Turbulent Times for European Aviation

The downfall of European airlines Swiss Air and Sabena could speed up the long-awaited consolidation of European aviation. Until now, national concerns have stood in the way of consolidating international airlines. But analysts say the present situation could break barriers and countries may begin to re-think whether they really need their own "flag carriers".

This could have a major impact on airplane manufacturers.

Although the industry's major players, Boeing and Airbus recently received a large order from the Emirates - they are still struggling to cope.

German Airbus can still feel the economic shockwaves which emanated from the September 11th terrorist attacks. The German Airbus plant is now facing production cuts for the first time in its history, and will supply only 320 of the 340 aircraft originally planned. Various airlines no longer need all the planes they have ordered. Airbus managers are having to re-negotiate terms with almost all the big carriers.

"At the moment we have no cancellations. But we have to get used to the idea that airline companies will be wanting their aircraft somewhat later than planned. That means that we must adjust to a slower delivery procedure," Theodor Benin from Airbus Germany says.

However, Airbus has much healthier order books than its US competitor Boeing. The European company has orders for 1,600 aircraft over the coming four years. And increased automation in the manufacturing processes means lower production costs. The company is not planning to fire any of its 44,000 employees. But no new jobs are likely to be created in the near future either.

"We've initially stopped recruiting employees for the moment. Secondly, we've put a halt to further investment. And thirdly, we've no intention of increasing production. We'll keep it at current levels or reduce it somewhat," Theodor Benin says.

Airbus is continuing with its most important current project - developing and constructing the world's largest aircraft: the 'A 380'. The work on extending the Hamburg Airbus plant is going according to plan. The alternative to Boeing's jumbo jet should be ready by 2006 - and by that time Airbus management hopes the market will have recovered.

According to Benin, "No one knows for certain how this situation will develop in the medium and long term. We can't predict things in the short-term. But we're convinced that the aerospace industry is a growth sector and that the market will continue to grow after this temporary crisis."

First order in months

One glimmer of hope has emerged. The Middle East airline 'Emirates' has placed orders for 33 Airbus and 22 Boeing aircraft. It's the first really big order since September 11th.

One obvious way airlines try to attract passengers is by cutting airfares. To do that they have to cut costs, and often the place to start is by scrapping on-board service. Passengers don't mind this on short flights. Several private European airlines recognise this - and are turning out to be the unlikely winners in the current situation.

Germania is a small airline, and earns its cash by leasing its eight Boeings to tour operators or the federal government, among others. Germania has been wanting to plan its own routes for a long time and now it's ready to go. The first flights will operate from Berlin to Frankfurt and back, four times a day.

"We've naturally profited from the present situation, where there are now free slots to be had at Frankfurt, owing to the reductions in flights, particularly those to and from America," Mustafa Muscati from CEO Germania says.

Up till now, Lufthansa was the only airline operating this short route, and seats were relatively expensive. Now the national carrier faces some competition.

"That's not our primary objective. We aim to introduce a new product with a new price - a price that'll be less than half what Lufthansa is charging at the moment," Mustafa Muscati says.

But these price reductions mean less service; that cuts costs and can make a half filled plane pay its way. The industry giants need a two-thirds load factor to make ends meet.

In addition, passengers are avoiding long-haul flights, forcing the big airlines to ground some of their planes. This gives small companies an opportunity to fill the gap and survive. The airline Air Berlin, for example, has been able to keep all its 26 aircraft flying.

"We mainly fly to the Mediterranean, the Canary Islands and North Africa. Fortunately our flight destinations are not affected by terrorist action. So we've had no decline in flight reservations. It's a fact that Germans rate their holiday very highly, and it's the last luxury they're prepared to deny themselves," Peter Hauptvogel from Air Berlin says.

So Air Berlin can still count on its passenger levels, and next year it plans to purchase two more planes.

But Air Berlin is not an exception. For most small passenger airlines, September 11th has not changed their way of life. Compared with Europe's big national carriers, they are definitely the winners.