Fastening seatbelts

The global credit crunch is taking its toll on Egypt's national carrier, reports Amirah Ibrahim

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As the global financial crisis affects the amount of available funding for the aviation business, Egypt's national carrier revealed a contingency plan to survive the crisis, forcing a temporary suspension of near future plans. "An expected liquidity crunch combined with the unstable costs of fuel will bring a dramatic change to the industry," Tawfik Assi, EgyptAir chairman and CEO told Al-Ahram Weekly. "The banking industry, which has traditionally funded the carrier's business, is currently suffering. To protect our business against expected drastic drops, we are to apply some measures within a contingency plan."

Meanwhile, Assi revealed that the national carrier's board of members agreed to suspend any new purchase or lease of aircraft for the next two to three years. "EgyptAir's fleet needs partial replacement as a number of the aircraft have been in service for over 15 years. However due to the crisis, the carrier would not be able to fund new deals to modernise the fleet, not before we get positive signals."

Over the past three years, the carrier has spent around $3 billion in purchasing new aircraft for its main airliner, EgyptAir International airlines and the newly-born domestic airline, EgyptAir Express. Two Egyptian banks provided the funding for the deals as loans. "Our main fleet urgently needs to purchase four aircraft estimated to cost $700 million to replace four aircraft which began service in 1989. But right now we simply cannot fund new purchases." So the company will work around the problem by selling some of its older aircraft and use the revenue as a downpayment for the necessary new aircraft.

The worst, it seems, may be yet to come. While international aviation bodies warned that the global financial crisis would affect travel businesses around the world, the crisis is expected to show its true face by the spring of 2009. "No immediate cancellations have taken place for the winter season. But we expect the impact to affect the business during Easter vacations. We have a team of experts working to observe and record market indicators for the coming six months. If things go well, we will continue with plans to purchase new aircraft. Otherwise, if things turn for the worse, we will re-evaluate our assets and redress our assets management," Assi explained.

According to a new research by the International Air Transport Association (IATA), the credit crunch is the worst crisis to hit the international aviation industry since the outbreak of Severe Acute Respiratory Syndrome (SARS). The research said a decline in the number of economy and premium passengers in August, was the first decline since 2003, when the outbreak of SARS hurt airlines.

"Prospects for premium travel, business travel in particular, look very depressing," the report says. "The financial sector crisis will surely see a very large shrinkage in business travel from this sector. Moreover, the increased likelihood of recession in major economies next year will further weaken both business and leisure travel."

Although Egypt's national carrier expects a reduction in passenger numbers for summer 2009, Assi denied that the rescue plan would contain closing down routes or downsizing the network. "We cannot go that far because it would ruin our plans to develop and expand the network. Our strategy includes converting all non-daily flights to daily flights, in line with the global trend. The crisis could force us to slow down our plans, but we have no intention to close any route," Assi emphasised. He also revealed that a new deal to purchase fuel is being negotiated with the IATA so as to benefit from the fallout of fuel prices lately. "We hope this would help us to reduce the costs," Assi said.