From the cockpit

Gboyega Adeoye, Lagos

This being the last aviation page in 2007, it is only right to have a look back at the year as well as forward to 2008. First, we must mention the sad loss of Tony Ryan on October 3 to cancer, aged 71.
There is no doubt that his memory will live on through the many leasing innovations of the glorious GPA years through to Ryanair. One of his interviews from the 1990s contained a rare insight into his thoughts and it is perhaps, the following quote which reminds one of the man behind the businessman.

“On an evening in 1974 when I watched the painstaking care with which a South-East Asian street food vendor went about the preparation and selling of his products, I felt it a pity that such marketing, technical talent and energy were devoted to a process which produced a mere penny. Then and there I determined that when I went into business on my own account, I would apply my energies to developing and marketing a big-ticket product which could sell for vastly more.”

Tony – you did it! Tony Ryan will rightly be remembered as one of Ireland’s greatest businessman and innovators and a leading light of the aviation industry.

You may be sensing that we have been here before with mergers and acquisitions at the top of the agenda. In January 2007, you may recall that I wrote a feature entitled “Oh no, not Air France- KLM-Alitalia,” where we detailed the intention of Air France to go for Alitalia subject to various Italian government clauses being removed from the drafts. Now here we are eleven months later and the deal is looking set to go through, Air France-KLM will see their shares slump over the coming months and they may well hit some rocks in 2008/2009 because of this deal. Of course, this is not the time to have a low share price and large debts on top of a fleet renewal programme; minority investors get out now while you can!

Many aviation banks shut their doors back in August. When you ask some aviation bankers if they are busy today they reply, “yes, we are very busy indeed,” but when you ask them how much new business is taking up their time you find that little to nothing is the general answer. The credit crunch will continue to cause ripples for some time to come. Credit lines for aviation-related companies are becoming far more difficult and costly to come by and we may well see some impact on the more volatile Indian aviation market during 2008. UB Group (Kingfisher/Deccan) is proving at this very moment that the financial power brought to airlines by aircraft on order and the value of the slots alone will be a valuable lifeline for many over the next two years (not that Kingfisher needs one).

The other story concerned SAS’ problems with the Q400. I reported here that it was very worrying to see problems with a launch customer’s aircraft as they usually then lead to the same problems for other airlines. While it is very clear that SAS will lose out by dumping their Q400 fleet onto the market, the leasors are more than happy to make some serious cash at the expense of the Scandinavian airline!

2007 also saw oil rocket to $100 a barrel. We called $96 a barrel as the turn-of-the-year marker price back in May. The George Bush announcement on Iran in the first week of December, where an olive branch was proffered, is the only thing that has kept the price below $96 over these past weeks. Airlines will feel real pressure from oil prices during the second quarter of 2008 when we shall subsequently see who is fit for survival. So, not a time to be lumbered with a loss-maker like Alitalia.

Speaking of survival, Boeing has had a great year once again while Airbus, despite its troubles, has been bolstered by a new French president, who I am sure will keep Airbus within his thoughts at all times and prove a great new asset in the battle for survival in its current guise.

The year also saw the Airbus US Dollar hedge finally fade into nothing, a story that you may remember we broke here back in June 2006. Airbus has emerged from dollar hedge protection at a time when the Euro is very strong, compounding the pain. Airbus loses may well break all records in 2008 and you should all be prepared for this. This industry needs both Boeing and Airbus and it is sad to see the latter being kicked from pillar to post like some political football.

Not the most upbeat note to finish on, but I’m sure it won’t ruin your holidays. We’ll be back on January 4; meantime, from the two of us contributing to this page, Shola Adekola and my humble self, we wish you all the very best for 2008 and a happy new year. Happy holidays everyone!