Pilot shortage moves to pilot surplus
Airlines have long resolved to free themselves from the cycle of famines and surfeits in pilot supply. The cause has always been a failure to invest in training until shortages arise, then the newly trained pilots arrive in time to be furloughed as the next economic downturn bites.
The latest air travel slump has been precipitated by a collapse of business and personal financial confidence caused by the global credit crunch, while simultaneously airlines are being squeezed by consistently high fuel prices: a particularly vicious combination.
The downturn may provide temporary relief - in one narrow sense - to the high-growth airlines of China, India and the Middle East. They have been saved, in the nick of time, from an otherwise inevitable severe shortage of experienced pilots. But now, for a few years, they look as if they will be able hire the recently sacked expatriate crews from the rest of the world, as carriers in the mature economies look everywhere for massive cost reductions.
European pilot training guru Peter Moxham, consultant to the European Council of General Aviation Support, gives his reaction to the suddenness of this latest change from pilot supply boom to bust: "For some years we have been talking about a pilot shortage, not just in the UK or Europe, but worldwide. We even saw low-hour pilots join the US carriers. Now it is 'stop'. I believe that the airlines have simply never had it so bad. Not just fuel [cost], but also a credit squeeze."
The gloomy current airline market may cast a long shadow over the training industry, but historic experience of market cycles combined with contemporary economic trends present a much more complex and - in the medium term - promising picture for the airlines and flight training organisations. The world's financial institutions will, in due course, sort out their self-created credit woes the oil prices will find a level that the surviving airlines will learn to live with the global economy will recover, and the human race will rediscover its irrepressible urge to travel. Meanwhile the training industry is being presented with new tools that will confer advantages not widely available now.
Favourable Prognosis
Despite a favourable long-term prognosis, gloom dominates the industry, especially in Europe and the USA. At a human - as well as a systemic level - one of the most unfortunate recent victims of airline cuts have been the world's first multicrew pilot licence line pilots. Denmark's Sterling Airlines, working with the Center Air Pilot Academy (CAPA) and the Danish aviation authority, trained them to MPL standard and took them on to the line in September 2007. Despite finding that the new first officers performed particularly well, Sterling has now had to lay them off. This has led Moxham to ponder: "What responsible company will go down the route of recommending the MPL now?"
Regional airline Danish Air Transport is doing just that, but not in large numbers. As Sterling had done before it, Danish Air Transport, which operates a fleet of ATR 42s and 72s, took on four CAPA-trained MPL graduates on 23 July. The carrier's head of training, Capt Lars Riis, says the new first officers are highly motivated, disciplined, extremely good at cockpit resource management and in their practice of standard operating procedures.
The first officers are undergoing their line operations flight checking. In September, he says, the carrier will select two more student pilots who will have reached the final part of their generic instrument training in a flight and navigation procedure trainer for instruction to MPL for its ATR fleet, and they should be on the line by about December.
Zurich-based Swiss Aviation Training carries out more pilot training to MPL than any other European flying training organisation. It began preparing its first ab initio candidates for MPL in April 2007, according to chief instructor Rolf Eickstaëdt, and the first graduates will join their airline later this year.
These trainees consist of pre-screened candidates chosen and sponsored by Swiss International Air Lines, says Eickstaëdt. Swiss Aviation Training, he says, runs four courses a year with about 24 cadet pilots on each. The courses begin every three months, and alternate between courses that train pilots to MPL or to a commercial pilot's licence with instrument rating. All the MPL students are bound for Swiss, and the CPL/IR courses cater for a mix of self-sponsored students, trainees for Swiss, and pilots bound for the Swiss air force.
In December, says Eickstaëdt, some CPL/IR and some MPL students from Swiss Aviation Training will join the airline for type rating training. This, he says, should give Swiss an opportunity to compare the products of the two different streams because, at the selection stage, they were all tested against the same criteria. Eickstaëdt says that Swiss has not indicated an intention to reduce its student intake, but makes no predictions about what the future holds.
Moxham, however, says the training industry is nervous about the short term. CAPA's Jens Frost says airlines "are not planning more than six months ahead" for recruitment and training, and Danish Air Transport's Lars Riis confirms that is the way his airline is thinking. Moxham says: "Many airline prophets are forecasting doom and despondency many forecast more bankruptcies and mergers. If we the prophets are right - and they may be exaggerating - then there will be a significant pilot surplus. Taking the proposed cut in aircraft numbers this winter - claimed to be winter only but I suspect it's more permanent than that - the number of pilots furloughed will run into hundreds in the UK alone, and the UK is not unique."
Worldwide Problem
Moxham adds: "I have also to question whether this should be considered a European or a North American problem, or whether it is a worldwide situation. I do not believe any country is immune since all rely on international travellers. Emirates may be booming, but if things get tight in Europe then their load figures will inevitably decline - the same applies elsewhere.
"Worst affected will be those carriers with old-technology aircraft that are simply not competitive on fuel burn. The manufacturers have massive orderbooks, but it seems inevitable that customers will slide deliveries to the right, and this will only accentuate the problems."
How will this affect flight training organisations? Moxham says: "All my information is that the larger FTOs are actually expecting a severe downturn in business for 2009. Fuel will mean price increases, and the credit crunch reduces the amount of funds the banks will lend for training." His comments, he says, are based on "industry discussions over the past couple of months".
This contrasts with the situation as seen only a few months ago by Swiss Aviation Training. In April, the organisation's chief executive Manfred Brennwald had the luxury of worrying about the prospect that the entry barriers to becoming a pilot would be lowered as a result of the global pilot shortage and the rapid growth of air transport, making pilots "just another commodity".
Polished image
The industry, he said at the time, has a responsibility to "polish the image the pilot profession has", and ensure quality students are attracted to an airline flying career. For that reason, said Brennwald, Swiss Aviation Training had no plans to grow its ab initio training into a global business with flying schools in emerging economies.
Boeing's worldwide training organisation Alteon, however, released figures in July that, if borne out, suggest the long term will be more benign for the training industry, and that the airlines had better not get complacent about having enough pilots for the time being. Demand for pilots and aircraft maintenance specialists over the next 20 years will be at a level that the training system would not be able to meet, according to Alteon's president Sherry Carbary.
Alteon forecasts that, from 2007 to 2027, airlines will take delivery of 29,400 new aircraft to replace old fleet and cope with the growth in demand for air travel. This, says Carbary, will require an average of 18,000 new pilots and 24,000 maintainers a year to be trained to replace those who retire and also to crew and service the increasing numbers of aircraft in the world fleet.
Only by training at those annual rates will the industry be able to meet the estimated need over the next 20 years for a total of 360,000 new pilots and 480,000 new maintainers, Alteon calculates.
North America heads the league in terms of the number of pilots it will need in the next two decades, at 98,000. Europe follows at 70,000. Other regional predicted requirements are: China 49,900, South- East Asia and Indonesia 32,000, Latin America 22,800, Japan 19,000, the Middle East 17,500, the CIS 11,500, Africa 10,100 and Australasia 7,200.
Rules change
Meanwhile, new proposed rules for European flightcrew licensing threaten to throw much of the continent's pilot training industry into chaos, at the same time closing associated training organisations in the USA and damaging US-owned flight training/type rating training organisations based in Europe.
A group of eight major European flight training and type rating training organisations have jointly signed a letter to the European Aviation Safety Agency protesting about its current notice of proposed amendment to the existing JAR flightcrew licensing (JAR FCL), which would radically change many of the ground rules defining how a training organisation must conduct its business to be approved to train pilots for an EASA licence.
EASA's rulemaking has to comply with basic European Union law. EASA interprets this as requiring that approved flight training organisations shall be based in Europe, will conduct the critical phases of training and the final flying tests in Europe, and shall be owned by companies whose main base is in Europe. At present most major European training organisations rely on a significant part of their students' actual flying training taking place abroad, mainly in the USA, using instructors that have a US Federal Aviation Administration licences even though they are training to an EASA/JAA syllabus.
The proposed rule would disallow instruction by pilots who do not hold at least the same level of European pilot's licence or rating for which they are preparing their students, plus an instructor's or examiner's rating. At present instructors in the USA, or at training bases in non-EU countries, do not have to hold European licences if they are licensed as instructors in their own countries and are training the student pilots to a JAA-approved syllabus and testing regime.
A completely European alternative would have to be found, according to Moxham. Training organisations that have written to EASA say there is no certainty that this could be achieved at all, let alone in time for the rule's adoption in 2009 and implementation in 2012.
The effect of the regulation would be to strengthen the Europeanness of the requirements which, if adopted as proposed, would make the European flightcrew licensing requirements like an eastern Atlantic version of the FAA licensing rules.
Getting the most out of new tools
Ever smarter, ever cheaper flight training devices for tailoring pilots to the needs of modern airlines operating highly efficient, highly automated aircraft are among new tools becoming available to the training industry.
The relatively new multi-crew pilot licence, as opposed to the traditional commercial pilots' licence/instrument rating (CPL/IR), is designed to get maximum benefit from the new devices and advanced full flight simulation, and the MPL course, unlike the CPL/IR, contains an integral IR.
The licence is not complete until the pilot has passed his/her type rating training for the sponsoring airline. It is gained via an International Civil Aviation Organisation-specified performance-based course designed to confer traditional aviation skills and knowledge, but also the crew resource management and the threat-and-error-management skills needed by airline pilots.
This contrasts with the skills needed by lone aviators, which is what the traditional CPL/IR course is designed to produce.
Rocky start for MPL in Europe
Forced by the economic downturn to cut its pilot workforce by 61, Denmark's Sterling Airlines had to dismiss its nine multicrew pilot licence first officers, the only pilots anywhere with this new qualification to have reached line flying.
Their dismissal had nothing to do with their skills, the airline confirms, but the carrier was applying the last-in, first-out principle that most operators employ when faced with the need for redundancies.
Sterling admits that the MPL first officers have aparticular problem in finding alternative jobs because they were trained specifically to Sterling's standard operating procedures and have a licence of which other airlines have no experience.The first four MPL co-pilots began line flying with Sterling in October last year. Chief training pilot Capt Per Lilja says they had completed line acceptance flying from the carrier's Oslo base within 22 days, having flown 49 sectors, and were coping well with Norway's winter operating conditions.
Now they are out of work, as are the second MPL batch of five graduates fostered by Sterling, working with the Center Air Pilot Academy (CAPA) and the Danish aviation authority. CAPA's type rating training instructor for the MPL course Capt Jens Frost says they could work for another airline following nothing more than an operator conversion course - a normal practice to familiarise any pilot with an airline's standard procedures - but the lack of familiarity of other airlines with the MPL concept is proving an obstacle in practice.
Frost admits that one of the options the MPL first officers are having to consider is converting their MPL to a traditional commercial pilot licence and instrument rating (CPL/IR), which would entail gaining 30h more time as pilot in command, and about 15h flying in a Piper Arrow or similar type to prepare for the single-pilot skill tests that the CPL/IR demands. Frost says there are, at present, practically no single-pilot commercial jobs, but at least the pilots would have gained a qualification with which most airlines are familiar.
But, on the other side of the world, where Boeing's training company Alteon has been working with the Airline Academy of Australia to train pilots for two Chinese carriers to MPL standards, Australia's Civil Aviation Safety Authority (CASA) has just decided to embed the MPL into its national aviation regulations, releasing a notice of proposed rule making to that effect a fortnight ago. This announcement came as the first batch of students undertaking Alteon Training's beta test of the MPL in Australia are in the final stages of training.
CASA plans to implement the MPL according to International Civil Aviation Organisation standards and recommended practices: training will comprise four stages - core flying skills, basic, intermediate and advanced - with crew resource management (CRM) and threat and error management (TEM) in all phases of training, and the extensive use of flight simulation and training devices.
Australia is proposing that an MPL applicant should meet the minimum flight experience standards published by ICAO - 240h of flight experience including 40h as a pilot in an aircraft, 10h solo in an aircraft including at least 5h of cross-country flight time and the rest in synthetic training devices.It does not appear to be CASA's expectation that its own carriers will necessarily take up the MPL. The authority says that since airlines in Asia, the Middle East and Africa like training their pilots in Australia, if it does not offer the MPL option it will lose training business opportunities. CASA says it is committed to the concepts underpinning the MPL and backs the need to evolve pilot training through the use of modern simulation technologies, better training practices and the further adoption of CRM and TEM. The authority plans to review MPL implementation on a six-monthly basis for the first two years and conduct a post-implementation validation check within that period. Newly qualified MPL pilots will be closely monitored, says CASA, and it will require them to complete 12 take-offs and landings in the actual aircraft before starting line operations, as recommended by ICAO.Alteon's proof-of-concept MPL beta test trial started in March 2007. Now, six students from China Eastern and Xiamen Airlines are undergoing their Boeing 737 type rating training on simulators at Alteon's Brisbane facility having completed their MPL flying training with the Airline Academy of Australia. The students are due to complete their MPL in early November, says Alteon.The academy's chief executive Stewart Cameron concedes the jury is still out on MPL in Australia, but believes the concept is work ing well. Alteon's parent company Boeing plans to decide on its future investment in MPL training after completing this pioneering course.
( Source: Flightglobal )
Traffic Continues to Slow - Falling Load Factors Hurt Profitability
29 May 2008 - Istanbul - The International Air Transport Association (IATA) released international traffic data for April.
Year-on-year international passenger demand grew by 3% in April. Capacity growth of 5% saw load factors fall to 75.4%. This is a 1.5% drop from the 76.9% recorded during the same period last year and the third consecutive monthly year-on-year decline.
International cargo demand growth remained sluggish at 3.7%.
April figures contain several distortions. The impact of an early Easter holiday in 2008 will have reduced comparative year-on-year traffic growth by about 2% in April. At the same time the 10% transatlantic capacity increase with the commencement of the US-EU Open Skies is estimated to have boosted global traffic by about 1%. Adjusting for these distortions and leap year, underlying passenger traffic demand increased 4% in April and the three previous months.
“The impact of skyrocketing oil prices and weaker economies has made its way to traffic growth. At this time last year we were talking about 6.7% growth for the first four months of the year. This year it’s 4%. There has been a step change downwards,” said Bisignani.
Passenger
Unadjusted traffic figures for April indicate significant differences by region:
Europe recorded 1.6% year-on-year growth, down from the 3.7% recorded in March.
North American carriers recorded 3.8% demand growth in international passenger traffic as capacity continued to shift to international markets. This was outstripped by capacity expansion of 6.2%. Moreover it is down from the 6.3% year-on-year growth recorded in March.
Asia Pacific carriers saw 2.6% growth in demand, down from 4.3% in March as a result of the slowing Japanese economy. Particularly impacted were long-haul routes to North America and Europe.
Middle Eastern airlines saw an 11% increase in traffic due to soaring oil revenues, developing tourism and additional airport and airline capacity.
Latin American airlines saw a 4% increase. This is down from the 19.7% recorded in March as the impact of the significant industry restructuring in 2007 wears off.
Africa continued its free-fall with a 5.6% contraction in traffic and an 8.7% reduction in capacity.
Cargo
The sluggish air freight volume growth of 3.7% in April was weaker than the 4.4% average increase recorded during the first quarter reflecting the impact of the economic slowdown.
The EU-US Open Skies agreement provided a modest boost to US airlines which recorded 6% growth in April due to extra transatlantic capacity.
Middle Eastern airlines recorded a 15.8% increase in April due to additional capacity and strong trade in the markets they serve.
“Combine slowing growth with skyrocketing oil prices and the industry outlook is grim at best,” said Bisignani, as the world’s aviation leaders begin to gather in Istanbul, Turkey for the IATA Annual General Meeting and World Air Transport Summit.
“In 2007 airlines posted a profit of US$5.6 billion. This was the first profit after six years in which losses totaled more than US$40 billion. To achieve this, we re-engineered the industry,” said Bisignani. “On June 1, the industry will mark a Simplifying the Business milestone, having achieved 100% e-ticketing. It means US$3 billion in cost savings and greater convenience everywhere. But there will barely be time to celebrate. Much more change is needed,” said Bisignani.
(Source: IATA)
Bankruptcies hits US Carriers
Airlines in distress
More trees are falling in the forest that is the US airline industry, chopped by the ever sharper edge of the fuel price cleaver. The latest carriers to fold their wings and shut down are ATA Airlines and Skybus Airlines, both of which ceased operations in the first week of April. ATA lost a key charter contract, making futile its search for new funding to meet the demands of the pump. Skybus, which plans to file for Chapter 11 today, also blamed rising fuel prices and a slowing economy. The death of these two airlines comes just days after another carrier with a long history and a well-known name, Aloha Airlines, shut down suddenly.
All have blamed the rising spire of oil prices as well as competitive pressures. MIT airline project director Bill Swelbar says: "ATA and Aloha, each had a unique situation and a small footprint, but their closings clearly mean that there is more to come in the reshaping of the US industry, whether it's by liquidation or through mergers and acquisitions. And we're only at 'A' in the list of airlines."
Fuel has gone from 1.25 cents per available seat mile for the majors in the second quarter of 2000 to 3.50 cents in 2007's second quarter, Swelbar notes, adding that labour costs dropped from 3.50 per ASM to 3.00 cents between the same periods.
Although ATA operated only 29 jets, it had a long history and was an early proponent of a blending of the low-fare model with the network model. But ATA had gradually retreated from the low-fare scheduled business as it increasingly came to rely on charter business and on effective "virtual charters" it operated as codeshares for Southwest Airlines. Much like Aloha, it had gone through a bankruptcy from which it emerged as private carrier in late 2004. Aloha stumbled through a reorganisation that lasted 14 months. In February 2006, it was taken into private ownership by California supermarket millionaire Ron Burkle's Yucaipa Company. But Yucaipa, like ATA's parent, Global Aero Logistics, could not balance the books to pay the fuel bill, and each faced a new and tough competitive challenge.
At ATA, the challenge came when one of its major charter customers, FedEx, announced it would not be renewing ATA's military charter sub-contract for the next US government fiscal year, which begins in October. ATA said the contract was supposed to last another year. ATA had already trimmed its scheduled service dramatically, announcing a month ago that it would end all service at Chicago Midway, the airport it had made synonymous with low fares, and would also end its West Coast/Hawaii service in June. Southwest, which said its arrangements with ATA also ended on 4 April, had expanded its Midway presence significantly by buying ATA gates at the airport.
At Aloha, the threat was fuel prices exacerbated by a new competitor, Mesa Air Group's very low fares intra-island carrier go! Since it started in June 2006 Go! had eroded a steady source of profit for Aloha, the market among the Hawaiian Islands, while the high cost of fuel had made Aloha's flights to California unprofitable. Aloha filed for bankruptcy for the second time on 20 March and after failing to win new support from Yucaipa or anyone else, shut down on 31 March.
George Hamlin, a consultant with ACA Associates, called Hawaii "a microcosm of the US market: a duopoly of Aloha and the larger Hawaiian Airlines in a market that could not sustain the entry of an additional carrier in this fuel-price environment". Hamlin thinks other airline failures are entirely possible. The larger US carriers may have enough cash for the year, says Calyon Securities analyst Ray Neidl, but "if high fuel prices and a lacklustre economy persist through 2009, cash reserves at many airlines might become a concern".
Last week also claimed a smaller charter carrier, Champion Air, which said it was hobbled by its fuel-swilling Boeing 727s and would end its operations in May. Champion said it too lost a major customer when Northwest Airlines' vacations subsidiary MLT said it would stop using the carrier.
Elsewhere in the USA, Sun Country said it would furlough 45 of its 156 pilots for the summer in a 30% cutback forced on it by the cost of fuel. The decision was made by the privately held low-cost carrier's new chief executive, former AirTran chief financial officer Stan Gadek.
The pain is not only being felt in the US airline market, but also on a more global scale. IATA recently downgraded its industry profit forecast for 2008 for the second time, citing a slowing economy and high oil prices. IATA is now predicting industry profits of $4.5 billion for the full-year. In September 2007 the prediction had been $7.8 billion, which was downgraded to $5 billion in December of that year.
"The broadening impact of the US credit crunch has brought buoyant consumer confidence to an abrupt end," says IATA director general Giovanni Bisignani. "Oil prices continue to rise. Demand is softening and after the 64% improvement in labour productivity and an 18% reduction in non-fuel unit cost attained since 2001, efficiency gains are much more difficult to achieve."
There are also early signs from the Asia-Pacific region that the downturn is starting to have an impact on aircraft lease rates. Patee Sarasin, chief executive of Thai low-cost carrier Nok Air - which is seeking next-generation Boeing 737s to replace its 737-400 fleet - says narrowbody lease rates have started to come down. "Leasing companies are more flexible now because they see the downturn coming," says Patee. "Four months ago we were looking at next-generation [737s] and people were saying 'you have to wait a long time'. Now we're getting a lot of offers." Patee adds that Nok is receiving proposals from leasing companies offering new 737-800s at 20% lower rates than a few months ago. He expects more aircraft to become available and lease rates to drop further as distressed carriers, such as the latest US casualties, offload aircraft, or defer or cancel new aircraft deliveries.
( Source: Flightglobal )
Actual IATA Forecast 2008
Stagflation Threatens Industry Outlook
Santiago, Chile - The International Air Transport Association (IATA) downgraded its industry profit expectations for 2008 to US$4.5 billion based on global economic growth slowing to 2.6% and an average annualised oil price of US$86 per barrel (Brent Crude). This is the second downgrading of the 2008 forecast. In September 2007 IATA predicted a US$7.8 billion profit for this year. The initial impact of the credit crunch saw that lowered to US$5.0 billion in December 2007.
“We still expect a positive bottom line of US$4.5 billion, but it’s turning out to be a very tough year,” said Giovanni Bisignani, IATA’s Director General and CEO.
Skyrocketing oil prices during 2004-2008 were offset by efficiency gains and rising consumer confidence. “The broadening impact of the US credit crunch has brought buoyant consumer confidence to an abrupt end. Oil prices continue to rise. Demand is softening and after the 64% improvement in labour productivity and an 18% reduction in non-fuel unit cost attained since 2001, efficiency gains are much more difficult to achieve,” said Bisignani.
At an average annual price of US$86 per barrel for Brent, fuel represents 32% of operating costs and a total bill of US$156 billion.
Along with the credit crunch and oil prices, three other key elements are impacting the performance of the industry:
Aircraft Delivery Cycle: The downturn in demand coincides with a stepping-up of aircraft deliveries - from 1,041 new aircraft in 2007 to an expected 1,231 in 2008. While some of this will be offset by retiring less fuel-efficient aircraft, real yields (adjusted for inflation and the US dollar) are expected to drop 4.1% this year (compared to a 3.2% drop in 2007).
Increased competition: The US-EU Agreement on Open Skies is increasing trans-Atlantic frequencies by 11% in April. London Heathrow and Spain are leading the change with an increase of 25% each. Increased competition will put pressure on yields in these markets.
Non-Core Assets: In the past two years non-core business significantly boosted the consolidated profits of airlines. In 2007 alone the contribution of non-core profits and asset sales almost tripled the airline business profit of US$5.6 billion to over US$15 billion. The crisis in financial markets will make asset sales more difficult in 2008.
Regional Profitability: All regions are expected to be profitable in 2008, except for Africa. Compared to 2007, areas with strong commodity markets and strong ties to the booming economies of China, India and Latin America are in general doing better. By contrast, the US and Europe will see significant decreases in profitability:
North America: US$1.8 billion (down from US$2.8 billion in 2007)
Europe: US$1.8 billion (down from US$2.1 billion in 2007)
Asia Pacific: US$900 million (constant from 2007)
Middle East: US$200 million (down from US$300 million in 2007)
Latin America: Break-even (compared to a US$100 million loss in 2007)
Africa: US$300 million loss (improved from the US$400 million loss in 2007)
Consolidation: “It’s time for governments and labour to get serious about the future structure of the industry. A fragmented industry of over 1,000 players is generating net profit margins around 1% - in a good year. There is no secure long-term future for an industry that is constantly on the verge of intensive care,” said Bisignani.
“Labour must see the good results of the consolidation that we have seen in Europe and paint itself into the picture of even broader global consolidation. And governments must understand that the flag on the tail has lost its meaning. Airlines need to grow into global businesses, spreading risk and benefits in the same way that any other normal business would. Ownership and control restrictions must go. And a good starting point is the Second Stage US-EU talks which begin soon.”
( Source: IATA )
SKM Aviation and GAPF agree to cooperate
SKM Aviation and GAPF ( Society of Applied Psychological Research, Würzburg, Germany ) have agreed to cooperate in terms of pilots assesment services to airlines. GAPF, a company, being active on the market for many years, is specialised on selection processes including Captains and F/O asessments and also upgrade capability evalutation of potential candidates.
More detailed information about the services offered can be received upon contact
