Growth and Turbulence


Economic News

22 Jul 2010
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The outlook is mixed for Turkey's aviation industry, with the country's national flag carrier planning a massive expansion programme while some smaller lines are looking to cut routes and costs as the Turkish economy slows.

On October 14, national carrier Turkish Airlines (THY) announced it had asked leading manufacturers Airbus and Boeing to submit proposals for 25 double-aisle and 50 single-aisle planes, with options for 10 more twin-aisle and another 20 narrow body aircraft.

This new order could see as many as 105 aircraft added to THY's existing fleet of 115, though it is expected some older models presently being flown would be pensioned off.

In its statement announcing the expansion, THY said its passenger numbers had increased by 150% in the past four years. This growth, along with the objective of being "ready to provide service when the global economy recovers with a more stable foundation while Turkey stands in the forefront by taking its market share to new heights", were the reasons for the largest acquisition programme in the airline's history, it said.

Temel Kotil, THY's chief executive officer and member of the board of governors at the International Air Transport Association, said the deal would be worth around $6bn, with the first deliveries due in the second half of 2010.

Though other airlines were facing financial difficulties, THY was sticking to its prediction of passenger growth of 20% and sales of $4.5bn for 2008, Kotil told an international news agency on October 14.

THY has also been seeking other avenues of expansion, having recently considered buying a stake in Austrian Airlines, though not submitting a final bid, and also bidding for a 49% share of BH Airlines, the Bosnian Muslim-Croat federation flag carrier.

Though the results of the bid, which pitted THY against the Comintel Corporation of Malaysia and a Jordanian consortium including Royal Jordanian Airline, have yet to be announced, news agency Reuters quoted an unnamed Bosnian official as saying on October 8 that the Turkish airline's offer was by far the best on the table.

Another major boost for the Turkish airline industry will be the Turkish Engine Centre, a joint venture between Pratt & Whitney of the US and Turkish Airlines Technic, the technical services arm of the national carrier. The new facility, being built at Istanbul's Sabiha Gokcen International Airport on the Asian side of the city, is due to commence providing engine maintenance, repair and overhaul services in mid-2009.

According to Daniel Tenant, the Turkish Engine Center's general manager, the facility will be able to overhaul up to 200 engines annually and will quickly establish itself as a regional maintanance centre.

While THY is apparently flying high, other operators in the industry are concerned over potential turbulence as the global economic slowdown, falling demand in the cooler months and high fuel prices (while oil prices are going down, forward contracting means that companies have had to buy at an agreed price in advance) combine to reduce ticket sales.

Orhan Coskun, the chief executive officer of private carrier Atlasjet Airlines, has warned the true situation in the sector will only become clear after the end of October, when the full effects of the end of the peak season will be felt.

"At least two or three airline carriers in Turkey will be in a very difficult situation," Coþkun told the local media in late September.

To reduce costs, Atlasjet has leased two of its aircraft to a Saudi Arabian carrier and was planning to send another three to the kingdom, he said.

Even more pessimistic was Ömer Torosluoglu, Inter Airways' chief executive officer, who predicted that up to half of Turkey's 16 private airlines may fail.

"Only those companies that can find additional financing will survive. The fast loss of value in the Turkish lira against the dollar might also cause big losses on domestic lines," he was quoted as saying in local media on September 20.

Even THY has felt the pinch on some routes, announcing on October 8 that it was dropping its Denizli-Ankara service, operated by low-cost subsidiary Anadolujet, due to poor sales. The average occupancy rate on the route from the capital to the Aegean city was just 23%, THY officials said, well below the 50% minimum requirement the airline had set.

Though Turkey's biggest may be getting bigger, many other players in the Turkish aviation industry could be in for a rough landing if the local and international economies continue on their nose dive.

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