CAIR Issue No. 81 - October 2010 by Leah Dupuis

CANADIAN AVIATION INTELLIGENCE REPORT October 2010

IN THIS ISSUE: CEO Update – p 1 Fuel Price Update – p 2 Airline Data – p 3 Airport Data – p 6 News – p 7 Asia Report – p 11 European Report – p 12 Washington Report – p 13 InterVISTAS News – p 15

CEO UPDATE October 2010

Welcome to the October 2010 edition of InterVISTAS Consulting Inc.’s Canadian Aviation Intelligence Report (CAIR).

Gerry Bruno CEO

InterVISTAS to Provide ADC & HAS with Activity Forecasts for Madinah Airport Bid ADC & HAS has engaged InterVISTAS to prepare activity forecasts to support its bid for Madinah Airport in Saudi Arabia. Services will include both annual and peak period activity, and will detail Domestic, International, Hajj and Umrah traffic. This project will draw on InterVISTAS’ expertise and experience gained during forecasting and financial modeling projects provided to the Kingdom of Saudi Arabia to support airport development over the past three years. InterVISTAS to Develop IS-BAO Business Model The International Business Aviation Council (IBAC) has retained InterVISTAS to provide project management services for the International Standard for Business Aircraft Operation. IS-BAO, formed in 2002, represents a leading quality assurance and safety management system for business aircraft operations. The services InterVISTAS will provide will help IBAC prepare for the next stages of evolution for its program.

The October 2010 CAIR Line-Up In this month’s publication, we lead off with an update on crude oil prices, followed by our regular monthly columns, which include:

Asia Report

European Report

Washington Report

We hope you enjoy this issue.

Page 1 October 2010

FUEL PRICE UPDATE October 2010

Crude oil prices at $86 a barrel… Crude oil prices have risen steadily during the first week of November and are currently at $86 per barrel for near term delivery. Global commodities prices have risen over the past few months since June. . The U.S. Federal Reserve confirmed the monetary stimulus plan to aid the U.S. economy which in turn weakened the dollar. This made the price of commodities cheaper for foreign currencies. In addition, the current round of quantitative easing has encouraged investors to take on a greater amount of risk.

… with future prices at $93 per barrel in 2018. Currently, a futures contract for delivery of crude oil in December 2018 costs $93 per barrel (8% higher than the current spot price). The price of this contract remains lower than prices established at market peak in May 2008 by 38%, as shown in the Figure 1 below. Figure 1: Crude Oil Spot and Futures Prices Crude Oil Futures Prices $160 May 2008 $140

$120 Sep 2008 $100

Nov 2010 Jul 2010

$80 Jan 2009 $60 Crude Oil Futures Prices

Crude Oil Spot Prices

$40

$20

Dec-14

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

Jan-05

Jan-04

Jan-03

Director, Special Projects

US $ per Barrel

Doris Mak

Month of Delivery

Page 2 October 2010

AIRLINE DATA – CANADA Traffic and Load Factors on Canada’s Major Air Carriers

September 2010 Air Carrier

Passenger Traffic Revenue Passenger Kilometres % Change % Change over 2009 from 2008

Capacity Available Seat Kilometres

Load Factor

% Change over 2009

% Change from 2008

Change over 2009

Change from 2008

Air Canada1

+11.7%

+9.3%

+8.4%

+6.3%

+2.5pts (to 82.2%)

+2.3pts (from 79.9%)

Domestic

+3.7%

+3.3%

+1.6%

+0.5%

+1.6pts

+2.2pts

International & Charter

+15.5%

+12.1%

+11.7%

+9.1%

+2.8pts

+2.3pts

+8.8%

+9.2%

+11.9%

+9.1%

-2.2pts (to 75.5%)

0.0pts (at 75.5%)

WestJet

Analysis: •

•

Air Canada’s system-wide traffic increased by +11.7% and available capacity increased by +8.4% in September 2010 over September 2009. Air Canada’s domestic sector experienced increases in both traffic (+3.7%) and available capacity (+1.6%) year-over-year. Domestic load factor increased 1.6 percentage points (to 79.7%) over the same period. Air Canada’s international sector also experienced increases in both traffic (+15.5%) and available capacity (+11.7%) year-over-year for all regions. The Pacific region had the highest increase in traffic (+21.5%) and the Atlantic region had the highest increase in capacity (12.9%). WestJet reported an increase in traffic by +8.8% and an increase in capacity by +9.2% in September 2010 over September 2009. The carrier’s load factor decreased by 2.2 percentage points (to 75.5%).

Air Canada Mainline consists of all Air Canada operations with the exception of Jazz.

Page 3 October 2010

AIRLINE DATA – U.S. U.S. Airlines Release September 2010 Traffic Figures

1,2

Notes:

(RPMs – millions)

(ASMs – millions)

Capacity

Load Factor

2,200 ↑14.6%

2,731 ↑10.4%

80.6% ↑3.0 pts

729 ↑17.3%

1,017 ↑12.3%

71.7% ↑3.1 pts

9,954 ↑7.6%

11,895 ↑4.4%

83.7% ↑2.5 pts

10,049 ↑5.6%

12,552 ↑4.8%

80.1% ↑0.6 pts

16,110 ↑6.5%

19,529 ↑6.6%

82.5% 0.0 pts

4,909 ↑7.5%

5,977 ↑3.8%

82.1% ↑2.8 pts

1,389 ↑1.7%

1,787 ↑0.6%

77.7% ↑0.7 pts

Traffic

Airline

1. Load factor includes scheduled service only. 2. Includes Continental Airlines

Sources: Carrier traffic reports.

Page 4 October 2010

AIRLINE DATA – INTERNATIONAL International Airlines Release September 2010 Traffic Figures (RPKs – millions)

(ASKs – millions)

Capacity

Load Factor

17,663 ↑1.8%

1,090 ↓0.5%

83.8% ↑1.9 pts

17,066 ↑6.8%

20,663 ↑4.2%

82.6% ↑2.0 pts

9,954 ↑1.3%

12,082 ↑.3%

82.4% ↑0.9 pts

8,842 ↑6.8%

11,112 ↑8.0%

79.6% ↓0.9 pts

7,022 ↑0.6%

8,740 ↑1.3%

80.3% ↓0.6 pts

6,809 ↓10.0%

9,067 ↓13.3%

75.1% ↑3.0 pts

7,924 ↑15.2%

9,686 ↑12.9%

81.8% ↑1.6 pts

Traffic

Airline

3, 4

1. Includes Martinair. 2. Includes Lufthansa Passenger Airlines, SWISS, British Midland and Austrian Airlines. 3. Includes Qantas Domestic, QantasLink, Jetstar Domestic, Qantas International, Jetstar International, and Jetstar Asia. 4. Traffic results are for August 2010 – September 2010 results are not yet posted. 5. Includes Cathay Pacific and Dragonair.

Page 5 October 2010

Summary of Total Year-Over-Year Passenger Traffic Performance at Selected Canadian Airports

2009 2010

August September 3rd Quarter October November December 4th Quarter January February March 1st Quarter April May June 2nd Quarter July August

Toronto

Vancouver

Montréal

Calgary

Edmonton

Ottawa

Winnipeg

Halifax

Victoria

Kelowna

Saskatoon

Regina

-5.2% -5.1% -5.1% -1.9% -3.2% -0.6% -1.9% -0.4% -0.1% +4.1% +1.2% +2.7% +8.2% +7.9% +6.3% +7.3% +4.9%

-9.6% -4.5% -8.9% -6.6% -5.2% -0.7% -4.1% -1.9% +3.4% +2.9% +1.5% +2.3% +7.3% +7.2% +5.7% +3.4% -0.3%

-2.5% -5.4% -3.1% -3.1% -4.4% -0.1% -2.5% 0.0% +0.5% +3.3% +1.4% +3.5% +8.8% +11.4% +7.9% +7.1% +5.3%

-1.9% +3.1% -0.7% +0.4% -4.0% -3.7% -2.4% +1.7% -1.5% +3.8% +2.1% -0.7% +6.4% +6.1% +3.9% +5.1% +0.4%

-7.8% -7.3% -7.5% -6.4% -5.2% -2.6% -4.7% -1.4% -2.7% +1.2% -1.0% -3.8% +3.7% +3.8% +1.1% 0.0% -1.1%

-4.9% -1.8% -4.1% 1.3% +3.2% +5.4% +3.2% +6.7% +6.1% +8.1% +6.2% +5.0% +3.9% +8.2% +5.7% +6.9% +6.7%

-5.9% -4.3% -6.0% -4.5% -8.9% -2.9% -5.4% -2.1% -3.6% +1.2% -1.5% -4.4% +1.5% +2.4% -0.2% +2.4% -2.5%

-3.7% +1.2% -2.1% -1.3% +2.2% +4.3% +1.4% +1.2% +0.9% +5.8% +2.9% +0.5% +5.0% +1.0% +2.7% +6.9% -1.6%

-3.2% +2.3% -1.1% -2.4% +1.5% +13.1% +3.6% +0.1% -6.8% +4.6% -0.5% -1.6% +1.5% +0.7% +0.2% +0.8% -2.6%

-1.2% +0.3% -4.9% -4.9% +9.6% +2.1% +2.0% +10.0% -1.3% +4.4% +4.4% 3.4% 0.3% -11.7% -3.0% +3.4% +4.1%

+3.3% -7.2% +1.3% -5.2% -3.8% +4.8% -1.4% +7.0% +5.8% +5.6% +6.2% +4.9% +9.5% +6.4% +6.9% +2.8% +3.0%

+5.9% +3.3% +3.5% +0.0% +2.5% +1.4% +1.3% +10.5% +11.7% +13.5% +11.9% +9.7% +11.0% +8.3% +9.6% +11.6% +6.3%

St. John’s +2.0% +2.8% +2.1% -2.1% -0.1% +3.8% +0.3% +4.6% +4.1% +10.9% +6.8% +9.3% +8.4% +11.2% +9.7% +12.0% +6.0%

Source: Transport Canada and individual airports’ traffic reports. Note: Subject to revision.

Page 6 October 2010

NEWS AIR CANADA AND UNITED/CONTINENTAL TO FORM JOINT VENTURE

AIR CANADA UPDATE AIR CANADA OFFERS NEW SERVICES BETWEEN QUÉBEC AND SUN SPOT DESTINATIONS On 19 October 2010, Air Canada announced that it will be offering new services between Québec and certain sun spot destinations this winter season. The carrier will offer a new nonstop service to Varadero, Cuba from Québec City, and a new non-stop service to Antigua from Montréal. Flights between Varadero, Cuba and Québec City will be offered once weekly from December 19 to April 10, while flights between Antigua and Montréal will be offered once weekly from January 8 to April 9. JAZZ AIR TO CHANGE FROM INCOME TRUST TO CORPORATE STRUCTURE On 8 October 2010, Jazz Air announced that its parent company, Jazz Air Income Fund, has plans to change from an income trust to a corporate structure. The new corporate entity will be called Chorus Aviation Inc. According to the carrier, one of the factors in its decision to move to a corporate structure is the changes in Canadian tax laws that will be implemented starting next year. Organizational changes are not expected to affect the regional services that Jazz Air currently provides under its contract with Air Canada.

On 7 October 2010, Air Canada signed a memorandum of understanding with United Continental Holdings to form a transborder joint venture. United Continental Holdings is the parent company of the merged carriers, United Airlines and Continental Airlines. The revenue-sharing joint venture would increase services and provide benefits, such as pricing benefits and reduced travel times, on Canada-United States transborder flights. The carriers are still awaiting regulatory approval, and expect the joint venture to come into effect in early 2011.

WESTJET UPDATE WESTJET SIGNS INTERLINE AGREEMENT WITH AMERICAN AIRLINES On 19 October 2010, WestJet signed an interline agreement with American Airlines. The commercial agreement is the carrier’s first interline agreement with a U.S. airline. Through the agreement, American Airlines’ customers travelling to Canada will be able to purchase their American Airlines flight and their WestJet transfer flight on a single ticket. The agreement will provide American Airlines customers increased access to 25 Canadian destinations beginning 9 November 2010. WESTJET SETS NEW SINGLE-DAY RECORD WestJet announced that it set a new single-day record of 49,545 passengers on 8 October 2010, the Friday before the Canadian Thanksgiving weekend. This is a 6.0% increase compared to the carrier’s previous single-day record (46,757 passengers), which was set on the Friday before Thanksgiving two years ago. Approximately 40,000 guests per day travel on-board WestJet flights, on average.

Page 7 October 2010

NEWS SOUTHWEST AIRLINES ACQUIRES AIRTRAN

U.S. AIRLINES UPDATE U.S. AIRLINES REACH RECORD PASSENGER LOAD FACTOR IN JULY On 15 October 2010, the U.S. Department of Transportation’s Bureau of Transportation Statistics reported that US airlines reached a record systemwide passenger load factor at 86.9% for the month of July 2010, carrying a total of 68.4 million passengers during the period. Collectively, the carriers reported a domestic passenger load factor of 86.9% and an international passenger load factor of 86.7%. According to the Bureau of Transportation Statistics, these statistics are the highest records for the month compared to previous years. U.S. DOT GRANTS APPROVAL TO SERVICES BETWEEN LOS ANGELES AND SHANGHAI FOR TWO AIRLINES The U.S. Department of Transportation granted approval to American Airlines and United Airlines to offer services between Los Angeles and Shanghai. American Airlines received approval to serve the route on 7 October 2010 and United Airlines received approval from the department on 12 October 2010. The American Airlines transpacific flights will be offered daily beginning on 5 April 2011, while the United Airlines transpacific flights will be offered daily beginning on 20 May 2011. Flights by both carriers will be operated with Boeing 777-200s. Continental Airlines, United Airlines’ merger partner, has applied to place its code on the latter’s flights.

Page 8 October 2010

On 27 September 2010, Southwest Airlines announced that it has come to a definitive agreement with AirTran to acquire the latter for a combination of cash and Southwest Airlines' common stock worth US$1.4 billion. The purchase will increase Southwest Airlines’ services to include international destinations through AirTran’s flights to Mexico and the Caribbean. The agreement is still awaiting regulatory approval, and the two carriers will continue to operate independently until it is granted.

CARGO UPDATE EUROPEAN UNION ADVANCE CARGO DECLARATION REGIME EFFECTIVE JANUARY 2011 The European Union Advance Cargo Declaration Regime will be effective on 1 January 2011. The new regulations were created to ensure an equal level of protection for all freight imported into and exported out of Europe. Transhipment cargo will also be affected by the regime. Starting next year, traders will be required to provide information to customs authorities on goods imported and exported via the EU prior to shipment. Additional amendments to the Customs code includes a provision of trade facilitation measures, an introduction of uniform community risk-selection criteria for controls, and a development of an EU database, containing all national Economic Operators Registration and Identification numbers (EORI).

NEWS CARGO UPDATE – CON’T AIRBRIDGECARGO AIRLINES PLACES ORDER FOR ADDITIONAL AIRCRAFT AirBridgeCargo Airlines, a scheduled cargo airline based in Russia, has placed an order for 40 additional AN-124 and 20 IL-76 aircraft from United Aircraft Corp., also based in Russia. The cargo airline is the largest international scheduled cargo airline in Russia, and has scheduled operations to destinations in Asia and Europe. AirBridgeCargo Airlines anticipates that additional orders of over 200 aircraft will be required over the next 20 years to support the growing demand in air cargo in the country. DUBAI LOGISTICS CORRIDOR OFFICIALLY OPEN The Dubai Logistics Corridor officially opened on 11 October 2010. The corridor bridges Jebel Ali Free Zone, Dubai World Central, and Jebel Ali Port, linking land, air and sea. Jebel Ali Free Zone is one of the world’s largest economic free zones, where more than 6,500 companies are located. The Al Maktoum International Airport is located at Dubai World Central, and is expected to have the largest volume of passenger and cargo traffic upon completion. Jebel Ali Port is one of the largest container ports in the world. The opening of the Dubai Logistics Corridor will allow trade flows to be more efficient, and will maintain Dubai's position as a significant global logistics hub.

Page 9 October 2010

MK AIRLINES HAS OFFICIALLY GONE INTO LIQUIDATION MK Airlines, a cargo airline based in Harfield, East Sussex, United Kingdom, has officially gone into liquidation, as it has been unable to find new investment. The airline ceased flying operations in April 2010. MK Airlines operated a fleet consisting of eight 747 and three 727 aircraft. It also had operations at Filton Airport (Bristol), ATC Lasham, Kemble (Bedfordshire) and Manston (Kent).

PEOPLE IN THE NEWS DR. HANS-JOACHIM KÖRBER APPOINTED AS NEW BOARD CHAIRMAN OF AIR BERLIN On 11 October 2010, Air Berlin announced that it has appointed Dr. Hans-Joachim Körber as the new board chairman of the airline. Dr. Körber has been a board member of the airline company since May 2006, and was a partner in Air Berlin GmbH & Co. Luftverkehrs KG. His predecessor, Johannes Zurnieden will be stepping down as chairman on 31 December 2010 to focus on other initiatives.

AIRPORTS UPDATE HALIFAX STANFIELD INTERNATIONAL AIRPORT AND SEOUL INCHEON INTERNATIONAL AIRPORT SIGN COOPERATIVE AGREEMENT On 18 October 2010, Halifax Stanfield International Airport and Seoul Incheon International Airport signed a cooperative agreement. The agreement focuses on increasing Asian air cargo service in Canada through Halifax. It will also allow the two airports to share information on training, marketing strategies and research.

NEWS

AIRPORTS UPDATE – CON’T GREATER TORONTO AIRPORT AUTHORITY REDUCES AIRPORT IMPROVEMENT FEE The Greater Toronto Airport Authority announced that it will be reducing the Airport Improvement Fee (AIF) at the Toronto Lester Pearson International Airport beginning in 1 January 2011. Starting next year, passengers will be paying 50% (CDN$4) of the fees they currently pay (CDN$8), while passenger airlines will be paying 8.1% less for terminal charges and 4.5% less for landing fees. In addition, the airport authority has also approved the reduction of cargo aircraft landing fees by 4.3%, also effective 1 January 2011. CITY OF OTTAWA TO SELL CARP AIRPORT TO DEVELOPER On 6 October 2010, council members of the City of Ottawa decided to sell Carp Airport to West Capital Development (WCD) for CDN$1.2 million. Carp Airport is a general aviation airport that is located in the west end of Ottawa. WCD has been managing the airport since 2005. Initial plans to develop the area include a residential community and business park.

AEROLINAS ARGENTINAS TO JOIN SKYTEAM ALLIANCE On 19 October 2010, Aerolinas Argentinas announced that it will be signing an agreement to join the SkyTeam alliance by the end of the month. Argentina’s flag carrier will be the first South American carrier to join the alliance group. Aerolinas Argentinas’ membership will expand SkyTeam’s network to and from Latin America. The carrier is expected to become a full member of the alliance by 2012. BOEING REPORTS 124 DELIVERIES IN THIRD QUARTER 2010 On 7 October 2010, Boeing reported that it delivered 124 aircraft in the third quarter of 2010, with 100 of the deliveries being 737 Next Generation aircraft. This is an increase of 9.7% compared to the 113 commercial planes delivered during the same period last year. Boeing has delivered a total of 346 aircraft for the first three quarters of this year. The company also announced that it has received 104 additional orders for commercial planes.

OTHER NEWS IATA REPORTS STRONGER GLOBAL PASSENGER TRAFFIC IN SEPTEMBER On 26 October 2010, the International Air Transport Association (IATA) reported that international traffic increased by 10.5% in September 2010 over September 2009. This increase is 4% higher than the increase in global passenger traffic reported in August 2010. IATA also reported that international freight traffic increased by 14.8% year-over-year. However, this increase is 4.2% lower than the global freight traffic reported in August 2010. Page 10 October 2010

THE ASIA REPORT October 2010

Doris Mak Director, Special Projects

Japan government approves transpacific joint ventures The Japanese Ministry of Land, Infrastructure, Transportation and Tourism has approved the transpacific joint ventures between All Nippon Airways and Continental Airlines and United Airlines and between Japan Airlines and American Airlines. All Nippon Airways, Continental Airlines and United Airlines are members of Star Alliance, while Japan Airlines and American Airlines are members of oneworld. The transpacific joint ventures are expected to begin in the first half of 2011, and are expected to expand services on routes between North America and Asia. At the beginning of the month, the U.S. Department of Transportation (DOT) granted the airlines tentative approval for antitrust immunity. The U.S. DOT has yet to grant final approval for the joint ventures. Chinese carriers report increased net income for September Chinese carriers reported an increased net income for the month of September. All together, the country’s carriers earned a collective net income of nearly CNY7 billion (US$997 million) for the month, which is a significant increase compared to the same period last year. In September 2009, the carriers earned an aggregate income of CNY160 million (USD$24 million). The increase in net income for the month was mainly from the carriers’ domestic operations. Collectively, the carriers reported total operating revenue and total operating expenses of over CNY27 billion (USD$4 billion) and CNY21 billion (USD$3 billion), respectively. Cathay Pacific begins new codeshare agreements with Alaska Airlines and with WestJet Cathay Pacific Airways started new codeshare agreements with Alaska Airlines and WestJet, increasing the number of connecting flights between North America, Hong Kong and Asia. Beginning 7 October 2010, Cathay Pacific will be placing its code on Alaska Airlines’ services from Seattle and Portland to Los Angeles, San Francisco and Vancouver. In addition, effective 20 October 2010, Cathay Pacific will be placing its code on WestJet’s services from Calgary, Edmonton, Halifax, Montreal, Ottawa and Winnipeg to Toronto and Vancouver. Australian government supports Delta Air Lines-Virgin Blue joint venture The Australian government has expressed that it strongly supports the joint venture proposed by Delta Airlines and Virgin Blue, and the Australian Competition and Consumer Commission has already given its approval to the two carriers. Australian regulators have found that the joint venture will not hurt competition. However, the U.S. Department of Transportation (DOT) has made a tentative decision not to grant antitrust immunity to the airlines. According to the U.S. DOT, the loss in competition from the joint venture will be greater than the public benefit. The U.S. DOT has yet to make a final decision on the approval of the joint venture. Japan Airlines and Qantas Airways expand codeshare agreement Japan Airlines and Qantas Airways expanded their codeshare agreement. The expansion allows Japan Airlines for place its code on Qantas Airways’ Singapore Changi-Brisbane service beginning on 1 October 2010. Qantas Airways flights between Singapore Changi and Brisbane are offered twice daily. Since 30 September 2010, Japan Airlines has no longer been operating its own services from Tokyo Narita to Brisbane. Japan Airlines had been offering flights between Tokyo Narita and Brisbane for the last 22 years.

Page 11 October 2010

THE EUROPEAN REPORT October 2010

Ian Kincaid Vice President, Economic Analysis

Airlines asked to reduce traffic due to strikes in France On 18 October 2010, the French DGAC aviation authority announced that airlines have been asked to reduce traffic to France’s airports on 19 October 2010 due to escalating strikes and protests in the country over pension reforms. The authority asked that flights scheduled to Paris Orly be reduced by 50% and flights scheduled to all other airports in the country be reduced by 30%. Air traffic controllers have been participating in the strikes and general strikers have been holding protests at airports, causing delays and disruption of services. Services most affected by the cancellations were shortand medium-haul domestic and inter-European flights. Ryanair to close base in Marseille, France On 13 October 2010, Ryanair announced that it will close its base in Marseille, France. The carrier will transfer four 737-800s to airports in Spain, Italy and Lithuania, and 13 services to/from the airport will be cancelled. The carrier made the decision to close its base after French authorities concluded that Ryanair’s 200 pilots and cabin crew at its Marseille base should be required to pay income tax and social insurance in France. Ryanair argues otherwise, indicating that its flight crew work on Irishregistered aircraft, which is defined as Irish territory; thus, do not need to pay the required taxes. Oneworld members launch transatlantic joint venture On 6 October 2010, oneworld members, American Airlines (AA), British Airways (BA) and Iberia (IB), officially launched the carriers’ transatlantic joint venture. The joint venture is expected to increase the number of services available across the north Atlantic. As part of the joint venture, the carriers announced that in 2011, BA will begin services between London Heathrow and San Diego, AA will begin services between New York JFK and Budapest and between Chicago O'Hare and Helsinki, and IB will begin services between Madrid Barajas and Los Angeles. All together, the three carriers offer services to 400 destinations in 105 countries and operate approximately 5,200 daily flights. Finnair announces new services and begins codeshare agreements Finnair announced that it will launch new services from Helsinki to Seoul Incheon and to Nagoya starting in December 2010. Flights to Seoul Incheon and to Nagoya will operate six times a week and five times a week, respectively. In addition, the carrier announced that it will expand its codeshare agreement with American Airlines to include new services to New York JFK and to Toronto beginning the summer of 2011. Flights to New York JFK will operate daily and flights to Toronto will operate five times a week. Codeshare flights between Finnair and Air Berlin will begin on 31 October 2010. The expansion allows Finnair to place their code on Air Berlin’s services between Finland, Germany, Nürnberg, Hannover, Köln, Salzburg (Austria) and Palma de Mallorca (Spain). British Airways launches new service to Japan and expands services to Caribbean On 4 October 2010, British Airways announced that it will launch new services to Tokyo Haneda airport on 19 February 2011. The new service will operate five times a week from Heathrow airport, and will be operated with Boeing 777 aircraft. In addition, the carrier announced that it will be expanding its services to the Caribbean due to the success of its services to the Caribbean from London Gatwick. The expansion will include an increase in flights to Barbados to 12 services a week, Antigua to six services a week and St Lucia to daily service beginning on 27 March 2011.

Page 12 October 2010

THE WASHINGTON REPORT October 2010

Outgoing U.S. State Department Aviation Negotiator Urges Focus on Environment, Labour-Management Relations, Foreign Ownership In a moving and often amusing speech before the International Aviation Club of Washington, U.S. State Department Deputy Assistant Secretary for Transportation John Byerly reflected on 25 years of work in international aviation negotiations and offered perspectives on three issues that challenge the ongoing success of the industry.

Steve Martin Senior Vice President

Byerly first encouraged the aviation community to devise a plan to deal with environmental concerns. “We need a global plan and a global solution for the global problem of climate change. Civil aviation must do its fair share, but at the same time not be bullied, scapegoated, or double or triple-charged. ICAO, not the UNFCCC, is the place to devise a plan of action appropriate for international aviation – a plan that is rational and fair.” Second, Byerly lamented the worsening level of tension and conflict between airline labour and airline management that can leave all stakeholders worse off. “We were lucky over the past decade to have enjoyed the consensus support of both management and labour for Open Skies. That consensus, however, shows signs of disintegrating.” Finally, on the issue of foreign ownership of U.S. airlines, Byerly said the entire industry has failed to have a "meaningful, respectful, future-oriented conversation." Byerly suggested the industry answer this question: "Does a permanent and exceptionless ban on all foreign control of every U.S. air carrier posture our country's airlines, their dedicated employees, and the airports and communities they serve for long-term success as part of a global economy?" If the answer is no, then solutions should be discussed to protect homeland security, the need for reciprocal investments and the other long list of concerns that normally stymie movement on this issue. " Byerly will be succeeded on Nov. 1 in the position of Deputy Assistant Secretary by Kris Urs, currently the Director of the Office of Airline Negotiations. The full text of Byerly’s speech is available on the website for the International Aviation Club of Washington, www.iacwashington.org FAA, U.S. Agriculture Dept. Launch Biofuel Program FAA and the U.S. Department of Agriculture announced a five year agreement to develop aviation fuel from forest and crop residues and other "green" feedstocks in order to decrease dependence on foreign oil and stabilize aviation fuel costs. Under the partnership, the agencies will bring together their experience in research, policy analysis and air transportation sector dynamics to assess the availability of different kinds of feedstocks that could be processed by bio-refineries to produce jet fuels. The participants will develop a tool to evaluate the status of different components of a feedstock supply chain, such as availability of biomass from farms and forests, the potential of that biomass for production of jet fuel, and the length of time it will take to ramp up to full-scale production. The agencies already have existing programs and collaborative agreements with private and public partners and resources to help biorefiners develop cost-effective production plans for jet aircraft biofuels.

Page 13 October 2010

THE WASHINGTON REPORT – CON’T FAA Issues New Warnings on Lithium Batteries Following the September 3 crash of a United Parcel Service flight that included large numbers of lithium batteries, FAA has issued a warning to air carriers that fire suppressants typically found in cargo compartments are proving ineffective in extinguishing lithium-metal (non-rechargeable) battery fires and are not foolproof in fires involving lithium-ion (rechargeable) battery fires. FAA issued a Safety Alert for Operators (SAFO) recommending that carriers require customers to identify shipments of lithium batteries and to implement special handling and training procedures when they are shipped. In tests at the FAA’s technical center, the agency found that overheating of lithium batteries could cause thermal runaway, a chain reaction that causes self-heating and release of the batteries’ stored energy. A fire in the cargo compartment could cause the batteries to ignite and lead to a possible “catastrophic event,” the SAFO says. The result of thermal runaway in a lithium metal cell is a more severe event as compared to a lithium-ion cell in thermal runaway. Lithium metal cells are capable of exploding, which can easily damage (and potentially perforate) cargo liners, or activate the pressure relief panels in a cargo compartment. Halon 1301, the suppression agent found in Class C cargo compartments, is ineffective in controlling a lithium metal cell fire. While a notice of proposed rulemaking to address some of the risks is under review, the SAFO includes specific recommendations to carriers for safely transporting lithium batteries by aircraft. Notably, FAA recommends that carriers request customers to identify bulk shipments of currently excepted lithium batteries by information on airway bills and other documents provided by shippers offering shipments of lithium batteries. Where feasible and appropriate, carriers should stow bulk shipments of lithium batteries in Class C cargo compartments or in locations where alternative fire suppression is available. These recommendations do not apply to lithium batteries carried onboard by passengers and crewmembers, or otherwise stowed in the passenger cabin of the aircraft.

Page 14 October 2010

INTERVISTAS NEWS InterVISTAS Recent and Upcoming Speaking Engagements Paul Ouimet, Executive Vice President • ICCA Annual Congress: Hyderabad, India – 24October 2010 Mr. Ouimet spoke on “The Use of Social Media from an Aviation Perspective”. • ICCA Annual Congress: Hyderabad, India – 25 October 2010 Mr. Ouimet spoke on “Airline Routes – The Lifelines of International Meetings – How can you Influence Their Development?” Barney Parrella, Executive Vice President • ACI World / Latin America/Caribbean Annual General Assembly: Hamilton, Bermuda – 2 November 2010 Mr. Parrella will be moderating a session on “Outlook from Aviation Leaders”. Robert Beynon, Vice President, Development Economics • BC Aviation Council Conference: Richmond, British Columbia – 4 November 2010 Mr. Beynon will be facilitating a session on “Looking beyond Borders”. Howard Mann, Vice President, Policy & Market Analysis • ACI-NA International Aviation Issues Seminar: Washington, DC – 7 December 2010 Mr. Mann will be participating in a panel and speaking on “Facilitation’s Impact on Intl Air Service Development”. Dr. Mike Tretheway, President, InterVISTAS Consulting Inc., Executive Vice President and Chief Economist, InterVISTAS Group • CAC 2011 Conference: Ottawa, ON – 20 April 2011 Dr. Tretheway will be participating in a panel and speaking on “Piloting through Clear Skies? Putting the Canadian Footing into a Global Context.” InterVISTAS’ Canadian Aviation Intelligence Report is a collection of information gathered from public sources, such as press releases, media articles, etc., information from confidential sources, and items heard on the street. Thus, some of the information is speculative and may not materialise. To inquire about advertising opportunities or to provide comments/feedback on the InterVISTAS’ Canadian Aviation Intelligence Report, please contact Robert Andriulaitis at robert.andriulaitis@intervistas.com or 1-604-717-1807. To subscribe, please send an email to subscribe@InterVISTAS.com To unsubscribe, please send an email to unsubscribe@InterVISTAS.com Page 15 October 2010