOK43.2 million for the fourth quarter 2004 (to end December) to a net profit of NOK3.3 million for the 4Q 2005. Its net margin for 4Q 2005 was only 0.6%, but it made an operating loss of NOK3.8 million against a background of NOK48 million higher fuel costs. This was because it has very few long-term borrowings and cash reserves of NOK261 million (at end December 2005). For the full year 2005, Norwegian made an operating profit of NOK24.8 million and a net profit pre-tax of NOK37.2 million, its first full year profit.

FlyMe Europe reported total operating revenues for the year ending 31 December 2005 doubled to SEK402 million, with an operating loss of SEK176 m, versus SEK 136m the year before. Its pre-tax loss was SEK174m compared to SEK137m for 2004. Its cash position declined from SEK61 million at the end of 2004 to SEK32 million at the end of 2005. However, after the end of the financial year a further SEK272m was raised in preference shares (the issue being almost twice oversubscribed). FlyMe struck a deal to acquire 100% of Lithuania’s recently privatised national carrier FlyLAL, formerly known as Lithuanian Airlines.


Air Berlin reports no financial data. However, Fvw magazine (March 2006) reported that an IPO was planned for later this year, generating between €350m and €800m. It is estimated that 60% to 80% of the shares of the business could be available on the stock exchange. Air Berlin reported an EBITDAR result of €153m in 2005. Since revenue in 2005 was €1.22bn (+17.1%) this gives a margin of 12.5%. Analysts believe that the bottom-line profit would be no more than single figures due to the significant leasing costs of the rapidly expanding fleet. Scottish carrier Flyglobespan generated a £3.1 million profit in 2005, marking a 35% year-on-year improvement. The airline carried just under 1.5 million passengers in 2005, 50% up on the previous year. Following the addition of a Boeing 767, the carrier is considering adding up to ten widebodies to its fleet to increase its long-haul services, eventually making up 50% of its business. Germanwings achieved a 62% rise in full-year turnover to around €400 million, but has not disclosed profit figures, suggesting that it has made a loss. The carrier has introduced a frequent-flier programme - ‘Boomerang Club’: by accumulating 16 one-way flights, passengers can obtain a free return flight.

Key developments and announcements- network carriers Cost cutting: BritishAirways followed last quarter’s announcement of planned labour cost reductions of €400 million by 2007, with the closure of its Travel Shops business and its Belfast call centre. This will reduce staff numbers by 400. BA's seventeen UK Travel Shops will close by the end of August 2006. The carrier’s cost-cutting programme aims at reducing overall costs by €655 million over the next two years, in order to achieve a 10% operating margin by 2008.

Labour issues: this quarter’s developments are dominated by a number of labour disagreements. Industrial relations are currently delicate across the European industry. Strong earnings and improving balance sheets mean European employees are paying little attention to the airline managements’ drive to reduce costs.

Alitalia suffered as a result of one-day strike by flight attendants locked in a long-running contract dispute. The airline cancelled 74 flights scheduled on the strike day.

A pilot strike at SAS cost the airline millions of dollars. The wildcat strike by Danish pilots and widespread absence among Norwegian colleagues caused the cancellation of hundreds of flights in January this year. The carrier’s pilots are against the idea of splitting the pilot corps along national boundaries.

It was reported in the last quarter that BA pension deficit stood at €2 billion. In this quarter the airline announced that it is raising the retirement age of its pilots and cabin crew and plans to make a payment of £500 million into its pension scheme to reduce it pensions deficit. The airline also announced that it plans to limit increases in pensionable pay to no more than the UK retail price index (RPI). The airline unions are not happy with the proposal.

The Air France proposal of a 3.3% pay increase and €500 bonus has been accepted by its six unions. The carrier is negotiating a new collective agreement with its pilots.

Iberia is negotiating new labour agreements with flight attendants and pilots. The agreements are likely to be similar to the recently-concluded contracts with three of Iberia’s ground staff unions, which included €18 million payouts.


Swiss has agreed terms with its regional pilots union Swiss Pilots Association on a new a collective labour agreement. The new accord assures employees of a continuation of “socially-acceptable working terms and conditions”. The airline’s cabin crew have voted in favour of the new collective labour agreement.

Product improvements: these are in evidence among some carriers in better financial shape. Virgin Atlantic Airways is investing in premium services for business class passengers, while BA plans to invest nearly €283 million in new cabin interior products, including improved seating and the availability of on-demand in-flight entertainment. Iberia intends to invest €50 million in reconfiguring the cabins of its short- and medium-haul aircraft, and will complete the installation of its new ‘Business Plus’ product on its long-haul fleet this spring.

Relationship with suppliers: a notable development is Lufthansa’s increase in its stake in Fraport to 9.1%. The carrier aims to intensify its relationship with Fraport, seeking a seat on the airport operator’s advisory board. Air France appears interested in following Lufthansa’s strategy, by participating financially in infrastructure projects such as the S3 and S4 satellite terminals planned for Paris CDG.

Alliances and mergers: the Italian government approved Alitalia's $46.3m acquisition of smaller Volare Airlines, which has valuable slots at Milan's Linate Airport. This is part of Alitalia's strategy to regain domestic market share.

British Airways ruled out merging with Iberia or extending its joint venture with the Spanish airline in the short to medium term. However, the airlines will deepen code sharing agreements on flights between London and Madrid and Barcelona.

Lufthansa and Swiss will further integrate their operations in this quarter by co-ordinating their schedules to South America and Southeast Asia.

Fighting the low cost carriers: Lufthansa plans to expand its lower-fare strategy for European flights as it takes on budget carriers in its domestic market. The airline recently introduced short-haul return flights starting at $118 at Hamburg and Dusseldorf airports in reaction to the expansion of budget airlines such as Air Berlin, TUI's HLX, dba and Ryanair.

Iberia has reported a 7% fall in 2005 core earnings due to competition from budget airlines on its main European routes. The carrier is proposing establishing a low cost carrier. Iberia plans to reduce domestic capacity over the next 3 years because it cannot compete with the low cost carriers. European and medium-haul services will remain at current levels, while long-haul capacity will increase by 17%.

Key developments and announcements- low-cost carriers EasyJet announced a number of small changes to its business model in a bid to increase its return on assets from 7% to about 15%. To cut costs and attract more business travellers it has introduced online check-in allowing passenger travelling only with hand luggage to arrive at the gate up to 15 minutes before departure. Other innovations of interest to business travellers include: no weight-limit for hand baggage, self-service check-in kiosks and "early bird transfers" where passengers arriving early can switch to an earlier flight. The airline is also seeking to increase ancillary revenues and is trialling a policy where passengers can pay a fee to be in the first group that boards the plane. Following a rejected above inflation pay offer to pilots the airline continues to negotiate with its pilot union.


Ryanair believes will save €30 million in ground handling costs by charging for checked baggage. Passengers carrying up to 10 kgs of hand luggage are being offered the ability to check-in online and bypass check-in counters. Ryanair reckons that up to 50% of passengers will switch to online check-in. Passengers taking checked baggage pay £2.50 per item if pre-booked or £5 if presented unbooked at the airport.

Icelandair parent FL Group has finalised its take-over of Danish budget carrier Sterling. The group is to independently list its aviation interests on the Icelandic ICEX stock exchange to create a better-defined niche for investors. Volare, the collapsed Italian airline operating in administration, was granted $30 million in state loans in a deal agreed by the European Commission. The Italian industry minister then approved Alitalia’s bid to acquire Volare, after a court recently cleared the Italian national carrier to bid for the airline, however domestic rival Air One will continue to fight to block the takeover arguing that merger should not be allowed due to the excessive amount of state aid already received by Alitalia.

Key developments and announcements- charter/leisure airlines The financial performance of the EU’s major tour operating groups continues to improve, with, for example, Thomas Cook converting a pre-tax loss of nearly €150 million in 2003/04 into a profit of €140 million in 2004/05. The organization increased its sales to €7.66 billion for the year ended 31 October 2005, up by 2.4% over the previous twelve months.

Iceland’s Avion Group has continued with its policy of acquiring airlines by purchasing French charter operator, Star Airlines, which in 2005 had operating revenues of €173 million. Avion has also acquired the assets of bankrupt German charter airline, Aero Flight. The Group already owns UK charter carriers, Excel Airways and Air Atlanta Europe.

dba will become a feeder operator for loss-making LTU under plans to explore synergies between the two airlines, following investment group Intro’s acquisition of a 60% share in the charter airline. Intro, the investment firm which acquired dba three years ago, agreed to take the dormant 49.9% stake in LTU formerly belonging to Swissair Group as well as a 10.1% share held by German company CKA.

4.2 Other major world airlines

Five US majors (Alaska, American, Continental, Delta, Southwest and United) were only marginally unprofitable for the period January to December 2005, with a -0.5% operating margin overall (improved from – 2.9% for the previous year) and operating losses of $353 million. They made a collective net loss of $25.3 billion, compared with $7.8 billion the year before. Alaska, American, Continental, and Southwest achieved an operating profit. Delta fared worst with an operating loss of $1.1 billion, 6.9% of total revenues. Excluded from this group is JetBlue, whose operating margin declined from 8.8% in 2005 to 3.6% over the same period, and AirTran with a decline from 3.2% to 2.1%. JetBlue reported a net loss of $42 million in 2005 versus a net profit of $46 million in 2004.

The combined operating result for AirAsia, JAL, All Nippon, Singapore and Malyasian Airlines was $106 million for the quarter ended December 2005, well down from the $428m for the same quarter of 2004. Their operating margin was down from 4.3% to 1.0%. Malaysian moved sharply into loss, with operating loss a


hefty 20% of total revenues. JAL’s operating margin deteriorated, moving further into loss. All Nippon, on the other hand, increased its operating profit with an unchanged margin. Singapore also continued to be profitable with an enviable 10.5% margin for the latest quarter. Air Asia produced a net profit of $12 million for the period, with an operating margin of 32% of revenues, up slightly from the previous year.

Korean Air, Cathay and Thai only reported results for the full year to end December. Together their operating profit fell from $1.562 billion in 2004 to $1.226 billion in 2005. Net result fell to $791 million.

Qantas and Air New Zealand reported lower operating profits for July to December 2005, and lower net profits. Qantas recorded an operating margin of 7.5% in the second half of 2005 versus8.6% in 2004, while the fall for Air New Zealand was from 7.8% to 3.9%.

Thus the above picture is one of declining profitability for airlines faced with relatively strong passenger demand, but significantly higher fuel costs.

5. Airports

5.1 General traffic trends

Year-on-year growth of passenger traffic at Europe’s ACI member airports was 10.8% in January 2006 (compared with the same month in 2005). This level of growth in Europe was well above the increase seen over the same period at ACI airports worldwide (4.8%), placing Europe at the top of ACI’s growth league. North American airports recorded the lowest increase in passenger traffic, growing by an average of just over half a percentage point.

Cargo traffic performance recorded the same ranking among regions. ACI airports worldwide recorded 2.5% growth year-on-year. The corresponding increase in European cargo traffic was a significantly higher than the global figure, at 4.7%. Positive performance in other world regions compensated for an almost one percent fall in freight traffic recorded at ACI’s North American airports.

Year-on-year growth, January 2005/2006 at ACI airports

10.8%

4.7%4.5%3.8%

0.6%

-0.9%

4.8%

2.5%

Passengers Freight

Asia Pacific Europe North America Total ACI

Source: ACI


5.2 Traffic growth at individual airports

Average year-on-year growth of passenger traffic in January 2006 at Europe’s top twenty airports was a solid 4.4%. But not all the top twenty European airports posted positive growth. Indeed, the overall figure masks very high growth at a number of airports and disappointing performance in passenger terms at two of the continent’s largest hubs. While London’s Heathrow and Frankfurt airport both recorded a year-on-year fall in passenger traffic, Barcelona, Dublin, Munich and Oslo showed double-digit growth.

At many of the airports, year-on-year changes in commercial air transport movements (ATM) were radically different to changes in passenger number. For example, Copenhagen recorded an above-average increase of 5.5% in passenger traffic, but ATM fell by 9%, suggesting the use of larger aircraft at Copenhagen and/or improving load-factors for flights using the airport. At London Gatwick ATM growth was more than double that of the rate of increase in passenger traffic, possibly reflecting changes in the type of air services at Gatwick as lower capacity regional and LCC services increase.

Passenger traffic, January 2006 at the top ACI Europe airports

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

Lond

on L

HR

Par

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DG

Fran

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A

Mad

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Am

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Bru

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-2%

0%

2%

4%

6%

8%

10%

12%

14%

LHR

CD

G

FRA

MA

D

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S

LGW

MU

C

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Y

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N

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N

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H

DU

B

ZRH

AR

N

OS

L

VIE

BR

U

chan

ge o

ver J

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ry 2

005

Source: ACI Europe

Low-cost impact can also be seen in traffic distribution around major cities. At Rome Fiumicino 1.7% growth in passenger traffic was below average for the top-twenty airports, while Rome Ciampino recorded a 45% increase. At Frankfurt passenger numbers dropped half of one percent, but climbed 11% at Hahn.


At smaller European airports the impact of low-cost operators continues to be significant. For example, at Bratislava passenger traffic doubled between January 2005 and the same month in 2006. Basle airport’s LCC activity lifted passenger traffic by 27%, compared to a 4% increase at Geneva and Zurich’s virtual stagnation. Malta’s passenger traffic dropped by almost 5%, possibly reflecting a change in the island’s status as a winter-sun destination.

5.3 Developments in airport ownership

Vienna airport was active on the acquisition trail. Flughafen Wien, heading the consortium VIE Malta, completed the purchase of an additional 10% of equity in Malta International Airport. The consortium already held a 40% stake in the airport.

Another consortium led by Vienna airport, TwoOne, secured a 66% equity stake in the company which manages Bratislava and Kosice Airports in Slovakia. The other bidder was Spanish-based Albertis, owner of TBI in the UK. The transaction is being examined by Slovak competition authorities. The TwoOne consortium, securing the contract after bidding €300 million for the 66% stake, has committed itself to investing €260 million in additional infrastructure at both airports by 2010. The bulk of this investment will be allocated to Bratislava.

Passenger traffic, January 2006: selection on smaller airports in the study region

0

200,000

400,000

600,000

800,000

1,000,000

Ath

ens

ATH

Hel

sink

i HE

L

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Pra

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PR

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Bud

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War

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Buc

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AG

Talli

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LL

Luxe

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LUX

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ljana

LJU

-10%

0%

10%

20%

30%

40%

50%

60%

ATH

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BTS

ZAG

TLL

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chan

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005

101%

Source: ACI Europe and airports

Copenhagen airport has not been so successful in terms of acquisitions. The airport company failed in its bid to secure a 35-year concession to Bourgas and Varna


airports in Bulgaria. A Bulgarian court ruled against Copenhagen Airport because it did not believe it had sufficient experience of operating at least two airports with annual passenger numbers of 2 million for a period of two years. Copenhagen airport currently handles around 20 million passengers a year and has equity stakes in several airports overseas which handle in excess of 2 million passengers annually.

The German airport operator Fraport secured a 30-year contract to develop and operate Delhi Airport in India. The consortium includes the Indian construction company, GMR Group, and will hold 74% of shares in the new company with the remainder held by Airports Authority of India. A similarly structured contract to run Bombay’s airport went to another Indian construction company, CVK Group, acting with ACSA, the South African airport operator.

Fraport’s ownership structure also changed in this quarter, as Lufthansa increased its investment in the company from 5% to 9.1%. The German airline secured its first tranche of shares in Fraport in October 2005.

During the first quarter of 2006, Spanish company Ferrovial launched a takeover bid for UK airports company BAA. The approach was rejected by BAA. The situation at the end of the first quarter remains unresolved.

5.4 General airport developments

In Spain, the government has given the go-ahead for the construction of a second airport serving the Murcia region, located close to Corvera, 23km south of the existing airport. The government also announced an investment of €3 billion to improve facilities at airports in the Canary Islands. The highest proportion of the funds will be used to increase capacity at Gran Canaria by 2015.

Berlin Brandenburg Airport, the operator of all three existing Berlin Airports announced that Tempelhof Airport will close in 2007 followed by Tegel Airport in 2011 to pave the way for the new €2 billion Berlin international airport which will be built on the existing Schonefeld site and open in 2011. The decision was taken following final court approval for the project to go ahead.

5.5 AEA delays

AEA reported their punctuality statistics for the last quarter of 2005. The share of short/medium haul departures on time or within 15 minutes of scheduled time was 78.8%, down slightly from the 79.9% in the same quarter of 2004. There was also deterioration for long-haul flights, down from 69.0% to 67.0%.

On time arrivals for the same carriers and same periods declined from 80.0% to 77.3% for short/medium haul and from 69.3% to 66.4% for long-haul flights.

In the calendar year 2005, departure punctuality fell from 82.7% to 80.7%, based on a total of 3.6 million short/medium haul flights in 2005. Long-haul performance was also down from 72.6% to 70.8% based on a total of 274,000 flights in 2005.


6. Air Traffic Control

6.1 Airspace management

UK and Spanish air navigation service providers formalised in February 2006 their co-operation to develop a new airspace management system through the creation of a joint-venture company. National Air Traffic Services (NATS) of the UK and Spain's Aena will jointly own the new company, known as SACTA ATM after the Spanish air traffic control system. Furthermore, in the same month Scandinavian air navigation authorities are expecting to complete definition work on a revised plan to unify airspace across Denmark and Sweden by the middle of this year. Their efforts are aimed at defining an organisation that will provide air traffic management services across the whole of Danish and Swedish airspace, with the exception of aerodrome control. In February 2005, Central European airspace authorities announced their intention to completely overhaul the troubled programme to create a unified air traffic centre for the region, as the head of Eurocontrol finally admits that a new approach is needed. Three of the eight air navigation agencies involved in the Central European Air Traffic Services (CEATS) programme – Austria, the Czech Republic and Slovenia – are effectively mounting an effort to scrap the project and draw support for a different concept, which could be based on a co-operative effort formalised last year.

6.2 ATC delays

While the number of flights in 2005 grew at an annual rate of 4.5%, with 700 million passengers carried, Croatia, Slovakia and Poland saw growth rates of 18%, 17% and 16%, respectively. Eurocontrol says that average delays across all European flights were 1.9 minutes, and adds that first indications are that delays will be maintained at similarly low levels in 2006. The number of flights is expected to increase by 3% in 2006 and while higher ticket prices may depress demand, growth will be driven by the low-cost carriers, expansion in the Turkish market and the development of the European economy, Eurocontrol claims that air traffic management delays are down by 75% since 1999, despite traffic growing by 15%.

The trade body for leisure carriers, IACA, warns that the delay situation is actually getting worse as IACA airlines saw delays caused by air traffic flow management increase from an average of 2.05 minutes in 2004 to 2.58 minutes in 2005.

In the past, Eurocontrol has clashed fiercely with AEA, the trade body for European mainline carriers, over the issue of delays. AEA says that while the issue is not dead, it is no longer such a high priority. However, AEA believe that the situation is not as bad now, although it is a constant concern. AEA measures delays in a different way to Eurocontrol, and only includes flights by member airlines, which tend to operate in Europe’s busiest airports.

6.3 Single European Sky ATM Research (SESAR)

SESAR is the ambitious technological programme which aims at developing the new generations of Air Traffic Management systems. It is organized in 3 phases (definition, development, deployment).


The definition phase was launched in November 2005. It is co-funded by the EC and Eurocontrol, and the work is performed by a consortium of more than 30 companies, representing all aviation actors in Europe, with a participation of US industry. The definition phase organized its first external workshop in the IATA conference center in Geneva on March 28, an event attended by a large worldwide audience of aviation executives and experts. Similar workshops will take place for each milestone of the project, roughly every six months.

The Commission adopted a proposal for a Council regulation on setting up a Joint Undertaking, which will be the organization responsible for the management of the SESAR development phase. Discussions are on-going on this proposal in the Council and European Parliament, with the aim to reach general orientations at the next Transport Council (June 8).

7. Environmental developments: EU ETS

An aviation working group set up by the EC to look into issues related to bringing the sector into the European Union emissions trading scheme (EU ETS) will report their findings in April 2006.

This timing will allow the results to contribute to the EC’s general review of the EU ETS scheme. This is due to report at the end of June 2006 and, as part of this review, will consider extending the current scheme to other sectors. The Council of Ministers has already endorsed the EC’s intention to include aviation in EU ETS and the European Parliament is set to finalise its position by the summer.

What has been the reaction of the airlines to aviation’s inclusion in the ETS?

The Association of European Airlines stated that ‘ultimately, the AEA sees the need to evaluate an Emissions Trading Scheme ...’, adding that ‘this would not be without its costs but would have the multiple benefits of ensuring that resources are directed to where they do most good ....’1

The International Air Carrier Association (IACA) argue that an ETS ‘if properly designed, is potentially the most environmentally effective and cost efficient approach to address CO2 emissions from aviation.’ They go on to call on regulators to ensure that the scheme is designed to be fair, transparent, non-discriminatory and workable.2

Finally the most detailed reaction came from the European Low Fares Airline Association (ELFAA) with the publication of a report in March 2006.3 This calls for a full cost-benefit analysis before the detailed options for aviation emissions are considered. It suggests that the scheme should apply to all flights to/from and within the EU, and that applying allowances to airlines would be workable, but perhaps not as good as to airports. Allocations based on benchmarking are preferred to grandfathering. Distortion of competition between airlines must be avoided, and administering allocation at a central EC level on a transparent basis to airports would be the best way to ensure this takes place.

1 AEA Yearbook 2005, 12 July 2005. 2 IACA website, 7 March 2006 3 Economic consideration of extending the EU ETS to include aviation, A report for ELFAA by Frontier Economics, March 2006


The Commission will table a specific legislative proposal to bring aviation emissions within the EU ETS as soon as practicable and before the end of 2006 if possible.

8. Special topic: air safety

The special topic for this quarter is air safety. The background to this is increasing concern about safety oversight at an international level, especially in the light of the increasing use of code sharing, wet leasing and sub-chartering. In the European context, this is taking place at a time of transition of the technical regulation of air transport from national authorities to the European Aviation Safety Agency (EASA). The main issues are:

1. Safety oversight, and the need to ensure that all states comply with ICAO standards and recommended practices

2. International co-operation to exchange safety information and apply sanctions to the operation of airlines and aircraft from non-compliant states

3. Procedures for directing stricken aircraft to diversion airports

The first two above are closely related. The second led the European Commission to recently publish a blacklist of airlines in response to concerns about certain aircraft operating to/from and within the EU. The last has arisen first from the diversion of a US freighter with engine problems across central London in January 2006, and the recent fine imposed on a British Airways passenger B747-400 for not diverting to a US airport.

The chart below shows the improvement in the fatality rate worldwide since 1996. IATA reported the western-built hull loss rate to have fallen from 1.32 per million sectors in 1996 to 0.78 in 2004 (IATA WATS, 2005). In 2005, the number of fatalities jumped to 1,050, leading to a doubling of the fatality rate.

World air safety record in terms of fatalities, 1996 to 2004

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Fata

litie

s pe

r bill

ion

pass

enge

r-km

s

0

200

400

600

800

1000

1200

1400

1600

1800

2000N

umbe

r of f

atal

ities

Fatalities (right-hand scale)Fatality rate (left-hand scale)

Source: Flight International and Cranfield analysis


Safety oversight programmes

ICAO Universal Safety Oversight Audit Programme (USOAP) Confidence in the safety oversight provided by other States is a prerequisite for a well-functioning and reliable air transport system. In this perspective, the International Civil Aviation Organisation (ICAO) initiated, in 1996, a voluntary programme of assessments of national aviation authorities which, subsequently, evolved as the USOAP and which was implemented on a universal, transparent and mandatory basis from 1998 onwards.

Europe The majority of technical regulatory functions are carried out by each country’s aviation authorities (NAAs). The centralised European Aviation Safety Agency (EASA) has responsibility for airworthiness and certification, and will take over flight crew licensing in January 2007. Some NAAs are unhappy with EASA’s progress so far, notably its problems with recruitment, delays and budgets, and the fact that it still needs to contract some work back to the NAAs. On the other hand, the US FAA and Airbus would like to see the transfer of responsibilities to EASA speeded up.

In 1996, the European Civil Aviation Conference (ECAC) launched its own SAFA Programme, as a complement to the ICAO audits. ECAC is an organisation of 42 European states that liaises closely with both ICAO and EASA. The SAFA Programme is based on a bottom-up approach, taking as a starting point ramp inspections of aircraft landing in ECAC States, and progressing through further steps to involvement of States of Registry or States of Operator, when circumstances so require.

A major feature of the SAFA Programme is its non-discriminatory nature since SAFA applies equally to aircraft from ECAC and non-ECAC States. The Programme’s principle is simple: in each ECAC State, foreign aircraft (ECAC or non-ECAC) can be subject to a ramp inspection, chiefly concerned with the aircraft documents and manuals, flight crew licenses, the apparent condition of the aircraft and the presence and condition of mandatory cabin safety equipment. The references for these inspections are contained in the safety-related Standards of ICAO Annexes 1, 6 and 8.

In 2004, 31 ECAC states carried out a total of 4,568 ramp inspections.

USA The US has its own Air Transportation Oversight System (ATOS) for all major commercial airlines registered in their country. The United States Federal Aviation Administration (FAA) established the IASA program in August of 1992. This FAA foreign assessment program focuses on a country's ability, not the individual air carrier, to adhere to international standards and recommended practices for aircraft operations and maintenance established by the United Nation's technical agency for aviation, the International Civil Aviation Organization.

Rules on flight diversions

UK CAA to review diversion procedures One of two important cases of flights being diverted as a result of engine problems involved the UK, the other the US. UK air accident investigators believe that


procedures for directing stricken aircraft to diversion airports should be reviewed, after an incident in April 2004 when a Boeing 747 freighter was allowed to fly across central London to Heathrow airport despite having problems with all its engines. An Air Accidents Investigation Branch (AAIB) report on the Evergreen International Airlines flight says abnormal emergencies training procedures for air traffic controllers may need changing.

Air traffic control guidance currently says “it is desirable that aircraft in an emergency should not be routed over densely populated areas”, but the UK National Air Traffic Services says its primary advice to controllers is that if the diversion airport requested by the pilot can accept the aircraft, the controller should try to accommodate the request unless the aircraft is military or is carrying dangerous goods.

The AAIB bulletin recommends that the Civil Aviation Authority examine “whether sufficient guidance is provided on the avoidance of built-up areas when vectoring aircraft in emergency”, and suggests “this guidance should be amended as soon as practicable”. The CAA says it is studying the report, and expects to respond to the recommendations shortly.

FAA fine BA over three-engine operations The other case having wider implications was in the US. British Airways (BA) has appealed a US FAA claim that the carrier operated an aircraft “in an unairworthy condition” when it allowed a captain to continue a Boeing 747-400 flight in February 2005 from Los Angeles to London Heathrow after one of its four engines was shut down shortly after takeoff.

The two sides are scheduled to meet on May 16 in Washington DC, when a US DOT arbitration judge will hear the British carrier’s defense against a January ruling that fines the airline $25,000 for the infraction.

A BA spokesman says the airline believes it acted within US laws when it decided to allow the flight to continue its journey to London after Los Angeles air traffic control observed flames from the aircraft’s number 2 engine during takeoff. The aircraft’s captain shutdown the engine and proceeded with the flight on three engines until declaring a fuel emergency and diverting to Manchester airport.

“British Airways operated the…aircraft with only three engines, bypassing numerous suitable alternate airfields in the United States and Canada before proceeding across the North Atlantic Ocean,” says the FAA in its ruling, “By reason of the above, British Airways operated an aircraft in the United States in an unairworthy condition.”

EC publishes first EU-wide airline blacklist In March 2006, European regulators published the first EU-wide list of carriers banned in the EU, comprising 93 airlines facing complete bans and three more with operational restrictions. The European Commission (EC) says the list has been compiled on the basis of EU member state contributions and after an “in-depth analysis with member state experts”. It says that from now on the principle will apply that companies banned in one member state are banned across the EU.

The formal adoption by the EC and publication comes after the Aviation Safety Committee, which has been helping the EC draw up the list, earlier this month completed its work. Member states have since January 2006 been detailing any flight bans or operating restrictions in place in their territory and the reasons why.



The list predominantly comprises carriers from five countries, which are judged to have an “inadequate system” for regulatory oversight. As such all carriers certified by the authorities responsible for regulatory oversight in these countries are on the list of banned operators. This comprises 51 operators from the Democratic Republic of Congo; 11 from Equatorial Guinea; three in Liberia; 13 in Sierra Leone; and six from Swaziland. There are also nine carriers from other countries on the list of banned airlines, while specific operating restrictions are in place on three other carriers.

The EC says bans and operational restrictions are imposed only on the evidence of violations of criteria set out in the EC’s January published regulation on the subject. These criteria focus on the results of checks carried out in European airports (see the SAFA programme above); the use of poorly maintained, antiquated or obsolete aircraft; the inability of the airlines to rectify shortcomings identified during inspections; and the inability of the authority responsible for overseeing an airline to perform its task properly. The EC states that it has invited all the airlines concerned to express their points of view and contacted the civil aviation authorities responsible for their regulatory oversight. The list will be updated regularly and at least every three months.

Documents

AIR TRANSPORT: QUARTERLY REPORT NO 10 - European Commission · AIR TRANSPORT: QUARTERLY REPORT NO.10 1ST QUARTER 2006 (January to March) 1. ... • AEA scheduled traffic, measured