TABLE THREE

POSITIONAL PAPER ON DOMESTIC AIR SERVICES IN THE KINGDOM OF TONGA.

COST STRUCTURE FOR AN AIRLINE OPERATION.

AIRCRAFT COST either ownership cost based on depreciating hull value and residual value in the market
or, a lease cost; rule of thumb is 1.25% per month of residual value of the aircraft in the market.

EXAMPLES: 1. Friendly Islands Airways was able to lease two Twin Otters in 1987 from GPA Jetprop. These aircraft
were puchased by GPA from Donald Trump at USD 750,000 odd and GPA leased them on to FIA at a rate
of USD 15,000 per month or 2 % per month of the purchase value (market residual value).
This reflected the rising residual value of Twin Otters at the time and allowed FIA (then RTA) to convert
the deal to a lease to purchase deal under which RTA was later able to sell the aircraft for 1 USD million.

2.In 1987 RTA engaged in a deal to lease an MD87 valued at USD 20 million from GPA at a lease rate of
250,000 USD per month; this is 1.25 % of the value of the aircraft at the time.

3. If an MA60 aircraft is valued at say 18 million USD then gifted to the Government the Government is
going to need to on-lease this to an operator at 225,000 USD per month (or 2.7 million USD per annum) to
to provide a replacement fund in 20-25 years time when the new cost will have doubled.

4. If a Convair 580 has a residual value of USD 2 million then its lease rate could be USD 25,000 per month.
This is markedly less than a Twin Otter or a Harbin Y12 (Y12 new is USD 4 million minimum as for new and similar
for a Viking Twin Otter); making a lease cost of USD 50,000 per month…..neither aircraft are economic for Tonga
as new aircraft; and old Otters are minimum (USD 1.0 million, lease rates at 2 per cent USD 20,000 per month.
Harbins are less but then no-one wants them, ask AVIC?

Question for GOT: What is the lease cost of the 'Otuanga'ofa to the operator to ensure a replacement in 20-25 years??
Is the service selling too cheaply fares at 88 TOP to Vava'u, when 100 TOP has been suggested as a minimum??
This is a question for the Ministry of Public Enterprises, but it is a very real question. Further to this is the
maintenance reserve fund to ensure money is available when maintenance falls due.

SET-UP COSTS

AN AIRLINE'S NEEDS FOR SET-UP:

1 Capital - adequate financial resources (at least twelve months operating revenue) for set-up - 10M TOP.
2 Capital - adequate finance to sustain a minimum of six months operation with out revenue-5M TOP.
3 Management - Administrative, Technical -Airworthiness, Flight standards.
4 Personnel - line crew, line manintenance crew (if not out-sourced), reservations, sales, aircraft, staff.
5 Buildings - management offices, sales offices, maintenance facilities if not out-sourced.
6 Essential tooling - for maintenance, for reservations, administration, etc.
7 Suite of Manuals - to validate certification, operational standards and practices.
8 Certification - of the airine and any aircraft that it operates, and thereafter surveillance of standards.
9 Access to aircraft - ownership or lease, or code shared-these may be additional to set-up costs.
10 Access to airports - certification by an airport authority to allow the operation.
11 Furnishings, fittings, vehicles, etc. etc.

OPERATING COSTS:-

FUEL AND OIL

SPARE PARTS
OVERHAUL AND OTHER SCHEDULED MAINTENANCE.
air navigation charges
salaries- crew, engineering, office, reservations, etc
office expenses
airport equipment

COMMERCIAL COSTS - SALES AND MARKETING

COMPUTER RESERVATION SERVICE (crs).

INTERLINE COMMISSIONS
TRAVEL AGENT COMMISSIONS
SALES OFFICES
IATA OR OTHER AGENCY COSTS
ANY AND ALL OTHER COSTS
TABLE THREE
POSITIONAL PAPER ON DOMESTIC AIR SERVICES IN THE KINGDOM OF TONGA.

COST STRUCTURE FOR AN AIRLINE OPERATION.

SET-UP COSTS

AN AIRLINE'S NEEDS FOR SET-UP:

1 Capital - adequate financial resources (at least twelve months operating revenue) for set-up - 10M TOP.
2 Capital - adequate finance to sustain a minimum of six months operation with out revenue-5M TOP.
3 Management - Administrative, Technical -Airworthiness, Flight standards.
4 Personnel - line crew, line manintenance crew (if not out-sourced), reservations, sales, aircraft, staff.
5 Buildings - management offices, sales offices, maintenance facilities if not out-sourced.
6 Essential tooling - for maintenance, for reservations, administration, etc.
7 Suite of Manuals - to validate certification, operational standards and practices.
8 Certification - of the airine and any aircraft that it operates, and thereafter surveillance of standards.
9 Access to aircraft - ownership or lease, or code shared-these may be additional to set-up costs.
10 Access to airports - certification by an airport authority to allow the operation.
11 Furnishings, fittings, vehicles, etc. etc.
TABLE THREE
POSITIONAL PAPER ON DOMESTIC AIR SERVICES IN THE KINGDOM OF TONGA.

COST STRUCTURE FOR AN AIRLINE OPERATION.

OPERATING COSTS:-

FUEL AND OIL

SPARE PARTS
OVERHAUL AND OTHER SCHEDULED MAINTENANCE. .
air navigation charges
salaries- crew, engineering, office, reservations, etc
office expenses
airport equipment

COMMERCIAL COSTS - SALES AND MARKETING

COMPUTER RESERVATION SERVICE (crs).

INTERLINE COMMISSIONS
TRAVEL AGENT COMMISSIONS
SALES OFFICES
IATA OR OTHER AGENCY COSTS
ANY AND ALL OTHER COSTS