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Aeropolitics, Airline Management, Airline Restructuring, Commercial Airliners, Regional Aircraft, Regional Airlines

UPDATE: VLM Airlines says NYET to the once planned 14 x Russian Sukhoi SSJ-100’s SuperJet’s, due to potential certification and geopolitical risks, which I have been talking about for some time. It took a new CEO Hamish Davidson to see things clearly, the SSJ-100 program is in BIG trouble, 102 manufactured and 35+ “white tails” sitting and waiting in the cold for a buyer or lessee, basically any airline with a pulse and in desperate need of 80-90 seat regional jets. The aircraft are going to Russian airlines off course and then to very financially weak and desperate airlines outside of Russia like Thailand’s Kan Air, which recently was one of 4 airlines in Thailand identified by it’s CAA as having safety concerns due to high debt loads. While another SSJ-100 customer, Bek Air (Kazakstan) sues it’s CAA because it does not want to undertake a compulsory IOSA (IATA Operational Safety Audit) ? Other than InterJet (Mexico) the foreign customers of the SSJ-100 have been very weak airlines most have gone bankrupt operating the SSJ100 or just waiting for the SSJ100 to arrive, not sure which is worst, either way, financial condition of the operating carrier is obviously not a major criteria at SuperJet International. The list of failed Sukhoi “customers” is pretty long for a 5 year old program, from Armavia (Armenia), Moskovia (Russia), Air Armenia, Sky Aviation (Indonesia), Lao Central Airlines (Laos) Kartika Airlines (Indonesia), while Blue Panorama (Italy) just cancelled it’s order. Airline executives should not take big risks with their airlines, the SSJ100 has many risks, political, economical, customer perception to operational. Finally, Russia’s Prime Minister Medvedev “wonders whether it is 2016 or 1962 ?” as the “New Cold War” is on according to him, meanwhile many Europeans wonder if it is not 1938-1941 all over again with 3 internationally recognized independent countries (Georgia, Moldova and Ukraine) now having had part of their territory annexed by force in the past 20 years by Russia, who is next ? Estonia ? Latvia ? Lithuania ? it is time for tougher economic sanctions on Russia that include Sukhoi and it’s commercial aircraft program, the SSJ-100, wake up Europe, because it is 1938 all over again, will history repeat itself ?

In a smart move, Begium’s VLM Airlines is backing away from its planned acquisition of 14 x Sukhoi SSJ-100-95LR Superjets (4 lease options + 10 purchase rights), due to certification concerns and geopolitical issues between the West and Russia.

This is what I have been talking about in my previous articles on the SSJ-100, the risk is too high, and airline executives should not gamble with their airlines and “hope” that everything will be alright now and in the future with Russia and economic sanction against it which may affect support and definitely will affect public opinion and customer choice of airline.

ssj-VLM

The first 2 SSJ-100’s were to arrive last year in March, but not surprisingly, the aircraft encountered delays in EASA certification for the LR version till 3Q/2016 and there is still certification required for operations into London City Airport (LCY).

Just by the way, but LCY airport was just sold for GBP 2.0 billion, or $2.78 billion which is a EBITDA multiple of 30+ (e.g. Canadian regional airlines have gone for around 3.8 x EBITDA) , huge premium for an airport with limited growth with 1 runway and a very short one at that (4,948 feet), requiring steep approaches, that requires special aircraft certification. Investors in this questionable investment are Canada’s Ontario Teacher’s Pension Plan and Ontario Municipal Employees Retirement System and Alberta Investment Management Co. lead by US private equity fund Global Infrastructure and Oaktree Capital Management.

Now back to VLM Airlines, whoe has a new CEO/Managing Director Hamish Davidson, as of January of this year, and looks like he has a more down to earth view of the SSJ-100, as the decision to drop the aircraft was made due to the potential risk from an aircraft whose LR version is not yet certified, in addition 2015 geopolitical factors-rising tensions between Russian and the West over the conflict in Ukraine, became an “on going concern”.

I have said this many times, the RISK of taking on the Russian Sukhoi SSJ-100-95 SuperJet is real, this is the geopolitical reality, as just recently as Feb 15, 2016, Russia’s Prime Minister Dmitry Medvedev brought back the old aggressive language of the 1950’s and 196’0’s, when he said, that strained relationship between his country and the West could be described as “a new Cold War.”

Speaking at the February 15, 2016 Munich Security Conference in Germany, Medvedev said he sometimes found himself wondering whether this was 2016 or 1962.

“NATO’s policy with regard to Russia has remained unfriendly and opaque. One could go as far as to say that we have slid back to a new Cold War,” Medvedev said. “Almost on an everyday basis we are called one of the most terrible threats either to NATO as a whole or to Europe, or to the United States.” Sadly, it is the reverse in Russia, everyday, the government controlled media tells its naïve public that the big bad West wants to control them and subjugate them, yet it was the West that bailed Russia out in the early 1990’s with massive loans and grants to keep the country from collapsing into a third world country.

This is no time to buy Russian aircraft, highly Risky, and I am not surprised that CityJet (Ireland) which has signed up for 25 x SSJ-100’s last year, claiming the SSJ-100 is a “game changer”, and now the airline is already up for sale by it’s owner Intro Aviation (Germany), which also used to own VLM Airlines, the other European customer for the SSJ1-100.

It does not make sense to take such a big leap and be the first to order the SSJ-100 in Europe, but before you take delivery, you sell the airline and leave the operational, political, public perception risk to the new owner.

Anyway, you can read more about the SSJ-100 in my past blogs, just know that +/-35% of the manufactured aircraft are “white” tails sitting on the ground, waiting for an owner/lessee and planned production has been greatly scaled back for this year due to that from a planned 56 units to just 17, says novels about the program, and these are simply the facts, 102 manufactured and 35+/- are on the ground ?

Numbers and stats don’t lie. Anyway, VLM Airlines made a good decision, there are good products from Embraer (E190-E1, E190-E2) plus Bombardier (CS100) or Mitsubishi (MRJ90) all looking for more sales. The airline is looking to find a “niche’ in Europe, and has been unsuccessful so far, Antwerp has not worked out, it closed its Dutch operation and now moving to Oberpfaffenhofen ? I wish them success, the time is coming to replace it’s 11 x Fokker F50’s, or compliment them, I say look to Brazil for your regional jets.

Cannot end this article without again, calling on a European customer boycott of CityJet when it’s Sukhoi SSJ-100’s arrive and if Air France is dum enough to do an wet lease/ACMI with the SSJ1000 then it too needs to be boycotted by Europeans, as there are millions in Europe today that want nothing to do with Russia, just look at Ukraine today, the 3rd country in the past 20 years that has had it’s territory annexed by force after Georgia and Moldova.

While Medvedev wonders if this is 2016 or 1962, many European wonder if it is not 1939-1941, when Hitler and Stalin worked together to grab territory by force.

Till next time cheers.

 

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About Aviation Doctor - Helping aviation companies to transform the present into a more profitable tomorrow

I am a Canadian and EU national with an MBA and 33+ years experience in aviation business development with 20 years overseas and work in 25+ countries. A former investment/merchant banker (mergers and acquisitions to corporate turnarounds). airline and OEM senior executive and past owner of 6 successful aviation companies in 3 countries (executive jet charter/management companies, aircraft sales, aircraft broker, airline/aerospace consulting to aircraft insurance). I have a very diverse aviation background with 75+ aviation companies (45+ airlines of all sizes, OEM's, airports, lessors, MRO to service providers) as consultant, executive management, business analyst and business development adviser. Excellent success track record in International Business Development. Most work with airlines is with new start-ups and restructuring of troubled carriers. I sold new business jets, turboprops and helicopters for Cessna, Raytheon, Gulfstream to Eurocopter as an ASR as well as undertaking sales and marketing of commercial aircraft for Boeing, de Havilland, Dornier, Saab and Beechcraft. Brokered everything from LET-410's to B747's and from piston PA31 to G550 business jets. I look beyond the headlines of the aviation news and analyze what the meaning and consequences of the new information really means. There is a story behind each headline that few go beyond. Picked the name Aviation Doctor, as much of my work has been with troubled companies or those that want and need to grow profitably. I fix problems be in the business, and help with restructuring for a better tomorrow. You can reach me with comments or suggestions at: Tomas.Aviation@gmail.com and I comment a lot on Google+, my Facebook and LinkedIN.

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