Gregory Polek has spent his entire career in aviation journalism with AIN, starting as a proofreader and assistant to then-managing editor Mary Mahoney in 1995 after serving an internship with&nbsp;New Jersey Monthly&nbsp;magazine and completing his B.A. degree in English/Writing at New Jersey’s William Paterson College. By 1997 Polek accepted a position as an associate editor, covering the regional airline beat for&nbsp;Aviation International News&nbsp;in place of retiring industry veteran Don Anderson. The assignment took Polek across North America and Europe to profile regional airlines varying in size and mission from the likes of floatplane operators Kenmore Air and Chalk’s Ocean Airways to regional jet operators such as SkyWest and American Eagle. Today, in his dual role as Air Transport Editor and International Airshow Editor, Polek writes, edits, and manages AIN’s commercial aviation content while overseeing each of the company’s daily international air show publications in Paris, Farnborough, Singapore, and Dubai. Most recently Polek has assumed oversight of daily coverage of the Helicopter Association International’s annual Heli-Expo convention.

Senior Editor

Gregory Polek

Obstacles against the development of a thriving regional airline industry in Latin America in many respects look as formidable as ever. Lack of capital availability, inadequate airport infrastructure, government interference and a lack of open-skies treaties between nations continue to hinder progress in a region that, in terms of sheer size, holds as much potential for growth as any other in the world. Recently, however, signs of progress have focused increasing interest south of Key West, Fla., prompting forecasters to issue some comparatively sanguine projections for both the Caribbean and Latin America in general.
Still, attitudes over the prospects for meaningful advancement of commercial aviation in Latin America range between extremes, as evidenced during Commercial Aviation Group’s 10th annual Latin American &amp; Caribbean Aviation Conference, held October 10 and 11 in Miami. From the perspective of an eternal optimist, former Braniff executive and long-time Latin American aviation consultant Robert Booth proclaimed “the best is yet to come.” Unimpressed, Aviation Capital Group vice president of marketing Mark Shaw countered that the Latin American environment “is about as bad as it can get,” adding that “it’s as good as it’s going to be for a while.” 
Despite Shaw’s rather morose outlook for the region, projections from the widely recognized manufacturer forecasts generally agree that Latin America’s growth rates over the next 20 years should outpace all others, including those of North America. Most also agree that of all the commercial aviation sectors within Latin America, regional airlines show the most promise, particularly in areas with a limited ground-based transportation infrastructure.
Prime Territory
Referring to Latin America as “prime territory” for regional airliner sales, Bombardier Regional Aircraft director of marketing Martin Sutton cited traffic statistics showing that 89 percent of all flights from the region extend less than 800 nm. According to Bombardier’s 20-year market forecast, 62 percent of the 570 new airplanes needed in Latin America fall within the 40- to 59-seat capacity range. Conceding the continuing influence of political and economic instability, lack of financing and depressed yields, however, Sutton added that regional airlines in Latin America must confront threats from low-fare entrants and competition from U.S. carriers such as Delta, American and Continental, particularly in Mexico and the Caribbean. Part of Sutton’s solution centered on the use of “low-cost” airplanes such as Bombardier’s own Dash 8Q-400 turboprop. Of course, how operators in Latin America will get their hands on the money to secure such equipment remains the primary challenge to which few seemed to have a ready answer.
Still, the ever-optimistic Booth pointed to some positive signs of a Latin American resurgence, particularly in Brazil, where he said no fewer than 12 new domestic airlines stand ready to vie for market penetration, and Ecuador, where a new regional hub in Santa Cruz “will see tremendous growth in the next five to ten years.” Born in Brazil, raised in Uruguay and an admitted cheerleader for the region, Booth cited an 11-percent jump in cargo shipments from Latin America to Miami International Airport in July and August. The AvMan chairman said the statistics reflect heightened product competitiveness in the region because of currency devaluation, in turn producing demand for both business and leisure travel. “The biggest revenue generator in the world is tourism,” said Booth. “We haven’t touched the surface in South America.”
Again, the challenge of exploiting such opportunities lay with deeply ingrained internal barriers, both operational and financial, conceded Booth. A lack of open skies treaties between many of the countries within Latin America perhaps inhibits international, intraregional travel more than any other factor. “Latin American countries should liberalize their region for their own,” said Booth. “They must open up for national carriers so they can get together and practice cabotage.” 
Meanwhile, government restrictions on foreign ownership hinder investment by those who hold the capital to effect meaningful progress in the region. But even in countries with relatively liberal rules on foreign ownership, the region’s reputation for political instability, corruption, spotty regulatory enforcement, changes in tax rates and fluid laws governing foreign investment continues to breed apprehension and discourage confidence.
Of course, the industry downturn has eroded investor confidence in the aircraft market worldwide, a phenomenon that Ex-Im Bank transportation division vice president Robert Morin called “an overreaction” to perceived risks. “The perception of the risk greatly exceeds the reality,” said Morin. “Financiers are missing all sorts of opportunities outside the U.S. Aeroflot, Azerbaijan and Uzbekistan Airlines have all made their payments right on time. You can’t say the same for US Airways, United and America West.” Although Latin America represents the single biggest market for Ex-Im support outside aircraft, the region absorbed little more than 2 percent of the credit agency’s worldwide support for aircraft over the last 16 years. “It’s puzzling that support for aircraft transactions in Latin America is little more than in Russia and the CIS,” remarked Morin.
While banks generally agree on the importance of export credit agency involvement in financing new airplanes, currency devaluation, low yields, government restrictions on fares and competition with buses historically have limited Latin American markets to second-hand equipment. In fact, Latin American airlines took delivery of only three new airplanes this year, all of which they ordered before 2001. Involved mainly in supporting the export of new products built in their respective countries, Canada’s EDC, Brazil’s BNDS and the U.S. Ex-Im Bank maintain little exposure in the region, leaving much of the financing burden for regional airliners to manufacturers’ asset management divisions.
Meanwhile, leasing companies have yet to involve themselves in the regional aircraft business. OEMs continue to dominate that part of the business for turboprops, as lessors’ main concerns rest with transferring portfolio assets and not with support. As for regional jets, no second-hand lease market exists yet per se. Although, GATX holds two Embraer ERJ-145s in its portfolio, most of the rest of the regional jets in the world remain with their original operators, with odd exceptions such as CRJs formerly flown by Midway Airlines, Southern Winds and Kendall Airlines, half of which have already found their way to new operators in North America.
Despite the inherent difficulties in securing financing for aircraft purchases, the glut of affordable used airplanes available as a result of the worldwide industry recession has presented new opportunities for Latin American airlines. In the regional sector, the transition from turboprops to regional jets in the U.S. and Europe over the past five years has resulted in a large pool of used prop-driven aircraft. Out of 300 turboprops placed in Latin America during the past five years, 190 have been used airplanes, according to ATR marketing president John Moore.
Important Lease Market
Still, the foremost challenge remains capital access, particularly in the regional sector. In countries such as Argentina, Venezuela and Brazil, turbulent economies and devalued currencies present a particularly high default risk, said Moore. However, because of restrictions related to raising loan capital and import duties, Latin America represents an important lease market, one that companies such as ATR and Saab can ill afford to overlook. Of course, leasing in Latin America presents risks as well, not least due to jurisdictional restrictions placed on lessors attempting to repossess airplanes.
From the perspective of Latin American regional operators, opportunities abound, but only within the framework of a consolidated airline industry as a whole, according to Bahamasair president Paul Major. “The big airlines are leaving opportunities for the smaller ones,” said Major. “Very few airlines talk in terms of profit these days. The biggest and smallest airlines are now on a level playing field. For those who are short on metal, partner with someone who’s long on metal. We need more alliances, coalitions and partnerships. CEO missions must take this into account.”
Recent moves toward alliances have appeared most prominently in the Caribbean, where earlier this year US Airways entered a venture with Caribbean Star, Nevis Express and Windward Island Airways (Winair) to provide connections to the major airline’s four primary destinations in the region. US Airways launched the so-called “Go Caribbean” campaign on July 15 with a code-share deal that linked San Juan, Puerto Rico with St. Kitts and Nevis via Nevis Express. One of six airlines participating in the CaribSky alliance, St. Maarten-based Winair signed its code-share deal with US Airways on October 11, the same day Winair managing director John Strugnell addressed conference attendees in Miami.
Flying four de Havilland Twin Otters to eight destinations in the Netherlands Antilles, Winair has begun exploring the possibility of adding 30- to 35-seat regional jets to its fleet as part of a three-year plan predicated on privatization slated for completion “over the next few months.” During the first half of last year, Winair saw traffic increase 30 percent; for the six months following 9/11 traffic dropped 21 percent. Although government owned, Winair received some public assistance following 9/11 but not enough, in Strugnell’s estimation, a common complaint from Latin American airlines. 
“As an industry we have too many airplanes chasing too few people,” said Strugnell. “Now we have to play with the big boys, and to do that we must meet their standards. We have to grow, but we’re not going to do it with small aircraft.” Coincident with its privatization process, Winair has doubled the number of interline agreements it maintained in July of last year. Meanwhile, its base of operations, Princess Juliana Airport in St. Maarten, recently underwent a $90 million expansion. “We’re working very closely with Embraer on bringing in regional jets,” said Strugnell. “Cargo is another thing we’ll chase…We think there are opportunities there.”
Another airline that harbors regional jet aspirations–Air Jamaica Express–has seen its domestic traffic rise 18 percent since former Mesa Air Group executive Tim Coon joined the company in February. At the time suffering from a 25-percent drop in leisure business compared with the prior year, Coon added more frequencies to leisure destinations while maintaining departure flexibility during the middle of the day to accommodate connecting passengers. Last month the airline converted to the Sabre reservations system and began offering electronic ticketing. Next, it hopes to close a deal soon with Jamaican brewery Red Stripe to offer beer on all its flights.
Now flying 17,000 passengers a month on five de Havilland Dash 8-100s and a pair of Twin Otters, Air Jamaica Express wants to add larger, faster turboprops for short-range destinations and 70- to 80-seat regional jets for longer legs such as Montego Bay-Curacao, said Coon. The plan hinges on the broader goal of forging closer ties with its mainline partner, however. Now in the process of integrating its operations with those of Air Jamaica, the regional airline hopes to introduce regional jets within 18 months.

Fruits of reform slow to ripen in Latin America

Obstacles against the development of a thriving regional airline industry in Latin America in many respects look as formidable as ever.

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