“IATA doubled down on its quirky definition of ‘smarter’ regulation by asking not only for a free ride from the suppliers, but an inside track against competitors. It is not called a legacy industry for nothing. That every year IATA again has to plead that the IATA Worldwide Slot Guidelines be adopted should tell you all you need to know about the falsity of its title. Perhaps the fact that it is a naked attempt to distort the market, whilst allowing incumbents to benefit from windfall gains, is so blindingly obvious that even protectionist-minded governments can see through it. There have even been calls to break up slot monopolies at airports (a la BAA and AT&T) in such irresponsible, anti-business rags as the Financial Times. Could the tide be turning?”
—Andrew Charlton, “The IATA AGM—Zigging Not Zagging; Canning Not Cunning,” Aviation Intelligence Reporter, July 2017
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Etihad ensnarled by Europe’s airline ownership rules
Etihad Airways suffered two financial catastrophes in Europe in less than six months, and some of the blame is being put on EU regulations on airline ownership.
In recent years, Etihad sought to expand into Europe by buying minority stakes in EU airlines. The Abu Dhabi-based carrier couldn’t do more because for an airline to be regarded as an EU carrier, it must demonstrate it is majority-owned and effectively controlled by EU nationals.
The situation turned out to be a disaster for both Etihad and the European airlines it invested in. “Irrespective of whether Etihad’s strategy was right or wrong, the United Arab Emirates company was a willing investor in European airlines to expand its network and brand,” Andrew Charlton, managing director of Aviation Advocacy, a Geneva-based consultancy. “But it was unable to fulfill the strategy because it is not allowed to majority own or control the airlines it bought into.”
In 2012, the company took a 29.2 percent stake in Air Berlin, Germany’s second-largest airline, and since then invested more than €2 billion. This week, the German airline declared bankruptcy, and its planes are flying only thanks to a €150 million emergency loan from the German government.
Etihad also led a €1.8 billion investment in Alitalia in 2014, taking a 49 percent stake — the maximum permitted by EU law. In April, the perpetually troubled Italian flag carrier slid into bankruptcy, being placed under special government administration and kept alive by a €600 million bridge loan.
Air Berlin and Alitalia, in need of rescuing and looking for bidders, face a situation in which they may not find an interested investor from within the bloc, but EU rules make it unattractive for foreign airlines to get involved.
The European Commission in June published guidelines for the interpretation of the existing rules as part of its Open and Connected aviation package but gave no indication it plans to change the system.
“We have to make sure that [foreign] investors are not discouraged or de-incentivized by a too strict interpretation of the ownership and control rules,” said Ulrich Schulte-Strathaus, managing director of Brussels-based consultancy Aviation Strategy & Concepts.
Etihad’s financial woes may have been lessened had it been permitted to gain a controlling stake in the companies. It was unable to paint the Air Berlin or Alitalia aircraft in Etihad colors and went to court over code-sharing (an agreement where airlines share the same flight) with Air Berlin, said Charlton.
Etihad did not immediately respond to a request for comment.
For other airlines, the desire to revamp EU ownership rules is growing increasingly acute ahead of Brexit.
Ireland-based Ryanair has many U.K. shareholders. Once they are no longer EU citizens, the airline may have to force them to sell their shares to keep its status as majority-EU owned. U.K.-based carrier easyJet recently set up an Austrian subsidiary to help it continue flying within Europe after Brexit.
International Airlines Group, the parent company of British Airways, Aer Lingus and Spain’s Iberia and Vueling, is pressing hard for a rethink of ownership rules because it likely won’t meet the definition of EU owned and controlled after Brexit.
Willie Walsh, the head of IAG, last month pleaded before the European Parliament for the bloc to relax its “arcane” airline ownership law to bring it inline with other global sectors like banking or automotive.
The rules are a hangover from the days when airlines were seen as symbols of the countries that owned them, he told the Irish Times. “I have been arguing this for 20 years,” he said.
Air Berlin keeps flying after filing for insolvency
Andrew Charlton, an aviation analyst, said the insolvency was “inevitable”. Air Berlin tried five or six different paths. It’s always been a difficult business for them to try to make work,…
British Airways counts the cost of outage disruption.
“It really is a big deal,” says Andrew Charlton, an aviation analyst. “The cost of its hub going down is enormous and the ripple effect down the entire operations will take about 14 days to work out of the system. Aircraft are in the wrong place, the crew are in the wrong place, connections are lost, there is a need to find ways to re-accommodate passengers. It will go on and on.”
After Technical Chaos, British Airways Looks to Restore Schedule
“It’s more than just simply saying we know you’ve got a booking and therefore we’re going to issue you with a boarding pass,” said Andrew Charlton, the managing director of the Aviation Advocacy consulting firm and a former chief legal officer at Qantas, the Australian airline.
The super-connector airlines face a world of troubles
Second, geography has turned sharply against them. When Sir Tim Clark, president of Emirates, helped Dubai’s government to set up the airline in 1985, he was quick to spot that a third of the world’s population lives within four hours’ flight of Dubai, and two-thirds within eight. “They were in the right place at the right time,” says Andrew Charlton of Aviation Advocacy, a consultancy. “But now they’ve been caught in the wrong place at the wrong time.” A series of terror attacks in the region and a coup in Turkey last July has prompted many passengers to shun airports in the Middle East and to go elsewhere to change planes. The latest figure (from March) for capacity utilisation for Middle Eastern airlines was just 73%, the lowest since 2006 and worse than at the height of the financial crisis in 2008-09.
Alitalia faces humbling finale as staff spurn deal
“Europe has too many airlines and the sooner we lose airlines like Alitalia the better we will be,” says Andrew Charlton, a Swiss-based aviation analyst. “Alitalia is like Lazarus with a double heart bypass. It’s dead but won’t lie down.”
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