More Airline Woes: Avianca Brazil Gets Dismembered, Korea’s Asiana Airlines Gets Taxpayer Bailout, Air India Gets Rumors of Default

It Just Doesn’t Let Up With Airlines.

By MC01, a frequent commenter, for WOLF STREET:

Here’s an example of what should happen to an airline which has become unprofitable and failed to turn around its financial situation. On May 7, the assets of Avianca Brazil, formerly Brazil’s third-largest airline, will be auctioned off to pay creditors. To streamline sales and maximize proceeds, Avianca Brazil has been broken up in seven lots.

The best assets are prime slots at the Congonhas and Guarulhos airports (both in the São Paulo megalopolis) and will no doubt attract a few interested bidders.

But not much remains in the way of a fleet as Avianca Brazil has been ordered to return leased aircraft to the owners already last year following their failure to keep up with payments. The company’s financial situation has deteriorated to such a point the few aircraft still allowed to fly as part of the bankruptcy protection plan are required to pay landing and handling fees in advance.

At the time Avianca Brazil filed for bankruptcy protection in December 2018, it had debts amounting to $130 million, a drop in the bucket compared to those accumulated by other collapsed airlines. As it always happens, the problem is not so much the size of the debts but the ability to service them, and especially the creditors’ willingness to keep lines of credit open: If there’s no turnaround, sooner or later something breaks.

Avianca Brazil’s demise is also causing troubles for sister company Avianca Argentina: Both airlines are owned by São Paulo-based Synergy Group, which caused a stir in 2012 when the owner, Bolivian-born billionaire Germán Efromovich, made a serious bid to purchase’s Portugal’s flag carrier TAP.

Avianca Argentina was created to take advantage of the recent modest liberalization in the aviation market in Argentina but the original plan to use a fleet mostly subleased from Avianca Brazil fell through in the wake of the aforementioned mass repossession and “unexpected” financial difficulties following the now customary political chaos in Buenos Aires. This left the fledgling company with just two ATR72 regional airliners, and any expansion plans have been put on hold.

As is always the case when airlines stand on the brink of bankruptcy, Synergy is blaming “leasing costs” and “fuel prices” but fails to mention its competitors are able to break even or even turn a profit in the same environment.

Korea’s Asiana Airlines

On April 24 the nine main creditors of Asiana Airlines, Korea’s second largest airline, approved a rescue plan for the ailing airline, and also approved a deadline of December 31, 2019, for the company to find a new owner.

Asiana is yet another “fictionally robust” company whose seemingly solid corporate façade and big order book – presently standing at 47 Airbus of various models – hide a grim financial situation: in FY2018, the company assured creditors and investors it would dramatically cut operating costs and projected a loss of just $9 million, with 2019 likely to be profitable.

Asiana had a terrible 2018, managing to lose $92 million, over ten times as projected. Seoul-based tax advisory firm Samil PWC also raised the question Asiana may not be fully reflecting aircraft leasing costs in their financials.

Asiana presently sits on a pile of debt of $3.5 billion and the main shareholder, the Kumho chaebol, is running out of options. But as it always happens in Corporate Korea, help is on the way in the form of the ever-suffering taxpayer.

The state-owned Korea Development Bank will provide a $1.4-billion lifeline, just like it has been doing with the money-losing mega shipyards since 2016, and Kumho will be allowed to unload to somebody else the money-losing carrier and its two subsidiaries, Air Busan and Air Seoul.

Kumho presently wants $1.4 billion for their share in Asiana alone, a hefty sum which is highly unlikely to reflect the value of a company which hasn’t turned a profit in over a decade, and to complicate matters, the Korean government is unlikely to allow any foreign firm to place a bid for Asiana.

Korean Airlines (KAL), majority-owned by the perpetually financially troubled Hanjin chaebol, is unlikely to ride to the rescue as at last count it sat on a truly phenomenal $13 billion in debts. This of course hasn’t stopped KAL from having a big order book: as of April 30, 2019, it stood at 66 firm orders plus 70 options almost evenly split between Airbus and Boeing.

The Aekyung chaebol, owner of Jeju Air, is widely rumored to be the only potential buyer for Asiana. But with Jeju Air only moderately profitable and not exactly swimming in cash, the operation will require either a very large discount on Kumho’s part or state-owned banks such as the Korea Development Bank to perform more of their magic. When and how Asiana will be restructured to become profitable remains an interesting question.

State-owned Air India

Air India is rumored to be “close” to defaulting on about $1 billion in loans due in FY2019, but the looming general election in India is making the situation murky. The present government has promised to sell part of Air India’s oversized real estate holdings to raise much needed liquidity and reduce debts, but how, when and even if this will ever happen is a question we should be asking in a few months once the electoral chaos is over.

The Indian government is also still trying to find a buyer for Air India. In spite of all the hype and the many “rumored” buyers, nobody has stepped forward with a serious offer yet.

A big part of the reason is the fact Air India is in such chronic bad financial shape it puts even Alitalia to shame. It has lost money every single year since 2007 — with government-appointed executives routinely blaming everything from fuel prices to leasing costs while their competitors made money in exactly the same environment. And despite being at the receiving end of semi-regular government bailouts, its debts have ballooned to an unsustainable $7.4 billion.

Any buyer would face a veritable uphill battle: Horrible financials, the need to take over at least $3 billion in debts and meeting a long series of requirements, chief among which is that any foreign partner should be “preferably state-owned” and that any staff layoff and internal route cancellation should be approved by the government beforehand.

This grim financial situation makes the recent interest displayed by Air India to take over a part of semi-defunct Jet Airways’ overseas routes somewhat between comical and grotesque.

It seems everybody is sure that Jet Airways is just biding its time and will soon be back in full cash-burning form, but I beg to differ. Aircastle and GECAS have already signed an agreement with Indian low-cost carrier SpiceJet to lease 38 of the recently repossessed Jet Airways’ Boeing 737-800.

Despite the loud protests by competitors such as IndiGo — who no doubt expected to lease the aircraft for themselves, perhaps at a large discount — the aircraft are already being rebranded as we speak: All parts involved have every interest in seeing those aircraft back in revenue-generating service as soon as possible.

SpiceJet will use the aircraft to temporarily replace their grounded 737MAX and to cover the former Jet slots in Mumbai and New Delhi the company obtained from the government on a “temporary” basis.

In short leasing companies and domestic competitors alike don’t seem to think Jet Airways will return in business soon, at least not in anything resembling its old shape. By MC01, a frequent commenter, for WOLF STREET

And the 217 planes that Jet Airways ordered from Boeing? Read…  More Airlines Collapse: Jet Airways India, Alitalia, WOW Air

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  50 comments for “More Airline Woes: Avianca Brazil Gets Dismembered, Korea’s Asiana Airlines Gets Taxpayer Bailout, Air India Gets Rumors of Default

  1. Unamused says:

    => It’s a tough business.

    But they do it anyway.


    Why, when the possibility of success is so low, and the possibility of failure is so great, with all the attendant waste which all concerned would bear, including lenders, do so many pile into such a risky industry anyway?

    And why do some others succeed so well, where all of these fail so miserably?

    Can anyone provide enlightenment here? I seek only understanding.

    • Paulo says:


      Always thus. Always, big airlines and small. I flew for 8 different small airlines/contract air service companies over my career of just over 10,000 PIC hours. Only ONE, one owner had a realistic business plan and sold out with a couple million in profits when the time was right. He is a very good friend of mine and I was his part-timer when I worked at another career. My presence allowed him to have days off with his wife, and he treated me like Royalty out of thanks and paid me cash. I also had use of his aircraft, fully fueled and maintained, for the occasional scenic, fishing trip, grizzly viewing etc for relatives and friends. In fact, my first date with my future wife was an evening flight after work with sushi. One day we were meeting with a customer and I was asked if I was going to go back flying full time? I replied without thinking, “Nah, aviation is a dead end”, and with this the customer was incredulous and asked the owner, “Did you hear what Paul just said? He just said your company is a dead end”. The owner said, “He’s right, it is a dead end and that’s why I’m selling to _________”. He still owns a few aircraft which he leases out to other owners, with guarantees.

      The only ideas I have about why people get into aviation is that it is fun, and ego. It often beats working for a living. Dentists and doctors buy aircraft and lease them to money losing companies. I could get on the phone and probably find some aircraft to lease in a few hours, both big and small, and I’ve been out of the business for 20 years. It’s that easy. It has always captured people’s imagination.

      Do you know how I got into it? I read a book by Antoine de St Exupery while I was in high school. He was a mail pilot at the beginning of the commercial industry. In one paragraph he described an approach into a Spanish airstrip where he turned final when he counted a group of three oranage trees. In another passage he described his fellow bus passengers on a ride to town from the airport. They were Govt workers and functionaries, and their lives were beyond tedious. I just knew, at age 16 I did not want to be one of the sleepy dusty Govt bus riders going home at the end of a boring day. I used to fly a route into the NWT Redstone/Keele river to a series of camps we looked after. It crossed the South Nahanni River up Hell Roaring Creek (a moonscape with nowhere to land). I had to count valleys, and coincidentally there were three valleys I had to number off before I could turn right into the correct one; the pass into the Keele River valley. If I turned into the 2nd I would pass the wreckage of one of our aircraft never salvaged. It would require an almost aerobatic about face to remain living. For a young man it was pretty exciting. Drink all night and fly all day, then do it all over again. Go places other people could never imagine. It’s the same with large aircraft companies, scheds and charter. Planes are exciting, the flight attendants are beyond cute, and the ego preening is neverending. To this day I look up at every passing aircraft and the smell of jet b is as sweet as cottonwoods in May.

      This old joke: “How do you know at the party who is the pilot”?

      answer: “Just wait 20 minutes and he’ll tell you”.

      I assume it applies to airline owners X10.

      • Crazy Horse says:

        Hi Paulo
        I used to fly the “commercial” air service out of my town in the Colombian Andes. The aircraft was a radial Beaver and since there never were any other passengers I always sat in the co-pilot seat. There appeared to be no functional instruments and the pilot navigated by flying between girlfriends in the campo and circling their fincas until they waved back.

        • Dave Chapman says:

          I’m pretty sure I went on that plane.
          It was one hell of a ride!

      • alex in san jose AKA digital Detroit says:

        I think it’s really “up in the air” whether there will be airlines in 10 years when I’m ready to retire, back home to Hawaii. I’m wondering whether cruise ships will be operating too, since I could always take a cruise and jump ship.

        It’s a completely different world I live in, the “digital divide” has caught up with me and I can’t sell anything online so today I’m off to sell one of my ukuleles to the pawn shop. Yep, pawn shops exist, still, part of the growing underworld.

    • Fernando says:

      As wages for the middle class have remained stagnant while those at the top become richer and richer, there is only so much that you can squeeze out of the middle class in the form of airfares…

      The super rich have abandoned the airline industry, they have so much money that they have their own airplanes…

      • Javert, Chip says:

        I realize the author’s pithy analysis is meant to help explain his dystopian conclusion.

        However, a 90-second visit to the internet ( shows the “stagnant middle class” who’s being squeezed out of airfares has increased global commercial passenger boardings:

        o 85% over the last 10 years
        o 6% from 2018 to estimated-2019.

        So much for fact-free dystopia.

        • FERNANDO says:

          You obviously missed my entire point and reached your own conclusions… fact is that airlines can’t make that much money on passengers because they can’t increase prices. I don’t need to see your link, I travel many times a month and I used to be a pilot…

        • Fernando says:

          This article explains how airlines don’t make much money out of main cabin seats….
          And yes, the rich have their own aircrafts in case you never been to an executive airport or don’t know what that is…

        • Javert Chip says:

          I don’t care if you’re a pilot or the tooth fairy.

          Your statement “there is only so much that you can squeeze out of the middle class in the form of airfares” is obviously untrue as statistics show people spend more money & board more & more frequently.

    • MC01 says:

      Airlines are like any other business: some will succeed and some will fail. That’s in the nature of things.

      Over the past decade, however, the cost of financing for airlines (just like for any other business) has fallen off a cliff: that companies with such shaky financials (this includes not merely debts, but also lack of quality collaterals: those have long been hypotecathed and senior creditors will have first dib in any bankruptcy procedure) as Norwegian can still obtain financing below 10% speaks volume of how crazy this thing has become.

      With such low costs of financing came crazy overexpansion: look at what happened to Germania, which went from turning a steady yearly €6 million profit into losing anything between €10 million and €20 million per year. How did they manage that? Simple: they grew too much and too fast, just at a time when hordes of competitors offering the same service were sprouting up.
      This meant their cashflow didn’t grow fast enough to service the mounting pyramid of debts: interest rates may have been lower, but it mattered little when debts exploded in FY2013 and then more than doubled every single year afterwards. This is exactly what ultimately will do in the vast majority of bike share outfits, meal delivery companies and electric car manufacturers.
      Investors desperate for yield have the nasty habit of first providing too much liquidity (for example by oversubscribing a junk-rated bond issue, thus driving yields down even further) and then pretending everything is fine until it’s too late to turn the company around, at which point they panic.

      Note these bankruptcies, debt restructuring and assorted financial horrors weren’t supposed to happen: Air Berlin, whose liquidation kicked off this slow-motion purge, was “too big to fail”. It was backed by German pension funds desperate for any yield in the euro area and Gulf investors with mountains of cash to burn. Failing that the German government would have just stepped in and bailed it out directly. In the end nothing mattered, and Lufthansa wisely held off until the bankruptcy court had taken over so they could buy only the assets they were interested in, and at the price they wanted. Lufthansa is there to turn a profit, differently from all these financial zombies.

      • Unamused says:

        Thank you MC01. That gives me more information, and narrows down the likely places to find more conclusive information. Much appreciated.

        => Airlines are like any other business: some will succeed and some will fail. That’s in the nature of things.

        That’s certainly true, but it seems insufficient. The failures don’t seem all that unworthy, so maybe there’s more to it.

        Although I’m sure ‘sexy and cool’ are motivations for some people, they’re such common commodities in big money circles that they’re unlikely to encourage chasing the kind of failures described in your article. This can also be discounted as insufficient, I think.

        So let’s try out my theory: I do believe it can be validly argued that the global airline industry is an anticompetitive oligarchy, and that this accounts for the pattern of successes and failures we see in the industry, as well as other negative features.

        As you know, competition in any industry could become so cutthroat that nobody makes any money, and such an industry therefore becomes characterised largely by failure and instability. Any market can support only so many participants profitably, and with destructive competition it could support none. The aviation industry seems to have been this way at times in its history. It also seems that to resolve the problem the regulatory environment was adjusted which enabled certain players to establish an oligarchy, excluding competitors, allowing for viability and profitability, and thus stabilizing an economically and socially important industry.

        In so doing, this deregulation of the aviation industry further enabled this oligarchy to fend off any encroachment which threatened it, constrained only by the opinion of entrenched industry investors. But deregulation went too far, and generated negative consequences, possibly but not necessarily unintended. No market is ever really free, but this one lacks certain competitive dynamics besides. Customer prices and conditions can be set unfairly by insiders; corners are cut, service declines, safety deteriorates; regulatory reform can be suppressed and evaded.

        Given sufficient control over barriers to entry by such an oligarchy, even well-heeled and government-sponsored potential entrants can be excluded and forced to fail, regardless of their good intentions and/or technical expertise. Bankers and governments don’t like throwing away money without cause, so it would appear that investors in these failed aspirants repeatedly underestimate the power of the airline oligarchy. In general these investors seem to be misreading the competitive environment, mistakenly believing either that it is less stacked against them than it really is, or that they have the wherewithal to overcome the oligarchy’s barriers. Evidently they do not, and it becomes unclear that any wherewithal could be suffcient.

        I have facts sufficient to establish this theory but not yet enough to support the theory as fact, and so far no compelling facts which disprove it or compromise it. Maybe I’ll work on it again later, time permitting. Or, maybe not. We’ll see. Thanks again.

  2. Petunia says:

    At the bottom of the financial crisis I figured out that it was possible to live full time on a cruise ship, room and board, for less than living on land. All the incentives they offered to repeat travelers made it possible, along with lower prices from a bad economy.

    With all the credit card points offered now on everything you buy, coupled with frequent flyer incentives, I don’t see why you couldn’t live on planes. If you consider the gig economy, especially tech work, it can easily be done. I’ve seen planes with beds, showers, and food to rival any cruise ship. Assuming this is going on, even on a small scale, this is a big drain on an airline.

    I’ve seen millennials online that seem to travel a lot with no particular goal except documenting their travels. They don’t seem to have much money on land but fly comfortably around the world.

    • alex in san jose AKA digital Detroit says:

      It’s actually really cheap to live in Japan, as a retiree. The problems are the language and the culture which is very different than American culture.

      I grew up in Hawaii, essentially because my father was a computer programmer we became very, very poor, and thus I was not in the “Brady Bunch Bubble” most Caucasians are in, there. Since the culture in Hawaii is heavily Japanese, I feel I have a foot in each culture, American and Japanese. And even I am daunted at the thought of retiring in Japan. At least I can retire to Hawaii which is 1/2 the cost of living where I do, in San Jose, California.

      Those millennials flying around the world are bankrolled by their boomer parents make no mistake. There’s no fucking money in the gig economy.

  3. Lemko says:

    India’s CB has been thinking it’s the Federal Reserve in the past few years… The amount of injections they have been doing, the debt in India has spiralled way out of control, all those defaults since last year are setting it up with a vicious banking crisis unfolding.

    They will obviously bail out Air India after the elections are done but huge crises headed their way unfortunately, too much looting from state officials.

    Excellent article!

  4. Just Some Random Guy says:

    Korea and India are bastions of corrupt-free businesses and govts. I’m shocked airlines in those heavily regulated countries are on the verge of collapse and will need bailouts. And I’m sure when those bailouts come, the money will in no way enrich anyone in govt.

    • DawnsEarlyLight says:

      Would have loved to observed your facial expression as you typed that!

    • Unamused says:

      That was amazingly cynical, Guy. You can have my cynicism crown to show off in the pubs if you like, but I want it back in the morning.

  5. Fernando says:

    The real economy is on life support…

    The financiers have taken everything for them…

    End the Fed…

    End world wide money laundering…

    End crony capitalism…

  6. MCH says:

    A few questions here.

    Are the Indian airlines regulated? I am curious if State owned really means there are regulations like the airline regulations in the US circa 60s and 70s.

    Would it be better for certain airlines to operate under that regulated model depending on situation their country of origin?

    As far as Asiana is concerned, at least they don’t have their equivalent of princess nutrage.

    Post regulations, the US airlines were routinely money losers until the last round of bankruptcies about a decade ago. Now they are all profitable. Does anyone think a lot of these Developing country airlines, especially in Asia are going through the same process? Companies like Air Asia X, Air India, Viet Jets might all have to die, remove state backing if it has it, and let market forces work its magic, in order to be reborn into profitable entities.

    It is too bad that US airlines haven’t figured out how to have decent service to go along with profitability.

    There are profitable airlines with good services do exist. Like Singapore and Cathy. Somehow their models should be emulated. Although I was a bit disappointed in the last singapore flight I took. The seat pitch in economy sucked on that A380. But the onboard service was still quite good.

    • Desai says:

      An Indian here. State owned here means that its controlling share capital is held by Indian government. And thus Air India is essentially government owned business enterprise.

    • char says:

      American style market forces i assume, aka monopolies supported by subsidies.

      • MCH says:

        Does any airline in the US have a monopoly?

        How many of them are supported by subsidies?

        I suppose you could give very qualified answers for both, for example, Hawaiian airlines dominates inter island travel in Hawaii. But last I was there, they didn’t try to push their pricing power too much as that might invite both scrutiny and competition. Now with Southwest possibly thinking of coming into inter island, oh boy.

        • Javert, Chip says:


          There are currently 17 major US airlines and 42 others (total 59 carriers). The top-4 US airlines have 55.8% domestic market share, with individual carriers as follows:

          o American Airlines – 17.8%
          o Delta Airlines – 16.9%
          o United Airlines – 15.0%
          o Alaska Airlines 6.1%


        • Unamused says:

          => Does any airline in the US have a monopoly?

          My earlier comment argued that a number of them constitute an oligopoly, a monopoly comprising several firms. Both the oligopoly and my argument appear to be remarkably successful.

          => How many of them are supported by subsidies?

          All of them. Airports get public funding, like spectator sport stadiums. In the billions.

        • char says:

          Monopoly on their hubs

          The small feeder airlines get subsidies.
          They probably get still money so their planes can be used by the military.
          Airline tickets are way under-taxed
          International routes.
          If it was Europe i also would say fuel is under-taxed, America less so.

  7. Desai says:

    Greetings from India MC01,
    The funny part here is that during past decade it was repeatedly alleged in various media reports and by whistleblowers that Air India is deliberately mismanaged by Indian government and government appointed executive to provide competitive benefit to airlines owned of cronies of government ministers (remember that India suffers from chronic level corruption). And guess who was repeatedly mentioned as prime benefactor such mismanagement of Air India? Yes , it is Jet Airways and its founder Naresh Goyal.
    Further , Naresh Goyal was also said to have strong influence on government policy decisions.
    So apparently Goyal manged to run Jet Airways in ground in spite of being a government crony.
    And ofcourse the much touted reason for selling Air India to private investors is to save tax payers’ money from this “white elephant” (a term for money losing government owned enterprise). However , now when government is forced to micro-manage bankruptcy of Jet Airways, a private airline, and possibly also provide a bailout, it will be interesting to see justification for sale Air India.

    • MC01 says:

      While I have no doubt that old-fashioned corruption played a big part in the sinking of Air India, my experience with government-owned airlines such as Alitalia, Sabena and Swiss Air tells me it’s only a small part of the problem.
      Lack of accountability, no serious concern for financials and political interference play as big a part as large amounts of cash or “favors and gifts”. A typical problem is hiring people the company doesn’t really need and/or hiring them at conditions bearing no relationship to the job market.

      To give an example the Italian government has refused to seriously consider an offer by Lufthansa for Alitalia because the German group would instantly lay off 6,000 of the 11,000 people Alitalia directly employ, and that’s without counting the external contractors.
      I am sure that as an Indian you would understand me very well: governments and even political parties may change, but political hirees never do. ;-)

      • IdahoPotato says:

        Air India founder J.R.D. Tata and his Tata Group helped train some of Singapore Airlines’ key staff when it was founded. By then Air India was government-owned.

        In the early 1990s the Tata Group proposed a joint venture with Singapore Airlines. The Indian Minister for Civil Aviation vetoed that as a favour to Naresh Goyal (Jet Airways CEO).

        Now that Jet Airways is closing down, Tata-owned Vistara Airlines has taken over some of those routes and another collaboration with Singapore Airlines is on the cards.

        I know a few Tata employees who boycotted Jet Airways for a couple of decades because of that incident.

        • MC01 says:

          Back then it was still called Malayan Airways. ;-)
          The Tata family was actually involved in aviation since the beginning: Ratanji Tata, J.R.D.’s father, was a close associate of Louis Blériot. Tata senior had become interested in Blériot’s first line of business, the first workable car headlights, but eventually became more intrigued in aircraft and as it often happens a Tata is rarely wrong when it comes to business.

          The domestic slots formerly operated by Jet have been split up between Air India, Vistara, IndiGo and SpiceJet and are supposed to run on a “temporary basis” until the end of June. The rationale is that by then Jet Airways should be either back in business or in the process of being liquidated. That’s the theory. ;-)

      • Realist says:

        SAS ? At least SAS did adhere to green values lately. With their fleet grounded for so long, consider the amount of CO2 not released due to not burning fuel …..

        SAS is an interesting mongrel, governments of Sweden, Denmark and Norway messing around ….

      • Desai says:

        Indeed. Lack of accountability , no concern for financials and political interference are big problems in operations of government owned enterprises. My first comments was essentially describing political interference and corruption as cause for this political interference.
        Now consider political interference in this Jet Airways fiasco. In normal circumstances, on default of loan repayment , lenders banks would be able to apply to national company law tribunal(NCLT) and takeover control of whole company and start a process similar to chapter 11 bankruptcy in US. Airline would still be operating and planes would be still flying if this process had been followed. However, based on media reports banks received instructions from government not to apply to NCLT in any circumstances and thus banks were forced to waste excessive time negotiating with Goyal to resign from board and in meantime airline was forced to ground all of the planes eroding attractiveness of Jet Airways to buyer. Further , Goyal still retains as high as 25.5% stake in company while in NCLT process his stake would have wiped out completely. His owning of such large stake will complicate selling of airways. Now though government’s stated objective for interference is to save jobs , the manner in which government is intererfering is doing completely opposite of saving jobs.
        It is unclear at this point that whether this course of action is due to plain old government incompetence or corruption , (i.e. letting Goyal secure part of his fortune). But historically, company founder have been able to use their political connection to screw lenders repeatedly , though after passage of new bankruptcy law (which introduced above mentioned NCLT process) there has been a considerable decrease in this.

        • MC01 says:

          “Save jobs” is a mantra I have heard about Alitalia since I was 4 or 5. I also keep on hearing it about Africa’s least efficient carriers: Rwandair, South African Airways, Kenyan etc.
          Intriguingly enough Ethiopian Airlines, which is an example of excellent (and highly profitable) State-owned company never mentioned the need to “save jobs”.

          Jet Airways has been treated too kindly by regulators so far, not unlike Tesla, raising all sorts of interesting questions.
          For me the most interesting is how the company went from turning serial profits (on paper) to collapsing under the weight of its own debts in under a year. It means that either those profits didn’t exist or that they evaporated into thin air.
          I have seen many of these “fictionally robust” companies collapse and every time the story is different, but there’s one thing in common: creditors either turned a blind eye or allowed themselves to be fooled…

  8. kleen says:


  9. suresh says:

    Air India is even worse than Alitalia.
    Dirty, lazy, smug and arrogant fly attendants.
    Dirty planes, even in business.
    No service whatsoever.
    Only in a socialist country do such entities thrive.
    It allows government cronies to get fake jobs and real paychecks while upgrading their entire extending families for free.
    Awful, awful airline. We won’t miss it.

    • Ook says:

      Can’t believe I’m defending air India, but I flew them several times (domestic) last month to a consistently positive experience, nothing like what you described above. I prefer Air India to just about any major American carrier.

      • IdahoPotato says:

        You are right on both counts. Air India sucks, but I will take them any day over United Airlines.

  10. Willy2 says:

    – Interesting story. Brace yourself for more defaults in the airline business.
    – With such a slew of defaults, both Boeing and Airbus will see their orderbooks deflate at a similar rate as well. OMG. When are Airbus & Boeing going to lay off workers as well ?

    • MC01 says:

      Order books are so stacked at the moment I think even losing 30% of orders would make no difference.

      Just to give an idea, Boeing has been manufacturing 737MAX no-stop since the aircraft was grounded by regulators. Monthly production has been cut from 52 to 42 but component deliveries continue at full speed. If any reader knows where the unassembled fuselages manufactured by Spirit Aero are stored, just let me know because I am curious.
      All things considered it’s just cheaper for Boeing to keep on assemblying the 737MAX and store them: disrupting the whole supply chain would be worse by a couple orders of magnitude.

      And as I said before, this wave of bankruptcies and liquidations wasn’t supposed to happen. With debt cheaper to service than ever before and investors driven to insanity in the scramble for yield money was not supposed to be a problem.
      But in 2016 something broke and nobody has been able to fix it. Even China, where liquidity is thrown around like rice at a wedding party, has a major problem with HNA Group.
      While authorities in Beijing will categorically deny it, the group is effectively in administration, and would probably have long been dismembered in any other country.
      I have long wanted to write about this peculiar situation, but the problem is there’s frustratingly little hard news to come by and to complicate matters even further the Chinese government is not behaving like everybody expected, namely confiscating the group and disposing of it as they please.
      Last year HNA Group had a major row with Airbus over missed payments for six A330 which was only solved by diplomatic means. It was a bizarre event considering this group had a habit of spending money like water.
      HNA Group has been having a fire sale of their massive European operations: for example earlier this year they sold Amsterdam-based TIP Trailer Service for just $1 billion. In 2013 they had bought it from GE Capital for over $1.2 billion.
      And let’s not forget how HNA Group, an airline-based conglomerate, helped propped up Deutsche Bank stocks by buying a 9.9% share in the scandal-plagued German megabank. Now that prop has been removed and at a time where stocks are soaring worldwide (on a wing and a prayer apparently) DB is back at getting bludgeoned.

      • Willy2 says:

        – Deutsche Bank has the problem that it has to compete with all the german socalled “LandesBanken”, banks of the individual german states (Germany is a federation, for those who don’t know).

        • MC01 says:

          As Wolf said in the past, don’t get me started on the deep links between German middle- and especially small-sized banks, politics and export-geared manufacturers. It’s an alternate dimension with some parallels to the Korean banking system which basically exists to subsidize exports.
          DB never had to “compete” with those banks, nevermore than the (Chinese-owned, what are you surprised?) Continental Motors Corporation has to compete with Pratt & Whitney. All DB’s sins are their own.

      • Willy2 says:

        – It’s good to see that the chinese are no longer willing to provide unlimited funds & support for this money losing operation.
        – I also read that airlines from the Middle East (Etihad, etc.) are also busy with a “re-orientation”. Seems that some of the people who have funded those airlines are getting (a bit more) “impatient” with all those large & endless losses. I am still surprised to see that it took this long to see a change of heart in the Middle East.
        – I also expect to see some “fireworks” in the next months in conjunction with the financing of the new airport in Istanbul, Turkey.

      • Dave Chapman says:

        Renton Field is full.
        Boeing Field looks like it will be full pretty soon.
        I suppose that they could get permission to fly them to Grant County Airport. . .

  11. Willy2 says:

    @MC01 (and others readers)
    – A video from VOX on what was wrong with the Boeing 737 MAX. It turns out that the place where the engines were attached to the wings made a BIG difference on how the plane behaved.

    • MC01 says:

      As I said before, wait for the full report which will include the full list of remedial actions to be taken by Boeing. It should be released during the Summer after review by EASA, CAAC, JCAB and other regulators.

      Sadly, as it’s usual, this is a very complicated technical issue and not merely a case of a single thing going wrong.

      Oh, and expect big 737MAX customer such as Ryanair and Southwest to grab Boeing by the ankles and shake it for pennies.

      • Unamused says:

        => Sadly, as it’s usual, this is a very complicated technical issue and not merely a case of a single thing going wrong.

        Which is to say that failure, like success, is often most reliably achieved as a team effort.

      • Willy2 says:

        – Agree. If the only problem was the place were the engines were attached to the wing(s) then we should have seen more crashes of Boeing 737 MAX planes.

  12. Spaniard says:

    As usual I am really impressed at the quality and deep knowledge of the comments. It is not an overstatement to say that comments are the result of, and in line with, the Alma Mater of this site: Mr Wolf. Thanks again.
    Having said that, I would like to call your attention to what it seems to me a lack of good synthesis among so many good analysis…The relation between government and big corporations which has been thoroughly exposed in the classic book The Modern Corporation and Private Property by authors Arthur Berle and Gardiner Means. An 80 years old book, now in well over its tenth edition. The book is well worth reading for anyone looking for insight in the world of Corporate Power. Coarsely speaking it unfolds the deep relationship between the State and the Corporation and the effects that relationship produce in the real market: A monopoly which is harmful for citizens as consumers. Finance, Energy, Public Construction, Transport, Communications are all examples of regulated public services entities, administered by the State under licensing, and it turns out that it is the State the first stockholder via taxes and, supposedly, the main source of fiscal revenue. There are more but it is enough. Aviation, as many comments shows, is probably the most regulated industry among all regulated industries, because it is commerce with State Sovereignty which is all about. And that has nothing to do with common public perception of what regulation is all about.
    As many comments suggests, at the core of the bloodbath we are talking about is the unlimited bank credit expansion produced by CB’s, specially the Fed, as a result of the repeal of Glass-Steagall Act in 1999 which enabled fierce speculation within commercial banking which is currently reaching its latest stages.
    Note that bank credit has nothing to do, and is opposite, to money. Main effect is that artificially increases prices and as a result decreases yields. Using money, prices and yields go along harmonically. That is, coarsely speaking, the economic theory sustained by the Austrian School versus the Keynesian School…..
    Just to finish: I really appreciate the pics of the meeting. It is a consolation for not attending and a very good indication that appearance has little, if any, to do with high spirits….
    Best regards.

  13. amkay says:

    Air Asia is doing quite well in this industry. They must have understood the business. But its operating in a low cost carrier segment.

  14. Brian James says:

    Apr 30, 2019 The Economics That Made Boeing Build the 737 Max

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