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1.
India's airlines are optimistic they will be able to capture a larger share of international travel now the country's aviation ministry has granted fresh flight rights to a number of overseas destinations.
The biggest winner is tipped to be Jet Airways India, which has been okayed for new services to Europe, including flights to Rome and Amsterdam from Mumbai. Jet also has been given additional rights for flights Mumbai-Kuala Lumpur, Bangalore-Bangkok, Delhi-Bangkok, Mumbai-Abu Dhabi, Mumbai-Dubai, Mumbai-Male and Thiruvananthapuram-Sharjah.
Another carrier, SpiceJet, will now be able to fly to Colombo from Mumbai and add flights on the Chennai-Colombo route, while Kingfisher can fly to the Sri Lankan capital from Mumbai and Trichy.
And IndiGo has been okayed for daily services to Bangkok, Singapore and Dubai from New Delhi and Mumbai.
2. Air India reaches deal on fuel dues
Air India Ltd has agreed to partially pay off its dues to oil marketing companies and negotiated a daily payment system for the next 45 days, after which it hopes to repay in full.
The national flag carrier owed Rs. 2,300 crore to state-owned Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd in early December, when the oil firms discontinued credit to the airline on a directive from the oil ministry, as Mint reported on 10 December.
Air India has now agreed to pay a lump sum of Rs. 475 crore, or a little more than one-third of the Rs. 1,200 crore it received as equity infusion from the government this month.
The agreement was reached in a meeting of Air India chairman Arvind Jadhav, oil ministry’s additional secretary and financial adviser P.K. Sinha and officials from oil companies and the aviation ministry, said two officials present at the meeting, asking not to be named.
“They have got a relief,” one of these officials said. “They have also promised to pay some more money from receivables as and when they get it from other government departments.”
Air India also agreed to pay Rs. 13.5 crore daily for the next 45 days.
The oil companies sought a daily payment of Rs. 17.5 crore, but the airline refused. “It’s a national carrier and one of the oldest customers of the oil companies. They can’t just abandon the airline when it is going through a bad phase,” said the second official.
“The airline gets Rs. 22 crore a day from internal accruals, it can’t be asked to pay Rs. 17.5 crore straightaway.”
An Air India official said the payments will be made from the equity infusion.
“The equity is mainly to be used for repaying aircraft loans and interest, besides oil companies and aircraft vendors,” said the official, requesting anonymity.
The carrier hopes to make the rest of the payment to oil companies from the money it is due to receive from some government departments.
For example, it is yet to receive Rs. 335 crore for providing a dedicated fleet to fly the President, vice-president and Prime Minister over the past three years.
The fleet, led by Air India One, includes five jumbo jets parked in the capital for exclusive VVIP travel.
A proposal to raise the payment for this service to Rs. 800 crore a year is awaiting the finance ministry’s clearance.
The government has made a total equity infusion of Rs. 2,000 crore in the debt-laden carrier and promised another Rs. 2,000 crore for the next fiscal.
Like the national carrier, large private carriers such as Kingfisher Airlines Ltd and Jet Airways (India) Ltd have also defaulted on fuel payments in the last two calendar years, when the aviation industry was hit by the global economic slump and a steep hike in fuel prices.
3. Aviation Newsletter - January 17 to January 21, 2011
The report stated that board has approved delivery financing of three B-777-300ER aircraft and one GE-90 spare engines with US Exim support worth US$475-million
Top Stories
IndiGo rises to joint No. 2 with Kingfisher
IndiGo Airline has become the India's No. 2 airline equaling Kingfisher Airlines in December, and Air India-domestic to take the No. 3 spot, according to a report. The report stated that Kingfisher and IndiGo had a market share of 18.6%, the Jet-JetLite combine was ahead with 25.4%. Indigo flew 9.71 lakh passengers in December 2010 compared with Kingfisher’s 9.72 lakh, adds report.
Air India mandates ICICI to refinance loans for buying A-320 aircraft: report
National Carrier Air India Board has given a mandate to ICICI Bank to refinance Rs55bn loans to purchase 21 A-320 aircraft, according to a report. The report stated that board has approved delivery financing of three B-777-300ER aircraft and one GE-90 spare engines with US Exim support worth US$475-million
The board also gave its nod to Air India to dispose off four A 310 passenger aircraft along with the simulator, adds report. There are reports that the most important decision of Pawan Arora as CEO of Air India Express in the company, did not come up for discussion.
In Focus Stories
Indian airlines break 5mn barrier in December
Indian airlines carried more than 50 lakh domestic passengers in December, setting a new landmark in the aviation industry, the latest data released by the Directorate General of Civil Aviation (DGCA) showed.Airlines carried 52.13 lakh passengers in December, up from 44.87 lakh passengers carried in the same period of the previous year, reporting a growth of almost 16%.
The total domestic passengers carried by the Scheduled Airlines of India in November were 48.75 lakhs as against 46.17 lakhs in October 2010. During January-December 2010, domestic airlines carried 520.21 lakh passengers compared to 438.40 lakhs in 2009.
The total domestic passengers carried by the Scheduled Airlines in the fourth quarter of 2010 (October to December) were 147.05 lakhs.The total domestic passengers carried by the Scheduled Airlines in the third quarter of 2010 (July to September) were 119.84 lakhs.
The total domestic passengers carried by the Scheduled Airlines in the second quarter of 2010 (April to June 2010) were 134.78 lakhs.The total domestic passengers carried by the Scheduled Airlines in the first quarter of 2010 (January to March 2010) were 118.54 lakhs.
Low-cost carrier IndiGo became the third largest domestic passenger airline in the country for the fourth quarter of 2010.IndiGo carried 25.89 lakh passengers, followed by Air India's domestic arm at 25.42 lakh passengers. They were followed by Spice Jet (20.01 lakh), Jet Lite (10.85 lakh) and Go Air (9.79 lakh).
Kingfisher Airlines carried 27.81 lakh passengers, closely followed by Jet Airways with 27.28 lakh passengers
Domestic News
Air India plans to lease 40 Airbus, Bombardier Planes: report
Air India Ltd has sought bids to lease as many as 40 Airbus SAS and Bombardier Inc. aircraft, according to a report. The report stated that the airline wants to lease 10 Airbus A320s, 10 A330s and as many as 20 CRJ-700 planes. Air India has a fleet of 135 planes and is expecting 30 more aircraft deliveries in the next few years, adds report.
Kingfisher flight makes emergency landing in Bangalore: report
Kingfisher Airlijnes flight IT 4817 from Bangalore to Hyderabad returned to Bangalore International Airport within ten minutes of take-off after the right engine of the aircraft caught fire, according to a report. Kingfisher spokesperson Prakash Mirpuri has reportedly said the aircraft was forced back to the airport after the flight commander received a warning alert.
IndiGo to operate international flights from August: report
IndiGo has reportedly said that it was granted permission by the aviation watchdog to operate international flights from August this year. The report stated that permission came after the LCC fulfilled all the regulatory requirements of completing five years of operations and possessing a minimum of 20 aircraft.
Jet Airways registers 8.5% growth in domestic operations in December 2010
Jet Airways has posted passenger load factors for December 2010. The airline has registered a buoyant 15.3% growth in international revenue passenger traffic carrying 4.23 lakh guests in December 2010 as compared to 3.67 lakh in the same period last year.
Security scare for Kingfisher Mumbai-Bhubaneshwar flight
Shortly after Kingfisher Airlines flight IT 3141 took off from Mumbai for Bhubaneshwar, the commander received a cautionary alert from one of the on-board systems. In keeping with Kingfisher Airlines’ policy of placing guest safety and comfort above everything else, the commander decided to return to Mumbai and get the alert investigated before proceeding to the destination.
Pratt & Whitney, Air India showcases cutting edge Eco Power Engine Wash Technology
Air India announced it has performed 124 Pratt & Whitney EcoPower engine washes to date, saving more than 540,000 gallons of fuel worth $1.9 million USD while reducing its carbon dioxide (CO2) emissions by approximately 5,300 metric tons. Pratt & Whitney is a United Technologies Corp. (NYSE:UTX) company.
British Airways lists Top Five Indian destinations for 2011
To help travellers plan their visit to India well, British Airways has released its list of five must-visit Indian destinations for 2011.
With the landmark cricketing event, World Cup 2011, being held in India, Bangladesh and Sri Lanka is expected to influence the travel calendar this year.
International News
Meggitt buys Danaher unit for US$685mn
Meggitt Plc has agreed to buy Pacific Scientific Aerospace from Danaher Corp. for US$685mn to expand its range of fire-fighting products. According to reports, the purchase of PSA, which also makes generators, electric motors and other safety gear for aircraft, will be funded by selling as many as 69.8 mn shares, equal to about 9.09% of the company, to new and current institutional investors.
Adding the Danaher unit will allow Meggitt to bundle together more products for aircraft including Boeing’s 787 Dreamliner and the Airbus A380 superjumbo as production accelerates. Meggitt paid 8.7 times earnings before interest, tax, depreciation and amortization and it estimated savings of about $5 million in 2011, rising to about $18 million by 2014, said a financial daily.
Boeing 787s resume test Flights for Certification: report
Boeing Co has reportedly said that its delayed 787 aircraft had resumed the test flights required by government regulators before it can make its first customer delivery. The report stated that Boeing restarted 787 test flights a month ago after finding a "fix" for the problem that led to an onboard fire during a flight on Nov. 9. Another two planes would restart certification flights in a week or so, adds report.
Air New Zealand plans to acquire up to 14.99% of Virgin Blue: report
Air New Zealand Ltd. has reportedly said that it has received approval from the Australian Foreign Investment Bureau to buy up to 14.99% of Virgin Blue Holdings Ltd. The report stated that the company is planning to buy between 10% and 14.99% of Virgin Blue but has no intention of making a full takeover offer for the firm
Embraer closes out 2010 with 246 jets delivered
Embraer delivered 92 jets during the fourth quarter of 2010 (4Q10), 30 of which to the commercial aviation market, 61 to executive aviation, and one to the defense segment. Thus, the Company closed out 2010 with 246 jets delivered.
Fly thru with AirAsia
AirAsia’s guest on multiple-flight travel from India can do so without having to apply for a transit visa with Fly-Thru – A service that enables guests on multiple flight travel to perform a single check-in for their original and connecting flights right through to their final airport of destination.
Fly-Thru is available to guests travelling on selected AirAsia (short-haul) and all AirAsia X (long-haul) flights transiting through Kuala Lumpur whose original and forward flights have a connecting time of between 90 minutes and six hours.
Delta swings to fourth-quarter profit
EasyJet shares sink 10% on interim statement: report
Air New Zealand plans to acquire up to 14.99% of Virgin Blue .
http://newzealandaviationnews.blogspot.com/25
1. Air New Zealand's Tie With Virgin Challenges Qantas In Australia
Air New Zealand (Baa3 stable) announced it paid AUD145 million ($145 million) to acquire a 15% stake in Virgin Blue (unrated), the operator of Australia's second-largest airline. This credit positive investment will help Air New Zealand diversify its earnings from an overconcentration at home and provide exposure to Australia's larger market. For Qantas Airways Ltd. (Baa2 stable), operator of Australia's largest airline and parent of the country's third-biggest carrier, Jetstar (unrated), the investment serves as a further sign of Virgin's growing competitive challenge to Qantas in the airline's home turf.
The investment will weaken Air New Zealand's credit profile only slightly, as the carrier can use cash reserves to pay for it. However, Air New Zealand will probably not receive dividends in the near term as we expect Virgin to continue to invest in expanding its fleet as it steps up the competition with Qantas. Nevertheless, the purchase will give Air New Zealand a presence in Australia, one of the world's most profitable aviation markets, while sparing the carrier the cost of doing the actual flying.
Currently, Air New Zealand relies on its home market, where it has an 80% market share, for virtually all its earnings. As competition accelerates, we expect carriers to create more such "virtual networks" through multiple channels of cross-ownership, alliances, and code sharing. Air New Zealand, Virgin, and others will likely search for ways to acquire greater scale and network connectivity with leaner fleets.
In Australia, Virgin Blue has maintained a nearly 30% market share, positioning itself as a leisure line between Qantas's full-service offerings for business travelers and low-cost carriers (LCCs) such as Tiger Airways and Jetstar, the latter of which Qantas wholly owns. In 2010, Virgin Blue announced a shift to target the profitable business market, dominated by Qantas, while at the same time maintaining a leisure market offering. To do so, Virgin Blue is increasing the frequency of flights on key trunk routes and investing in additional, wide-bodied capacity to cater to transcontinental routes to Perth, a nexus for Australia's natural-resources industry.
Exhibit 1 (attached)shows market shares by carrier in 2010.
Virgin Blue previously announced new routes into Europe via Abu Dhabi's Etihad (unrated), into the US via Delta Air Lines (B2 stable), and across the Tasman Sea via Air New Zealand. These routes will not deliver direct incremental earnings to Virgin Blue, but the airline will benefit from channeling Etihad and Delta's customers into its domestic network. Previously, this type of international alliance and global reach was a competitive strength that differentiated Qantas.
Attached exhibit 2 shows the steep rise in the share of international arrivals carried by Virgin Blue and its partners, year to date.
This development increases competition for Qantas, as it brings Virgin Blue's range of offerings closer to that of Qantas for international travel and will require Qantas to reduce prices to keep load factors at acceptable levels. Virgin Blue has cheaper fares than Qantas, and is therefore well positioned to win market share. Qantas is already grappling with rising oil prices and subsidiary Jetstar's low yields, which bedevil the entire LCC segment. The additional threat from the Virgin Blue-Air New Zealand tie-up will add to pressure on Qantas's margins just as renewed passenger demand was helping it recover from the effects of the global recession. In 2000, Air New Zealand tried unsuccessfully to enter Australia by acquiring Ansett Airlines, which subsequently collapsed. By contrast, this latest move costs little but has a larger potential payoff. It may, however, be a tough fight. Qantas, with its dual-brand strategy and entrenched, leading position in Australia, has shown in the past that it knows how to counter competitive challenges.
2. Market boosted by aviation sector
Auckland International Airport led gainers on the NZX 50, reaching a 2-½-year high in the wake of its upbeat economic report last week.
Air New Zealand rose after posting a jump in traffic for December.
The NZX 50 rose 5.615, or 0.2 per cent, to 3358, heading for its third daily advance. Trading was quieter than usual, with Wellington market participants away for the anniversary day holiday.
Auckland Airport rose 1.8 per cent to $2.29. The shares reached the highest level since mid-2008, extending their gains since the company released a report showing it may account for almost 20 per cent of national gross domestic product and sustain more three quarters of a million jobs by 2031, based on the flow of freight and passengers through the airport.
Air New Zealand, the national carrier, rose 0.7 per cent to $1.43 after traffic figures showed the airline carried 1,322,000 passengers December, 10 per cent more than the same month a year before.
Load factor rose by 1.3 per cent to 86.3 percent compared to the previous period, with revenue passenger kilometers up 7.7 per cent to 2,861 million.
Much of the increase was built on the back of a 10.9 per cent increase in short haul passenger numbers to 1,140,000, broken down to a 10.7 percent lift in the domestic market and a 13.9 per cent increase in Tasman/Pacific.
APN News & Media, which publishes the New Zealand Herald and operates the Radio Network, was unchanged at $2.40 on the NZX after it said the diversified nature of its operations is likely to offset the effects of Queensland floods, with minimal impact on the bottom line.
The company that said while it expects the Queensland economy to rebound strongly once mop-up operations are complete, advertising revenues from small businesses, retailers and real estate are expected to remain under pressure, having already shown some signs of weakness ahead of the floods.
Hallenstein Glasson Holdings, the clothing retailer, fell 1.2 per cent to $4.05.
New Zealand's retailing sector remains under pressure, with November's core retail sales declining 0.2 per cent to $4.24 billion, the second monthly decline. A gain of 0.5 per cent was expected, based on a Reuters survey.
The New Zealand dollar will probably stay within recent ranges this week as investors prepare for the Reserve Bank to keep interest rates on hold this week.
Five of six economists and strategists in a BusinessDesk survey expect the kiwi will respect recent price-action and stay in the middle of its medium-term range between US74 cents and US76 cents ahead of this week's central bank meetings in New Zealand and the US.
The lone dissenter expects the kiwi to head lower amid heightened expectations of rising interest rates in China.
Economists expect central bank Governor Alan Bollard will keep the official cash rate at 3 per cent after New Zealand dodged a double-dip recession last year, and last week's benign inflation and tepid retail sales data won't have given him reason to tighten rates early.
Analysts now expect Bollard will start lifting rates in September, with 68 basis points of hikes priced in over the next 12 months, according to the Overnight Index Swap curve.
The kiwi rose to US75.82 cents from US75.46 cents last week.
3. NZ shares rise; Kathmandu gains
New Zealand shares rose for the second time in three sessions, as positive offshore leads help stoke investors' appetite for local stocks.
Kathmandu Holdings paced gainers on the exchange while Restaurant Brands NZ fell.
The NZX 50 Index rose 6.41 points, or 0.2%, to 3359.06.
Within the index, 22 stocks rose, 13 fell, and 15 were unchanged. Turnover was $84 million.
Stocks on Wall Street rose for a second day, with the Standard & Poor's 500 Index closing 0.6% up at 1290.84, after chip-maker Intel announced a successful share buy-back plan, while packaging company Rock-Tenn agreed to buy rival Smurfit-Stone Container.
Kathmandu rose 2.9% to $2.16, the highest level in over six months.
Last week the outdoor clothing retailer upgraded its earnings forecast, with profit likely to rise by as much as 26% to between $18.5 million and $19.5 million for the six months ending Jan 31 on the back of stronger earnings.
The stock was further boosted by the December BNZ BusinessNZ performance of service index, which showed a significant recovery in confidence among retailers, with rose to 56.9 in the month, up from 46.3 in November.
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A reading above 50 indicating activity is expanding, while a reading below 50 indicates contraction.
Air New Zealand, the national carrier which bought a 15% stake in Virgin Blue Holdings for $189.5m, rose 2.1% to $1.45.
Virgin today said it expects first half net profit to be down more than 50%, due to the floods, a slowdown in consumer spending and disruptions to the airline's check in system last September.
It expects to post a net profit after tax of A$23 to A$26 million for the six months to December 31, down from A$62.5 million in the prior corresponding period of 2009.
"Air New Zealand's management recognise that the New Zealand aviation market is small and in order to expand and become a bigger player they have to look further afield," said Grant Williamson, a director at Hamilton Hindin Greene.
"Investors are hoping that this go into the Australian market is going to be more success than last time."
Pyne Gould was unchanged at 36 cents after executives were rewarded with 4.4 million new shares in the financial services company as a thank-you for the merger of the firm's Marac unit with Southern Cross and Canterbury building societies.
The managers are getting shares equivalent to 0.5% of the company, at 36.74 cents each, worth $1.6 million, according to a statement from chairman Bruce Irvine.
The gratuity will slice $1.4 million off Pyne Gould's 2011 profit and cut $300,000 from the earnings of the new merged entity, Building Society Holdings this year and by $100,000 in 2012.
"I think this is a very strong incentive for directors and staff to perform, though some investors might view it as excessive," Williamson said.
Charlie's Group, the juice maker that extended its footprint in Australia's Cole supermarkets, was unchanged at 20 cents after beating sales forecasts by $900,000 in the second half of last year.
The company's sales hit $21.9 million in the six months ended December 31, beating the $21 million forecast, and 29% ahead of 2009's revenue.
Chief executive Stefan Lepionka said most of the growth came in Australia, where it broke into Coles last year, though New Zealand sales were also up 3.6% cent from the same period a year earlier.
It kept forecast profit at $1 million for the period.
Restaurant Brands NZ, the fast food franchise operator, fell 2.8% to $2.44, pacing decliners on the NZX 50 for a second day.
The stock was second best performer on the NZX 50 last year, gaining 64% over the past 12-months, but has battled to find traction this year, and is now trading at its lowest level since October.
OceanaGold, the gold miner, fell 2.2% to $3.60 after it announced that it was taking full control of mining at its Reefton Gold Mine from April 1, and with a significant increase in operations at the mine, situated on the outskirts of Greymouth.
Stracon Mining has been operating and maintaining OceanaGold's mining equipment fleet under an agreement at the operation since mining started in 2006.
Goodman Fielder, the Australian food ingredient manufacturer, fell 0.6% to $1.73.
The stock has regained some of the ground it shed after chief executive Peter Margin announced his resignation on Jan 18, but still trading lower than $2 highs seen in November.
4. Putting the romance back into flying
You may have noticed that over the holiday period Air New Zealand finally took delivery of the first of its five Boeing 777-300ER aircraft.
It's been a much-anticipated arrival because this is the plane which will introduce cuddle-class - a flat bed made from three seats - plus slightly more room and the ability to order snacks via the video screen in economy; improved seats and a menu that includes the likes of tapas, pizzas and gourmet burgers in premium economy; and freshly cooked meals prepared on demand in business premier; plus a swish new decore and an inflight entertainment service which includes access to YouTube and provides news updates.
Innovations like those have already seen Air NZ named as Air Transport World's Airline of the Year and Conde Nast Best Long Haul Leisure Airline and the aviation industry is watching closely to see what effect they have on passenger number and profits.
Having checked out the new ideas on the ground some months ago, at Air NZ's so-called test hangar in Fanshawe St, I was very keen to try the actual plane for myself. Unfortunately, the delivery flight kept being postponed until it got to the point where it would have wrecked our plans for a family Christmas, so I had to pull out.
However, those who were able to experience the various innovations in action seem to have been hugely impressed.
In handing over the plane, Boeing's vice-president for the 777 aircraft, Larry Loftis, said Air NZ's interior was "the best in the air".
And the company's vice-president for sales and marketing, Marlin Dailey, said the airline was demonstrating once again "that they are a forward-thinking airline with revolutionary ideas".
Perhaps more significantly, even the cynical scribblers on the trip appear to feel the same way.
Veteran Australasian aviation journalist Geoffrey Thomas commented in his electronic magazine Flightpaths that when passengers on the delivery flight boarded for the first time, "quiet awe was the reaction and a sense of privilege that one was witnessing aviation history".
After experiencing the new plane in action he concluded, "While New Zealand may be at the bottom of the world, its airline is at the top of its game."
Unfortunately, the average passenger won't be able to see for themselves whether this really is a new era in aviation for a while - the cuddle-class seats, for instance, have yet to be approved by the Civil Aviation Authority - but over the next few months the 777-300ERs will run on more routes until by next year most long-haul flights will be covered.
Could this truly be the plane that puts the romance back into flying? That's a big ask. But it'll certainly add a bit of excitement to an industry that has often seemed to be mainly intent on squeezing ever more passengers into an ever smaller space.
http://philippinesaviationnews.blogspot.com/25
1.Pilot schools to be moved out of NAIA
THE CIVIL Aviation Authority of the Philippines (CAAP) wants aviation schools to transfer to regional airports to decongest from the Ninoy Aquino International Airport (NAIA).
Ramon S. Gutierrez, CAAP officer-in-charge, told reporters at the sidelines of an aviation summit last week the state-owned Manila International Airport Authority (MIAA) will take charge in the implementation of the plan.
“The plan is still in principle and we are actually expecting resistance from the aviation school administrators, owners and students as most of them are foreigners. Most of the foreign students want to attend an aviation school near NAIA because they go to their home countries from time to time,” he said.
However, Mr. Gutierrez said allowing regional airports to house the aviation schools would translate to additional revenues as most of these airports have lower flight frequencies compared with NAIA.
“This will be part of CAAP and MIAA’s immediate plans. This will give these small airports additional revenues as they only generate revenues from air navigation fees for the airports,” he said.
Mr. Gutierrez said his agency broke even last year with close to P3 billion in revenues.
“Our revenues last year will be just enough for the maintenance but will not be enough for capital expenses. It will not be enough to maintain 86 airports. We will give the schools the preference which regional airport they would want to go to,” he said.
In July last year, CAAP ordered an audit of all 63 aviation schools in the country as the agency discovered that fake licenses had been issued to some student pilots.
2. How friendly are the Philippine skies?
In an effort to enhance competition in an already vibrant airline industry, the Philippines is taking a major step towards easing restrictions within the commercial aviation sector. Government has announced that an executive order will be issued that will further liberalize the air transportation industry by allowing international airlines to use secondary gateways, a privilege previously exclusive to domestic carriers. Along with the increase in the number of stakeholders and the regulatory challenges, tax is certain to be an issue intertwined with flying in and out of the Philippine skies.
The taxation of revenues of international carriers, regardless of whether they have so-called "permanent establishments" in the Philippines, has been the subject of debate since the concept of Gross Philippine Billings was introduced by Presidential Decree (PD) 69 in 1972.
In the recent decision of South African Airways vs. Commissioner of Internal Revenue, G.R. No. 180356, promulgated Feb. 16, 2010, the Supreme Court held that "if an international air carrier maintains flights to and from the Philippines, it shall be taxed at the rate of 2.5% of its Gross Philippine Billings, while international air carriers that do not have flights to and from the Philippines but nonetheless earn income from other activities in the country will be taxed at the rate of 32% (now 30%) of such income." In so ruling, the High Court dismissed claims that international carriers without landing rights in the Philippines are exempt from paying income tax. The Supreme Court effectively reiterated its ruling in the landmark 1987 case of British Overseas Airways Corp. that offline carriers with local general sales agents are considered resident foreign corporations doing business in the Philippines, thus tickets sales are subject to corporate income tax under Sec. 28 (A)(1) of the Tax Code.
Prior to the South African Airways case, the taxation rules on foreign carriers were not as clear. Under PD 1355, which amended the 1977 Tax Code, gross Philippine billings (GPB) include gross revenue derived from the sale of tickets in the Philippines covering the carriage of passengers from anywhere in the world and cargo or baggage originating in the Philippines. In the 1997 Tax Code, however, GPB was redefined to only include the "amount of gross revenue derived from carriage of persons, excess baggage, cargo and mail originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the ticket or passage document."
This new concept had raised issues on the taxability of offline carriers on their income from the sale of tickets in the Philippines through their local agents. At first blush, it appears that since these carriers do not transport passengers and cargo from the Philippines, they are not subject to tax since they do not derive taxable GPB as defined under the 1997 Tax Code. This also meant that offline carriers cannot thus be considered as nonresident foreign corporations doing business in the Philippines.
However, in the case of Air Canada vs. Commissioner of Internal Revenue, CTA (First Division) Case No. 6572, promulgated Dec. 22, 2004, the CTA held that offline carriers are considered resident foreign corporations since they are doing business in the Philippines. Citing Supreme Court rulings, the CTA reasoned that a foreign airline selling tickets in the Philippines through its local agents shall be considered as engaged in trade or business, as these activities show continuity of commercial dealings performed in pursuit of business purpose. Such ruling was sustained by the CTA En Banc in the appeal made by Air Canada (CTA EB No. 86, promulgated Aug. 26, 2005).
The Supreme Court sustained the Air Canada ruling in the South African Airways decided in 2010.
In the South African Airways case, the Supreme Court noted that there are no specific criteria as to what constitutes doing business. The Supreme Court held that the term "engaged in business in the Philippines" implies "continuity of commercial dealings and arrangements" which includes the performance of acts pursuant to the purpose and object of the business organization, such as the appointment of a local agent. Since the sale of tickets -- the activity which produces the income -- is done in the Philippines even if the carriage of person, baggage, cargo or mail is done outside the Philippines, it is a Philippine-sourced income subject to tax.
From these rulings, it can be inferred that the courts steadfastly held to the source principle in Philippine income taxation, which contemplates the idea that an alien is subject to Philippine tax if he or she derives income from sources within the Philippines. This is not at all contradictory to the subject of tax on GPB because the situs of taxation is still the primary consideration. In case of airlines with landing rights in the Philippines, the determination of the situs of taxation is the service which is provided in the Philippines, i.e., the carriage of persons or cargo from the Philippines. For offline carriers, on the other hand, the determination of the status of tax is the place of sale of tickets, such that if the tickets are sold in the Philippines, the income from these sales is subject to tax.
International airlines that will take advantage of Government’s pocket open skies policy will be subject to the GPB tax regime since they would carry passengers from domestic locations and fly them to international destinations.
Now that the Supreme Court has clarified the rules on the taxability of foreign carriers, the willingness to open the market to cross-border investments could very well result in more revenues for Government, increased participation of foreign players and improved services from local airlines at competitive prices that will benefit the flying public.
3. P80-million fund for NAIA's VOR not included in P4-billion deal — CAAP
MANILA, Philippines (PNA) — Civil Aviation Authority of the Philippines (CAAP) Director-General Ramon Gutierrez on Thursday said that the P80-million would-be fund to purchase new aviation equipment is not included in the P4-billion aviation deal.
Gutierrez said the P4-billion aviation deal between the government and the Thales-Sumitomo Group that Senator Estrada had questioned was accorded in 1998. “Ours is different. The P80-million fund was only meant to buy a new very high frequency omni-directional range (VOR) for the Ninoy Aquino International Airport (NAIA).”
According to him, the P4-billion contract was intended for the modernization of the whole air traffic control system of the country.
He said since the CAAP has diminutive resources and cannot be able to procure such device, the Manila International Airport Authority (MIAA) will make the financial arrangement while the aviation agency takes care of the services. From its original P120-million funds they requested, the budget was slashed to P80-million.
However, the P80-million is P2-million short of the VOR’s original price in the foreign market. He disclosed that he was considering a Korean company that was offering a VOR that is worth P80-million. “But we could not grab it until we know that it is the same brand that we are currently using,” Gutierrez said.
Another foreign company has offered the CAAP of equipment leasing which cost only P50-million. “Malaki ang matitipid, sa open bidding, but, we are inclined to buy a new one because its life span is approximately 10 to 12 years.”
The old VOR made headlines when it conked out on June last year that triggered the cancellation of at least 50 domestic and international flights at the three terminals of the Ninoy Aquino International Airport.
The glitch was additional burden to the Philippines when it was working out for getting back the category 1 status after the United States Federal Aviation Administration downgraded the Philippine aviation to category 2 in 2008.
Asked if he is optimistic that the European Union would lift restrictions once the foreign evaluators resume inspection in September, this year, he said they are still preparing for such assessment.
The Philippines is one of the countries in the world that has been blacklisted by the European Community where the country’s all airlines are banned from flying to any European bloc because of “serious safety deficiencies” in the Philippines’ regulation of carriers.
4. Turkish Airline announces new routes in 2011
Europe’s fastest growing airline company, Turkish Airlines will add new destinations on its rapidly expanding network this year. The world’s eighth-largest carrier by number of destinations, Turkish Airlines is planning to launch flights to 11 new destinations.
According to the flight programme confirmed by the Directorate General of Civil Aviation, Ministry of Transport, Turkish Airlines will begin to operate three weekly flights to Guangzhou (China) on January 30; four weekly flights to Los Angeles (US) on March 3, 2011; four weekly flights to Shiraz (Iran) on March 14, 2011.
Turkish Airlines is also planning to start new flights to Malaga (Spain), Salonika (Greece), Valencia (Spain), Toulouse (France), Manila (Philippines), Naples (Italy), Turin (Italy), Genoa (Italy) this year.
A Star Alliance member, Turkish Airlines flies to 171 destinations, including 130 international and 41 domestic routes.
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1.Air Canada obliged to accept lab monkeys as cargo
The arrival of 48 monkeys on a flight from China this weekend has brought Air Canada under fire for shipping primates destined for research laboratories, but the airline says it is obliged by federal law to accept monkeys as cargo.
A Pearson International Airport employee tipped off the British Union for the Abolition of Vivisection that a shipment of monkeys destined for Montreal was being held at the Toronto airport after arriving from China on Saturday.
Sarah Kite, director of communications and special projects for the BUAV, said monkeys destined for research facilities are usually transported in cramped wooden crates in the plane’s cargo hold, where they can be subject to fluctuations in temperature, stopovers and in some cases long delays.
“I think most people would be alarmed to know that monkeys could be travelling alongside their luggage in a cargo hold,” Kite said. She said these monkeys, typically macaques, are often factory farmed for research purposes in countries such as Laos and Mauritius.
Air Canada is one of a small number of airlines that continues to transport these primates, Kite said. Under pressure from animal rights groups and the public, many airlines have banned the practice. British Airways, for example, has a policy of “not carrying live animals that are for use in any laboratory, or for experimentation or exploitation,” according to media liaison manager Sophie Greenyer.
But Air Canada has its hands tied because of an old squabble with a customer. In 1994, the airline refused to carry a shipment of monkeys from Barbados because they were destined for a lab.
The Primate Research Center and Wildlife Reserve of Barbados filed a complaint with the Canadian Transportation Agency, which ruled in 1998 that Air Canada could not refuse to carry the monkeys because they were not a nuisance to passengers in flight. According to the ruling, the “opinion” that the monkey shipment was offensive on “humane or moral grounds” wasn’t good enough.
“We cannot by law refuse the carriage of animals for the sole reason that they could ultimately be destined to a laboratory or for research,” said Air Canada spokesman Peter Fitzpatrick in an email.
In 2007, Air Canada stopped shipping beagles used for medical research after a passenger complained about the dogs yelping from the cargo hold during takeoff and landing.
According to the Pearson tipster, this weekend’s shipment was destined for Montreal, but it is unclear whether the monkeys travelled by truck from Toronto or were held overnight for a connecting flight.
At LAB Research, a facility in Laval, Que. that tests drugs for diabetes and cardiovascular disease on rodents and other animals, a veterinarian who did not want his name used out of fear of retaliation by animal activists said monkeys are usually shipped by truck from the Toronto airport to avoid long layovers.
The veterinarian would not confirm that the new batch of monkeys had arrived at LAB, but he did say the primates there lead comfortable lives with television, toys and candy. After a drug trial is over, he said the researchers try to reuse the animals by keeping them or transferring them to another lab certified by the Canadian Council on Animal Care. He said sometimes the animals are put to sleep because their careers are over or their organs need to be studied.
The veterinarian, who holds a PhD in pharmacology, says new drugs are typically tested in rodents first, but that in some cases their bodies are not relevant and non-rodent species such as monkeys, dogs or miniature pigs must be used to make sure the drugs are safe for humans.
2. Pilot typos behind string of take-off mishaps
Crew, pilot errors behind many accidents
Simple data calculations and errors common
Can lead to tail-strikes or even crashes
AIRLINE crew errors are a leading cause of take-off accidents and incidents, according to air safety investigators.
An Australian Transport Safety Bureau (ATSB) report said mistakes made by pilots and crew worldwide have lead to near-misses and even death.
The safety regulators analysed 20 international and 11 Australian take-off accidents and incidents between 1989 and June 2009 involving incorrect flight data.
It found that the most common contributing safety factor was crew error (39 per cent), leading to a range of consequences, including one incident in Melbourne where a plane suffered substantial damage from a tail-strike.
“There have been numerous take-off accidents worldwide that were the result of a simple data calculation or entry error by the flight crew,” the ATSB report stated.
In Australian the most common mistakes involved pilots and crew entering the wrong takeoff speed, followed by the incorrect aircraft weight and wrong temperature.
The result of these errors ranged from a noticeable reduction in the aircraft's performance during take-off, to the aircraft being destroyed and loss of life.
In one case a pilot from an overseas airline entered a figure 100,000 kilograms below the aircraft's actual weight, leading to a tail strike at Melbourne Airport in 2009.
Meanwhile, seven air crew were killed in 2004 when their MK Airlines Boeing 747 cargo jet departing from Halifax, Canada, struggled to get airborne and hit a runway embankment.
The plane's take-off weight was entered as approximately 240,000kg instead of its real weight of approximately 354,000kgs.
Investigators also cited a Texas study of 4800 flights that found a quarter of pilots' errors were made before takeoff.
Pilot and ground crew error, time pressure, fatigue, distraction, poor system design, bad procedures, a lack of reference material and poor training were cited as key factors leading to these types of mistakes.
The report emphasised how critical the take-off phase of a flight is, with statistics between 2000 and 2009 showing that 12 per cent of fatal accidents occurred during take-off.
This is despite the take-off phase accounting for approximately just one per cent of the total flight time.
“Despite advanced aircraft systems and robust operating procedures, accidents continue to occur during the take-off phase of flight,” the report said.
“The takeoff is recognised as one of the most, if not the most, critical stage of flight, as there is limited time and options available to the flight crew for managing abnormal situation such as insufficient airspeed.”
The ATSB says that while these incidents will keep occurring due to human nature, airlines need to take action wherever possible to avoid mistakes.
3. Virgin America Pulls Out of Toronto
Virgin America's foray into Canada was short-lived: The airline revealed it will suspend service from Los Angeles and San Francisco on April 6. The low-cost carrier will shift emphasis onto its Dallas service, boosting its daily flights to three each from LAX and SFO.
In a statement, Virgin America VP of Planning and Sales Diana Walke said, "the smaller Toronto-West Coast markets ... were not able to stimulate demand as quickly as we would have liked. As a young and growing airline we’ve decided to instead focus on the immediate opportunities that DFW and other markets offer from our California base."
While the service suspension is "indefinite," Walke did say, "we hope to return to YYZ at some point."
In addition to added service from DFW, the airline said it is "adding additional nonstop flights from San Francisco International Airport (SFO) to San Diego International Airport (SAN), SFO to Las Vegas McCarran International (LAS) and from SFO to Washington Dulles International Airport (IAD)."
According to USA Today's Ben Mutzabaugh, the loss of Virgin in Toronto may pinch consumers' wallets. A reader wrote in to say his now-canceled $335CDN flight is going for more than $600CDN on Air Canada. Air Canada had been more or less matching Virgin America's fares.
4. Copa to beef up service to the U.S. and Canada
Panama's Copa Airlines announced today that it will fly to three new destinations and increase frequencies on other key routes as part of its 2011 expansion plan.
Copa's new routes will begin in June when the carrier adds service from Panama City to Toronto Pearson, Nassau in the Bahamas and Porte Alegre, Brazil.
Copa also will add one daily round-trip flight on five routes from its Panama City hub. Two of those routes are to Florida, where Copa's Miami service will increase to four daily round-trip flights and Orlando will go to three daily round-trip flights. Bogota (up to six daily round-trip flights), Lima (three) and Santiago, Chile, (three) are the other routes.
Copa also plans to reorganize its flight schedule, saying in a press release that it will transition from a schedule of four daily flight banks to a six.
That will begin June 15, with Copa saying it "will allow the airline to better utilize (Panama City's) Tocumen Airport's existing infrastructure as well as offer passengers more and better scheduling options."
In its release, Copa asserts that its Panama City hub "continues to be the most efficient and convenient connection point on the continent."
Monday, January 24, 2011
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1. Will take time for Air India turnaround: Vayalar Ravi
THIRUVANANTHAPURAM: New civil aviation minister Vayalar Ravi Sunday said it will not be an easy task to swing around Air India in a short period.
Speaking to the media here on his first visit to the Kerala capital after taking over the aviation portfolio, Ravi said he has been busy in the past few days holding discussions with the objective of bringing back "the lost glory" of the national carrier.
"There is no doubt that there are issues because things have not fallen in place as they should have following the merger of Air India and Indian Airlines. I have decided that before I start to do anything, I will have discussions with all stakeholders, ranging from the various unions besides the cabin crew, pilots guild, the finance sections and others," said Ravi.
"I do not wish to give a time frame to you with regard to putting back Air India to the place it should be because if I say so then you, the media will be after me once the period gets over. Please give me a little time because there are a good number of issues that have to be sorted out," he added.
Ravi was, however, non-committal if there was going to be a Voluntary Retirement Scheme programme for its employees.
"One of the biggest problem is the shortage of aircraft that Air India is facing, and among the other issues that have to be looked into is the routing aspect and the fare structures in comparison with other private airlines," added Ravi.
He, however, ruled out a revamp of the present open air policy of the government.
"The private sector plays a crucial role and we are not one that will discourage them. Employee motivation is one area that will be given a lot of importance," said Ravi, adding that he is well aware of the various issues because on numerous occasions in the past he himself has taken them up with the civil aviation officials.
He also said that he will definitely take up the issue of levying airport user fee at the new airports in the country.
The National Aviation Company of India -- the parent company of the Air India brand -- suffered losses to the tune of Rs.5,551 crore in 2009-10, in addition to the loss of Rs.7,189 crore in the previous year.
Earlier, the government had infused equity worth Rs.800 crore in February 2010 and another dose of Rs.1,200 crore last month to tide over the crisis and finance the fleet acquisition plan of 111 aircraft ordered from Boeing and Airbus in 2006.
The aviation portfolio was previously held by Praful Patel, as a minister of state with independent charge, since the first United Progressive Alliance (UPA) government in May 2004. Patel has been given charge of heavy industries.
2.Patel may soon have to declare Air India sick company
NEW DELHI: As India's civil aviation minister, Praful Patel had staunchly fought against any move to declare Air India a sick company. But as the new minister for heavy industries and public enterprises, Patel may have to declare the national carrier a sick company.
Patel's ministry has notified a new criterion to identify state-run firms that are terminally sick. Air India may fall in this category if the new norms are applied to the debt-ridden carrier.
The new norms, notified by the department of public enterprises a day after Patel took charge, say a financially troubled state-run firm would be considered a 'turnaround ' case only if it had reported profits in three preceding financial years. Also, the profits should be without any grants from the government or a loan waiver from a financial institution.
But Air India reported losses in the past two fiscals, although it has succeeded in cutting these losses. The carrier posted a loss of Rs 7,189 crore in 2008-09 and Rs 5,551 crore in 2009-10. The carrier had a debt of around Rs 40,000 crore against an equity base of Rs 1,000 crore. The troubled carrier also got an equity infusion of Rs 1,200 crore in December 2010, as without this lifeline it would not have been able to pay wages beyond March 2011.
Air India, if declared sick, would be referred to the Board for Restructuring of Public Sector Enterprise, which falls under the department of public enterprises. The civil aviation ministry had in the past firmly resisted any move to bring the loss-making airline to the board, arguing that the company was not sick. An airline official said a company should be at least five years old to come under the purview of the board. "But the merged entity Nacil (National Aviation Company of India Ltd), which is Air India Ltd now, is only three-and-a-half years old since it was incorporated in 2007. This is what we even told the Cabinet.
3.New international flying rights to boost local carriers
India’s airlines are likely to increase their share of the market of passengers flying abroad, with the aviation ministry granting them fresh flying rights to a number of overseas destinations.
The new flying rights, which were on hold for up to eight months, were awarded last fortnight by the ministry, with the largest chunk going to Jet Airways India Ltd, said two people familiar with the development, who did not want to be identified.
Until 2005, Indian airlines controlled 25-30% of overseas-bound traffic, which has increased to 40% now. These rights can help Indian carriers raise their share of the international traffic from India to 50% over the next two years, said experts.
“There will be resumption of expansion this year. Except GoAir, every carrier will have some international operation,” said Kapil Kaul, chief executive officer, South Asia, for the aviation consulting firm Centre for Asia Pacific Aviation (Capa). “The real thrust would be felt by fiscal of 2012-13.”
The country’s international traffic has traditionally been dominated by overseas carriers. National flag carrier Air India was the only local airline flying out of the country until about a decade ago. This began changing in the middle of the last decade, with Jet Airways expanding to South Asia and beyond.
Naresh Goyal-controlled Jet Airways has been cleared to start new services to Europe, including flights to Rome and Amsterdam from Mumbai. India’s largest airline by passengers carried has also been allocated additional rights for flight on Mumbai-Kuala Lumpur, Bangalore-Bangkok, Delhi-Bangkok, Mumbai-Abu Dhabi, Mumbai-Dubai, Mumbai-Male and Thiruvananthapuram-Sharjah routes.
The 116-aircraft airline had also sought rights to fly to Paris, a route currently served by Air India and Air France, but that has been kept in abeyance.
It has, however, been allowed to enter into agreements with European rail companies that would allow it to sell connecting train routes on its air tickets, said one of the two officials mentioned above.
Mint first reported on 20 December about this agreement, which can help connect Jet Airways passengers from its European hub of Brussels to Paris via train
SpiceJet Ltd, with 25 aircraft, will now be able to fly to Colombo from Mumbai and add flights on the Chennai-Colombo route, while Kingfisher Airlines Ltd can reach the Sri Lankan capital from Mumbai and Trichy.
IndiGo, run by InterGlobe General Aviation Pvt. Ltd, has been cleared to operate daily flights to Bangkok, Singapore and Dubai from New Delhi and Mumbai, as well as to Muscat from Mumbai—all considered high-traffic routes.
In November, Jet Airways’ chief commercial officer Sudheer Raghavan told Mint the airline will expand Europe in mid-2011.
“I think our next expansion will come around second half of 2011 by way of new cities, though we will continue other minor increases,” Raghavan said. “You see in Europe as a region, there are a handful of hubs—Frankfurt, Amsterdam, Paris, Zurich, Vienna in continental Europe—if you want to be a network player. We cannot close our network development to these hubs. That’s where the markets sit, we go where the market sits.”
The airlines have also lined up fleet expansion plans.
Four long-haul Boeing 777 aircraft, which Jet leased out to Turkish Airlines during the 2008-09 economic downturn, will return to the airline between July and October.
SpiceJet, which started international services last year to Kathmandu and Colombo, plans to add eight Boeing 737 and eight Bombardier Q400s this year. The airline plans to add flights on international routes it is already serving, rather than launch new routes.
“I would rather put more flights from various parts out of India to Colombo and Kathmandu,” SpiceJet chief executive officer Neil Mills said early last week.
IndiGo will start low-cost flights from August, adding 14 A320s this year to the 34 it has.
Kaul of Capa said he expects Jet to open new routes in Europe, SpiceJet to maintain its operations in South Asia, Air India to expand its network and IndiGo and Kingfisher to focus on closer international routes in West Asia and South East Asia, which can be serviced through Airbus A320 aircraft.
This year, Air India is also expected to join the Star Alliance of global airlines, nominated by Lufthansa, while Kingfisher will join OneWorld, nominated by British Airways.
Air India also pulled out from Frankfurt as its European hub, shifting focus to terminal 3 of Delhi’s Indira Gandhi International Airport and connecting its long-haul flights non-stop with Boeing 777 and Airbus A330.
Vikram Krishnan of US-based consulting firm Oliver Wyman said European carriers such as Lufthansa and British Airways, which have traditionally dominated the Indian market, are more concerned about West Asian carriers’ expansion plans than those of Indian carriers.
4. Koenigsegg coming to India!
Swedish super sports car maker Koenigsegg Automotive AB has joined hands with Rahul Bhatia-promoted InterGlobe Enterprises to launch a range of high-end, high-performance models in India.
READ THE KOENIGSEGG AGERA REVIEW IN OUR JANUARY 2011 ANNIVERSARY ISSUE!
Swedish super sports car maker Koenigsegg Automotive AB has joined hands with Rahul Bhatia-promoted InterGlobe Enterprises to launch a range of high-end, high-performance models in India.
Koenigsegg, known for its big engines, unfamiliar designs and styling under its own brand, will launch the Agera, which carries a sticker price of Rs 9.6-10 crore, next month in Hyderabad.
The supercar maker’s ride into India will be managed by Delhi-based InterGlobe Enterprise, which also promotes low-cost carrier IndiGo under the InterGlobe Aviation banner. An announcement to this effect is expected next month, said industry sources.
A spokesperson for InterGlobe declined to comment on the development when contacted via email.
Koenigsegg will be among the last few globally renowned automotive brands to make an official entry into India. Rivals such as Bentley, Bugati and Lamborghini (all owned by Volkswagen), Porsche and Rolls Royce have already launched sales in India.
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1. Market boosted by aviation sector
Auckland International Airport led gainers on the NZX 50, reaching a 2-½-year high in the wake of its upbeat economic report last week.
Air New Zealand rose after posting a jump in traffic for December.
The NZX 50 rose 5.615, or 0.2 per cent, to 3358, heading for its third daily advance. Trading was quieter than usual, with Wellington market participants away for the anniversary day holiday.
Auckland Airport rose 1.8 per cent to $2.29. The shares reached the highest level since mid-2008, extending their gains since the company released a report showing it may account for almost 20 per cent of national gross domestic product and sustain more three quarters of a million jobs by 2031, based on the flow of freight and passengers through the airport.
Air New Zealand, the national carrier, rose 0.7 per cent to $1.43 after traffic figures showed the airline carried 1,322,000 passengers December, 10 per cent more than the same month a year before.
Load factor rose by 1.3 per cent to 86.3 percent compared to the previous period, with revenue passenger kilometers up 7.7 per cent to 2,861 million.
Much of the increase was built on the back of a 10.9 per cent increase in short haul passenger numbers to 1,140,000, broken down to a 10.7 percent lift in the domestic market and a 13.9 per cent increase in Tasman/Pacific.
APN News & Media, which publishes the New Zealand Herald and operates the Radio Network, was unchanged at $2.40 on the NZX after it said the diversified nature of its operations is likely to offset the effects of Queensland floods, with minimal impact on the bottom line.
The company that said while it expects the Queensland economy to rebound strongly once mop-up operations are complete, advertising revenues from small businesses, retailers and real estate are expected to remain under pressure, having already shown some signs of weakness ahead of the floods.
Hallenstein Glasson Holdings, the clothing retailer, fell 1.2 per cent to $4.05.
New Zealand's retailing sector remains under pressure, with November's core retail sales declining 0.2 per cent to $4.24 billion, the second monthly decline. A gain of 0.5 per cent was expected, based on a Reuters survey.
The New Zealand dollar will probably stay within recent ranges this week as investors prepare for the Reserve Bank to keep interest rates on hold this week.
Five of six economists and strategists in a BusinessDesk survey expect the kiwi will respect recent price-action and stay in the middle of its medium-term range between US74 cents and US76 cents ahead of this week's central bank meetings in New Zealand and the US.
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The lone dissenter expects the kiwi to head lower amid heightened expectations of rising interest rates in China.
Economists expect central bank Governor Alan Bollard will keep the official cash rate at 3 per cent after New Zealand dodged a double-dip recession last year, and last week's benign inflation and tepid retail sales data won't have given him reason to tighten rates early.
Analysts now expect Bollard will start lifting rates in September, with 68 basis points of hikes priced in over the next 12 months, according to the Overnight Index Swap curve.
The kiwi rose to US75.82 cents from US75.46 cents last week.
2. 2. Questions over Air NZ's share grab in Virgin Blue
New Zealand's national airline has confirmed it has bought a substantial share holding in the Australian-based Virgin Blue.
Air New Zealand's sudden purchase for A$145 million cash gives it 15 per cent of Australia's second largest carrier. But speculation is rife over the reasons behind the move and how other regional airlines will react.
Presenter: Karon Snowdon, finance correspondent
Speakers: Ben Sandilands, aviation writer, Plane Talking (online Crikey blog); Rob Mercer, head of research, New Zealand stock broker, Forsythe Bar
Listen: Windows Media
SNOWDON: It seems to have taken everyone by surprise, including Virgin Blue executives.
Air New Zealand's determined grab of almost 15 per cent of the Australian airline was achieved by paying a 30 per cent premium on Thursday's opening share price.
The question is why.
Chief executive, Rob Fyfe, said in a statement there was no intention to go over the 15 per cent or pursue a takeover.
It's simply to gain access to the one third of the Australian domestic market controlled by Virgin Blue and to cement the codeshare alliance between the two airlines forged late last year.
SANDILANDS: It seems a little disingenuous in my opinion because he's got that anyhow. It's not actually necessary for him to have spent this money.
SNOWDON: Ben Sandilands is aviation writer for the online Crikey blog, Plane Talking.
The share deal benefits both airlines, says Rob Mercer, the head of research for the New Zealand stock broker, Forsythe Bar.
MERCER: I see substantial benefits for both in terms of strengthening both airlines' weaknesses.Virgin Blue in frequency of service and Air New Zealand, actually serving the Australian domestic market, in terms of Australians travelling to New Zealand, which makes up such a big scene of inbound tourism. And the value proposition is implicit in Virgin Blue's current share price. I think Air New Zealand and Virgin Blue should work really well together.
SNOWDON: It's possible Air New Zealand can't lose on the deal - whether it holds onto the shares in the longer term or not.
Aviation writer, Ben Sandilands, believes Air New Zealand's stake in Virgin Blue is a very strategic one.
SANDILANDS: And we see other forces at work here, bringing about airline consolidation. So Air New Zealand has secured a seat at the table and if anybody wants to take a significant stake in Virgin Blue now, they are going to have to pay Air New Zealand a very handsome price for their 14.9 per cent.
SNOWDON: Who's in the running to take that stake?
SANDILANDS: Speculation lies on sovereign funds such as Temasek Holdings in Singapore and the sovereign funds of the states of the UAE (United Arab Emirates), also the Bank of China has figured in some speculation and it does own some of Virgin Blue's fleet, and as well as that there is some speculation concerning Etihad Airways of Abu Dhabi in particular.
SNOWDON: (Etihad) Which has a close relationship with Virgin Blue already?
SANDILANDS: Yes, they do. Etihad has in fact an alliance arrangement with Virgin Blue which starts off next month in which Virgin Blue aircraft will fly, sorry, V Australia, aircraft will fly to Abu Dhabi and connect at the hub for onward flights to Europe and North Africa.
SNOWDON: Air New Zealand is 74 per cent government owned. It has not ventured in to the Australian market since its disastrous takeover of the failed Ansett over a decade ago. It's indicated it will wait six months before seeking a seat on the board but in the meantime Virgin Blue will be watching other skies. Its major shareholder, with 26 per cent, is Richard Branson, the founder of Virgin Atlantic. Having indicated he's prepared to sell his interest in that airline, there is a chance he will sell out of Virgin Blue as well.
Rob Mercer thinks Air New Zealand, on the other hand, is in for the long haul and consumers will see better competition across the Tasman.
MERCER: We will see the airlines deliver more frequency of service at an affordable price. The other thing with Virgin Blue is that they have gone from bring a discount carrier to a full service carrier. And over the next two or three years I think you'll see their product be more aligned to Air New Zealand, so I think the two airlines will culturally, actually work quite well together.
3. 3.Air NZ moves to 14.9pc of Virgin Blue
AIR New Zealand has confirmed it has bought 14.9 per cent of Virgin Blue for $145m and will not seek a board seat for at least six months.
The airline said today it had paid 44 cents a share for its stake using existing cash resources in an off-market transaction.
Air New Zealand chief executive officer Rob Fyfe reconfirmed there was no intention to go over 14.99 per cent and also confirmed the Kiwi carrier had no intention to seek a board seat for the first six months.
By late morning, Virgin shares were up 0.5 cent to 44.5c.
Mr Fyfe said the investment provided the Kiwi carrier with an interest in Australia’s second biggest carrier and access to opportunities in the growing Australian domestic marketplace.
Related Coverage
Air NZ muscles up to compete with Qantas The Australian, 2 days ago
Air NZ flags new dogfight Herald Sun, 2 days ago
Air NZ's raid stuns Virgin Adelaide Now, 3 days ago
Air NZ swoops on Virgin The Australian, 3 days ago
Virgin deal signals cheaper fares Herald Sun, 10 Jan 2011
However, AirNZ had no intention of flying its own planes on Australian domestic routes.
“This is simply an investment in Virgin Blue that reinforces Air New Zealand’s strategy to grow its business in Australasia which is continually evolving as a single aviation market,’’ Mr Fyfe said.
“The Tasman alliance with Virgin Blue was a key step in this strategy. This investment cements the important relationship between our two airlines and demonstrates the confidence we have in Virgin Blue and its management to grow their business both within the Tasman alliance and beyond the scope of the alliance.’’
Analysts also saw the move as a strategic play by Air New Zealand to gain a bigger share of the domestic market.
UBS said the move indicated a desire for more formal co-operation between the two airlines.
“Virgin Blue’s domestic network is of strategic interest to Air New Zealand which faces a smaller captive market, lacks scale, and faces increasing competition,’’ it said. “(The) transaction would simply be another example of cross border alliances in the aviation industry.’’
4. Receiver upbeat on Helicopters NZ sale
Strong bidding interest from overseas and New Zealand for South Canterbury Finance asset Helicopters NZ has receiver Kerryn Downey optimistic of a $90 million-plus sale within three months.
Indicative bids for the Nelson company, up for sale as part of SCF's receivership process, closed last week.
Several bids had come in from local and overseas parties, including New Zealand and international helicopter operators, and he was expecting a report from Goldman Sachs, which is helping with the sale, early this week.
Helicopters NZ was ascribed a face value of $90.3m last year when it was transferred to SCF from the Allan Hubbard-controlled Southbury Corporation.
"I am reasonably certain that number, if not higher, will be the sale price," Mr Downey said. "I am very upbeat about Helicopters. Its operating performance is ahead of budget which is extremely encouraging."
He hoped to conclude the sale by March or April. A
competitive sale process is good news for the taxpayer, after the Government paid out close to $2 billion to investors and financiers under the Retail Deposit Guarantee Scheme when SCF failed last year.
Mr Downey said it was "disappointing" the company had not received Civil Aviation Authority approval to continue with a key United States military contract in Laos and Cambodia.
But the prospects were good for resolving the problem over the company's air operating certificate sooner rather than later and the Southeast Asia contract was a small, though relatively important, part of the company's overall operations, he said.
The contract, which involved working with an arm of the US Department of Defence to recover remains of servicemen missing in action, was about 10 per cent of the company's business, he said. Its main operations were in New Zealand, Australia and Antarctica.
The CAA withdrew operational approval believing it did not have the jurisdiction to cover operations in Laos and Cambodia. And just before Christmas the High Court denied the company an order to continue its air operating certificate, pending an appeal.
Directors had still not decided whether to appeal against the CAA decision.
Indicative bids for SCF's 80 per cent shareholding in another valuable asset, Scales Corporation, close on January 28.
The company, which has cold store, petfood, property, bulk storage and shipping operations, and is the country's biggest apple grower, is itself not for sale – only the 80 per cent shareholding.
A hotly contested sale for this stake in the business.
"It is a very highly performing business with rock solid profitability. There is significant interest. The competitiveness of the process and the level of interest suggest high values there."
http://philippinesaviationnews.blogspot.com/24
1.Pilot schools to be moved out of NAIA
THE CIVIL Aviation Authority of the Philippines (CAAP) wants aviation schools to transfer to regional airports to decongest from the Ninoy Aquino International Airport (NAIA).
Ramon S. Gutierrez, CAAP officer-in-charge, told reporters at the sidelines of an aviation summit last week the state-owned Manila International Airport Authority (MIAA) will take charge in the implementation of the plan.
“The plan is still in principle and we are actually expecting resistance from the aviation school administrators, owners and students as most of them are foreigners. Most of the foreign students want to attend an aviation school near NAIA because they go to their home countries from time to time,” he said.
However, Mr. Gutierrez said allowing regional airports to house the aviation schools would translate to additional revenues as most of these airports have lower flight frequencies compared with NAIA.
“This will be part of CAAP and MIAA’s immediate plans. This will give these small airports additional revenues as they only generate revenues from air navigation fees for the airports,” he said.
Mr. Gutierrez said his agency broke even last year with close to P3 billion in revenues.
“Our revenues last year will be just enough for the maintenance but will not be enough for capital expenses. It will not be enough to maintain 86 airports. We will give the schools the preference which regional airport they would want to go to,” he said.
In July last year, CAAP ordered an audit of all 63 aviation schools in the country as the agency discovered that fake licenses had been issued to some student pilots.
2. How friendly are the Philippine skies?
In an effort to enhance competition in an already vibrant airline industry, the Philippines is taking a major step towards easing restrictions within the commercial aviation sector. Government has announced that an executive order will be issued that will further liberalize the air transportation industry by allowing international airlines to use secondary gateways, a privilege previously exclusive to domestic carriers. Along with the increase in the number of stakeholders and the regulatory challenges, tax is certain to be an issue intertwined with flying in and out of the Philippine skies.
The taxation of revenues of international carriers, regardless of whether they have so-called "permanent establishments" in the Philippines, has been the subject of debate since the concept of Gross Philippine Billings was introduced by Presidential Decree (PD) 69 in 1972.
In the recent decision of South African Airways vs. Commissioner of Internal Revenue, G.R. No. 180356, promulgated Feb. 16, 2010, the Supreme Court held that "if an international air carrier maintains flights to and from the Philippines, it shall be taxed at the rate of 2.5% of its Gross Philippine Billings, while international air carriers that do not have flights to and from the Philippines but nonetheless earn income from other activities in the country will be taxed at the rate of 32% (now 30%) of such income." In so ruling, the High Court dismissed claims that international carriers without landing rights in the Philippines are exempt from paying income tax. The Supreme Court effectively reiterated its ruling in the landmark 1987 case of British Overseas Airways Corp. that offline carriers with local general sales agents are considered resident foreign corporations doing business in the Philippines, thus tickets sales are subject to corporate income tax under Sec. 28 (A)(1) of the Tax Code.
Prior to the South African Airways case, the taxation rules on foreign carriers were not as clear. Under PD 1355, which amended the 1977 Tax Code, gross Philippine billings (GPB) include gross revenue derived from the sale of tickets in the Philippines covering the carriage of passengers from anywhere in the world and cargo or baggage originating in the Philippines. In the 1997 Tax Code, however, GPB was redefined to only include the "amount of gross revenue derived from carriage of persons, excess baggage, cargo and mail originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the ticket or passage document."
This new concept had raised issues on the taxability of offline carriers on their income from the sale of tickets in the Philippines through their local agents. At first blush, it appears that since these carriers do not transport passengers and cargo from the Philippines, they are not subject to tax since they do not derive taxable GPB as defined under the 1997 Tax Code. This also meant that offline carriers cannot thus be considered as nonresident foreign corporations doing business in the Philippines.
However, in the case of Air Canada vs. Commissioner of Internal Revenue, CTA (First Division) Case No. 6572, promulgated Dec. 22, 2004, the CTA held that offline carriers are considered resident foreign corporations since they are doing business in the Philippines. Citing Supreme Court rulings, the CTA reasoned that a foreign airline selling tickets in the Philippines through its local agents shall be considered as engaged in trade or business, as these activities show continuity of commercial dealings performed in pursuit of business purpose. Such ruling was sustained by the CTA En Banc in the appeal made by Air Canada (CTA EB No. 86, promulgated Aug. 26, 2005).
The Supreme Court sustained the Air Canada ruling in the South African Airways decided in 2010.
In the South African Airways case, the Supreme Court noted that there are no specific criteria as to what constitutes doing business. The Supreme Court held that the term "engaged in business in the Philippines" implies "continuity of commercial dealings and arrangements" which includes the performance of acts pursuant to the purpose and object of the business organization, such as the appointment of a local agent. Since the sale of tickets -- the activity which produces the income -- is done in the Philippines even if the carriage of person, baggage, cargo or mail is done outside the Philippines, it is a Philippine-sourced income subject to tax.
From these rulings, it can be inferred that the courts steadfastly held to the source principle in Philippine income taxation, which contemplates the idea that an alien is subject to Philippine tax if he or she derives income from sources within the Philippines. This is not at all contradictory to the subject of tax on GPB because the situs of taxation is still the primary consideration. In case of airlines with landing rights in the Philippines, the determination of the situs of taxation is the service which is provided in the Philippines, i.e., the carriage of persons or cargo from the Philippines. For offline carriers, on the other hand, the determination of the status of tax is the place of sale of tickets, such that if the tickets are sold in the Philippines, the income from these sales is subject to tax.
International airlines that will take advantage of Government’s pocket open skies policy will be subject to the GPB tax regime since they would carry passengers from domestic locations and fly them to international destinations.
Now that the Supreme Court has clarified the rules on the taxability of foreign carriers, the willingness to open the market to cross-border investments could very well result in more revenues for Government, increased participation of foreign players and improved services from local airlines at competitive prices that will benefit the flying public.
3. P80-million fund for NAIA's VOR not included in P4-billion deal — CAAP
MANILA, Philippines (PNA) — Civil Aviation Authority of the Philippines (CAAP) Director-General Ramon Gutierrez on Thursday said that the P80-million would-be fund to purchase new aviation equipment is not included in the P4-billion aviation deal.
Gutierrez said the P4-billion aviation deal between the government and the Thales-Sumitomo Group that Senator Estrada had questioned was accorded in 1998. “Ours is different. The P80-million fund was only meant to buy a new very high frequency omni-directional range (VOR) for the Ninoy Aquino International Airport (NAIA).”
According to him, the P4-billion contract was intended for the modernization of the whole air traffic control system of the country.
He said since the CAAP has diminutive resources and cannot be able to procure such device, the Manila International Airport Authority (MIAA) will make the financial arrangement while the aviation agency takes care of the services. From its original P120-million funds they requested, the budget was slashed to P80-million.
However, the P80-million is P2-million short of the VOR’s original price in the foreign market. He disclosed that he was considering a Korean company that was offering a VOR that is worth P80-million. “But we could not grab it until we know that it is the same brand that we are currently using,” Gutierrez said.
Another foreign company has offered the CAAP of equipment leasing which cost only P50-million. “Malaki ang matitipid, sa open bidding, but, we are inclined to buy a new one because its life span is approximately 10 to 12 years.”
The old VOR made headlines when it conked out on June last year that triggered the cancellation of at least 50 domestic and international flights at the three terminals of the Ninoy Aquino International Airport.
The glitch was additional burden to the Philippines when it was working out for getting back the category 1 status after the United States Federal Aviation Administration downgraded the Philippine aviation to category 2 in 2008.
Asked if he is optimistic that the European Union would lift restrictions once the foreign evaluators resume inspection in September, this year, he said they are still preparing for such assessment.
The Philippines is one of the countries in the world that has been blacklisted by the European Community where the country’s all airlines are banned from flying to any European bloc because of “serious safety deficiencies” in the Philippines’ regulation of carriers.
4.Cebu Pacific expects to fill NAIA-3 by 2012, wants expansion
MANILA, Philippines - Cebu Pacific said it has opened discussions with government for the expansion of the capacity of the NAIA Terminal 3, the base of the Gokongwei-owned budget airline's operations in Manila.
In an aviation summit in Manila, Cebu Pacific vice president for commercial planning Alex Reyes said they have initiated talks with the Manila International Airport Authority to expand NAIA-3's capacity to 20 million passengers a year from the current 13 million.
He noted the facility is starting to look "inadequate," hence the need to firm up plans for an annex to the terminal.
"That way, T3 can accommodate not just Cebu Pacific's growth but the entry of additional foreign carriers. If foreign carriers operate at T3, we will benefit as the long-haul carriers will provide feed to our domestic network into the country's tourist spots," he said.
Cebu Pacific is one of the 2 local airlines operating in NAIA-3. The other international airlines remain wary of transferring their Manila operations to NAIA-3, a controversial but much-needed facility.
Capacity limits expansion
Reyes went on and disclosed that Cebu Pacific intends to fill up the entire NAIA 3 by late 2012 or early the next year, but the plan is anchored on the expansion of the terminal.
"First, we wish for infrastructure that stays ahead of the curve. In other words, terminals, runways, and navigation systems...that are more than adequate for the next 5 years. Having the infrastructure in place means companies will have the confidence to invest billions to further grow their business," he added.
President Aquino earlier identified tourism and infrastructure as the target drivers for economic growth in the coming years, with an aim to double Philippine tourists to 6 million by 2016.
"This is a welcome development for commercial airlines, but it will be an added strain on our airport infrastructure," said Reyes.
By the end of 2011, Cebu Pacific is expected to operate a fleet of 37 aircraft, from 32 today. Between 2012 and 2014, it will take delivery of an additional 16 Airbus A320 aircraft.
Reyes said other airlines are also growing and beefing up their fleets.
"We are going to see much busier skies around the country. If we don't act quickly, we will see grid lock on our ramps, on our airways, in our terminals."
Open skies
Aside from improvement of the physical structure, Reyes stressed the need for "soft" infrastructure at NAIA-3. These are rules, procedures, and highly skilled aviation personnel who manage the airways and check whether everyone is operating under international safety standards.
"By soft infrastructure, we also mean the air rights or entitlements between our country and our major trading partners. Today, there are no more air rights available between Manila and the major capital cities such as Tokyo, Singapore, Jakarta, Kuala Lumpur, Bangkok, as well as Hong Kong. This means no new international services can be started between Manila and those cities, which are a major source of tourists for the country. Removing constraints such as the lack of air rights will boost the growth rate of the industry," he said.
Most of the over 3 million tourists and Filipinos working overseas arrive in the country through the Manila airport, still the country's main gateway.
However, aside from the capacity of the 3 airport terminals handling international flights at NAIA, the capacity of the existing runways has also stifled the capacity growth of the airport.
Ninoy Aquino International Airport, which was named after the late father of President Benigno Aquino III, is located right smack in the middle of the metropolis, making runway expansions impossible.
President Aquino is set to finalize an open skies regime within the month. This aviation policy allows for a relaxed regulatory environment that paves the way for more international airlines to mount flights to the Philippines sans the usual bilateral air agreements with other countries.
However, Manila airport will not be included among the secondary international airports that will be part of the open skies regime.
The fate of the Manila airport -- and NAIA-3 terminal in particular -- will be partly dependent on how the Aquino government will support the open skies policy with the necessary infrastructure, including roads and rails, to make visits to the the country's capital stress-free.
Controversial NAIA-3
The dramatic business growth of the Gokongwei-led budget carrier reached a tipping point when it consolidated its local and regional flight operations at NAIA 3.
It took the risk when the controversial terminal facility opened at half of its 13 million capacity in July 2008 despite the legal, financial, structural and safety issues that hounded it.
The risk paid off. Two years after, it clinched the top spot in the domestic airline market from decades-long industry leader Philippine Airlines.
There were instances when Cebu Pacific would be reminded of the many issues that haunt NAIA-3. It has received eviction notices from Piatco, the Filipino-German consortium that built NAIA-3.
After German airport firm Fraport AG won a favorable decision from an international arbitration court in December, the German ambassador to the Philippines echoed Piatco and said the NAIA-3 concessionaires -- including Cebu Pacific -- are illegal tenants.
The Gokongweis remained determined to stick it out at NAIA-3.
Cebu Pacific Air chief executive officer Lance Gokongwei had even earlier said that the Gokongwei group, through parent firm JG Summit, is interested in bidding for a contract to operate NAIA-3.
Despite its budget and no-frills business model, Cebu Pacific seems bent on not letting go of a key terminal originally designed to cater to the needs of legacy airlines.
Budget airlines' needs
CEO Lance Gokongwei had said that some of the country's airports in destinations outside Metro Manila have yet to fit the requirements of a budget airline operations.
Reyes echoed this during the summit. "We have about 85 airports around the country. Often, what we find is that the basics just don't get done. We find perimeter fences unfinished. We find safety markings incomplete. We find x-ray machines that breakdown more often than they should."
"When our perimeter fences are not completed, when airport security is compromised because of budget constraints - these are unacceptable for an industry that prides itself in putting the safety of the riding public above all else," he added.
"We do look for simple terminals requiring little maintenance - warehouse-type single-storey structures such as the Budget Terminal in Singapore - that can comfortably move thousands of passengers in a day. These are the types suited for Philippine conditions.
"We are also in need of airports with night-landing capabilities, especially for the fast-growing tourist spots such as Naga, Butuan, and Legazpi. More night-capable airports will mean airlines can schedule flights beyond sunset, helping to decongest Manila's runways during the noon to early afternoon peaks.
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