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LOT Polish Airlines Eyes Up-Gauge to 737 MAX and A320neo and Touts 787 Improvement

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LOT Polish Airlines Eyes Up-Gauge to 737 MAX and A320neo and Touts 787 Improvement

LOT Polish Airlines Eyes Up-Gauge to 737 MAX and A320neo and Touts 787 Improvement
June 03
08:10 2014

MIAMI— LOT Polish Airlines is eyeing an order for either the Boeing 737 MAX or the Airbus A320neo if European Union regulators approve a government loan that LOT tapped in 2012 to stave off insolvency. If the European Commission (EC) clears the government aid that the 93% state-owned LOT utilized, restrictions on fleet and route growth for LOT could end as early as October 2015.

(Credits: Boeing)

(Credits: Boeing)

LOT currently operates a fleet of 37 aircraft including three Boeing 737-400s (primarily used on charters), ten Embraer E170s, twelve Embraer E175s, six Embraer E195s, and six Boeing 787-8 Dreamliners (with two more on order). Its regional subsidiary, Eurolot, also operates a fleet of eleven Bombardier Q400 turboprops with three additional airframes on order and six purchase options.

LOT had operated a large fleet of older aircraft over the past decade as its finances deteriorated, retiring five 737-400s, six 737-500s, five Embraer E145s, and six Boeing 767-300ERs, while Eurolot operated eight ATR 72-200s and five ATR 42-500s. However, these aging aircraft were steadily retired from 2011 onwards as LOT shrank in the face of financial difficulties and European Commission enforced growth restrictions.

The 767-300ERs were replaced with the Dreamliner, while the ATRs were replaced with Q400s. But cumulatively, the remaining sixteen aircraft at LOT were replaced by just six 112-seat Embraer E195s. This reduction in fleet led to a network pullback, with LOT withdrawing many point to point (p2p) services from secondary Polish cities such as Krakow and centralizing on a core hub at Warsaw.

 

While LOT had been counting on the 787 to serve as a bright spot in its otherwise bleak financial picture, in early 2013 the Dreamliner was grounded, throwing a wrench into LOT’s long haul renewal plans. However, CEO Sebastian Mikosz says that the Dreamliner’s performance has recovered from the early lows and woes.

“The Dreamliner has helped us [a lot]. We introduced a new IT solution but also new product streams. For example, premium economy, we call it Economy Plus.”

(Credits: Jeremy Dwyer-Lindgren

(Credits: Jeremy Dwyer-Lindgren)

Beyond simply getting the Dreamliner back in the air, LOT has also seen major improvement in its dispatch reliability, thanks in part to improving the airplane’s software. Mikosz states that

We’ve really started to see the maturity of the plane [the 787]. Basically, as a heavy operator of the Dreamliner, we have almost a permanent team from Boeing in Warsaw, together with some suppliers like Thales that are onsite with us. And every improvement we see, any technical problem we face, we can overcome pretty quickly. What I will say is a source of problems is when we land in a foreign airport, we have a minor issue and there might be no spare parts [for the 787], and we have to wait longer than we did for the 767. But every month, this is improving because the pool of spare parts is increasing.

Mikosz noted that increased pilot comfort and familiarity has helped improve dispatch reliability as well, because pilots are now getting more comfortable with the technological upgrade from the 767 to the 787 and overreacting less to information given to them by the plane.

Regardless of persistent challenges, LOT has, for all intents and purposes, settled on the 787 as the core of its long haul fleet. LOT’s short haul fleet future is a bit more nebulous. The carrier does plan to ramp up growth according to Mikosz, who said, “We are planning to grow our long haul and short haul operations a lot over the next three years.”

But LOT has been restructuring using government funds for the past couple of years, which meant that according to European Union rules, it could not place new aircraft orders, so as to prevent an airline from gaining competitive advantage using government funds. LOT expects the European Commission (EC) to rule on its restructuring plans later this year, a process Mikosz says is essential to the future of LOT’s narrowbody fleet:

“This European Union ruling is very important, because it will tell us when we can begin to take delivery of new planes again, which is absolutely a fundamental question mark for the future of our airline.”

Mikosz stopped short of giving any firm indication of his airlines short haul plan, instead saying that a five year strategic plan would likely be forthcoming in October or November of this year, which would include updated details on narrowbody fleet renewal.

However, Mikosz did hint strongly at a new order for either the Boeing 737 MAX or A320neo, calling the airline’s current fleet of E-Jets “a little too small”:

We absolutely need to grow. We absolutely need to have narrowbody plane orders. We are very happy with the E-Jets, but they are just a little too small for many airports. For example Heathrow, that is probably heading towards not allowing regional jets at all because of the congestion. So we are working on that… And our fleet currently has two extremes. We are operating the Q400 on regional routes, through Eurolot, our younger sister. So the short distances with the turboprop are covered. The long haul fleet is [the] Dreamliner. We have eight on order with six delivered to us. I would expect us rather to stay with the modern aircraft for the long haul fleet, so now the question is the middle. Are we going to go for Airbus [A320s] or [Boeing] 737s? Are we going to be a 4-fleet or a 3-fleet airline? So two narrowbody [types] and turboprops and long haul, or just one narrowbody? That’s yet to be decided. We start to have more answers than question.

Bombardier’s troubled C-Series could also be a contender for the order, though its most recent setback likely erodes the C-Series’ primary advantage: availability. Thus the LOT order is a likely tossup between the neo and the MAX, as LOT’s 737 Classic fleet is a distant memory purchased under a different management team. And if LOT does place an order for either re-engined airplane, it will represent a remarkable turnaround for an airline that spent much of the last half decade on the brink and is in the early stages of a major restructuring project.

 

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Vinay Bhaskara

Vinay Bhaskara

Senior Business Analyst, Big Airline Enthusiast, Avid Airport Connoisseur, Frequent Flyer, Globetrotter. I Miss Northwest Airlines Every Day. vinay@airwaysmag.com @TheABVinay

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