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Articles by MC01

Facing the Crisis Aftermath: Boeing and the Airlines

May 4, 2020

Then there’s Air France-KLM, with two governments squabbling over bailouts and acting like they want a divorce.
By MC01, a frequent commenter on WOLF STREET:
On April 25, Boeing announced that the deal under which it would have bought an 80% stake in Embraer’s commercial aircraft division is off. According to the press release, “Boeing exercised its rights to terminate after Embraer did not satisfy the necessary conditions.” Boeing will pay penalties worth approximately $75 million and will wave all rights on the new turboprop regional airliner Embraer is currently developing.
Embraer Commercial had been valued at $5 billion when the deal was originally signed in 2019. But delays in getting the deal approved by antitrust authorities around the world (especially in Asia) and the

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What U.S. Cruise Lines Are Up Against. And No Bailout Money

April 18, 2020

Their megaships turned from a revenue-generating asset into an expensive-to-maintain nightmare.
By MC01, a frequent commenter on WOLF STREET:
On February 1, 2020, a passenger from Hong Kong who had recently disembarked from the cruise ship Diamond Princess tested positive for Covid-19. This initiated a nightmarish experience for the ship passengers and crew, including 712 confirmed infections out of the 3,711 people aboard; it has tragically claimed 12 lives so far.
This was followed by a series of outbreaks on cruise ships, ranging from the extremely serious (Ruby Princess, with 662 testing positive out of 3,800 aboard) to the relatively light (Westerdam, with one testing positive out of 1,500 aboard).
In response to these outbreaks, Viking Cruises – headquartered in tax- and

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Preparing for the Aftermath: China’s Airlines Try to Exit Crisis, Alitalia is Nationalized, Qantas Plans 21-Hour Direct Flights

April 7, 2020

The situation is very fluid.
By MC01, a frequent commenter on WOLF STREET:
On April 2, the Civil Aviation Authority of China (CAAC) held a press conference in Beijing to update the press about the aftermath of the Covid-19 lockdown. Internal air traffic more than doubled since the depth of the crisis but still operates at only 42% of the capacity it had before the crisis.
The main drivers of this recovery have so far been migrant workers returning from their home provinces to their jobs in big economic powerhouses like Shanghai and Shenzhen. As final restrictions on internal movements will be lifted on April 8, air traffic will begin to pick up at a faster phase, as more aircraft are pulled from storage as demand increases.
International passenger flights are at the present limited

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“Not All Airlines Will Go Bankrupt”: How Will Coronavirus Travel-Bans Impact Airbus, Suppliers, and Airlines?

March 29, 2020

All eyes are on China to see how air transport will change in the aftermath of the crisis.
By MC01, a frequent commenter on WOLF STREET:
Airbus CEO Guillaume Fleury and CFO Dominik Adam issued a joint statement on March 23, regarding the European aerospace giant’s plan to power through the Covid-19 crisis. These new provisions include a new €15 billion credit facility, cancelling the proposed €1.80 per share dividend, and “cutting operational costs where possible.”
This gave Airbus €30 billion in liquidity to burn through. While Messrs. Fleury and Adam seem confident Airbus will not need a government bailout, they stressed the rest of the environment will need as much help as possible to get through the crisis.
This “environment” includes dozens of airlines who are now asking Airbus

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I Live in Italy’s “Orange Zone”: What it’s Like Inside the Lockdown

March 11, 2020

Not so locked down. But there are real consequences for people and businesses.
By MC01, a frequent commenter on WOLF STREET:
I currently live in Italy, right in the middle of the “orange zone” that the government declared due to the Covid-19 outbreak. The publisher of Wolf Street, Wolf Richter, asked me to write about the issues relating to this emergency, so brace yourself for some hard truth.
In an “orange zone,” movements are restricted, but there are many exceptions. These restrictions, in terms of getting around, going to work, etc., actually mean little. Social activity, however, is much more limited. Bars and restaurants must close at 6 P.M. and shopping malls must remain closed on Saturdays and Sundays. Here are some brick-and-mortar retail stores that have been affected by

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So That’s the End for Air Italy. And More Airline Money-Pits

February 22, 2020

Throwing good money after bad as a business model.
By MC01, a frequent commenter on WOLF STREET:
On February 10, one of the largest Italian newspapers, Il Corriere della Sera, announced airline Air Italy, Italy’s second largest airline after Alitalia, was facing a liquidity crisis and may not survive long. Less than 24 hours later, Air Italy announced it would immediately enter voluntary liquidation. It said that until 25 February, flights would be carried out by other airlines, such as Wamos Air. Tickets for flights beyond that date would be refunded. And employees would receive their severance packages “as written in their contracts.” So that’s the end.
Air Italy, a joint venture between AKFED, the holding company for the Aga Khan’s for-profit ventures, and Qatar Airways, had

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2020, Already the Year of Zombie Airlines

January 5, 2020

And the year has just started.
By MC01, a frequent commenter on WOLF STREET:
In South Korea:
Hyundai Development Company (HDC) and Mirae Asset Daewoo (MAD) were “selected” in November by the Korean government as “preferred bidders” to purchase a large share in the country’s second largest airline, Asiana, whose financial troubles we have previously covered.
Asiana’s financial situation has been steadily deteriorating: Total debt at the end of the first half of 2019 ballooned to 9.6 trillion won, or over $8.2 billion, and passenger numbers to the once profitable Korea to Japan routes have been reduced to a mere trickle. These are terrible numbers that should have long sent Asiana into bankruptcy protection and executives in damage control mode, as Asiana is apparently underreporting

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When Losses Don’t Matter: How Japanese Conglomerate Mitsubishi Blows Billions on a Jet Nobody Really Wants

December 7, 2019

On paper, this looked like a no-brainer.
By MC01, a frequent commenter on WOLF STREET:
At the 2007 Paris Air Show, Mitsubishi Heavy Industries announced to much fanfare a brand-new regional airliner. The fantastically named Mitsubishi Regional Jet (MRJ) was to be certified for commercial operations by 2012 and to set a number of firsts for the technologies employed in its construction, including an airframe made with over 80% in composites.
The MRJ was the culmination of a ¥50 billion ($440 million in 2003 money) study program funded by the Japanese Government to build a regional airliner in the 50-90-seat category with as much domestic content as possible.
On paper, this looked like a no-brainer: Japanese firms such as Subaru (formerly Fuji Heavy Industries), IHI, and Mitsubishi

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Panama Canal: Slowdown in US-Asia/China Trade?

November 1, 2019

One of the world’s critical choke points for maritime traffic.
By MC01, a frequent commenter on WOLF STREET:
On 26 June 2016, the third set of locks of the Panama Canal was inaugurated to great fanfare with the transit of a container carrier owned by COSCO of China. These gargantuan expansion works had already been proposed in the 1930s, and work on it had actually started in 1939 before the outbreak of WWII put an end to it.
By 2007, when the excavations for the new locks started, the Panama Canal had effectively reached its limits, with over 13,000 ships passing through the canal each year. The existing locks, almost 100 years old, had become too small for an increasingly large number of ocean-going commercial vessels. For decades, commercial vessels that could clear the Panama

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The September Airline Massacre in Europe

September 24, 2019

And these are still the good times, with growing passenger traffic.
By MC01, a frequent commenter on WOLF STREET:
Today, Adria Airways, three years after being privatized.
On September 24, Slovenia’s Adria Airways, which has long been dogged by insolvency worries, “temporarily” suspended all operations as it is “intensively searching” for new capital from unidentified “potential investors.” On September 20, two planes had been grounded after the airline defaulted on the lease contract.
The Slovenian government privatized the airline by selling it to German PE firm 4K Invest in 2016. Since then, the company sold all its planes and has been operating with leased planes. In February 2019, ownership changed to STBE, which had previously bought the airline’s brand name. The Slovenian

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The Airline Fiasco in Argentina as Peso Collapses and New Plan Goes Awry

August 28, 2019

The curse of pushing volume by selling tickets below cost became an even bigger curse with the peso massacre.
By MC01, a frequent commenter on WOLF STREET:
On 27 December 2016, the Federal Government of Argentina, under new President Mauricio Macri, launched the “Revolución de los aviones,” the brainchild of the Minister of Transports, Guillermo Dietrich, an ambitious plan aimed at overhauling the stagnant airline industry in Argentina.
While often called “deregulation,” it was actually a far-reaching and ambitious plan supported by annual expenditures of about $1.5 billion by the Federal Government in the airline sector over the 2017-2020 timeframe, including modernization of many Argentine airports and the construction of the first airport “wholly dedicated to low-cost airlines,”

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Boeing, Airbus and Airline Overcapacity in Asia & Europe

July 7, 2019

And 200 miracle orders — well, just a letter of intent — for the Boeing 737 MAX at the Paris Air Show.
By MC01, a frequent commenter on WOLF STREET:
Airlines and aircraft manufacturers usually announce large deals during the big air shows to add an air of glitz and glamour to their dealings. With the growing importance of Asian markets, air shows such as Aero India and the Dubai Airshow have gained in importance over the past decade. But the most important worldwide are still the Paris Air Show and the Farnborough Airshow, held in France and England respectively on alternating years. This year it was Paris turn, and some big deals were signed, but not quite as expected.
Airbus introduced the A321XLR, a very long-range variant of the A321neo narrowbody, which managed to obtain 243

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Latest Act in the Crisis of the Enormous Korean Shipbuilders

June 23, 2019

And now not even their foreign subsidiaries are immune.
By MC01, a frequent commenter on WOLF STREET:
In February 2019, Hyundai Heavy Industries (HHI) was selected by the Korea Development Bank (KDB) as the “sole bidder” for the ailing Daewoo Shipbuilding and Marine Engineering (DSME), in which the State-owned Korea Development Bank holds a 55.7% stake. Samsung Heavy Industries (SHH) had already announced they had no interest in taking over DSME, making this selection process little more than a formality.
In March, HHI finalized the deal worth about 2 trillion won ($1.6 billion) and announced it will split in two entities to fully digest DSME. HHI and DSME workers, supported by the Korean Metal Workers Union, are opposed to this spin-off, fearing it will lead to mass layoffs similar

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The Engines of Large Airliners and the Costly Challenges Manufacturers Face

June 2, 2019

Rolls-Royce’s debacle for the Boeing 787 Dreamliner. And China is learning it the hard way.
By MC01, a frequent commenter, for WOLF STREET:
During a scheduled engine inspection in April 2016, an All Nippon Airways (ANA) maintenance crew discovered early corrosion and fatigue cracks on several turbine blades of a Rolls-Royce Trent 1000 “Package C” installed on one of the company’s Boeing 787 Dreamliners. Despite Rolls-Royce’s spending over £30 million in 2017 to design and manufacture new and supposedly improved turbine blades for the affected engines, by April 2018 it was apparent the “Pack C,” as the engine is affectionately nicknamed, was in serious troubles.
Engine inspection intervals were reduced from 200 to 80 flights, and a while later the US FAA (Federal Aviation

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Boeing, Airbus Carve up Embraer & Bombardier, Chinese Aircraft Makers Still Learning the Ropes

May 13, 2019

Aircraft manufacturing consolidates.
By MC01, a frequent commenter, for WOLF STREET:
After a series of legal battles and political complications, it seems Boeing will finally be allowed to take control of Embraer’s commercial aircraft division. Boeing will pay $4.2 billion for an 80% share in the division. It will also have to finance a 51/49 minority joint venture with Embraer to help market the KC390 military transport aircraft outside of Brazil.
The deal is still pending, waiting for the approval of anti-trust authorities worldwide: Chinese regulators have already announced they will issue a ruling “no sooner” than Q4 2019, most likely in retaliation for the Huawei fiasco. And given the absolute importance of the Chinese aviation market, expect a lot of diplomatic maneuvering

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

May 4, 2019

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

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More Airlines Collapse: Jet Airways India, Alitalia, WOW Air

April 17, 2019

And the 217 planes that Jet Airways has ordered from Boeing?
By MC01, a frequent commenter, for WOLF STREET:
Today, another major airline collapsed. Jet Airways, India’s largest private airline, announced “with immediate effect” that it was “compelled to cancel all its international and domestic flights.” It suspended operations on a “temporary” basis. It said: “Since no emergency funding from the lenders or any other source is forthcoming, the airline will not be able to pay for fuel or other critical services to keep the operations going.”
Last year, Jet Airways “suddenly” discovered serious financial issues, which led to a highly dramatic rescue effort by the main creditors (chiefly state-owned State Bank of India and private-sector ICICI Bank) and minority shareholder Etihad

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Next Chapter in Bankruptcy & Restructuring Saga of European and Asian Airlines

February 17, 2019

The fate of the A380 is sealed.
By MC01, a frequent commenter, for WOLF STREET:
On February 5, German low-cost carrier Germania announced it has filed for insolvency in Berlin and that all flights will be suspended indefinitely. According to the press release, this was due to unfulfilled “short-term liquidity needs,” meaning the company was struggling to raise the cash needed to pay for obligations coming due in the short term, such as fuel bills/hedging, landing fees, maintenance contracts, and even wages. The bankruptcy court will take over from here.
This filing doesn’t affect operations of subsidiaries Bulgarian Lynx and Swiss-based Germania Flug, at least for the time being.
This is just the latest in a long string of airline bankruptcies, defaults and debt restructuring deals

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Low-Cost Airlines Are Crashing into Bankruptcy One After the Other as Financial Conditions Tighten in Europe

January 27, 2019

But traffic is up, and these are still the good times.
By MC01, a frequent commenter, for WOLF STREET:
Ryanair lowered its 2018 profit guidance from a range between €1.1 billion and €1.2 billion to a range of €1.0 billion to €1.1 billion, in what Ryanair CEO Michael O’Leary called “a disappointment.” While over one billion euro in profit can be hardly called a catastrophe, it’s easy to understand the reasons of Mr O’Leary’s disappointment.
Ryanair saw passengers throughout 2018 grow by 9% to 142 million and “strong ancillary sales,” meaning sales of additional services such as premium seats with more legroom and on-board catering. In spite of all the bad publicity – for example, Ryanair was named “worst short-haul airline” a couple of weeks ago — it remains not merely Europe’s most

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The Global Battle over Subsidies for Money-Losing Airlines

December 23, 2018

The US and EU slug it out with the United Arab Emirates and Qatar.
By MC01, a frequent commenter, for WOLF STREET:
In March 2014, EU Transport Commissioner sought a mandate from EU members to open talks with unspecified “Persian Gulf States” over “unfair airline subsidies,” following a formal joint request by the Dutch, French, and German governments. This wasn’t granted until December 2015, when the Transport Commissioner was given a new mandate to “negotiate” with extra-EU governments “suspected” of having airline subsidies in place. And that was about it. Since then no meaningful process has been announced.
In 2015, the three main US airlines, American, Delta and United, presented to the US Senate an investigative report they had commissioned regarding subsidies three Gulf

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The Wild East: Airlines in South & Southeast Asia

December 9, 2018

Huge aircraft orders, booming traffic, dozens of upstarts with easy mega-funding, fierce competition, already a big collapse, and allegations of shady business.
By MC01, a frequent commenter, for WOLF STREET:
As of October 31, Airbus had 6,245 members of the A320neo family on order, of which around 250 had already been delivered. Even taking into account the large discounts which are the norm for large orders, the estimated value for this order book alone was in the region of about US$705 billion. Boeing had 4,783 members of the 737MAX family on order, with 241 already delivered, and an estimated order book value for this family of aircraft alone of US $526 billion.
These are enormous order numbers and enormous amounts of money – over $1 trillion combined – that are unprecedented in

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Aircraft Leasing Bubble in Trouble?

November 25, 2018

Alarming signals are coming from an unlikely place, the market that the industry long touted as an engine of infinite growth.
By MC01, a frequent commenter, for WOLF STREET:
In 1990, leased aircraft accounted for 15% of airline fleets. By 2017, the overall fleet of aircraft had ballooned, and within this much larger overall fleet size, the share of leased aircraft had surged to 40%.
There are three general reasons why companies lease aircraft: To operate without the financial burden of buying them, a particularly important factor for the rapidly expanding fleets of airlines in the emerging markets; to provide extra capacity for a limited time; or to temporarily replace part of their fleet which may have become unavailable.
Aircraft leases can be “wet,” dry,” or “moist” (“mixed”): in

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Billions for Planes, Billowing Losses

November 10, 2018

The Long-Haul “Low-Cost Carrier” Business Model in a world awash in cheap money.
By MC01, a frequent commenter on WOLF STREET:
In 1967, Icelandic airline Loftleiðir started offering cheap tickets on Transatlantic flights.  Loftleiðir used a lot of what today would be called “funny business practices” to offer such low fares, such as flying the Canadair CL-44, an unsuccessful cargo plane converted into an all-passenger configuration, and not being exactly concerned with punctuality or speed. It was an instant success.
Loftleiðir did not survive the 1970’s, being absorbed by Flugfélag (now Icelandair), but the seed had been sown: the low-cost carrier (LCC) had been born.
Loftleiðir specialized in what the European Organization for the Safety of Air Navigation (Eurocontrol) defines as

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Overcapacity Haunts Container Carriers Despite the Hanjin Bankruptcy

August 11, 2018

Companies splurge on the largest container ships, consolidation rages, no one wants to back off.
By MC01, a frequent commenter on WOLF STREET:
In August 2016, Hanjin Shipping Co., at the time the world’s seventh largest container carrier, sought bankruptcy protection. It was the largest bankruptcy in shipping industry history. On February 2, 2017, the Seoul Bankruptcy Court declared that Hanjin Shipping would be liquidated, as restructuring its debts would be “prohibitively expensive.” But just how big was this debt load?
Hanjin Shipping had originally admitted to the equivalent of $5 billion in debts. Once the bankruptcy court got to work, there were nearly weekly announcements that more debt had been found, tucked away in nooks and crannies of the once glistening edifice. In the

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The Largest Ships in the Huge Iron-Ore Trade

July 28, 2018

Exports are dominated by two countries, imports by three. And everything revolves around China.
By MC01, a frequent commenter on WOLF STREET:
China’s phenomenal and somewhat worrying rise as the top steel producer in the world has fueled an absolutely unprecedented boom in the trade of iron ore. The latest data available (2016) put the worldwide seaborne dry bulk trade at 4,553 million metric tons, of which 1,354 million metric tons, or 30%, were iron ore. The iron ore tonnage is up 37% from 2010.
The iron ore trade is overwhelmingly directed at East Asia: China accounted for 68%, Japan for 10%, and South Korea for 5%. Combined, they account for 83%. Germany, next in line, accounts for only 3%.
Iron ore exports are even more concentrated: Australia accounts for 57% and Brazil for

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The Huge Ships for the Booming LNG Trade

June 17, 2018

Designs, Technologies, and Challenges for liquefied natural gas carriers.
By MC01, a frequent commenter on WOLF STREET:
The export of Liquefied Natural Gas (LNG) has surged by 61% in ten years, from 160 million metric tons in 2007 to 258 million metric tons in 2016 (chart via IGU):

LNG is a mixture of natural gases – chiefly methane with some mixture of ethane – that has been processed and converted into liquid form through cooling to -162°C for the ease of transport: LNG takes up less than 1/500th space than gas in its original form. The treatment process natural gas undergoes before being liquefied also makes it “cleaner” to burn by eliminating pollutants such as mercury and sulfur hydroxide.
LNG was first industrially produced in the US, with the first liquefaction plants

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“Bunker,” the Fuel for the Giant Engines in Large Cargo Ships

June 3, 2018

The world grapples with the emissions.
By MC01, a frequent commenter on WOLF STREET:
When pricing a container shipment, we are sometimes told rates have gone up because “bunker oil” has increased in price or that the delivery will take a few extra days because shipowners ordered their skippers to slow down to save “bunker oil.”
But what is this “bunker oil”?
The term “bunker oil” defines all types of fuel used by the shipping industry and generally speaking can be split in two categories: distillates and residuals.
Distillates are produced during fractional distillation of crude oil and generally are very close in density to diesel #2, the mainstay fuel in trucking and agriculture, but slighter denser.
Residuals are produced from the thick sludge left over at the bottom of the

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The Engines of the Largest Container Ships in the World, and Challenges their Manufacturers Face

May 28, 2018

The crankshafts may set the limits.
By MC01, a frequent commenter on WOLF STREET:
Three engine manufacturers have come to dominate the market for the giant low-speed two-stroke diesel engines used in the largest container ships, bulk carriers, and tankers: MAN SE of Germany, Mitsubishi Heavy Industries of Japan, and Wärtsilä of Finland.
Stricter environmental legislation around the world is only part of the increasingly more challenging environment these three firms – and the shipyards and contractors they work with – have to deal with.
The shipping industry does not merely demand cleaner and more fuel-efficient engines, but also engines that will last the design life of the ship (usually 25 years) with only scheduled maintenance and minimal repairs. Several shipowners (led by CMA

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