Monday Update – May 21, 2018

The Cuba Accident – Be Careful of The Political Spin

In the wake of the tragic crash in Havana, there have been several corollary stories outlining how the national airline – Cubana – is a safety question mark.

It certainly is.

Their fleet is reportedly in a state of functionality just ahead of a Budweiser display, and their operational record is also reported to be a world-beater – in the wrong direction. This has been illuminated in several follow-up stories.

Unfortunately, these articles about Cubana occasionally have been accessorized by completely inaccurate implications that this flying junkyard (once one of the Western Hemisphere’s best airlines, by the way) is due to the embargo on US trade with Cuba.

The political spin: It’s at least partially the fault of the US that Cuba doesn’t have a safe airline.

According to the lore, the US embargo is restricting access to parts for their current fleet, and cuts them off from Western financing for new airliners, which would be easy to get were it not for the nasty embargo. And, according to the spin in one major city newspaper, the embargo forces Cubana to have to wet lease airplanes from second-rate, semi-reputable operators, like the one involved in the Havana crash.

That is all fake news.

Havana Accident: It Was A Mexican Airline… Let’s start with the Havana event… The 737 that crashed was wet-leased from a Mexican operator. There are no US prohibitions or trade embargos or airplane parts deprivation policies that apply to Mexican airlines.

So, if that company had a safety problem, it has nothing to do with any US policy toward Cuba. It’s the Cuban government that hired this airline and its 737-200 that originally entered service with Piedmont in 1979.

An article in the New York Times spun this, implying that this was Cubana’s only option: lease from operators on the edge.

Which is fake – the Times knows that there are lots of companies that wet-lease airliners, and most are safe. It was Cubana’s decision to put its passengers at risk by using the company involved.

Let’s Talk Cubana. It has been reported that just last week a substantial part of Cubana’s fleet was grounded for safety reasons.

Some implications have been made that it’s due to lack of parts, and again, the distant if not direct allegation that it’s due to the US embargo. Cubana, supposedly, can’t get stuff to fix their fleet, and it’s the nasty USA that’s the reason.

The torpedo of truth in this case is that the airplanes that Cubana has sitting grounded – a total of 16 flying machines – include just four – count them, four – western airplanes, all ATR-42/72 turboprops.

The rest are a motley collection of Soviet-designed junk, from TU-204s, to a single IL-96, to several An-158s.

If Cuba’s shopping for airplane parts in the US, they’re out of luck, with or without an embargo.

Check it out… there aren’t a lot of vendors in the US that support the  Soloviev PS-90 engines that are hanging on the four TU-204s (nee 757-ski) that are now rotting away on the ramp at Havana. If it’s parts that grounded them, it’s a matter between Cuba and some factory in Russia.

Then there are the stories regarding the recent grounding of Cubana’s  fleet of AN-158s, which for the record is a blatant Soviet-era copy of the BAe-146, except with two engines instead of four, neither of which, apparently, work very well.

In any case, the Cuban feds pulled the plug on these contraptions, claiming they have “design and manufacturing flaws.”

They seemed to leave out anything about the US embargo causing those flaws.

Tough To Get US Aircraft? Yes. But There’s That Little Issue of Lender Risk. Yes, Cubana may have had a bear of a time getting parts – from the factories in Russia and the Ukraine that originally screwed these airplanes together.

Now, the fact is that most new airliners do have a lot of US content, and that can muddy the ability to order a fleet of new A-320s or CSeries, or even a fleet of COMAC C919s from China.  But that does not have anything to do with Cubana operating Soviet-era airplanes that their own government has declared to have design flaws.

Embargo notwithstanding,  the US content apparently didn’t stop the acquisition of seven ATRs, four of which are still in operation at Cubana. Plus, Cubana over the years has wet-leased in fleets of 767s, DC-10s and A-320s – all of which are eons ahead of the stuff they’ve gotten from the fine folks in Russia and the Ukraine.

Furthermore, because Cuba has fully attained a 4th world economy – with a population that’s generally not able to leave the country (let alone have the income to do so) Cubana isn’t a great potential generator of traffic, beyond bargain-rates for EU and Canadian holiday travelers. So, there’s an open question whether it is a viable finance risk.

The point is that Cuba’s economic model, and that of Cubana’s traffic base, probably would make access to Western aircraft financing very difficult… Cubana’s traffic model is as corroded as the rest of the Cuban economy.

Cuba: Years Away From Prime Time. As BGI studies have pointed out, Cuba is potentially an explosive new revenue source for US airlines. But it’s several years and a full government change away.

Four US carriers have given up on this supposedly pent-up opportunity.  It’s a lead-pipe cinch that the remaining US airlines will re-structure some existing flying. Not much traffic to Santa Clara or Santiago.

While a couple of carriers have picked up some the vacated Havana slot capacity, the fact remains that, according to our analyses, most of the traffic is coming from MIA/FLL, and as much as two thirds is Florida-generated – and almost all of that is to Havana.

Plus, the load factors from some US points are really embarrassing.

It all gets back to the core issue… Cuba is a basket case because its own government has chosen to pursue policies that keep what could be a prosperous nation trapped in the economic Crane fixture.

Maybe they can’t get grain from North Dakota, or automobiles from Detroit… but they can get just about anything they want from places other than the US.

The state of its national airline is just one part of this.

And it has zero to do with the US embargo.