Asian Airlines Hurt by Financial Crisis

The Philippine Star
Monday, December 7, 1998

News

Asia's lingering financial storm has smashed not only factories on the ground but also swept the skies, where it has inflicted heavy damage on the region's airlines.

The crisis forced the shutdown of 57-year-old Philippine Airlines, Asia's oldest, in September and steered carrier Sempati Air to a humiliating crash landing.

Falling passenger and cargo traffic has forced surviving carriers to cancel plane orders or return leased aircraft, implement massive staff layoffs, slash salaries and reduce flight frequencies or withdraw services altogether.

The shockwaves jolted the United States, where aircraft-maker Boeing Co. has announced it is laying off 20,000 workers over the next two years as orders from Asia wane.

"Nobody is prepared to predict whether the airlines have seen the worst and can look forward to better times," the Association of Asia-Pacific Airlines said in its recently released 1998 annual report.

“On some regional routes, traffic has started to grow again, but passenger yields remain under pressure. Cargo loads may enjoy a temporary boom in the last quarter of 1998, only to fall back in 1999," said the association, which groups 19 regional airlines.

“Regional carriers will be hesitant to plan substantial growth again until both loads and yields promise profitable expansion," it added.

Thai Airways has been directed to cancel orders for 15 aircraft from Boeing and the European consortium Airbus Industrie. The orders were part of a 21-plane deal worth $364 million. Four Boeing 737-400s and two Airbus 330s have already been delivered.

Tumbling currencies against the dollar have led to soaring operating costs and debt-servicing, while the traditional tourist sources of Hong Kong, Japan, South Korea and Taiwan have all seen travelers staying at home.

Indonesian flag-carrier PT Garuda lost its president, laid off 3,000 employees, reduced overseas flights and cancelled plane leases. It also put five DC-10s and several F-28s on the auction block and in August rescheduled $285 million in matured foreign debt.

Sempati Air ceased commercial operations. Privately owned airlines, facing huge dollar-denominated debts, pooled resources with state-run Garuda and Merpati Nusantara Airlines in order to survive.

Philippine Airlines, saddled with a $2.1-billion debt, reduced its fleet by 60 percent to around 20 aircraft.

Malaysia Airlines System Bhd. has announced a net loss of 441.091 million ringgit ($116.08 million) in the six months to September, with a foreign exchange translation loss of 3.2 billion ringgit.

South Korean flag-carrier Korean Air earlier this year signed a deal to buy 17 planes from Boeing but took only seven deliveries.

Singapore Airlines (SIA) sold or leased back three Boeing 747-400s and disposed of an Airbus A310-200 from April to September, officials said.

Chief executive officer Cheong Choong Kong said SIA had anticipated the 24-percent net profit drop on the previous year in the six months to September to 468.3 million Singapore dollars ($283.9 million).

Analysts had projected net profit to fall between 30 and 40 percent.

Taiwan's China Airlines said the financial crisis, the Southeast Asian haze resulting from forest fires in Borneo and the bird flu virus in Hong Kong had scared off tourists and led to crumbling revenues.

China's aviation industry remains a bright light in the gathering gloom, but growth has slowed and the industry was pulled into the red in the first half of the year.

Shen Yuankang, deputy director of the General Administration of Civil Nation of China, has warned that growth in the domestic aircraft fleet may slow to an annual 10 percent after chalking an impressive 19 percent a year since the 1980s.

Australia's flagship airline, Qantas, has weathered the crisis thanks to its quick move to axe many Asian routes and replace them with increased flights to Europe and North America.

The airline surprised industry analysts when it posted a 20 percent profit increase in the last financial year.

Japan Airlines Co. Ltd. (141) said the business environment remained severe, mainly due to the country's economic slump and price competition.

US rating agency Moody's Investors Service last May cut ratings for both JAL and All Nippon Airways, Japan's second largest airline, to Baa3 —just a notch above junk bond status—citing growing competition and their high-cost structure.— AFP