In an exclusive interview with Airfinance Journal, BOC Aviation managing director and chief executive officer Robert Martin has raised concerns that the ASEAN region is falling far behind the rest of the world in terms of airline recovery.
The BOC Aviation chief notes an almost perfect payment record from airline customers in other regions while ASEAN carriers remain late on their lease bills. This is mostly because ASEAN governments have failed to support their airlines, Martin says.
“The world talks about Asia as if it’s one big region but as far as we’re concerned it’s actually five different regions in Asia-Pacific,” the lessor boss tells AFJ.
“It frustrates me when I hear people talk about Europe, the Americas, Asia. Anyone who’s been involved in Asia for the past 25 years the way we have knows that we can’t talk about Asia as one market.
The way we look at Asia is: one, Greater China; two, North Asia driven by Japan and Korea; three, the Indian subcontinent; four, Australasia/Oceania; and finally, Southeast Asia, the 10 ASEAN countries,” Martin says.
The ASEAN region has been of concern for more than a decade, particularly the huge orderbooks amassed by low-cost carriers in the region
“We look at what’s happened over the past few years. Even before Covid, ASEAN was very different from other markets. Firstly, in the pre--Covid era we went through this period, many years actually, where we talked about over-ordering here in Southeast Asia, in particular by the LCCs – Vietjet, Lion Air, Air Asia Group, each with hundreds of orders. We didn’t see the flag carriers around the region doing that. The flag carriers were already finding problems competing because of their high cost bases. They didn’t have large orders,” the BOC Aviation CEO says.
A lack of consistency, coordination and strategic planning has meant little support from many ASEAN governments to airlines during the crisis.
“As we went through Covid, governments in ASEAN, with the principal exception of Singapore, did not support their airlines. That had a big impact,” Martin says.
“Secondly, vaccinations, again with the principal exception of Singapore, have been extremely low in this area. Even now many countries in the region are under lockdown restrictions and just today we saw in the media various graphs showing infection rates in various ASEAN countries going up again,” he adds.
With this much uncertainty still prevalent among ASEAN airline operators, banks and lenders find themselves hard-pressed to support the aviation sector.
“There are no functioning capital markets in this region. This is what differentiates ASEAN particularly from domestic China where the capital markets have been very, very strong for airlines all throughout Covid, and obviously the US market, as well as European markets. So, we have this situation where in ASEAN it’s been the worst of all worlds,” says Martin.
“There hasn’t been a lot of shareholder money, again with the exception of Singapore, put into the airlines. The only place where we’ve seen significant new money is probably Cebu Pacific in the Philippines. But if you walk around the ASEAN countries and look at the flag carriers, they are either in restructuring or about to enter a restructuring. Garuda, PAL, Thai, Vietnam Airlines. Even worse is the situation at the carriers in the small countries – Myanmar, Laos, Cambodia,” the leasing chief says.
He adds: “These airlines have been heavily dependent on creditor support for their survival. This is something we don’t see changing in the short term because vaccination rates aren’t being significantly increased. We can contrast that to India where traffic is coming back quite quickly. If you look at Delhi-Mumbai in the past couple weeks, traffic is coming back quite fast.”
BOC Aviation’s cash collection rate has bounced back steadily, with all regions across the world showing more positive metrics, except ASEAN.
“We see well in the payment records a very big difference between ASEAN and the other eight areas around the rest of the world in their payment records. Even if we contrast with Latin America where we probably come the closest to low vaccination rates amid restructurings, the airlines there have been able to access the capital markets. Azul just sold a new bond; Gol is raising equity,” Martin notes.
“When we look at metrics from around the world, ASEAN is the worst. India is probably the second worst but still almost eight times as good as ASEAN in terms of our payment records. We’ve got almost a 100% payment record around most of the rest of the world. The only other place is Hainan Group where the restructuring is nearly done, if only they would stick to it,” Martin tells AFJ.
Why is ASEAN so different?
“There is a lack of coordination, political struggles. Unlike the EU, ASEAN will have to go back to each individual country. As we know from the ASEAN ‘Open Skies’, that’s always where the problems begin. They’ve also been distracted with Myanmar,” the leasing chief executive says.
He also notes that Indonesian president Widodo today granted permission for a special economic zone status to Batam, an Indonesian island near Singapore that is a proposed MRO hub and already home to airline maintenance operations.
“There’s a whole load of companies looking to situate their back offices there from Singapore. But again, it’s too little too late. This could have been done years ago,” Martin says.
“On 2 June, the European Union and ASEAN agreed to block an Open Skies agreement permitting airlines to have unlimited flights between any ASEAN and European city. That is really a counter to the Middle Eastern airlines who have been doing that for years. It’s a response that’s come far too late and far too slowly but at least it’s there. Again this shows that compared with the rest of within the world unfortunately ASEAN is the laggard, whether we like it or not.”
And while Martin is encouraged by air traffic recovery on a global level, he remains concerned by regional differences.
“People are flying, flying is back. But that’s exactly the point I was leading to: the huge differences between regions could now drive a more regionalised approach to how airlines come back. ASEAN will remain the laggard.”
A full interview with BOC Aviation’s Robert Martin will be available in the upcoming AFJ July/August print edition.
On a related note, an AFJ analysis last week showed that the ASEAN region is a concern to Airbus and its A330neo programme, too.
Airbus faces significant doubts about more than 70 Airbus A330neo orders as airlines in Southeast Asia restructure.