Monday Briefing – 18 June 2018

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BA Boeing 787 at British Airways Maintenance Cardiff
BA Boeing 787 at British Airways Maintenance Cardiff (Image Credit: British Airways)

Hello and welcome to our Monday Briefing for the week beginning 18 June 2018, summarising the main developments in air travel over the past week, and a look the week ahead.

BA Grounds 7 Boeing 787 Dreamliner Aircraft

BA has now grounded 7 of its 28 strong Boeing 787 Dreamliner fleet.

2 Boeing 787-8 aircraft have long been grounded. 5 Boeing 787-9 aircraft were grounded almost simultaneously a little over a week ago.

Rolls Royce also announced last week that checks may be required on “Package B” engines as well as “Package C” engines. BA has not made any public statements since the latest Rolls-Royce announcement. However, IAG CEO Willie Walsh has not hidden his dissatisfaction with Rolls-Royce and the latest announcement will not instil confidence.

We have summarised the impact on BA’s operations here. The Seattle Times has an excellent article on the broader industry issues affecting all aircraft and engine manufacturers.

Etihad Reviews Aircraft Orders

Etihad has announced a loss before exceptional items of USD$ 1.52 billion for 2017. This compares to a loss for USD$ 1.95 billion for 2016.

These headline figures are only for the airline’s core operations and do not include losses from exceptional items or investments. The group has of course been beset by its disastrous strategy of buying minority stakes in airlines, notably Air Berlin and Alitalia.

Etihad has already undertaken a number of network changes including the suspension of Dallas Fort Worth, Entebbe, Jaipur, San Francisco, Tehran, and Venice.

It is now reported to be in discussions with aircraft manufacturers to review its aircraft order book, which is substantial. Etihad has 21 Boeing 787-9, 30 Boeing 787-10, 25 Boeing 777X and 62 Airbus A350 wide body aircraft on order. Given recent network developments, it is likely that any new aircraft will only act as replacement for retiring aircraft. Therefore, it is implausible that a large number of these orders won’t be cancelled.

Alitalia’s New Uniforms

On a related note, more than a year has now passed since Alitalia entered into administration and bankers were appointed to find a buyer for the airline.

Whilst there has been talk of interest from easyJet and Lufthansa, who have both made it clear they would only be interested in buying a fully restructured airline, no buyer has been forthcoming.

With almost blissful abandon, Alitalia has been continuing regardless. Last week it unveiled, to the incredulity of its industry peers, new staff uniforms designed by Alberta Ferretti. The cost has been cited as €7million.

John Borghetti to depart Virgin Australia

Australian aviation, like the UK, has long been dominated by intense corporate rivalries.

When John Borghetti lost out to Alan Joyce (then CEO of Qantas’ low cost offshoot JetStar) to succeed Geoff Dixon at Qantas, he was recruited by Virgin Australia. John Borghetti improved Virgin Australia’s proposition to business travellers and followed Qantas’ “twin brand” strategy by acquiring Tiger Air.

The two airlines engaged in a bruising domestic capacity war. At first, John Borghetti was aided by fractious industrial relations at Qantas, notably the grounding of the airline by Alan Joyce in 2011. However, Qantas has since stabilised and the financial performance of the two airlines has diverged widely. John Borghetti has also had to navigate a complex corporate structure and minority shareholders such as Etihad and Singapore Airlines with competing interests.

Virgin Australia announced last week that John Borghetti will not renew his contract beyond 1 January 2020 and is likely to depart before this date. Australia’s The Age looks back at his tenure.

Air Traffic Control Strikes

Air Traffic Controllers in France were on strike again this weekend.

Although industrial action seems to be confined to a small number of staff in Marseille it causes huge disruption because of the number of routes in Europe that use French airspace. ATC in Germany and the UK have also been criticised for short-staffing during the busy summer period. Even though most flights still operate, it causes delays for airlines and extra fuel costs.

Willie Walsh has described ATC disruption as one of the biggest threats to the industry. easyJet and Ryanair have both cancelled around 1,000 flights in May. Ryanair has called for urgent action. However, given the number of issues going on in Europe at the moment, this is unlikely to be considered a priority.

Stobart’s Boardroom Bust Up

It is very rare for disagreements between executives of a public company to spill out into the public domain.

Executives are never sacked. They choose to “step down” to pursue new opportunities / spend more time with their families. They are thanked for their contribution in a quote drafted by a PR officer and everything is kept behind closed doors.

This is not the case at Stobart which, inter alia, owns Southend airport and operates the Aer Lingus Regional franchise.

On Thursday last week it announced it had sacked an Executive Director and former CEO Andrew Tinkler with immediate effect. Not only that the company has instigated legal proceedings accusing him of breach of contract and breach of fiduciary duty. Andrew Tinkler is accused of plotting to oust Stobart’s Chairman Iain Ferguson, by inter alia, penning a letter to all of the company’s employees.

All is detailed in a letter to shareholders.

Also of note this week:

Gatwick confirms its investment plan for the next five years. (Gatwick)

Warren East’s battle to transform Rolls-Royce. (The Sunday Times)

Late Post Publication Updates:

Airbus is reported to be considering an extended range version of its Airbus A321 Long Range aircraft. (Reuters)

Cathay Pacific has held a press event at Airbus to mark the imminent delivery of the Airbus A350-1000. It has also highlighted its new business class meal service which will include improved presentation and quality of dishes and new service routes for cabin crew. It will be available on flights from Gatwick to Hong Kong from August 2018 and London Heathrow to Hong Kong from November 2018.

Lufthansa is reported to have held discussions with Norwegian about bidding for the airline. Whilst following IAG’s approach it is inevitable that other groups would initiate discussions, it is questionable how much appetite there would be for Lufthansa to have another go at the London market given what happened when it bought bmi British Midland.

WizzAir has announced new winter routes from Luton to Eilat (Ovda), Grenoble, Tromsø and Verona. (Wizzair)

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