Estonian Air discussing fleet renewal

  • 2004-02-26
  • By Aleksei Gunter
TALLINN - Estonian Air is currently holding talks with several leasing companeis regarding the rental of another Boeing 373-500 aicraft that will allow the airline to open a regular nonstop connection between Tallinn and Munich, as well as boosting the number of flights on existing lucrative routes.

At the moment Estonian Air has five Boeing 737-500 planes, of which four are in operation. In February and March two of the older planes will undergo standard maintenance checks in Norway. Then in April the company will return its oldest aircraft and lease a fifth Boeing 737-500.
"The market defines everything," said Erki Urva, president of Estonian Air, commenting the fleet expansion issues. "If our sales and marketing people find that there is enough market potential to provide flights for a new plane, we make such a decision. Naturally there must be economic calculations proving such a project would be successful in a short, one or two year perspective."
The cheapest option is to buy a new plane, while the most expensive is to "wet lease" a plane - i.e., rent it together with a crew. Estonian Air has used the wet-lease option only in special situations where, for example, an existing plane could not take off for technical reasons.
"Estonian Air has not yet bought any planes, because taking into account the size of the company it would have been too big a financial risk and a major burden on the company's balance [sheet]," said Urva.
All the planes carrying the Estonian Air logo are under an operational lease, the maximum term of contract being three years for used and a little longer for new planes. "That provides us with much-needed flexibility," said Urva.
The 31-meter long, 131-seat Boeing 737-500 planes Estonian Air maintains in its fleet were not manufactured after 1998 but remain popular on the used-plane market. In 1995 and 1996 the company leased two brand-new planes of this type directly from the Boeing factory in Seattle.
"We are currently working on future plans that would bring fleet renewal and the acquisition of brand new planes if a good business plan confirmed by the owners," Urva said.
Prices of passenger aircraft are largely affected by market conditions. After the Sept. 11 tragedy, the market became extremely unfavorable for plane manufacturers and leasing companies and extremely favorable for companies buying or leasing planes, according to Urva.
The price of a used plane depends not only on the market, but also on the age of the plane, its history - including flight hours and the number of cycles (landings and take-offs) - configuration and equipment, former operator, etc.
The market for used planes is considerably large. Plane-leasing companies such as GECAS and ILFC remain key players, along with airlines and plane manufacturers themselves. Urva said that, generally speaking, the Baltics' three national airlines lease their planes. The only exception is Lithuanian Airlines, which owns two Boeing 737-200 planes. But even they spell trouble, he said.
"These planes do not meet the Stage III noise level requirements and thus cannot enter the European airspace anymore. The Lithuanians are having big problems, because they obviously cannot earn back the money the planes cost them by selling the planes to somewhere in Africa," said Urva.
When a suitable aircraft is found, it is thoroughly examined and its documentation (which alone can weigh hundreds of kilograms) is studied.
Urva said that companies usually avoided redesigning and refurbishing the nonessential parts of plane interiors because of high costs, but at some point such improvements become inevitable. "One airline company mostly uses one type of seats, so those could require changing. Some plane comes without seats as the previous operator sometimes wants to keep its seats," he explained.
The configuration of the aircraft's kitchen and wardrobe might need reconstruction, too. The plane also requires information stickers in Estonian and repainting. As a rule a plane arrives painted white by the previous operator. The fresh painting of a plane to match its new operator often takes three to five days, depending upon the color scheme, and can cost up to 32,000 euros.
"Estonian Air hires new pilots, new flight attendants and new land personnel after getting a new plane. We've so far looked for pilots in Estonia, but we have to admit there is a lack of pilots here with certain personal characteristics, skills and experience," Urva said.
Estonian Air is owned by the SAS Group (49 percent), the Cresco investment company (17 percent) and the government (34 percent).