There are many more facts suggesting that the concept of a ‘really open air space’, ‘real no states support for aviation’, fair costs structure and the policy ensuring ‘no government support for European carriers’ is merely theoretical. In reality the existing practices make the weakest market players vanish and the large ones thrive even more. That is basically how I see the situation in the European aviation industry today – says Gediminas Ziemelis, Chairman of the Board at Avia Solutions Group when interviewed by Marek Serafin from PRTL.pl
Marek Serafin: What is your opinion on the current state of the Central European Aviation Market and the Polish Market in particular?
Gediminas Ziemelis: Many European companies have recently faced serious financial problems: Malev (already bankrupt), airBaltic, the LOT, Estonian Air, the SAS and many others. Even the big players like the BA and the KLM Air France were challenged to manage their activities above break even.
They had to master the situation dependent on a number of practically unforeseeable factors, such as high oil prices and the economic recession in the entire Europe which has largely affected the traffic and aviation revenues in the region.
But today’s aviation industry in Europe should be seen from a far wider perspective than just under the conditions of economic crisis traditionally paying a visit to any region once in a while.
The European sky is open to European carriers and the governments of countries inside the Union are officially prohibited to provide any financial support to local carriers. However, rules and the business climate in general are still undergoing some major changes thus opening up a number of opportunities for backdoor support, especially in the old EU member-states. For instance, all navigation organizations in the EU are very rich and resourceful but at the same local carriers often suffer from huge financial losses. Eurocontrol does not allow these organizations to spend any over cash helping those local carriers while non European carriers for example Aeroflot in Russia, receives something like USD 450 million from local navigation institutions annually. Rumours are that navigation organization’s money in large European countries however accessing national carriers accounts for example ‘to cover costs of developing integrated programs of Navigation together with local carriers…’ These programs are very ‘profitable for carriers’ and have very low impact on flight safety in practice. But these are rumours only. Another very important subject is to do with operational policies. While carriers based in smaller countries tend to lease or buy aircraft for a certain ‘market price’, more substantial and profitable market players often receive hidden discounts of 50 % or more. In addition, the latter can also enjoy better financing opportunities and more favourable contract terms, including different export agencies guarantees and very cheap financing. Even if we look to biggest low cost carriers revenue structure, close to 1 billion $ comes as different subsidies (marketing, advertisement and etc). Regions, municipalities, even countries are ready to pay for flights in the way EU allows. Such things have great impact on routes developing, on profitability for traditional carriers, cause instead of subsidies in new EU countries they pay full airport charge price. And there are many more facts suggesting that the concept of a ‘really open air space’, ‘real no states support for aviation’, fair costs structure and the policy ensuring ‘no government support for European carriers’ is merely theoretical…
In reality the existing practices make the weakest market players vanish and the large ones thrive even more. That is basically how I see the situation in the European aviation industry today.
Could you please tell us about the recent ASG business activities in our country?
We are truly proud with what we have achieved so far. We are currently providing fuelling services in 3 and ground handling services in 2airports. Just a couple of weeks ago we launched fuelling services in Warsaw airport which was a very important step towards creating a full chain of products for our clients. However, we do not aim at gaining more than 12-15% of the market share and we intend to stick to our initial strategy.
We have also done considerably well as regards our maintenance-related activities. We now cooperate with 5 Polish carriers in supplying different product lines and we believe that business volumes with these carriers will only continue to grow.
Are you satisfied with your group performance in Poland so far?
Yes, definitely. We are on track with our budget. Only as a result of the upheaval in Egypt and the crisis in Italy our charter business line is below the budget, including Poland. But as I have indicated previously, this part of our business is not core of our activities.
And BSG in particular?
How would you evaluate the ASG overall performance?
Our group operates in 7 countries, we have four main business lines (Maintenance and repair business, charter, ground handling and training) and we entered some highly promising business areas at the beginning of last year. Our main profit generator FL Technics is on track with its revenues and net profit.
Just last year we’ve gained more than 30 different licenses and added a lot of new products. The company is planning to construct an additional 8000 sq. m. hangar I Q 2013, which will be used for wide-body aircraft as well. After acquiring Storm Aviation we have formed one of the most extensive line station networks and we have also added Airbus 330, Airbus 340 and Boeing 777 to our list of capabilities. Baltic Aviation Academy was also on tract with their development and results. We are rapidly growing in the sector of private pilot training, with several newly added simulators and training programs for 4 additional aircraft types.
The newly established FL Technics Jets has already received the maintenance certificate and has to date executed 6 checks for Hawker Beechcraft 125 finishing the financial year with a healthy profit. Locatory.com has uploaded more than 1 billion spare parts to its platform and with a total of 400 users is now probably the 4th largest platform of the kind in the world.
There were, of course some factors that caused negative outcomes. The turmoil in Egypt, the crisis in Italy, the bankruptcy of Orbis, problems with some other tour operators in Europe – all these have contributed to poor results of Small Planet Airlines in some countries where the carrier consolidated lower profit margins than it was planned initially. On the other hand, from the very beginning the group has not planned on making Small Planet the core group business. However, it has helped us to expand geographically and has allowed FL Technics to assimilate new types of aircraft for maintenance, Airbus 320 in particular. We have officially declared that we would like to divest from charter business altogether and this process has already started. So we are happy with what is going on and we believe that we can deliver much more good news to our clients, investors and employees in the nearest future.
What are your plans for our market? Do you have some plans for the Modlin Airport? Have you already considered some activities in the new airport to be opened in Lublin?
We are planning to follow the steps of Small Planet Airlines and we shall start providing our clients with ground handling services in Katowice. Just a couple of weeks ago we launched fuelling services in the Warsaw-based Okencie airport and we are currently working on increasing the scope of our activities in
Krakow. Last year we won a 10 years’ lease tender for Jet fuel storage and blending base in Vilnius airport. With our existing infrastructure in Poland we can now offer very effective logistic solutions to our clients in the region.
As concerns the Modlin, it’s way too early to say whether we will shift our activities to the airport. The same situation is with Lublin. We are carefully following information and monitoring the situation around these projects.
Which business areas do you plan to focus upon in Poland, mid and long term?
We are a publically listed company, so we do have an internal policy on investment and businesses. Our long term plans include focusing on businesses that brings us the best results and allows us to be competitive. We are mostly interested in business areas with the largest potential to bring value to our investors and ensure stable net profit and development.
Thank you for the interview.