CAIR Issue No. 79 - August 2010 by Leah Dupuis

CANADIAN AVIATION INTELLIGENCE REPORT AUGUST 2010

IN THIS ISSUE: CEO Update – p 1 Farnborough Airshow 2010: Summary of Aircraft Orders – p 2 Caribbean Report – p 18 Asia Report – p 19 European Report – p 20 Washington Report – p 21

CEO UPDATE August 2010

Welcome to the August 2010 edition of InterVISTAS Consulting Inc.’s Canadian Aviation Intelligence Report (CAIR). Some recent project wins for the InterVISTAS Consulting Group include the following:

Gerry Bruno

•

InterVISTAS, together with subcontractors Delcan, NACO and Stantec, has been awarded a 2010 - 2013 Standing Offer for Airport Planning Services with the Greater Toronto Airports Authority.

•

InterVISTAS has been retained by Ogilvy Renault LLP/City Centre Terminal Corporation/Porter Airlines to perform a Rates and Charges Benchmarking Study for the Toronto City Centre Airport.

•

InterVISTAS has been selected to develop an Airport Share Study for the Region of Waterloo International Airport.

CEO

The August 2010 CAIR Line-Up This month, we lead off with a market analysis column that looks at a summary of aircraft orders at the Farnborough Airshow 2010. Our regular columns include:

Caribbean Report

Asia Report

European Report

Washington Report

We hope you enjoy this issue.

Page 1 August 2010

FARNBOROUGH AIRSHOW 2010: SUMMARY OF AIRCRAFT ORDERS August 2010

Connie Chang Senior Analyst

The Farnborough International Airshow, a global aviation event held once every two years, recently took place from 19-25 July 2010 in Farnborough, United Kingdom. Announcements made at this year’s aerospace exhibition included aircraft orders worth nearly USD$29 billion. Although this is much lower than the record-high USD$88.7 billion worth of orders made at the 2008 Farnborough Airshow, it shows substantial improvements over orders made at last year’s Paris Airshow, which were worth USD$7 billion. The success of the 2010 Farnborough Airshow is a strong signal of economic recovery for the global civil aviation industry, providing tremendous relief to many attending the airshow. Tom Enders, CEO and President of Airbus, stated that the airshow “confirms the recovery trend we have been observing for a couple months in air traffic globally has endured.”1 A summary of aircraft orders and commitments made at the 2010 Farnborough Airshow is provided below. The information is arranged by largest buyer for each aircraft manufacturer.

Table 1: Summary of Aircraft Orders and Commitments at the Farnborough International Airshow 2010 Buyer

Quantity

Aircraft Type

Order Type

Additional Information

AIRBUS* GE Capital Aviation Services

A320

Firm Order

Valued at $4.9 billion

Air Lease Corp.

A320

Firm Order

Valued at $4.4 billion

A321-200

Firm Order

A321

MOU

A320

MOU

Virgin America

A320

MOU

Valued at $3.3 billion

Hong Kong Airlines

A350 XWB

MOU

Valued at $3.8 billion

A330-200

MOU

Valued at $1.9 billion

Aeroflot

A330-300

Firm Order

Valued at $2.3 billion

Thai Airways

A330-300

MOU

Valued at $1.5 billion

Garuda

A330-200

Firm Order

Valued at $1.2 billion

Germania

A319

Firm Order

Firmed up existing MOUs Valued at $0.4 million

LAN Chile

Total Airbus Orders & Commitments

255

Valued at $4.2 billion

Valued at $28 billion

“Farnborough Deals Give Hope to Aviation Industry”, Associated Press, 22 July 2010: http://www.npr.org/templates/story/story.php?storyId=128566531

Page 2 August 2010

FARNBOROUGH AIRSHOW 2010: SUMMARY OF AIRCRAFT ORDERS – CON’T Buyer

Quantity Aircraft Type

Order Type

Additional Information

BOEING** GE Capital Aviation Services

B737-800

Firm Order

Valued at $3.0 billion

American Airlines

B737-800

Firm Order

Exercised Options

Norwegian Air Shuttle

B737-800

Firm Order

Exercised Purchase Rights (from 2007) Valued at $1.2 billion

Emirates

B777-300ER

Firm Order

Azerbaijan Airlines

767-300ER

Firm Order

767F

Firm Order

Total Boeing Orders & Commitments

Converted from existing order of two 737-800s

105 IRKUT***

Crecom

MC-21

Firm Order

Ilyushin Finance

MS-21

Firm Order

VEB-Lizing

MS-21

Firm Order

Total Irkut Orders & Commitments

93 SUKHOI***

Pearl Aircraft Corp.

SuperJet 100

Firm Order

Valued at $0.9 billion

Kartika Airlines

SuperJet 100

Firm Order

Valued at $1.0 billion

Orient Thai Airlines

SuperJet 100

Firm Order

Gazpromavia

SuperJet 100

LOI

Total Sukhoi Orders & Commitments

Page 3 August 2010

FARNBOROUGH AIRSHOW 2010: SUMMARY OF AIRCRAFT ORDERS – CON’T Buyer

Quantity Aircraft Type

Order Type

Additional Information

EMBRAER*** Flybe

E175

Firm Order

Valued at $1.3 billion

Republic Airlines

E190

LOI

Valued at $1.0 billion

Air Lease Corp.

E190

LOI

Valued at $0.8 billion

Azul Linhas Aereas Brasileiras

E195

Firm Order

Valued at $0.2 billion

Trip Linhas Aereas

E190

Firm Order

Valued at $0.1 billion

Total Embraer Orders & Commitments

81 ATR***

Azul

ATR 72-600

Firm Order

Air Lease Corp.

ATR 72-600

Firm Order

Undisclosed

ATR 72-500

Firm Order

Golden Air

ATR 72-500

Firm Order

Lao Airlines

ATR 72-500

Firm Order

Syrian Airlines

ATR 72-500

Firm Order

Total ATR Orders & Commitments

Valued at $0.2 billion

BOMBARDIER*** Qantas

Total Bombardier Orders & Commitments

Q400 turboprop

Firm Order

Note that total Bombardier orders include commercial aircraft only, and does not include business jets

Legend: MOU = Memorandum of Understanding; LOI = Letter of Intent. Note: Total Orders & Commitments figures are confirmed by the Centre of Asia Pacific Aviation news release:

http://www.centreforaviation.com/news/share-market/2010/07/23/the-farnborough-scorecard-650orders-airbus-tops-boeing-as-lessors-come-to-the-party/page1

Page 4 August 2010

FARNBOROUGH AIRSHOW 2010: SUMMARY OF AIRCRAFT ORDERS – CON’T Table 2: Summary of Aircraft Existing Orders, Options, Conversions and Rights at the Farnborough International Airshow 2010 Buyer

Quantity

Aircraft Type

Order Type

Additional Information

AIRBUS* Air Lease Corp.

Total Airbus Existing Orders, Options, Conversions and Rights

A350-900

Conversion

Converted existing order of 12 A350-800s for 12 A350-900s

BOEING** Air Lease Corp.

737-800

Preliminary Order

737-800

Options

Emirates

777-300ER

Existing Order

Avolon

737-800

Existing Order

Okay Airways

737-800

Existing Order

Royal Jordanian

787-8

Existing Order

Qatar Airways

777-200LR

Existing Order

Air Austral

777-200LR

Existing Order

Azerbaijan Airlines

737-800

Conversion

Total Boeing Existing Orders, Options, Conversions and Rights

Page 5 August 2010

Order was previously attributable to an unidentified customer

Converted to new order of one 767-300ER and two 767F

FARNBOROUGH AIRSHOW 2010: SUMMARY OF AIRCRAFT ORDERS – CON’T Buyer

Quantity

Aircraft Type

Order Type

Additional Information

IRKUT*** Ilyushin Finance

MS-21

Options

VEB-Lizing

MS-21

Firm Order

Total Irkut Existing Orders, Options, Conversions and Rights

SUKHOI*** Pearl Aircraft Corp.

SuperJet 100

Options

Orient Thai Airlines

SuperJet 100

Options

Total Sukhoi Existing Orders, Options, Conversions and Rights

EMBRAER*** Flybe

Air Lease Corp. Total Embraer Existing Orders, Options, Conversions and Rights

E175

Options

Valued at $2.3 billion

E175

Purchase Rights

Valued at $1.4 billion

E190

Options

110

ATR*** Azul

ATR 72-600

Options

Air Lease Corp.

ATR 72-600

Options

Total ATR Orders & Commitments

Page 6 August 2010

FARNBOROUGH AIRSHOW 2010: SUMMARY OF AIRCRAFT ORDERS – CON’T Sources: * Airbus news releases: http://event.airbus.com/airshows/farnborough2010/news/browse/1.html ** Boeing news releases: http://www.boeing.com/farnborough2010/ *** A combination of news releases: (1) http://in.reuters.com/article/idINLDE66H03120100721 (2) http://www.flightglobal.com/articles/2010/07/24/345087/farnborough-ms-21-interest-hots-up.html (3) http://www.defense-aerospace.com/article-view/release/116690/sukhoi-update-on-superjet-100-

orders,-program.html (4) http://atwonline.com/aircraft-engines-components/news/farnborough-international-airshow-news0719 (5) http://www.flightglobal.com/articles/2010/07/20/344802/farnborough-flybe-orders-up-to-140embraer-jets.html http://www.airlinesanddestinations.com/aircraft/air-lease-corp-adds-big-boeing-737ng-and-embraer190-deals-to-airbus-buy/ (6) http://www.bloomberg.com/news/2010-07-20/embraer-wins-a-1-3-billion-order-for-35-aircraft-fromu-k-carrier-flybe.html (7) http://www.embraer.com.br/institucional/download/2_074-Com-VPC-Fboro_E190_Republic-I-10.pdf (8) http://www.atraircraft.com/public/atr/html/press/releasesdetails.php?aid=1123&PHPSESSID=20c9a893cc1a538e5717c9aaa97e6939

Page 7 August 2010

AIRLINE DATA – CANADA Traffic and Load Factors on Canada’s Major Air Carriers July 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 Canada2

+10.8%

+7.1%

+9.1%

+4.7%

+1.3pts (to 84.9%)

+1.9pts (from 83.0%)

Domestic

+2.1%

+2.7%

+0.6%

+0.1%

+1.2pts

+2.0pts

International & Charter

+15.2%

+9.2%

+13.7%

+7.0%

+1.1pts

+1.7pts

+18.2%

+12.9%

+11.9%

+11.4%

+4.3pts (to 80.7%)

+1.0pts (from 79.7%)

WestJet

Analysis: •

Air Canada’s domestic traffic increased (+2.1%) in July 2010 over July 2009. Similar to last month, available capacity remained the same year-over-year (+0.6%). As a result the carrier’s domestic load factor increased by 1.2 percentage points (to 80.9%) over the same period. This is the fifth consecutive month of traffic increases for Air Canada’s domestic operations.

•

Air Canada’s international sector increase contributed to a systemwide load factor increase of 1.3 percentage points (to 84.9%) in July 2010 over July 2009. Both international traffic (+21.2%) and capacity (+15.4%) increased over the same period. The increase is strongly attributed to the growth in the Pacific region, as load factor for the region increased by 5.7 percentage points (to 91.7%) year-over-year.

•

WestJet reported an increase in system-wide load factor of 4.3 percentage points (to 80.7%) in July 2010 over July 2009. Passenger traffic growth (+18.2%) outpaced capacity growth (+12.9%) over the same period.

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

Page 8 August 2010

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

Notes:

(RPMs – millions)

(ASMs – millions)

Capacity

Load Factor

19,621 ↑0.5%

22,218 ↓0.3%

88.3% ↑0.7 pts

11,973 ↑2.7%

13,762 ↑3.1%

87.0% ↓0.3 pts

11,389 ↑2.1%

13,063 ↑1.8%

87.2% ↑0.3 pts

9,106 ↑2.5%

10,349 ↓1.7%

88.0% ↑0.7 pts

5,717 ↑1.1%

6,674 ↑2.0%

85.7% ↓0.7 pts

2,756 ↑8.3%

3,196 ↑8.1%

86.2% ↑0.1 pts

2,003 ↑2.2%

2,261 ↑1.9%

88.6% ↑0.3 pts

782 ↑8.2%

1,029 ↑10.6%

76.1% ↓1.7 pts

Traffic

Airline

1. Mainline operations only. 2. Load factor includes scheduled service only.

Sources: Carrier traffic reports.

Page 9 August 2010

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

(ASKs – millions)

Capacity

Load Factor

19,895 ↑1.2%

22,860 ↑0.0%

86.2% ↑1.1 pts

18,340 ↑16.4%

21,658 ↑14.6%

84.7% ↑1.3 pts

10,559 ↓2.6%

12,574 ↓1.9%

84.0% ↓0.6 pts

8,797 ↑14.0%

10,057 ↑8.8%

87.5% ↑4.0 pts

7,200 ↑11.4%

8,693 ↑1.8%

82.8% ↑7.1 pts

5,629 ↑0.9%

8,294 ↓15.1%

67.9% ↑10.8 pts

N/A N/A

Traffic

Airline

3, 6

1. Includes Martinair. 2. Includes Lufthansa Passenger Airlines, SWISS from July 2009 onwards, British Midland from Sep 2009 onwards and Austrian Airlines. 3. Includes Qantas Domestic, QantasLink, Jetstar Domestic, Qantas International, Jetstar International, and Jetstar Asia. 4. Traffic results are for June 2010 – July 2010 results are not yet posted. 5. Includes Cathay Pacific and Dragonair. 6. Qantas does not report June 2010 – July 2010 results as they are incorporated into their Half Year reports.

Page 10 August 2010

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

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

2009 2010

Toronto

Vancouver

Montréal

Calgary

Edmonton

Ottawa

Winnipeg

Halifax

Victoria

Kelowna

Saskatoon

Regina

+12.3% -10.4% -4.9% -5.2% -5.1% -5.1% -1.9% -3.2% -0.6% -1.9% -0.4% -0.1% +4.1% +1.2% +2.7% +8.0% +7.9% +6.2%

-16.0% -13.1% -11.7% -9.6% -4.5% -8.9% -6.6% -5.2% -0.7% -4.1% -1.9% +3.4% +2.9% +1.5% +2.2% +7.3% +7.3% +5.6%

-7.8% -8.2% -1.5% -2.5% -5.4% -3.1% -3.1% -4.4% -0.1% -2.5% 0.0% +0.5% +3.3% +1.4% +3.5% +8.9% +11.5% +7.9%

-6.9% -6.8% -2.5% -1.9% +3.1% -0.7% +0.4% -4.0% -3.7% -2.4% +1.7% -1.5% +3.8% +2.1% -1.1% +6.0% +5.6% +3.5%

-9.9% -5.7% -7.5% -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%

-6.9% -6.2% -5.5% -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%

-8.3% -6.6% -7.6% -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%

-7.5% -5.9% -3.0% -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%

-4.1% -2.5% -1.9% -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%

11.0% +2.4% +2.0% -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%

-1.9% +2.3% +8.0% +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%

1.0% +1.4% +1.2% +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%

St. John’s -4.4% +0.1% +1.5% +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%

Source: Transport Canada and individual airports’ traffic reports. Note: Subject to revision. Page 11 August 2010

NEWS AIR CANADA UPDATE $203 MILLION NET LOSS FOR SECOND QUARTER OF 2010 On 5 August 2010, Air Canada announced a net loss of $203 million for the second quarter of this year compared to a net profit of $155 million in the same quarter of 2009. Interest expenses equivalent to $54 million and foreign exchange losses up to $156 million were significant factors in this negative result. However, on an operating level, the carrier reported positive results, with operating revenue reaching a total of $75 million, compared to a $113 million operating loss in the same period last year. In addition, Air Canada’s premium revenue and yields have been improving in the last two quarters. AIR CANADA SEIZES LEASED AIRCRAFT FROM MEXICANA AIRLINES Following Mexicana Airline’s filing for bankruptcy protection on 3 August 2010 and suspension of ticket sales a couple of days after, Air Canada seized two of its leased aircraft from the airline. Four of Mexicana’s aircraft are leased from Air Canada. The remaining two aircraft are still in the possession of Mexicana, and are under discussion by the two airlines. According to Air Canada President and CEO Calin Rovinescu, Mexicana had consistently made lease payments for the aircraft until the end of July. SERVICES EXPANDED IN NEWFOUNDLAND AND LABRADOR AND NORTHERN QUÉBEC On 2 August 2010, Air Canada launched new services between Gander, Goose Bay, Wabush and Sept-Î\les. Flights are non-stop and will operate daily. Air Canada is the first carrier to offer daily non-stop flights between Gander and Goose Bay. Flights are operated by Exploits Valley Air Services (EVAS), Air Canada’s commercial partner, with an 18-seat Beech 1900 aircraft. The new services are scheduled to Page 12 August 2010

leave early in the day, to allow return flights on the same day and to complement the carrier’s connecting flights to/from Québec, Montréal, Halifax, and St. John's.

WESTJET UPDATE $21 MILLION IN NET INCOME FOR SECOND QUARTER OF 2010 On 5 August 2010, WestJet announced second quarter net income of $21 million, an increase of more than double compared to the $9.2 million generated in the same quarter last year. According to the carrier, the improvement is mainly due to an increase in demand and significant growth in its WestJet Vacations business. Compared to the first quarter of the year, WestJet’s revenue increased by 15.2%. This is the 21st consecutive quarter that the carrier has reported a positive net income. The airline expects this to continue in the third quarter, with a projected increase in the airline's capacity of 11-12% for the succeeding quarter. However, the carrier also announced that due to economic uncertainty, its order of three aircraft to be delivered in the next couple of years (one in 2011 and two in 2012) have been deferred to 2017. NEW SERVICES TO U.S. DESTINATIONS AND MEXICO On 11 August 2010, WestJet announced several new services to U.S. destinations and to Mexico. Starting 18 December 2010, the carrier will offer nonstop weekly services between Edmonton and Orlando. It is scheduled to operate once a week, on Saturdays, until 30 April 2011. WestJet will also launch non-stop weekly services to/from Saskatoon and Phoenix for the winter season. The new services will be offered from 17 December 2010 to 29 April 2011, and will operate every Friday. Las Vegas has also been added as a new U.S. destination to the carrier’s winter season services, with non-stop flights to/from Ottawa. These services will be offered twice weekly, on Thursday and Saturday, from 9 December 2010 to 28 April 2011.

NEWS WESTJET - CON’T The latest new routes announced by the carrier for its winter season services include two new destinations from Québec City, which are Fort Lauderdale and Cancún. Weekly nonstop flights between Québec City and Fort Lauderdale and Cancún will operate once a week, on Sunday and Saturday, respectively. The weekly services to/from Fort Lauderdale will operate between 12 December 2010 and 24 April 2011, while the weekly services to/from Cancún will operate between 11 December 2010 and 30 April 2011.

U.S. AIRLINES SOUTHWEST AIRLINES REPORTS PROFIT INCREASE IN SECOND QUARTER On 29 July 2010, Southwest Airlines reported that the carrier’s second quarter net income for this year had increased to $112 million, 23% higher than the same period last year. This increase was largely due to high traffic levels and revenues during the quarter, generating total operating revenues of $3.2 billion (a 21% increase year-over-year). Southwest Airlines is expecting to continue to have a significant market share, as it anticipates record load factor and strong revenue growth in the succeeding quarters as well. NEW AIRTRAN OPERATIONS CONTROL CENTER IN ORLANDO AirTran Airways opened a new System Operations Control (SOC) Center in Orlando on 27 July 2010. The operations facility cost $6.9 million, and was funded by the State of Florida, the City of Orlando, the Greater Orlando Aviation Authority and the airline itself. It is expected to create 120 new jobs. The new command center will be responsible for more

Page 13 August 2010

than 700 of the airline’s daily domestic services and services to the Caribbean. At the opening of the operations center, AirTran also announced that in addition to the pilot bases in Atlanta and Milwaukee, the carrier has plans to open a third base in Orlando in the fall of this year. The carrier expects 100 pilots to be based in the Orlando location. HAWAIIAN AIRLINES SECOND QUARTER PROFIT DECREASES A report released by Hawaiian Holdings Inc., the parent company of Hawaiian Airlines, on 27 July 2010 stated that there was a 67% year-over-year decrease in the carrier’s second quarter net profit. From April to July 2009, Hawaiian Airlines’ net profit was $27.5 million, while it only reached $9 million over the same period this year. Although the airline generated $315.9 million in operating revenue (an 8.2% increase year-over-year), operating expenses amounted to $291.9 million (a 12.1% increase year-over-year). The increase in operating revenue was due to the addition of two A330s to the carrier’s fleet, and the increase of operating expenses was primarily due to increased fuel costs and higher taxes.

CARGO DB SCHENKER MOVES MANAGERS TO FRANKFURT Leading logistics service provider, DB Schenker, announced that its management teams in Berlin, Mainz and Essen will be moved to Frankfurt am Main. Together, DB Schenker Logistics, DB Schenker Rail and their cross-unit functions have approximately 300 managers. The move to Frankfurt is expected to help the firm expand their international business operations. Deutsche Bahn headquarters will continue to remain in Berlin.

NEWS BRITISH AIRWAYS WORLD CARGO TO SWITCH TO 747-8 EQUIPMENT

CARGO – CON’T SOUTH AFRICAN COMPETITION COMMISSION REFERS COLLUSION CASES TO TRIBUNAL The South African Competition Commission has brought forward cases of collusion in the air cargo market to the Tribunal for prosecution. There are eight airlines involved in the price fixing allegations: British Airways, South African Airways Cargo, Air France CargoKLM Cargo, Alitalia Cargo, Cargolux International, Singapore Airlines, Martinair Cargo and Lufthansa Cargo. Following an investigation that began in March 2006, the Commission found that since 1996 these airlines had been fixing the price of fuel surcharges and air cargo rates of cargo to and from South Africa. An administrative penalty of 10% of annual turnover was proposed by the Commission for all eight airlines, except Lufthansa. Because of Lufthansa’s cooperation in the investigations, the Commission granted the carrier conditional immunity from prosecution. IATA REPORTS INCREASE IN AIR CARGO TRAFFIC IN JUNE IATA reported that air cargo traffic experienced a yearover-year increase once again in June, but it was 7% less than the year-over-year increase reported in May. For the month of June, air cargo traffic was 27% higher than the traffic over the same month last year. Freight demand had the highest growth in the Africa region (+54%), followed by the Latin American region (+45%). Similarly, international cargo increased in the Middle East region (+37%) and the Asia-Pacific region (+30%). Because of slower economic growth, air cargo traffic had increased at a slower rate in North America (+24%) and Europe (+15%). IATA expects continued growth in the upcoming months as the industry continues to recover. Page 14 August 2010

Beginning next year, British Airways World Cargo (BAWC) will no longer operate its 747-400 freighter capacity, and will be switching to 747-8 aircraft. The current fleet will be replaced with equipment that has 16% more revenue cargo volume and 16% lower ton-mile costs. BAWC will be leasing the new equipment from Global Supply Systems (GSS) over a five-year period. CHINA SOUTHERN INTENDS TO INCREASE CARGO SERVICES In conjunction with joining the SkyTeam Cargo Alliance in November this year, China Southern Airlines intends to increase its cargo services to the Western cargo market. Among other new international routes that the airline is adding to its cargo network, a new service between Shanghai Pudong and Los Angeles is expected to launch on 28 August 2010. The new service will be operated by a 777-200F. The carrier also has plans to increase its fleet to a total of nine freighters, with the delivery of three 777Fs by the end of the year. China Southern Airlines’ current freighter capacity consists of two 747400Fs and four 777-200Fs.

PEOPLE IN THE NEWS CHUCK STRAHL APPOINTED AS NEW TRANSPORT MINISTER On 6 August 2010, Prime Minister Stephen Harper appointed Chuck Strahl as the new Minister of Transport, Infrastructure and Communities. Strahl’s predecessor, John Baird, was appointed as government House leader, and will be replacing Jay Hill, who will be retiring. Prior to his new appointment, Strahl was Minister of Indian Affairs and Northern Development. He has also served as Minister of Agriculture and Agri-Food Canada and Minister for the Canadian Wheat Board. Prior to becoming a Member of the House of

NEWS PEOPLE IN THE NEWS – CON’T Commons in 1993, Strahl was a partner in a road construction and logging contracting firm with several operations located in British Columbia’s Fraser Valley. WINNIPEG AIRPORTS AUTHORITY COO MOVES TO EXCHANGE INCOME CORP. Winnipeg Airports Authority’s (WAA) chief operating officer, Michael Rodyniuk, will become vice-president and chief operating officer of the aviation sector of Exchange Income Corp. Mr. Rodyniuk has been chief operating officer of the airport authority for the last six years. His new position at Exchange Income Corp. may assist the WAA in its goal of expanding its business to Northern Canada, as Exchange Income Corp. owns three airlines that serve the region, Calm Air, Perimeter Aviation and Keewatin Air. In his new position, Mr. Rodyniuk will be responsible for managing these three airlines on a corporate level. The new chief operating officer of the WAA has not yet been announced. SINGAPORE AIRLINES CEO INTENDS TO STEP DOWN Singapore Airlines CEO, Chew Choon Seng, announced on 27 July 2010 that he intends to step down when his contract expires in December of this year. Chew has been serving as the CEO of the airline since 2003, and has been with the airline for over three decades. He is the person mainly responsible for Singapore Airlines’ current status as the world’s secondlargest carrier by market value. A successor has not yet been named. NEW LEADERSHIP TEAM SELECTED FOR UNITED AND CONTINENTAL On 27 July 2010, United Airlines and Continental Airlines announced that they had selected a new leadership team for the combined airline, awaiting approval from the board of directors. Jeff Smisek will serve as President and Chief Executive Officer. Among Page 15 August 2010

those in the new leadership team are Mike Bonds, Jim Compton and Nene Foxhall, who have all been serving Continental since 1995. Mr. Bonds will be responsible for Human Resources and Labor Relations, Mr. Compton will serve as Chief Marketing Officer, and Ms. Foxhall will manage the Communications and Government Affairs functions. Zane Rowe, who has been with Continental for the last 17 years, will be the combined carrier’s Chief Financial Officer. Keith Halbert and Pete McDonald from United will be Chief Information Officer and Chief Operations Officer, respectively. Also from United, Jeff Foland will head the loyalty program of the combined airline, and Tom Sabatino will be General Counsel. United’s Chairman and Chief Executive Officer, Glenn Tilton, will serve as the Non-Executive Chairman of the combined carrier. Other members of the new leadership team have yet to be selected.

AIRPORTS UPDATE APPLICATION FOR U.S. CUSTOMS PRECLEARANCE FACILITIES AT BILLY BISHOP TORONTO CITY AIRPORT DECLINED The application for U.S. customs preclearance facilities to be opened at the Billy Bishop Toronto City Airport was declined by the U.S. State Department because of low passenger load at the airport, among other reasons. Currently, Porter Airlines is the only carrier operating out of Billy Bishop Airport, and offers services to Newark, N.J., and Myrtle Beach, S.C. In order to proceed with its plans of expanding its network to other U.S. destinations such as Reagan National Airport in Washington D.C. and LaGuardia International Airport in New York, the carrier would need U.S. customs preclearance facilities. However, Porter’s Chief Executive Officer, Robert Deluce, is confident that preclearance approval will eventually be granted in the future, especially with the recent awarding of new slots at the airport to Air Canada and Continental Airlines.

NEWS AIRPORTS UPDATE – CON’T DELTA AIR LINES ANNOUNCES JFK AIRPORT RENOVATION PLANS

OTHER NEWS

Delta Air Lines announced on 5 August 2010 that it has plans to renovate one of the terminals, Terminal 4, at the John F. Kennedy International Airport. Renovations include linking an expanded Terminal 4 to Terminal 2, and adding nine more gates for Delta. Another terminal, Terminal 3, will be demolished and replaced with parking area. The projected total cost of renovation is US$1.2 billion. Funding will be provided by special-project bonds, passenger facility chargers and Delta equity. In addition, other airlines will be required to pay rent for the use of the gates at the new facility. Plans have been approved by the Port Authority of New York and New Jersey, which oversees the airport. The expected time frame for the renovations is from September 2010 to mid2013. NEW TERMINAL AT INDIRA GANDHI INTERNATIONAL AIRPORT BECOMES NEW HOME OF AMERICAN AIRLINES Effective 28 July 2010, the new Terminal 3 at the Indira Gandhi International Airport will be the new location of all American Airlines’ services in Delhi. The new facility will have departure gates specially-designed for and dedicated to U.S. departures. With domestic flights beginning operations from the same terminal on 27 August 2010, connecting passengers are expected to have smooth transfers on to American Airlines flights. NEW NAME AND CLASSIFICATION FOR WALLBLAKE AIRPORT IN ANGUILLA On 04 July 2010, the Wallblake Airport on the island of Anguilla was classified by the International Civil Aviation Organization as an international airport, and renamed as the Clayton J. Lloyd International Airport. Captain Clayton J. Lloyd was the first pilot of Anguilla and owner of its first air service, Air Anguilla. Currently, the airport offers inter-islands services Page 16 August 2010

and services from San Juan, Puerto Rico.

85 PERCENT OF U.S. TO BE CONNECTED BY HIGH-SPEED RAIL On 10 August 2010, U.S. Transportation Secretary Ray LaHood announced that there are plans for 85 percent of the U.S. to be connected by a high-speed rail network within 25 years. The total cost for the network is estimated to be US$500 billion. Source of funding and specific routes for the rail network have not yet been decided on. MEXICANA AIRLINES FILES FOR BANKRUPTCY PROTECTION On 3 August 2010, Mexicana Airlines announced that it has filed bankruptcy protection in the U.S. and in Mexico. Ticket sales were put on hold on 5 August 2010, and sales were restarted again on 11 August 2010. In addition to the global financial crisis and the H1N1 (swine flu) epidemic in Mexico, the carrier said high labour costs were a significant factor that contributed to their financial difficulty. Since then, Mexicana Airlines had also cancelled several domestic and international flights. In addition, several of the carrier’s aircraft have been seized by their lessors. However, the airline announced that it will continue operations for tickets that are already booked. Mexicana Airlines’ two subsidiaries, MexicanaClick and MexicanaLink, are not included in the credit protection filings, but are also affected by the loss in sales. AIRBUS TO INCREASE A320 MONTHLY OUTPUT On 30 July 2010, Airbus announced that it will be increasing the monthly output of the A320 family of aircraft. The new monthly production targets are 36 airplanes starting in December this year, 38 as of August 2011 and 40 as of the first

NEWS OTHER NEWS – CON’T quarter of 2012. Airbus currently produces 34 aircraft per month. The decision to increase production was brought about by an increase in demand, and a backlog of more than 2,200 aircraft. The A320 family has a single-aisle configuration, and includes the A318, A319, A320 and A321. GLOBAL PASSENGER TRAFFIC AND PASSENGER CAPACITY RISE IN JUNE On 28 July 2010, IATA reported that compared to June 2009, global airline passenger traffic for the same month this year increased by 12%. Likewise, global passenger capacity for the month increased by 6% year-over-year, leading to a passenger load factor of 80% in June 2010. IATA also reports that the growth in passenger traffic and passenger capacity varied across region. Increased traffic for the month of June was highest for African carriers (+21%) due to the FIFA World Cup held in the region. This was followed by carriers in the Middle East and AsiaPacific regions, with 18% and 16% year-overyear increases, respectively. June 2010 passenger traffic also grew for Latin American carriers (+15%) and North American carriers (+11%). International passenger demand had the slowest growth in the European region with European carriers reporting an 8% growth in June, which is 0.5% less than the growth recorded for the previous month.

Page 17 August 2010

THE CARIBBEAN REPORT August 2010

Dominica Airport certified for night landings

Jacqueline Clarke Director, Strategic & Tourism Development

A recently completed upgrade at the Melville Hall Airport will allow commercial carriers to operate night services to Dominica for the first time. The renovation project included lengthening the runway and installing landing lights, and the installation of an instrument approach and additional navigational aids. The arrivals hall and departure lounge were also refurbished. The renovations were certified by the required international air regulatory agencies and LIAT, the island’s main carrier, has completed the first series of test flights. The carrier identified and forwarded several concerns to the Eastern Caribbean Civil Aviation Authority (ECCAA). Once addressed, the airline will be able to introduce commercial night operations to Dominica. The addition of night flights is expected to significantly increase the island’s tourism development.

Air capacity increased WestJet announced increased Caribbean service beginning in December 2010. Effective 11 December, the airline will offer a weekly non-stop service from Québec City to Cancún until 30 April. From Ottawa, the carrier will increase frequency to Cancún from two to three times a week, to Punta Cana from once to twice weekly and to Montego Bay from twice to three times weekly. From the U.S., AirTran announced a new nonstop, twice-weekly scheduled service between Atlanta and Punta Cana, to begin on 16 February 2011.

Bahamas increases tourism taxes The Government of Bahamas has announced an increase to several of the island’s tourism-related taxes. Effective 1 July, the airport departure tax increased to $20 per traveler, up from $15. The cruise departure tax will increase from $15 to $20 on 1 October. The hotel room tax was increased from 6% to 10% on 1 July. The Ministry of Tourism cited the global economic crash and the need to "continue to provide a quality tourism product for visitors" as reasons behind the tax increases. The tax revenue will be used for infrastructure development such as airports and roads.

Page 18 August 2010

THE ASIA REPORT August 2010

Qantas fiscal-year profit lower than previous year

Doris Mak Director, Special Projects

On 12 August 2010, Qantas Group announced that for the fiscal-year ended 30 June, the airline’s net profit was equivalent to A$116 million (US$103.5 million). Although the net profit was 5.7% lower than the previous year, the underlying profit before tax was 277% higher at A$377 million (US$336.6 million). This result could be attributed to the improving yields, the airline’s frequent flier program, and Jetstar, Qantas’ low-cost subsidiary. Increases in passenger traffic (+1.6%) and capacity (+0.1%) over the fiscal-year led to an increase in load factor by 1.2 points to 80.8%. With over 7 million members, the Qantas Frequent Flyer program delivered an underlying EBIT of A$328 million (US$292.9 million). Qantas’ low-cost subsidiary, Jetstar, also reported a record profit for the fiscal year with an underlying EBIT of A$131 million (US$117.0 million).

Shanghai Airlines no longer Star Alliance member by November 2010 On 30 July 2010, Shanghai Airlines announced that starting November 2010 it will no longer be a member of Star Alliance. Until the end of October, Shanghai Airline passengers and Star Alliance customers will still be able to avail of the benefits of the worldwide alliance. The airline and the alliance came to the agreement after Shanghai Airlines had merged with China Eastern, which joined the SkyTeam Alliance in April of this year. Shanghai Airlines has not yet announced whether or not it will also become a member of SkyTeam. The separation of Shanghai Airlines has slightly decreased the network of Star Alliance. However, since Air China became a Star Alliance member in March, the alliance still has options in expanding its network within the region.

Singapore Airlines reports profit increase in April to June 2010 On 26 July 2010, Singapore Airlines reported a net profit of S$253 million (US$185 million) for the period April to June 2010. During the same period last year, the carrier reported a net loss of S$307 million (US$224.5 million). The S$560 million (US$409.5) recovery was due mainly to an increase in load factor and yields, as passenger yields increased by 14.7% year-over-year for the quarter. Based on its advanced bookings, Singapore Airlines is expecting to maintain these strong financial for the rest of the year.

Okay Airways purchases 10 B737-800s Privately owned Chinese airlines, Okay Airways purchased 10 B737-800s from Boeing. The additional aircraft are expected to help increase the carrier’s services within China and in nearby regional markets. Currently, Okay Airways fleet consists of four 737s, including three 737-800s and one 737300 converted freighter, and its network includes 20 destinations within China. While waiting for the delivery of its newly purchased aircraft, the airline has plans on leasing four and five 737-800s in the current year and in the succeeding years, respectively.

Page 19 August 2010

THE EUROPEAN REPORT August 2010

Air traffic controllers in Spain cancel strike

Ian Kincaid

On 11 August 2010, UNSCA, the union representing air traffic controllers in Spain, announced that they had decided to cancel the strike planned for the end of the month. The group had first announced their intentions to hold a strike last 6 August 2010, after unsuccessful negotiations between UNSCA and AENA, Spain’s airport authority, over compensation and working conditions. The cancellation of this month’s strike is attributable to the union’s understanding of the concerns that IATA and AENA have expressed regarding Spain’s recovering tourism industry. The union and the airport authority are expected to resume negotiations.

Vice President, Economic Analysis

SAS reported second quarter net loss due to airspace closures in April Scandinavian airline, SAS, reported a net loss of SEK502 million (US$68.6 million) in the second quarter of this year. This loss is said to have been due to the airspace closures in April caused by the volcanic ash clouds. Although this net loss is a 52% improvement from the same period the year before, because of this interruption SAS incurred an estimated SEK790 million (US$106.7 million) loss in revenue. When adjusting for these turn of events, the airline reported that it would have earned an estimated SEK464 million (US$ 62.7 million) in net profit for the second quarter.

Icelandair enters codeshare with Alaska Airlines and Horizon Air On 27 July 2010, Icelandair, Alaska Airlines and Horizon Air announced that codeshare flights for the three airlines will begin starting in the fall. Through the agreement, Iceland’s national carrier will be able to place its code on certain flights flown by the U.S. air carriers. This will increase the number of connecting flights to Iceland and throughout Europe, since Icelandair offers services from SeattleTacoma International Airport to Iceland’s Keflavik International Airport. The airlines will also begin a reciprocal frequent flier partnership in the fall, wherein Alaska Airlines and Horizon Air passengers can earn or redeem frequent flier miles on Icelandair flights and vice versa.

British Airways launches new route to Copenhagen British Airways will launch new service to Copenhagen, Denmark from London City Airport effective 12 September 2010. British Airways’ subsidiary BA CityFlyer is expected to operate the new route with new Embraer 190 aircraft. There will be two daily weekdayservices and one Sunday service from London City Airport, while there will be one flight on Saturdays from Copenhagen. The new route will be the airline’s first service to Scandinavia from London City Airport.

Air Berlin to become newest member of oneworld alliance Air Berlin announced that it intends to join the oneworld alliance by early 2012. The two parties had reached a memorandum of understanding on 26 July 2010. They aim to complete a full membership agreement soon, with the support of British Airways as the carrier’s alliance sponsor. Being a member of the alliance will allow Air Berlin to be more competitive and grant the carrier access to 9,000 daily flights by other alliance partners. Likewise, membership of Germany’s second largest airline benefits oneworld by increasing the alliance’s daily flights by 7%. Air Berlin also signed codeshare agreements with American Airlines and Finnair. Codeshare flights between the airlines are expected to begin 1 November 2010.

Page 20 August 2010

THE WASHINGTON REPORT August 2010

Airport Slots – Public Interest or Private Property? U.S. Courts May Clarify

Steve Martin Senior Vice President

The FAA’s conditions for approval of the slot swap between Delta Air Lines and US Airways would deprive the carriers of their constitutional protection against the government taking property for public use without “just compensation,” the airlines argued in a filing they made with the U.S. Court of Appeals. Raising the issue could compel the court to clarify whether slots are airline or government property, which has been a point of contention for years and has important government policy and airline business implications. Slot ownership was a key point of contention in 2007, 2008 and 2009, when the FAA and U.S. Department of Transportation (DOT) proposed, and eventually abandoned, a plan to auction off slots at the three major New York metropolitan area airports as a means of controlling congestion. Under the slot swap agreement signed by Delta and US Airways, Delta would transfer 42 of its slot pairs at Reagan Washington National Airport to US Airways; in turn, US Airways would transfer 125 and lease15 of its New York LaGuardia Airport pairs to Delta. Citing competition concerns, the FAA approved the plan, but with conditions: Delta would have to agree to sell 14 of the 42 National slot pairs to U.S. or Canadian carriers with less than 5% market share at the airport, and US Airways would have to do the same with 20 of the LaGuardia slot pairs. Under the FAA’s conditions, the slots would have to be sold in a blind auction to the highest bidders. Any slots not purchased in the auction would revert to the FAA, not the carriers. Delta and US Airways have argued they cannot obtain “just compensation” if the bidding is limited to certain carriers, and if those carriers know they can low-ball bids because Delta and US Airways stand to lose the slots. FAA countered that the slots are an “operating privilege” provided to carriers—not their “property.” It also argued it would not be “taking” the slots, but instead “regulating the ability of the petitioning carrier to transfer slot interests in a manner that results in unreasonable industry concentration.” All of those arguments are likely to be repeated as the lawsuit proceeds. Delta and US Airways are challenging the slot swap conditions on more than constitutional grounds. The carriers also argue in the lawsuit—as they did earlier during the FAA regulatory proceeding—that Congress did not give FAA the authority to consider the effects on competition of a waiver of the government’s temporary ban on the transfer of slots at LaGuardia. Nor did Congress grant that authority to the DOT for the review of asset transfers, instead leaving it to the Justice Department (DOJ) to consider the competitive impact, they say. Delta and US Airways also argue that the FAA is improperly placing conditions on slot transfers at National, although the airlines needed a waiver only for slot transfers at LaGuardia. FAA regulations allow slots to be transferred freely at National, subject only to DOJ antitrust review and possible court challenge, the carriers say. The airlines also argue that the FAA insisted on the slot divestiture condition even though the slot swap would improve service and benefit consumers.

Page 21 August 2010

THE WASHINGTON REPORT – CON’T Delta and US Airways might not be the only parties arguing in this case. Southwest Airlines filed for court permission to intervene in support of the FAA and DOT. Southwest says it has a “significant and unique interest in the outcome of this proceeding” because it has long sought LaGuardia and National slots, and the proposed slot auction could enable it to expand its “minimal presence” at LaGuardia and start service at National. Southwest argues its interests in the case are not “adequately represented” by the FAA and DOT because Southwest “is concerned with its own economic and competitive interests,” while the government’s obligation is to “ensure that the broader public interest is vindicated regardless of the impact on individual parties.”

Page 22 August 2010

INTERVISTAS NEWS InterVISTAS Upcoming Speaking Engagements Mark Haneke, Vice President, Network and Strategic Planning • Northwest Chapter AAAE Annual Conference: Anchorage, Alaska – 1-3 September 2010 Mr. Haneke will speak on Air Tourism Development and Marketing at the conference Steve Martin, Senior Vice President • U.S. State Department workshop, Washington, D.C., 9 September 2010. Mr. Martin will speak on air service liberalization, now and beyond Open Skies Barney Parrella, Executive Vice President • ACI-NA Annual Conference: Pittsburgh, Pennsylvania – 28 September 2010 Mr. Parrella will present the Air Service Development session of the conference, entitled Air Service Reality Check Dr. Mike Tretheway, President, InterVISTAS Consulting Inc., Executive Vice President and Chief Economist, InterVISTAS Group • Canadian Aviation Maintenance Council - AGM: Vancouver, BC – 30 September 2010 Dr. Tretheway will be giving an industry update CAMC’s Annual General Meeting Jacqueline Clarke, Director, Strategic and Tourism Development • Alberta Visitor Information Providers Conference: Canmore, Alberta – 23-24 October 2010 Ms. Clarke will be presenting the findings and recommendations of the ‘Rural Visitor Information Center Assessment Study” conducted for Canadian Badlands earlier this year.

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 23 August 2010