Issue No. 828
The 737 Max Is Back
Airlines Report That Few Passengers Are Booking Away From the Aircraft
Pushing Back: Inside the Issue
After two fatal accidents, regulators around the world grounded the Boeing 737 Max for almost two years. When the FAA re-certified the aircraft, most Max operators allowed passengers to book away from the type. Media reports were awash with stories about people swearing they would never fly the aircraft. And now, half a year later? Are people afraid of the Max? Our reporting says no. In fact, most passengers don't know they're on a Max, and if they do, they don't seem to care. And airlines love the aircraft. If that sounds familiar, it is. In the 1970s, passengers swore they would never board another DC-10, after a string of fatal accidents. Yet that aircraft, in various forms, continued flying into this decade. For more, turn to this week's Feature Story.
Elsewhere in the issue, Latin American airlines are going on an aircraft-order binge and adding dozens of new routes. Cargo continues to be a lifeline for airlines around the world, including Cathay Pacific, Etihad, Turkish, and Korean, which actually reported its fifth consecutive quarterly profit thanks to freight. Embraer is pressing ahead with its turboprop. Despite the spread of the coronavirus Delta variant, airlines are starting to feel more optimistic and adding dots to their maps. But supply chain bottlenecks could become more widespread as the industry races to complete deferred maintenance and restores aircraft to their fleets.
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The Airline Weekly Lounge Podcast
Why are Latin American airline on an aircraft order binge? That's the question the Airline Weekly team discuss in this week's episode of 'The Lounge. Will the supply chain woes Mesa is encountering affect other airlines as maintenance comes due? And what can the industry expect from the mammoth infrastructure bill passed by the U.S. Senate? Listen to this week's episode to find out. Past episodes are archived here.
Airline Weekly is taking its annual summer hiatus. The next issue of Airline Weekly will be distributed on Tues., Sept. 7 (the day after the Labor Day holiday in the U.S.). We will continue to podcast and publish AW Daily updates every day during the weekly issue's hiatus.
Avianca plans to emerge from the Covid-19 crisis as a slimmer but stronger competitor, with partner United Airlines by its side, under a new restructuring plan filed with a U.S. bankruptcy court.
The Bogotá-based carrier’s plan, which was submitted to the court on August 10, lacks any major additional changes at Avianca. Bogotá and San Salvador remain its primary hubs with secondary operations in Costa Rica and Ecuador; the airline’s Peruvian subsidiary was shut in 2020. Its fleet will shrink to as few as 109 aircraft — 98 passenger and 11 freight — when it exits bankruptcy before growing rapidly with 58 new leased jets arriving from 2021-23. And United and the Star Alliance remain key pillars of its international network strategy.
“Avianca expects to build on its core strengths, including its strong operational performance, increased capacity, brand recognition, its market leadership position in the vibrant Latin American airline market … its membership in Star Alliance, and the strength of its LifeMiles program, while becoming a more cost-efficient airline, in order to emerge from [Chapter 11] as an elite competitor for years to come,” the airline said in its reorganization plan.
The filing marks the beginning of the end of the three major Latin American carrier Covid-19 reorganizations. Avianca led the way with its Chapter 11 filing in May 2020, Latam Airlines Group followed later that month and Aeromexico in July. All three carriers — the largest in Latin America — were hit hard by the precipitous drop in air travel and the lack of government support to pay their bills. Their bankruptcy filings came as International Air Transport Association (IATA) then-Director General Alexandre de Juniac warned that half of global airlines could “die” — either collapse or merge with competitors — without government aid.
While half of global airlines have not disappeared, many were forced to take dramatic steps to stay alive from laying off tens-of-thousands of staff to slashing fleets. Most did this outside of official restructuring or administration processes though the Latin American carriers were joined by the likes of Norwegian Air and Virgin Australia in these official processes.
A key pillar of Avianca’s reorganization plan is its proposed joint venture with United. Prior to the crisis, this was planned as a three-way immunized tie-up between Avianca, Copa Airlines and United covering all flights between South America and the U.S. Brazil’s Azul, which United owns a minority stake in, was also considering joining the pact. While Avianca never disavowed the pact during its restructuring, the bankruptcy process opens the door shifting airline allegiances.
As part of its plan, Avianca extended its agreements with United by seven years to 2030, and the U.S. carrier has the option to take an equity stake in the Colombian airline.
Low-cost carriers pose Avianca’s greatest competitive threat at home. While it was restructuring, Viva Air Colombia has expanded in their shared home market, and Mexican discounters VivaAerobus and Volaris both unveiled plans to expand to the market. And Volaris plans to open a new El Salvadoran subsidiary by the end of the year. This expansion has “driven significant and lasting downward pressure on fares” and changes in traveler preferences, Avianca said in its plan.
In response, Avianca plans to increase the seating density on its Airbus A320-family jets by roughly 24 percent, according to the plan. That would translate to as many as 186 seats on the airline’s A320s based on its 150-seat dual-class configuration prior to the crisis. Both Viva Aerobus and Volaris configure their A320neos with up to 186 seats.
Unlike Aeromexico and Latam, Avianca did not cancel any of its outstanding aircraft commitments with Airbus and Boeing during its restructuring. The airline maintains firm orders for 88 A320neo-family jets due from 2025-29, and two 787-9s due in 2024. Avianca has terminated leases on 12 aircraft and could reject another 47 — including its 11 ATR 72s — by the time it exits Chapter 11. In addition, it could reject another 10 A320neos due in 2023 that it leased from BOC Aviation in early 2020.
Avianca made drastic improvements to its balance sheet through bankruptcy. The carrier cut roughly $3 billion from the $5.2 billion in outstanding debt that it had at the beginning of the crisis. In addition, it has lined up $1.6 billion in bankruptcy exit financing to boost its working capital for the recovery.
But those cuts do not come lightly on unsecured creditors. Many subordinated and inter-company claims would receive nothing on the dollar under Avianca’s restructuring plan. Most secured creditors would be fully recompensed, either through cash payments or equity conversions.
The bankruptcy court will hold a hearing on Avianca’s restructuring plan on September 14. Comments or objections to the plan are due by September 7.
Azul Focuses on Yield Recovery Into 2022
Things kept going Azul‘s way in the June quarter. Its new cargo — we mean, “logistics” — business continued its double-digit growth and passengers kept returning to the skies as Brazil’s vaccination rate kept climbing to near 40 percent of the population on track having all adults inoculated by end-September. That translated to “strong revenue performance,” as Raymond James Analyst Savanthi Syth put it, and a net profit including foreign exchange gains during the quarter.
“Everyone has seen the boom in demand in the U.S. travel as the economy opened up, and we are now seeing the same phenomenon in Brazil,” Azul Chairman David Neeleman said during the airline’s second-quarter earnings call last week. The carrier is already flying more capacity than it did in 2019 and is on track to be up by double digits — roughly 10 percent — by September. But Azul is more focused on yield recovery than further growth, with executives saying it will hold back on adding additional flights as demand catches up.
Demand may not be far behind, though. The second quarter is traditionally the slowest for South American carriers as it covers winter in the Southern Hemisphere. The fourth and first quarters are historically the busiest for the region’s airlines. This year, that peak season is likely to coincide with the return of at least domestic Brazil business travelers. Roughly 60 percent of Azul’s corporate revenue has recovered and it expects 75-80 percent to be back by year-end, said Chief Revenue Officer Abhi Shah.
Looking ahead, Azul plans to hold its fleet count flat in 2022 as it focuses on achieving EBITDA of more than 4 billion reais ($764 million) — or higher than the 3.6 billion reais in 2019. Capacity plans could change depending on the pace of the travel recovery, added Shah.
Azul’s interest in acquiring Latam‘s Brazilian unit remains unrequited. “We believe strongly that consolidation is healthy for the market,” CEO John Rodgerson said, adding that the airline is “still looking” at the deal. Latam has exclusivity to file a reorganization plan with a U.S. bankruptcy court until September 15.
In the second quarter, Azul posted a 1.07 billion reais net profit including a 2.2 billion reais foreign exchange gain. Without the FX benefit, it lost 1.2 billion reais. Revenues 35 percent to 1.7 billion reais versus 2019, while cargo revenues jumped 137 percent to 272 million reais. Passenger traffic was down 32 percent on a capacity cut of 25 percent compared to two years ago.
Turkish Airlines Sees No Signs of Cargo Demand Diminishing
Turkish Airlines returned to operating profits in the first half of this year, primarily driven by the strength of cargo demand. In fact, cargo revenues almost trebled between the first half of last year and this.
“We expected cargo revenues to normalize in the second quarter of this year,” Chief Financial Officer Murat Seker told analysts during the company’s first-half earnings call last week. “The normalization has not been realized yet, and it’s not going to happen any time soon.”
In fact, he believes air freight will continue to boom, thanks to ongoing maritime freight issues and seemingly bottomless demand for e-commerce. The strength of cargo kept Turkish’s second-quarter revenue slide to only 33 percent off of 2019, he said. Cargo also is directly responsible for Turkish’s first-half operating profit of $73 million, he said. “By the looks of the current state of recovery, the divergence between high cargo unit revenues and low passenger units revenues will remain significant during the third quarter,” he said.
Turkish currently operates a fleet of 26 dedicated freighters as well as 10 widebody preighters. Belly-hold cargo is coming back online as the airline adds more passenger flights. The freighter fleet is at full utilization, and Turkish streamlined scheduling in the first half of this year to get more hours out of its freighters. Seker said the carrier could add more preighters in the third quarter as demand dictates.
The passenger network is poised for a comeback as well. In the first half of the year, demand grew in pace with vaccination rates in countries Turkish serves. Capacity to North America rose from 2019, and to Europe started to rise as the summer approached. Systemwide, Turkish reported operating 70 percent of its 2019 capacity in June and expects to operate 80 percent of its systemwide capacity in the third quarter. Last year, Turkish flew mainly evacuation and humanitarian flights in the first half, making comparisons to 2020 less useful.
Other parts of Turkish’s far-flung network are not doing as well, however, due to ongoing Covid-19 restrictions. Flights to East and Southeast Asia remain the most constrained. Turkish reports strong visiting friends and relatives (VFR) flows from Europe, the Middle East, and North America for South Asia, although the carrier pared back flights to India during the recent Covid-19 surge in that country. Routes to Central Asia and parts of the former Soviet Union were a mixed bag, due to differing quarantine and lockdown regimes throughout the region.
Still, Turkish expects the recovery to gain traction as vaccines roll out. The carrier has so far reported no major cancellations due to the Delta variant of the coronavirus. The booking curve is lengthening out, primarily for longhaul flights but also in Turkish’s domestic network.
The domestic network has rebounded quickly, both from VFR and inbound demand from Europe, Seker said. Andaloujet, the carrier’s mainly domestic budget arm, saw capacity rise 129 percent in the first half and is on track to exceed pre-pandemic levels.
Turkish is not altering its orderbooks with Boeing and Airbus and still has 145 aircraft on order, 95 of which are firm. The carrier expects to add 25 more aircraft to its fleet this year, bringing it to 371 aircraft by year’s end.
Turkish reported first-half revenue of $4 billion, down from $6 billion in the first half of 2019. Passenger revenues fell by more than half from 2019, to $2 billion, while cargo revenues spiked 121 percent to $1.8 billion.
Cargo Yields Jump at Cathay Pacific
Cargo threw a lifeline to another airline, but one far more in need of it than Turkish. Hong Kong’s Cathay Pacific reported another quarter of staggering losses, offset only partially by booming cargo revenues.
The carrier was beset by a host of problems, the most damaging being Hong Kong’s strict quarantine rules. Early in the first half of this year, Hong Kong imposed quarantines on flight crews, requiring Cathay Pacific to rejigger its roster to require crews to serve for 21 days, followed by 14 days of isolation in an approved hotel. Despite these restrictions, the carrier continued to fly.
But it wasn’t flying that much. First-half passenger capacity was down 85 percent from 2020, and the carrier’s planes were only about 18 percent full, compared with 67 percent load factors in the first half of last year. For the fourth quarter, Chairman Patrick Healy said he “hopes” Cathay Pacific can fly 30 percent of its pre-pandemic capacity. About 40 percent of the carrier’s aircraft remain mothballed outside Hong Kong.
With no domestic market at all, Cathay Pacific remains hamstrung by the near-total collapse of international travel. Passenger demand across its networks was uneven. North America showed surprising resilience, at least comparatively. Travel to Oceania all but stopped, with both Australia and New Zealand effectively closed. Europe showed “pockets” of strength, Healy said, depending on each country’s rules. Demand for UK flights was weak earlier this year as that country dealt with a surge of Covid-19. Demand to Mainland China picked up as the half progressed. The group’s budget arm, HK Express fared particularly poorly, reporting revenues down almost HK$1 billion ($123 million).
Cargo demand, however, was robust. Cargo capacity fell by 32 percent compared to last year, thanks to the almost-complete lack of conventional belly-hold capacity. Yet, yields were up 24 percent, and cargo load factors average 81 percent in the first half. Cargo revenues reached HK$12 billion in the first half, flat from last year despite the significant difference in capacity.
Cargo demand came from the Americas and Europe, fueled by e-commerce and demand for goods such as clothing. Demand also was strong to Northeast Asia and to Mainland China, particularly around the time of the Lunar New Year.
Overall, the group reported a loss of HK$7.6 billion in the first half, compared with HK$9.9 billion in losses last year. Passenger revenues amounted to HK$748 million, or 93 percent down from last year.
Mesa Air’s Operational Woes Due to Supply Chain Bottlenecks
Regional carrier Mesa Air Group struggled to meet the summer surge in travel demand in the U.S., thanks to supply-chain shortages and maintenance delays, affecting the flights it operated for American Airlines.
The maintenance bottleneck was the primary cause of Mesa’s operational woes during the summer, leaving it with fewer spare aircraft in its fleet and ill prepared to handle disruptions caused by summer weather, CEO Jonathan Ornstein said during the company’s most recent quarterly call on August 9. Unlike other airlines that are facing staffing problems, Mesa has enough flight attendants on its roster and more than 250 pilots in its training pipeline.
“I mean our flight attendant numbers have been really good, [and] our pilot situation, especially on the American side is healthy, so the weather impact to us, yes, it causes all those related issues on crews timing out and all of that issue,” Chief Operating Officer Bradford Rich said. “Our primary issue has been that when we have the weather-related operational interruption, the inability to reset the system with adequate spare ratio has really been the core of our problem.”
Mesa, like most airlines in the U.S., deferred maintenance during the early days of the pandemic to save cash. But that bill has now come due, and aircraft — particularly the fleet of CRJ900s that it operates for American, which are getting cabin refurbishments — are undergoing heavy-maintenance C-checks that take twice as long as they did before the pandemic. The regional carrier said in anticipation of this, it lined up additional maintenance providers. But the crux of the problem is those providers have been unable to source enough spare parts.
Airlines are not alone in facing supply-chain woes. Ford and General Motors have had to shut down factories for lack of auto parts and semiconductors. Much of this is due to a global maritime freight slowdown. Ports in the U.S. are backed up, shipping companies are having difficulty sourcing containers, and ports in China and other parts of Asia have been subject to rolling closures due to Covid-19 outbreaks.
Mesa expects these supply-chain constraints to last through the third quarter of 2022.
Despite these issues, Mesa had a good quarter and expects the strength to continue through the third quarter, despite the spread of the Delta variant of the coronavirus. It plans to operate 88 percent of its pre-pandemic capacity for United in the September quarter, and more than 100 percent of its pre-pandemic capacity for American.
The carrier also made news right after the end of the quarter with its investment in Heart Aviation to provide up to 100 electric 19-seat regional jets, expected to join the fleet in 2026. This followed its investment, also with United, earlier this year for Archer Aviation‘s eVTOL aircraft. Ornstein touted the Heart deal’s potential to reconnect smaller cities — like Mesa’s former headquarters in Farmington, N.M. — to the national air transportation system. “We’ll also be able to fly once again to the dozens of cities that we have previously flown to that currently have little or no service,” he said. “We do think that there is a big future in electric and other forms of decarbonization.”
Mesa’s cargo operation with DHL also is ramping up. The regional is in the process of adding a third Boeing 737-400 freighter to its fleet, but says that aircraft is “limited.” For future cargo growth, Mesa likely will add 737-800 freighters, Ornstein said. But he tempered the optimism he expressed earlier in the pandemic, when Mesa said it could add as many as 10 freighters in the next year. Now, Ornstein believes the passenger side of the business provides more potential, while cargo will continue growing “incrementally.”
The regional’s expansion into Europe through its partnership with Gramercy Associates continues. Mesa is a minority partner in the joint venture, due to European Union restrictions, but it will provide technical and operational advice to Gramercy, Ornstein said. The new business is expected to get off the ground next year and likely will start with an existing Mesa aircraft that has been reconfigured to meet European regulations.
Mesa reported quarterly revenues of $5.8 million, up from $4.9 million last year, generating profits of $4.3 million, or $900,000 more than in 2020. The carrier ended the quarter with 167 aircraft in its fleet, and expects to grow by a net of one aircraft through the third quarter of next year.
In Other News
- Avianca posted a $342 million net loss in the second quarter, slightly worse than its $312 million loss during the prior quarter. Compared to 2019, revenues decreased 61 percent to $437 million and expenses 51 percent to $582 million. Avianca flew just a quarter of its second quarter 2019 capacity during the period, Cirium schedules show.
- Cargo helped stanch yet another mega-carrier’s losses. Etihad Airways reported first-half losses of $400 million, or about half of its losses last year. Cargo revenues soared 56 percent to $800 million, dwarfing passenger revenues of $300 million. Passenger volumes have grown 10 percent every month this year, but still are down about 70 percent from last year.
- And another! Korean Air reported its fifth straight quarterly profit, once again thanks to cargo. The carrier reported record cargo revenues of 1.5 trillion won ($1.3 billion), besting the previous record of 1.3 trillion won. Korean Air credits this to companies around the world restocking as the global economy shakes off its Covid-19 torpor, and the carrier predicts this strong demand will continue through the year as vaccinations take hold and countries emerge from the pandemic. Passenger demand is expected to remain anemic through the end of the year. In the quarter, Korean Air reported revenues of 2 trillion won, up 16 percent from last year, generating an operating profit of 197 billion won, a 31 percent increase from 2020.
- The Covid-19 crisis continued to pummel Latam in the second quarter. The airline posted a $358 million operating loss during the period, or a $770 million net loss including one-time restructuring expenses. Revenues fell 63 percent to $889 million and expenses 47 percent to $1.2 billion year-over-two-years. Latam flew just 31 percent of its capacity in 2019 ending the June quarter with 296 aircraft.
In terms of Latam’s U.S. Chapter 11 bankruptcy restructuring, the airline has received court approval to postpone the deadline for it to file a reorganization plan to September 15. Latam continues to work with creditors to secure bankruptcy exit financing. The carrier also made progress on its fleet with agreements to take 70 new Airbus A320neo family aircraft and two new Boeing 787s through 2028, while also cancelling commitments for two A350s, four 787s and one 777F.
- The almost inevitable happened. Low-cost longhaul startup Norse Atlantic Airways has pushed its launch back from this December, as originally planned, to sometime in the first or second quarter of next year. By then, the carrier said it will have all 15 of its Boeing 787s in place, and it will open ticket sales three months before the launch. One thing it doesn’t have yet is an air operators certificate, but the carrier said its management team now is in place, fulfilling Norway’s requirements for granting one. Norse Atlantic is applying for AOCs in Norway and the UK.
- New Zealand is keeping the drawbridge up until early next year. Prime Minister Jacinda Ardern said when the country reopens next year, only fully vaccinated travelers from “low-risk” countries will be allowed in. This puts an end to dreams of a trans-Tasman travel bubble with Australia, at least for this year.
- The UK has added the Belarusian air traffic control provider to its list of sanctions in response to the illegal diversion of a Ryanair flight in May. Belarusian President Alexander Lukashenko scrambled fighter jets to divert the flight, en route from Athens to Vilnius, to Minsk in order to arrest dissident journalist Roman Protasevich. The May 23 incident met with global (with the exception of Russia, which dismissed it as an “internal matter”) horror over state-sponsored air hijacking.
- Canada will require employees of the country’s airlines, shipping lines, and railroads to be vaccinated against Covid-19 by the end of October. This requirement will extend to “certain travelers,” including all passengers on airlines, interprovincial trains, and large sea vessels, like cruise ships, Transport Minister Omar Alghabra said in a statement announcing the new rules. Details are scant, however. Transport Canada said it will engage with transportation companies over the next few weeks to determine “how this requirement will be implemented,” how vaccination status will be verified, and whether testing still will be required.
Both WestJet and Air Canada said they welcomed the requirement for airline employees. Neither airline mentioned the requirements for passengers, however. According to the Canadian government, 71 percent of Canada’s population has been fully vaccinated.
- Also in Canada, WestJet‘s cabin crew union, CUPE, has ratified a five-year collective bargaining agreement, the first for the union and the carrier. The agreement spans August 1, 2021-July 31, 2026.
One of the only benefits to emerge from the Covid-19 pandemic for airlines is something of a buyer’s market for aircraft from the world’s largest planemakers.
Latam Airlines Group is the latest to cash in on the downward pressure on aircraft values with a deal for 28 new Airbus A320neo family jets. The order, if approved by a U.S. bankruptcy court, would add to the 42 A320neo family — 23 A320neos and 19 A321neos — commitments that the Chilean carrier already has for a total narrowbody orderbook of 70 aircraft. The agreement also includes the cancellation of Latam’s two remaining A350 orders.
And it is not just new Airbus jets that Latam is acquiring. The airline also has deals in front of the court to lease five former Norwegian Air Boeing 787-9s from Avolon and Orix. The agreements come with “favorable economic terms” — undoubtedly taking advantage of the same softness in the widebody aircraft market that Delta Air Lines leveraged in its recent used A350s deal — according to court filings.
Latam is direct about the reason for its A320neo deal, which followed the rejection of some 42 aircraft leases through Chapter 11: Saving money. In a court filing on August 5, it describes the agreement as allowing it to “purchase additional aircraft at a lower rate and obtain valuable services on favorable terms,” as compared to those of the aircraft it rejected.
Deals like this — rejecting older aircraft, or at least orders, in favor of new ones — are increasingly de rigueur for airlines. In Latin America alone, Aeromexico and Gol have swapped old orders for new through various restructuring processes. The former slashed its orderbook with Boeing to just 20 737 Maxes from 54 in April, and then signed for 12 more new Maxes from lessor Dubai Aerospace Enterprise in July. And the latter inked a deal with Boeing for 28 more 737-8s earlier in August, nearly a year-and-a-half after cancelling commitments for 34 Maxes.
Since the beginning of 2020, the value of a new A320neo has fallen by 3 percent to $48.6 million and a new 737-8 by 5.5 percent to $43.6 million, said Cirium Head of Valuations George Dimitroff. Those declines offer real dollar-and-cents savings for an airline looking at new aircraft.
Aeromexico, Gol and Latam all plan to use the aircraft primarily as replacement. This creates additional long-term cost savings from lower trip and maintenance costs as they move to newer models from older ones. But another reason touted by the carriers are the environmental benefits of the latest generation jets.
Per Latam, the A320neo family aircraft are 20 percent more fuel efficient than the older A320 family models they will replace. This lower fuel burn translates to lower emissions that will help the airline achieve its goal of carbon neutrality by 2050.
And Gol claims the 737 Maxes are 15 percent more fuel efficient and emit 16 percent less carbon than the 737 Next Generation jets they replace.
“With sustainability initiatives front and center, we believe operation of modern, fuel-efficient aircraft will continue to be the trend on a global scale,” Air Lease Corporation Executive Chairman Steven Udvar-Hazy said on August 5. He added that he expects more deals for new aircraft as airlines lean into environmental commitments.
Embraer on Track To Deliver 45-50 Aircraft This Year
Things are looking up for Embraer, with deliveries on track to outpace 2020 and a couple of large orders in its books this quarter. In fact, the Brazilian airframer reported its first quarterly profit since 2018.
During the quarter, Canada’s Porter Airlines ordered 30 E195-E2s with options for 50 more, and U.S. regional Horizon ordered 34 E175s. And this month, SkyWest placed an order for 16 E175s (see below). Embraer said it delivered 14 commercial aircraft in the second quarter and is on track to delivery between 45-50 this year, or about 5-10 more than it did last year.
Its defense and business aviation segments also posted strong results in the quarter, and Embraer’s backlog across all its segments is now $16 billion.
Embraer also is moving ahead with its turboprop and eVTOL projects. The initial designs of the turboprop show the 70-90 seat aircraft with rear-mounted engines. CEO Francisco Gomes Neto said further details on this project will be made public later this year and that interest in the turboprop is strong, particularly among U.S. airlines. Embraer also started flight tests of its electric demonstrator aircraft this month.
Neto noted that 94 percent of the global in-service Embraer fleet is operating now, a further sign that domestic markets are recovering faster than international and longhaul markets, he said.
Embraer reported second-quarter revenues of $1.1 billion, up 110 percent from last year, with a net income of $44 million. The company forecasts full-year revenue to be between $4-$4.5 billion.
- Embraer’s E175 continues to expand its lead in U.S. regional fleets. SkyWest will swap 16 Bombardier CRJ900s for an equal number of new E175s in its fleet operating on behalf of Delta with deliveries from the second quarter of 2022. The order is valued at $798 million at list prices, according to Embraer. The deal will boost the new of E175s in the Delta Connection fleet to 130 aircraft, and reduce the number of CRJ900s to 127 aircraft, based on end-June numbers. The number of large regional jets, including CRJ900s and E175s that seat up to 76 passengers, that Delta affiliates can operate is capped at 223 aircraft.
- Air Lease Corporation priced a $600 million unsecured medium-term notes issue at 0.8 percent last week. The debt matures in August 2024. The lessor will use proceeds for general corporate purposes, including aircraft purchases and repaying outstanding debt.
- Volaris and CDB Aviation have signed a sale-and-leaseback transaction for four Airbus A320neos. Deliveries of the aircraft will occur from October through May 2022. In July, Volaris CEO Enrique Beltranena said the airline was receiving bids with “absolutely astonishing” sale-lease rate factors from lessors to finance the 25 aircraft it plans to take by end-2022. The carrier leases its entire fleet.
- Canadian startup Jetlines has raised C$6.6 million ($5.3 million) from an equity private placement. The airline issued 16.5 million “units” that translate roughly to a share each. Proceeds from the equity raising exercise will be used for licensing expenses as well as general corporate purposes.
- The City of Houston and United Airlines have launched a two-tranche $278 million municipal bond issue for a new baggage claim system for the carrier at Houston Bush Intercontinental Airport. Proceeds will fund construction of the new system in Terminals C and E — both controlled by United — at the airport. United executives have previously cited the existing baggage claim system as a limit to the airline’s growth at Intercontinental, which was its second busiest hub behind Chicago O’Hare in 2019. Work began in 2019 and is scheduled to wrap in the third quarter of 2024.
Avianca named low-cost carriers as one of its biggest competitive challenges in its bankruptcy reorganization plan. To counter that, it is densifying the cabins on its Airbus A320 family jets and adding new point-to-point routes that take a page from discounters’ network plans.
Last week, the carrier unveiled plans for 22 new international routes — plus one that was previously announced — that almost entirely bypass its main Bogotá and San Salvador hubs. Most of the additions will be in Avianca’s largest market, Colombia, with new service planned from Bucaramanga to Miami; Cali to Cancun, Mexico City, New York JFK, Quito and San José; and Medellin to Aruba, Guayaquil, Mexico City, Orlando, Quito and San José. It will also connect Bogotá and Toronto.
Costa Rica and Ecuador, two markets that it named as secondary bases in its reorganization plan, gain eight new routes. Avianca will connect San José — where it closed the former Taca hub in 2013 — to Los Angeles, Managua, Mexico City and New York JFK. And both Guayaquil and Quito will gain new nonstops to Miami and New York JFK.
Elsewhere, Avianca will also add new Guatemala City-Washington Dulles and San Salvador-Orlando service. All of the new routes begin in 2022.
The expansion is a shot across the bow of some of Avianca’s rapidly growing budget competitors. Mexico’s Volaris plans to launch a new El Salvadoran subsidiary this fall as well as expand its Costa Rican subsidiary — particularly on routes to the U.S. — as it is blocked from adding flights to the U.S. from Mexico for the time being. The airline will also add its first-ever service to Colombia this fall. And Viva Air Colombia has doubled down on its Medellin base, which it upgraded to a connecting hub in June with new service to Cancun, Mexico City and Orlando.
Avianca is betting that its improved cost structure, plus denser aircraft, and strong brand name in the region will be enough for it to out compete its budget competitors in these markets. “We have the firm purpose of continuing to be the airline with the most robust route network in our region,” said Manuel Ambriz, the airline’s commercial chief, in a statement.
- Aeromexico beefs up its presence in Madrid this winter. The carrier will connect Guadalajara and Monterrey with the Spanish capital from December 15 and 16, respectively. The routes will complement its existing service between Mexico City and Madrid. All three routes will be flown with Boeing 787s.
- Despite still flying just a fraction of its pre-crisis capacity, Air Canada is expanding to the U.S. with new service to Orange County, Calif. The airline will connect the Southern California airport with Vancouver with Boeing 737-8s from Oct. 2. Air Canada previously served Orange County from Calgary in 2010.
- With an eye on winter leisure travel, Alaska Airlines will add three new seasonal routes to Mexico from its San Francisco hub. The carrier will connect the Bay Area airport with Ixtapa-Zihuatanejo, Loreto and Mazatlan from December 18 through April 16, 2022 with Airbus A320 jets.
- Keeping with its strategy of local bases, Allegiant Air is putting down roots in Appleton, Wis., and Flint, Mich., early next year. The discounter will base three Airbus A320 family jets in Flint from February 16, and two A320 family aircraft in Appleton from March 2 for a combined investment of $125 million. In a statement, Allegiant Senior Vice President of Revenue and Planning Drew Wells said the bases will allow it to increase “nonstop flight offerings” but, as yet, the airline has unveiled only one new route: Flint-Phoenix Mesa beginning in November.
The news of the bases came as Allegiant unveiled 22 new routes beginning from October through December. Phoenix Mesa will see the most additions with new service to Amarillo, Flint, Minneapolis-St. Paul, Orange County, Springfield, Ill., Spokane and Tulsa. Austin, Destin-Fort Walton Beach, Fort Lauderdale, Palm Springs, Provo, Punta Gorda, Sarasota-Bradenton and Sioux Falls will also see new service.
- Fresh off a second quarter profit, Copa Airlines will add its first new destination since the pandemic began: Armenia, Colombia. The Star Alliance carrier will connect Armenia and Panama City thrice-weekly with a Boeing 737-700 from December 2.
- Ryanair is swapping its London Southend base for one in Newcastle as the pandemic changes to its map continue. The Irish discounter will close its Southend base on November 1 and redeploy aircraft based there elsewhere in the name of “network efficiency,” reported Routes Online. Ryanair maintains bases at London’s Luton and Stansted airports.
Fast forward to March 2022 and Ryanair will open a new base in the UK’s north in Newcastle. It will add 12 new routes to seven it already operates from the airport with two locally based aircraft. New routes include four to the Canary Islands (Fuerteventura, Gran Canaria, Lanzarote and Tenerife), two to the Balearic Islands (Ibiza and Menorca), as well as Paphos, Cyprus, and Zadar, Croatia.
- Singapore Airlines is adding a new way — or restarting an old one depending on how you look at — to get to Los Angeles. The carrier will begin one-stop service between its namesake base and LAX via Taipei with an Airbus A350-900 from August 25. The route complements SIA’s nonstop flight and one-stop via Tokyo Narita. SIA previously flew Singapore-Taipei-Los Angeles in 2008.
- Citing pent-up demand, Virgin Atlantic has big plans for Caribbean flying this winter. The airline will add four new routes: Edinburgh-Barbados from December 5; London Heathrow-Nassau from November 20; London Heathrow-St. Lucia from December 18, replacing previous London Gatwick-St. Lucia service; and Manchester-Montego Bay from November 6. In addition, Virgin Atlantic will debut Edinburgh-Orlando service in April 2022. The new routes will be flown with a combination of Airbus A330 and Boeing 787 aircraft.
- Virgin Australia hopes to add two new routes amid Australia’s rapidly evolving lockdowns and domestic travel restrictions. The carrier will connect Adelaide with Darwin and Launceston from September 6 and 7, respectively. The new routes come as Australian airlines juggle services following a spike in new Covid-19 cases that has, for one, prompted stay at home orders in Sydney and restricted travel to and from New South Wales.
- Wizz Air is moving forward with plans to grow 20 percent per annum for the next four years. The discounter has unveiled four new routes at its Tirana, Albania, base; four from Italy; plus one from its Abu Dhabi base all beginning in September. Wizz will connect Tirana with Billund, Liverpool, Madrid and Oslo Sandefjord from December when it bases a sixth aircraft, an Airbus A321neo, at the airport. From Italy — a country at the center of a competitive face off between budget juggernauts Wizz and Ryanair — the carrier will connect Bologna, Milan Malpensa and Rome Fiumicino with Gran Canaria, and Malpensa with Marrakesh from October. And Wizz will link Abo Dhabi and Bahrain from September.
No news is good news when it comes to proving an aircraft’s mettle, or at least that’s what the conventional wisdom holds. That’s true both for new, unproven models and for aircraft that have been through the media’s wringer.
This is to be the case for Boeing’s 737 Max. Since the latest iteration of the planemaker’s bread-and-butter jet returned to the skies with Gol on December 9, 2020, neither Boeing nor the airlines have mounted any publicity campaign to regain confidence in the aircraft. The Max was grounded from March 2019 through November 2020 after two deadly crashes took the lives of 346 people. In fact, the return is proving remarkable for how little fanfare it has received since those initial flights eight months ago.
“You are not going to convince people that the airplane is safe by running an ad in a newspaper. You’ve got to fly it and let it speak for itself,” The Air Current reported that William Speicher, then-group vice president of marketing at United Airlines, told the Los Angeles Times following the 37-day grounding of the DC-10 in 1979.
A smooth return did not always appear the case for the Max. During its nearly two-year grounding, the jet faced seemingly nonstop U.S. media coverage on whether flyers would ever return to the type when it flew again. Polls found that anywhere between 40 percent to two-thirds of potential travelers would either wait or never fly on a Max once it was re-certified. And despite skepticism that these views would hold once the plane resumed revenue service, Boeing took them seriously enough to map out detailed strategies for airlines to deal with nervous flyers. The planemaker emphasized that “human connection” with concerned travelers would work better than logic-based approaches, materials reported by The New York Times in December 2019 show.
But by and large, travelers appear unfazed by flying on the jet. On three separate Max-operated flights this year, this reporter observed no travelers express concerns with the aircraft. Flights were full and, when asked, several fellow flyers were unaware they were even on a Max.
“From the first day of flying to now, we just don’t see anyone having any concerns at all,” American Airlines Chief Operating Officer David Seymour told Airline Weekly. Few if any flyers have taken advantage of the Fort Worth, Texas-based carrier’s offer to switch to a non-Max operated flight, he added. American resumed 737-8 flights at the end of December and operates 41 aircraft today.
That sentiment appears to hold across Max operators based on interviews and public statements. Alaska Airlines and Ryanair went as far as to say that no passengers have taken advantage of the option to change to a non-Max flight for free.
“We’ve gone to some considerable length to indicate that if you want to get off the aircraft, you can and not one passenger in the first five weeks of operation has wanted to offload off the aircraft,” Ryanair CEO Michael O’Leary said in July. The airline and its subsidiaries fly 12 737-8200s.
And at Copa Airlines, Vice President of Flight Operations Captain Bolivar Dominguez said the carrier was not seeing “any restraint” from travelers to fly on the plane. “People’s minds are somewhere else and not on the aircraft,” he added in a nod to the Covid-19 pandemic. Copa operates 13 737-9s.
However, statements like these don’t account for travelers who avoided the aircraft during the booking process. But even then, many airlines are making it difficult to skip the Max entirely. For example, American operates only the Max to a number of Caribbean and Latin American destinations and Gol lists all of its flights as operated by simply a 737 — leaving the door open to any flight being on a Max. Both carriers say Max-operated flights are carrying comparable or higher load factors than ones flown with other aircraft.
“I think people would fly a kite to Florida if they could,” said one Max pilot at a major U.S. carrier who was not authorized to speak on the record. “People just want to go and they don’t care.”
A (Largely) Uneventful Return
There are 346 737 Maxes in service at 30 carriers around the world today, according to Cirium’s Fleets Analyzer and Boeing data. The largest operators are all in the U.S.: Southwest Airlines, American and United, with 68, 41, and 35 aircraft, respectively. And by Boeing’s count, the Max family has operated more than 111,000 flights since revenue service resumed in December. Impressive stats for a plane that was out of the skies for 637 days and has yet to be re-certified in several key markets, including China, India and Russia.
“The return to service was much better than we were expecting,” Gol Vice President of Operations Celso Ferrer told Airline Weekly. The changes mandated by global regulators as part of the Max’s recertification took roughly four days per aircraft including test flights, and the pilot training aspect about a day including mandated simulator time. Gol has retrained 60 percent of its pilots and aims to have all of its crews certified on the type by year-end. The airline operates 12 737-8s.
Per the FAA’s ungrounding order, airlines must update software for the flight control system to correct the flaw in the Maneuvering Characteristics Augmentation System (MCAS), which contributed to the Ethiopian Airlines and Lion Air 737 Max crashes. There were also two additional software updates unrelated to the MCAS system and a mandated validation flight. And on the human side, pilots were required to undergo two hours of simulator training — something that was not required when the Max was first introduced in 2017 — before flying the plane in revenue service.
“In terms of continued problems and perceptions, we’re just not seeing anything,” said Greg Bowen, who chairs the training and standards committee at the Southwest Airlines Pilots Association (SWAPA). All of the Dallas-based carrier’s 9,000-plus pilots completed the required Max training by the time Southwest resumed revenue service on March 11. Bowen personally has piloted the Max several times, including on a recent Phoenix-Honolulu flight where it did a “phenomenal job.”
When asked about any teething issues with the plane, Bowen pointed to several known issues with the CFM International Leap-1B engines on the Max related to the engine shrouds and coking of the fuel nozzles. Both were identified prior to the grounding in March 2019 and fixes are in the works.
Teething issues are common with every new aircraft. Early Airbus A320neos with Pratt & Whitney PW1100G geared turbofan engines had significantly longer than industry standard cool-down cycles that posed issues for operators, including IndiGo and Lufthansa. These and other problems forced numerous carriers to postpone deliveries until they were rectified.
Union officials indicate that pilots like the Max and are confident in the changes from Boeing. Representatives of three unions said that crews were largely happy with the plane and added that, except at a select few airlines, training backlogs were the biggest challenge to getting more pilots in the cockpit.
The relatively smooth return has allowed the Max’s main selling points — its improved performance and efficiency gains — to shine. By virtue of its new generation engines, the aircraft is by definition more efficient than older narrowbodies. Alaska, Gol and Ryanair all confirmed that the Max is exceeding expectations in terms of fuel efficiency by up to five percentage points. Alaska sees fuel efficiency per seat that is 25 percent better on the 737-9 than the A320s it replaces; it forecast a 20 percent improvement in December.
From Confidence to Orders
“The simplest referendum I can give you is what we did in May, we went and doubled down for 13 more,” said Nat Pieper, senior vice president of fleet, finance and alliances at Alaska. After weighing both the A321neo and 737-9 to replace its aging A319s and A320s, the Seattle-based carrier committed to 36 Maxes at the end of 2020 and returned for 13 more in May.
With the orders and its previous commitments, Alaska plans to fly 65 737-9s by the end of 2023 — roughly the number Southwest flies today. However, Pieper did indicate that some of those Max 9s could become Max 10s, the largest variant of the jet.
Aeromexico, Gol, Ryanair, Southwest and United have also come back for more Maxes since the plane was ungrounded. While Alaska and Ryanair did so before they were flying the plane, the others only did so after they resumed Max flights and had an idea of the operational benefits. Not to mention that traveler fears were more of a mirage than anything else.
United made by far the largest commitment with its landmark order for 200 Maxes — 50 737-8s and 150 -10s — in June. Though Southwest is not far behind with 140 new orders to date in 2021.
This is good news for Boeing, which lost more than 560 net commitments for the 737 in 2019 and 2020. Those losses have been nearly wiped out with the 524 new orders for the Max that the planemaker recorded during the first seven months of this year.
However, Boeing cannot consider itself or the Max out of the woods until all countries sign off on the Max. The biggest of these is China, which was the second-largest airline market in the world in 2019 — and the largest in 2020 when U.S. carrier cut capacity precipitously — Cirium schedules data show. By Boeing’s own estimates roughly a third of 737 commitments are bound for China, though officially only 104 of the 4,045 outstanding Max orders are for Chinese carriers, according to the airframer’s official tally. The airframer flew a 737-7 to China earlier in August in the hopes of speeding re-certification.
Asked whether Copa planned to up its firm commitments for the jet, Dominguez said the airline was “comfortable” with where its orderbook stood and added that Max was “going to be an integral part of our fleet.” The airline has used the crisis to accelerate the retirement of its Embraer E190s and return to being an all-737 operator. Copa had 41 outstanding Max orders plus those in its fleet at the end of July, Boeing data show.
Seymour at American responded similarly when asked whether the U.S. carrier would order more Maxes. “We’re on the back end of a complete fleet refresh getting next generation aircraft,” he said, indicating that it had little need for more replacement jets at this time.
“The number of people that want to visit the cockpit after [a Max] flight is much bigger than the NG,” said Ferrer on his view of the aircraft. “There is some positive enthusiasm around the plane.”