DALLAS — Disruptions or delays in aircraft deliveries, plus long lead times for newer aircraft additions, pose a strain on the recovering airline industry.
One quick fix is provided by an ACMI operator. ‘ACMI’ stands for Aircraft, Crew, Maintenance, and Insurance. The ACMI airline, or operator, being the lessor, comes into an agreement to provide the above as a package to the lessee. The lessee in return pays up for the number of block hours operates.
The advantage for the lessee is additional aircraft or replacement to otherwise grounded aircraft at short notice to keep operations at flow. In other words, it’s a flexible last-minute option to operate at a desired capacity.
The Baltic States are rather famous for having plenty of ACMI carriers. Today’s post looks at one of the largest: Smartlynx Airlines (6Y) from Latvia.
I caught up with Smartlynx’s CEO, Zygimantas Surintas, exclusively for Airways, and he explained how running under an ACMI business model is rather different from a regular airline.
SG: How have Smartlynx’s operations been if you compare pre to post-COVID-19?
ZS: It is not comparable; it is two different worlds, and it is chaos. Prior to COVID-19, it was much more stable, and the industry was also not facing any such shortages as we are facing today, be it aircraft wheels or whatnot.
Today, there are more variables to take into consideration compared to back then. Post-COVID is different and difficult, and it will take us a while to be back on track. The instability makes it hard and the ACMI business is a very complex one, but we will get back.
And how are your markets being served?
On a positive note, our market has expanded, it is no longer only in Europe, but is now global, except for China and Russia. We are talking to customers from several countries, and post-COVID has reduced the entry barriers for us to venture into new places. We surely cannot rely on only one market anymore.
Your largest international markets? Africa, I’d presume?
Yes, Africa is big, and it is a seasonal and flat business, including winter. More interestingly, we will start a new chapter as we enter business in Canada (we will make the airline-specific announcement soon), intense corporations, I would say, and Latin America.
On the other side, we have India, where we will work with a partner there and provide our Boeing 737 MAX. So yes, markets are active and recovering, there’s fast growth in Asia and Latin America now. It is just a bit difficult to manage all the time zones and business.
Besides your main brand in Riga, Latvia, you also have two subsidiaries, Malta, and Estonia. How do they help overall in ways that otherwise could not be done by Latvia alone?
There are a few reasons: the current AOC does not have FAA approval, and with the long-haul A330s and the 737 MAX in our fleet, we need an FAA environment due to the potential markets we will serve. Furthermore, not everyone wishes to live in cold Riga. We are also seeing a shortage of skilled professionals in the Baltic States, so we need different offices for better-talented professionals.
As part of the Avia Solutions Group, there are other ACMI airlines like Avion Express and Klassjet – would consolidation work here just as major airlines do?
Avia Solutions Group is a big and strong aviation conglomerate, and the strategy is to have strong ACMI brands. These are not centralized companies; each one lives on its own. We also have different products. Now we have no plans for consolidation, and we will continue to be independent in what we do and deliver results to our shareholders.
Who are your major customers today?
Our largest customers today are EasyJet, TUI, DHL, and Condor; we expect them for next summer too. We also have an ongoing project with Air Peace in Nigeria until the spring. Our larger A330s are flying for Condor and Dominica.
Our A330 fleet is going to reach seven aircraft and follow a slow growth strategy; it’s an additional strategy, but our main product is the A320. But we are also doing long-haul ACMI, and we do it with the Airbus A330.
Would you venture into A350/787 given they hold a strong presence in the coming decades?
These are big, expensive toys; we do not have them in our 5-year plans, and for now, we do not see enough demand for them right now. But things are changing all the time in our industry, so you never know about the future.
As ACMI, you lease out the aircraft for a fixed period, how much of your entire fleet is on ACMI duty?
All the contracts have a start and end date, and we add in the minimum number of hours that must be fulfilled. Currently, 90% of the fleet is flying. In ACMI, you have a very short window to keep any of your aircraft on the ground, and during COVID, it was just zero, all on the ground.
We count each aircraft as a separate company and a valid contribution part to the business and need to keep them flying. In summer, we need to fly 100% and in winter at least 60%, this is also the time when we can carry out all maintenance and other required work.
Once an all-Airbus operator, why did you make the move to add the Boeing 737 MAX? Was it based on a target customer?
We saw an opportunity to get a new technology back in 2019, although the aircraft faced a hard time. Good question, why would we otherwise disturb the economics of maintaining a single A320 fleet?
Well, ACMI also needs to diversify and Boeing is also bringing new business to new markets. It is a great product and there are many customers flying this type and will only increase. After a deep analysis, the difference between operating A320 and 737 MAX is not that much that would affect us, and we really wanted the MAX, and we are happy with the Max until today. We also want to scale it.
Why not the A320neo?
Simply because it is unavailable, we as ACMI can’t afford brand-new airplanes. The NEO is so well in demand. But with the MAX, we can manage the risks as our lease terms are short.
To your organization, you mentioned the good, bad, and ugly of the airline industry, especially through COVID; where does ACMI stand in the long term?
The good is that the business has started to recover. We are an airline, and if we are not flying, we are not an airline but a cost center. The bad are all the post-COVID-based disruptions. The ugly: with all these challenges, we are not getting where we ought to be with so much effort put into it.
We as a company are very ambitious, we want to grow, and make that one extra step, and we could not hit all the goals this year. The environment of this industry at times is just beyond you and your organization’s reach.
What challenges do you face today?
The shortage of everything, from materials to skilled personnel. Brexit doesn’t help us either—one of our main markets is the UK. It doesn’t help now, making it very complicated.
Geopolitical situations, economic recession trends,s and high fuel prices, also. We need to know where our cost of living stands soon and hope the government can compensate.
Thank you for taking the time to speak to airways.
Featured Image: Smartlynx