Garuda Indonesia Considers Halving Its Fleet

Embattled Jakarta-based airline, Garuda Indonesia, is looking at halving its fleet of 142 aircraft as it attempts to navigate the worldwide travel downturn. The airline’s passenger numbers were down 73% in 2020. According to Garuda Indonesia’s CEO, a comprehensive restructuring of the airline is required to it keep flying.

Garuda Indonesia CEO Irfan Setiaputra points to turbulence ahead for the airline

Garuda Indonesia’s President and CEO, Irfan Setiaputra, provided an update on the airline’s perilous position while speaking to employees last week. Total debt is now US$4.9 billion and growing by $70 million a month. Total equity is -$2.85 billion. Just 29% of Garuda Indonesia’s fleet is in the air, and Mr Setiaputra does not see flying conditions in Indonesia improving much this year.

“We have to go through a comprehensive restructuring, a total one,” Irfan Setiaputra told his employees. “Failure to carry out the restructuring program could result in the company being terminated suddenly,” he added.

Structural problems at Garuda Indonesia predate the 2020 travel downturn. But, as with airlines elsewhere, the downturn highlighted many of those problems. With international borders closing and widespread travel restrictions imposed, many of Garuda Indonesia’s international services ceased in 2020. The airline is now operating scaled-back schedules to just 10 countries.

Problems at home and abroad for Garuda Indonesia

Garuda Indonesia’s core business is flying around Indonesia. Indonesia’s domestic airline market is one of the busiest in the world. The country is made up of thousands of islands, and airlines are a critical piece of infrastructure. According to Mr Setiaputra, Indonesia’s airlines contribute 2.6% to Indonesia’s gross national product and employ some 4.2 million people.

But the Indonesian domestic airline market is highly fragmented, and aggressive low-cost upstarts like Lion Air and AirAsia are gaining ground on legacy airlines like Garuda Indonesia.

Garuda’s domestic operations are running at about 50% of 2019 levels. With fewer seats available in a price-sensitive market, Garuda Indonesia’s revenues are taking a big hit. The airline has not yet published its 2020 financial figures, but with passenger numbers, load factors, available seat kilometers, and revenue passenger kilometers all substantially down, a heavy loss is expected.

The problem for Garuda Indonesia, as with many other airlines, are the high fixed costs. Regardless of passenger numbers, outgoings continue unabated. Employees, aircraft lessors, airports, and fuel are among the many ongoing fixed costs that need to be paid regardless of revenue flows.

Garuda’s fleet potentially cut by 50%

It is those costs Irfan Setiaputra is trying to get a handle on. The airline has already offered early retirement options to many of its 14,000 plus employees. With around 90% of Garuda Indonesia’s fleet leased, cutting the fleet size is another way to reduce outgoings.

Garuda Indonesia is a client of some 35 aircraft lessors. Mr Setiaputra confirmed that in addition to subdued demand, one contributing factor to Garuda’s now slimmed-down operating fleet are planes grounded by lessors because the airline has not made payments on them for several months.

The Garuda Indonesia CEO sees his airline flying no more than 70 aircraft after the restructuring program. That will result in significant cost savings for the airline. But it will also materially alter the airline’s future network and operating strategy. Mr Setiaputra did not say which planes he was looking at cutting from the Garuda fleet. The majority of Garuda’s leased aircraft are Boeing 737-800s and smaller planes.


Azul A320neo Suffers Engine Troubles Departing Rio De Janeiro

An Azul Airbus departing Rio de Janeiro’s Santos Dumont Airport on Monday experienced a bird strike incident. The birds damaged the plane’s left engine. The incident forced the pilots to declare an emergency and land at a nearby airport.

Azul bird strike incident causes engine compressor stalls

According to a report in The Aviation Herald, An Azul Linhas Aereas Airbus A320-200N was departing Rio de Janeiro and heading to Brasilia. The report identified the aircraft as PR-YRY. That aircraft is leased and has been with Azul since January 2019. Azul regulars may know the plane better by its name Azul Avante!

The Airbus A320neo was operating flight AD4800. That flight is the scheduled 06:30 departure from Santos Dumont Airport. Normally, it takes just under two hours to fly across to Brasilia.

On Monday, the flight was on its initial climb out of Rio de Janeiro when the pilots declared an emergency. According to The Aviation Herald, the bird strike incident caused compressor stalls of the aircraft’s left-hand engine.

Azul A320neo circles over Rio de Janerio before diverting to an alternative airport

The climb stopped at 7,000 feet. The Airbus diverted to Rio de Janeiro’s Galeao International Airport and landed safely. According to flight tracking software, the flight headed out over Guanabara Bay before tracking east out over Engenho do Rocado. The flight then turned northwest in a sweeping turn over Engenho Novo before tracking back over the bay north of Paqueta Island.

Over Parada Angelica, the plane turned onto a westerly tracking and entered into a series of circles over Pedra Lisa. Coming out of the circles, the aircraft headed southeast over Duque de Caxias on a tracking into Rio de Janeiro’s Galeao International Airport.

Watching the climb, the Airbus leveled off at just under 5,000 feet just minutes into the flight. For approximately five minutes, the plane maintained that altitude before climbing to 7,000 feet. At this point, the aircraft leveled off, maintaining that altitude while it overflew the bay and circled above Rio de Janeiro’s suburbs. On its run into Galeao International Airport, the Airbus lost altitude fairly quickly before coming into land safely. The plane spent just under 40 minutes in the air.

Several incidents involving Azul’s A320-200neos this year

Monday’s incident is the first recorded incident regarding PR-YRY. Azul has a fleet of 42 Airbus A320-200neos, the majority of which are in the air. The São Paulo-based airline has had a steady stream of incidents this year concerning its A320-200neos.

Those incidents include an in-flight engine shutdown in early January on an A320-200neo flight from Cruz to Sao Paulo Congonhas. In mid-February, smoke was reported in the aft cabin on an A320-200neo flight from Sao Paulo Viracopos to Savador. Just days later, another A320-200neo reported a drop in oil quantity in an engine and diverted the plane to Salvador.

In early March, a smell akin to burning electrical wires was reported on an Azul A320-200neo flight from Sao Paulo Viracopos to Aracaju. That flight also diverted. One month later, in early April, another Airbus A320-200neo reported engine vibration indications in-flight, prompting a return to Manuas. In late April, another A320-200neo operating an Azul flight from Curitiba to Rio de Janeiro Santos Dumont reported a hydraulic failure. That forced the aircraft to divert to Galeao International Airport.

In all incidents, including Monday’s bird strike incident, the flights landed safely without any reported injuries to passengers or crew.


Singapore Airlines Generates $1.5 Billion From Aircraft Leaseback Sales

Singapore Airlines has raised approximately US$1.5 billion for the sale and leaseback of 11 of its widebody aircraft. The airline has been struggling with liquidity during the pandemic and will use the money to help it navigate the ongoing low demand.

The airline confirmed in a statement today that it had completed the sale and leaseback of seven Airbus A350-900s and four Boeing 787-10s. Reportedly four parties were involved in the process, and the airline raised S$2 billion (US$1.5 billion). A sale and leaseback transaction is when an airline sells its aircraft but then takes the aircraft back on a lease. It is an effective way to raise money without cutting the number of aircraft available for use.

The breakdown of the transactions is: Aergo Capital Limited has taken one of each type of aircraft, as has Munzinich and Co Limited. EastMarchant/Crianza Aviation bought one Airbus and two Boeing. Altavair snapped up the remaining four Airbus.

Like many airlines, Singapore Airlines has been struggling with liquidity in recent months as the pandemic continues to impact revenue. The sale and leaseback of the 11 aircraft is part of an ongoing attempt to raise cash and cash-equivalent assets.

Increasing liquidity

As part of the announcement regarding the sale and leaseback, Singapore Airlines also provided an update on its liquidity situation. The airline confirmed it had raised approximately S$15.4 billion (US$11.5 billion) in fresh liquidity since April 1st, 2020. This includes the recent transaction as well as S$8.8 billion (US$6.6 billion) raised in a rights issue back in June 2020.

The airline raised a further S$2.2 billion (US$1.6 billion) by issuing convertible bonds and notes and another  S$2.1 billion (US$1.5 billion) from secured financing. Singapore Airlines also has the option to raise a further S$6.2 billion (US$4.6 billion) in mandatory convertible bonds at the Annual General Meeting in July. Goh Choon Phong, chief executive of Singapore Airlines, commented,

“The additional liquidity from these SLB transactions reinforces our ability to navigate the impact of the COVID-19 pandemic from a position of strength. We will continue to respond nimbly to the evolving marketing conditions, and be ready to capture all possible growth opportunities as we recover from this crisis.”

Sale and Leaseback during the pandemic

Entering into sale and leaseback arrangements has been a fairly common response from airlines over the course of the pandemic. The agreement with a leasing company allows the airline to access cash previously tied up in the asset. Importantly, it means the airline can still use the aircraft, and they haven’t reduced the number of seats available.

Early on in the pandemic, Delta Air Lines entered into two sale and leaseback transactions with BBAM Aircraft Leasing & Management and Altavair AirFinance for the combined total of US$1 billion. easyJet did the same in August 2020 with an agreement with Bocomm Leasing, and Cathay Pacific sold and leased six 777-300ER for a total of US$704million.

In fact, the pandemic has seen a significant increase in the number of sale and leaseback transactions. Singapore Airlines is only the latest in a long list of airlines to take advantage of these agreements.


Air Tanzania Eyes A Larger Airbus A220 Fleet

Dar es Salaam-based Air Tanzania is thinking of adding more Airbus A220 aircraft to its current fleet. The news of the expansion comes amidst the current COVID-19 medical emergency, with many airlines looking to consolidate rather than expand. Former Tanzanian President John Magufuli, who passed away last month after becoming infected with the coronavirus, had big plans for state-owned Air Tanzania.

Like many a leader in underdeveloped counties, John Magufuli planned to use the state and the state alone to bring prosperity to the African nation. Hellbent on promoting outrageous mega infrastructure projects during his 2015 election campaign, Magufuli promised to revive Air Tanzania and make it an airline the nation could be proud of.

Tanzania wants to entice tourists

Tanzania is a country full of virtual splendor with astounding wildlife, seductive Indian Ocean beaches, and natural wonders that include Africa’s hights mountain Kibo (Uhuru Pk) in the Eastern Rift mountains. Seeing Tanzania’s potential for tourism, Magufuli decided that Tanzania would need to have an airline with a modern plane fleet to entice visitors.

True to his word, in September 2016, Air Tanzania took delivery of two Bombardier DHC-8-400s, followed up by two more on April 2, 2019. Air Tanzania also received an Airbus A220-300 in December 1018 and a second in January 2019. As well as the Airbus jets Air Tanzania took delivery of its first Boeing 787-8 Dreamliner in July 2018 and its second in October of 2019.
Aviation enthusiast website lists Air Air Tanzania as having a fleet of eight aircraft with an average age of 3.3 years old.

Three more planes

In 2019 Air Tanzania also announced that they would get another Bombardier DHC-8-400 and a further two Airbus A220s. At the same time, there has been no news about when the two A220s will be delivered. Austrian aviation website aeroTELEGRAPH claims they will be delivered sometime this year or next.

During an address before Parliament on April 13, Tanzania’s new Prime Minister Kassim Majaliwa said that the government had paid for the new aircraft and that they would be arriving during the 2021/2022 financial year. The Prime Minister also complimented Air Tanzania for launching its Julius Nyerere International Airport (DAR)- Guangzhou Baiyun International Airport (CAN) route. He called the flights between Tanzania and China as being a catalyst for boosting tourism, trade, and employment.

Air Tanzania lost $26 million in 2019/2020

This latest optimism regarding the state-owned airline comes at a challenging time for Air Tanzania who, according to the Tanzania Court of Auditors, has lost Sh150 billion ($60 million) over the past five years, with Sh 60 billion ($26 million) of the losses incurred during the 2019/2020 financial year.

Again another vanity project appears to be spiraling out of control, and with Kassim Majaliwa closely aligned with Magufuli’s projects, it appears as though Air Tanzania is going to get its new aircraft. Of course, there are other politicians in Tanzania that can see the folly, while others cling on to John Magufuli’s big dream for the country.

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Exclusive: Sun Country Airlines Interested In The Boeing 737 MAX & Won’t Rule Out Airbus Jets

Sun Country Airlines just finished a successful initial public offering (IPO) in March. One month since then, the airline is flying high and targeting expansion. In an exclusive interview with Simple Flying, Sun Country’s CEO, Jude Bricker, talked about its fleet and expansion moves. One big takeaway is that the ultra-low-cost carrier (ULCC) is interested in the 737 MAX and could even take the Airbus A320neo, but the economics do not make either acquisition feasible just yet.

Sun Country is interested in the 737 MAX

Mr. Bricker confirmed the airline’s interest in the MAX, stating the following:

“The 737 Max is an airplane that we’re interested in, and we remain engaged with Boeing and CFM – the engine manufacturer – on that type.”

The Boeing 737 MAX would be a natural extension of Sun Country’s fleet. The airline currently flies a fleet of Boeing 737 Next Generation aircraft. These are mid-life jets that serve the airline well and it has built up its reputation as an all-Boeing 737 carrier. The airline also operates a diversified business, including charter operations and flying cargo for Amazon.

What is holding the airline back?

Sun Country has not placed an order for the Boeing 737 MAX. On why the airline has not done so yet, Mr. Bricker stated the following:

“If we can get the economics where we need them to be, we’ll be in that airplane. I’m a believer in the airplane; it’s a good machine. But right now, the 737NG, it is the type we operate, is just more available and cheaper. It doesn’t have to be the same price, obviously, but that price differential between a MAX 8 – same size interior – and an -800 isn’t sufficient enough for us to get into the new MAX aircraft. But, Boeing can control the price, and if they make it worth our while, we’ll be in it.”

As an ultra-low-cost carrier, keeping costs down is very important for the airline. Taking on a new Boeing 737 MAX would cost the airline more than a mid-life, used Boeing 737-800. While that would be partially offset by lower fuel and maintenance costs for the MAX compared to the 737-800, the price of a new aircraft is a little too high for the airline right now.

All-Boeing is not a foregone conclusion

The impetus to move toward a new fleet is all about economics. For Sun Country, as long as the airplane can help keep its costs low on the airline’s model, it will fly the jet. This also leaves the Airbus A320neo family as an option:

“I don’t think it’s going to be age or reliability that pushes us into changing out the fleet. It’s going to be the economics of the MAX, or the Neo, we could go Airbus too, but it’s going to be the economics of the aircraft that push us into that type.”

Sun Country taking on a new fleet type is a focus around the airline’s expansion plans and less so about an urgent need to change out its fleet of Boeing 737-800s. While it is difficult to imagine a mixed fleet of both Boeing 737-800s and Airbus A320neos, a transition toward the A320neos would need to be a low-cost option that will benefit the airline.

he Airbus A320neos could easily beat out the mid-life 737-800s on maintenance expenditures. The 737-800s the carrier currently flies are getting closer to needing maintenance overhauls than a brand new Airbus A320neo. Also, the A320neo beats out the 737-800 on fuel efficiency.

The issue with taking on a new A320neo, which is true across most mixed fleets, would be that Sun Country’s pilots would have to undergo training to fly the A320neo. That training can be expensive.

In addition, Sun Country would not be able to completely end its Boeing 737 flying. The agreement with Amazon sees the airline fly Boeing 737 freighters, and it does not appear that either party would want to take on the costs of flying a new type of aircraft such as an Airbus A321 converted freighter.

Operating a mixed fleet means Sun Country cannot double-dip easily on pilots. Currently, the airline can use its pilots in the off-seasons to fly the cargo 737s it needs to fly and bring those pilots back to the mainline passenger operation in the busy season. With a mixed fleet, Sun Country cannot do that. That lack of flexibility would increase the carrier’s costs since it needs pilots to support the airline during the busy season, but in the off-season, aside from leasing out its jets and pilots to another airline, it would be an excess cost of payroll.

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