NZ6789

So for Air New Zealand the arrival of 787-9 ZK-NZE – flight number NZ6789 – at a wet Auckland Airport on the afternoon of July 11 represents more than just the arrival of a new aircraft type into service, it highlights the airline’s willingness and ability to be the launch customer for a new type, it showcases the airline’s innovations in customer service and the passenger experience, and it is the manifestation of a strategy set in place by former chairman John Palmer and former CEO Ralph Norris to be bold in their pursuit of turning the airline around through improving the passenger experience.

“This delivery is hugely exciting for our airline. We truly believe this aircraft will be a gamechanger for our business,” Air New Zealand chief financial officer Rob McDonald said during the delivery ceremony for the first 787 at the Future of Flight Museum (adjacent to Boeing’s Everett widebody production facilities north ofSeattle) a few days earlier on July 8.

“I have to say this plane was built for us. It symbolises a lot of things for us, at the time [of the original order in 2004] it represented what we viewed ourselves as and how we thought our future network would evolve, and that’s as a Pacific rim airline. ” McDonald should know, he is the only surviving member of the Air New Zealand executive team with the airline when it placed its original 787 order back in June 2004. At the time the decision to order the then 7E7 was a very big deal for a small airline that narrowly avoided financial collapse and had only recently returned to profitability.

But, as McDonald told media the following day, “You have to at some point invest against your problems, and our problem was our fleet. If we carried on where we were with just 767s and 747s there would comea point that we couldn’t be in that [long-haul international] business any more. ” That investment began with a deal with Boeing announced in June 2004 for four 777-200ERs, a further four 777-200ERs to be acquired via lessors, two firm 7E7 orders, and purchase rights on a further 42 widebody aircraft. Those purchase options covered all three variants of the 777 (-200ER, -200LR and -300ER), as well as the 7E7, and that deal laid the foundations for Air New Zealand’s long-haul fleet as it is taking shape today, transforming it from a fleet of 10 767-300ERs and eight 747-400s in 2004, to by the end of 2017, seven 777-300ERs, eight 777-200ERs and 10 787-9s.

“For us the 777 was incredibly attractive, and that was the core that built that order,” said McDonald.

As for the 787: “The features and economics that first drew us to this aircraft are even more attractive and valid to us today than they were 10 years ago,” McDonald reflected, noting that in the 302-seat, three-class configuration his airline has specified, the 787-9 promises a 20 per cent reduction in fuel burn per seat over the 230-seat two-class 767-300ERs they are in part replacing. It also offers a 10 tonne increase in cargo payload.

“Every time we introduce this aircraft into a route where a 767 has been, or frankly even a 777-200, the seat mile costs keep coming down,” McDonald said. “There are new ownership costs coming in, but this is a very attractive aircraft to operate. ”

Dreaming big

The deal that will ultimately see the 787 become the core aircraft in Air New Zealand’s widebody fleet was struck under the leadership ofJohn Palmer and Ralph Norris, both of whom were in Seattle for the handover ceremony and who flew back on the first aircraft, and was the third element of re-capitalising the Air New Zealand fleet, after the selection of Airbus A320s for trans-Tasman flights and Dash 8-300s for domestic regional services.

Palmer was appointed chairman of the Air New Zealand board in late 2001 after the Ansett collapse, a role he would serve in through until September 2013, and so is uniquely placed to reflect on the airline’s turnaround and the 787’s long gestation.

“We had to protect the domestic market first, and then we could pay attention to the long-haul business. We knew that the product was tired, we knew that service levels weren’t great and we knew that if we were going to give ourselves any chance of success, that if we didn’t fix those two things and concentrate on them there was really not much point in starting,” Palmer recalled to Australian Aviation in an interview during the delivery flight. “The long-haul business was always going to be a problem for us, it had the majority of the assets, the majority of the expenditure and it simply wasn’t getting anywhere close to earning a reasonable return. ” The key to reaching those levels of return were “best of class product and outstanding service”.

“To do both of those things we had to be ambitious, we had to be innovative, we had to take some risks particularly in relation to technology, and that is what the 787 story was, to say this actually looks like it is a game-changer. There were some risks attached to it. We thought we mitigated those risks by going to the -9, because what that meant was to say there would be a number of -8s in the air by that stage so if there were kinks in the early stages they should have ironed those out by the time we get to the -9. ” That has largely proven to be the case for Air New Zealand, even if the aircraft is about four years late.

Still, Palmer expressed “great satisfaction” in seeing the 787-9 finally arrive in Air New Zealand colours.

We had to be innovative, we had to take some risks. JOHN PALMER

“This is of the culmination and epitome of all the things that we tried to do and it is fantastic to see it,” he reflected.

“All of the elements of the strategy are really captured in this aircraft. It is the perfect aircraft for the long skinny routes that we run. Competitors will get that advantage, but for us to be right at the head of the queue, and with our quite unique route configurations, we think that we stand to gain more than the average airline out of it simply because of the nature of our business. ”Ralph Norris explains that Air New Zealand came to be at the head of the 787-9 queue due to the need to re-invest in the airline’s long-haul fleet, and thanks to the willingness of Airbus and Boeing in the post-9/11 timeframe to cut competitive aircraft sales deals.

“If you go back to the timeframe, 2001 was a terrible year for the airline with the collapse of Ansett and Air New Zealand itself almost collapsing. I came into the role in February 2002 picking up the pieces after Gary Toomey had departed

Our business wasn’t about flying planes, it was about flying people. RALPH NORRIS

and it was very obvious that the airline had under-invested in its fleet through the period it had taken its shareholding in Ansett, and so capital had gone and that was lost, so it was important to get the airline back on its feet. ” Putting the airline back on its feet, and into a position where it could invest in new aircraft, meant a raft of changes, not the least being working to improve staff morale and engagement.

“First it was about making sure that we could get alignment inside the organisation, so we ran a rangeof two-day sessions with 800 people at a time. Those sessions would start off with a ‘mad, sad and glad’ session where people got the opportunity to say, what are the things that really made them mad about what’s happened, what makes them sad about the things the airline had lost and what are the things that made them glad about the airline, what would they like to see carried forward into the future? “And then we looked at what the trends were in the industry around low-cost carriers and what that meant to an airline like Air New Zealand, should we become just a low-cost carrier? And so we were able to paint a picture of what the future could look like and we got the input from the staff into that process.

“It was really about showing the alternatives, what they were and what they meant, and giving people the opportunity to comment on that. ” Norris said that was key to bringing staff on-side with management, “because they felt theywere part of the process, rather than having the process done to them. So that was very important from a communications [perspective], and also getting a view across the organisation that our business wasn’t about flying planes, it was about flying people, and how do we make ourselves more attractive as an airline? How do we become simpler to operate with? “So we had a wide range of changes with the way that we interacted with our customers through the net, we changed our online booking system significantly, we changed our commission structures domestically, we changed our product domestically, we changed our product on the Tasman.

“And then we looked at our fleet. We decided to standardise on Airbus A320s for the narrowbody fleet and so that would mean the Boeing 737s would move out over time, we looked at our regional airlines and decided we needed to go to Q300 Dash 8s, and then we looked at the widebody fleet. We knew that the 747s were going to have to be replaced at some point, so we had to look at whether it was going to be an Airbus solution or a Boeing solution. ” Norris says the Boeing solution offered flexibility, and, with the 7E7, promised great potential, especially in the forthcoming -9 stretch.

“We looked at the competition’s products and came to the conclusion that for us a mix of 777-200s, -300s and the 787-9 would give us the flexibility we needed for the missions we wished to fly,” he said.

“Whichever way you looked at it the 777 was a superior aircraft to the A340, the market will tell you that that was the right decision.

“We needed extra capacity because we effectively had no capacity growth for the best partof a decade and so therefore the 777-200s were bought into the fleet to do that, to open up markets like China, which we hadn’t flown to before, providing us with more capacity to fly more flights to the west coast of North America – Vancouver, San Francisco, LA – so that was all part of the plan, and that has all worked out pretty well. ” The 7E7 decision, given the aircraft was at that stage just “a paper tiger”, was more of a risk. “We looked at it and said, ‘if the worst comes to the worst, the 777-200s will see us through, along with the -300s’,” Norris recalled.

“One of the factors that convinced us to go with Boeing was the potential of what was then known as the 7E7. We came to the conclusion that the 7E7-8 was probably not quite the aircraft required. At the point that we were in negotiations there was only one firm customer, for 50 aircraft, and that was ANA, and so we were the second airline to sign. But at that stage Boeing hadn’t firmed up on the -9, and we said that was the aircraft we wanted. ” That desire became reality when in May 2006 the airline announced it had converted the four firm ordersfor the aircraft it held (a second batch of two 787s was ordered in October 2005) to the -9 becoming the launch customer for the type. At that time entry into service was planned for December 2010.

“So today, we are sitting, finally, 10 years and one month after I signed the original order, in the aircraft,” he reflected. “I think for us this aircraft does provide a lot of flexibility in route options going forward and certainly it is an attractive aircraft for people to want to fly on. I think people will want to fly on it. ” But all that was in the future when Norris left Air New Zealand in late 2005 to run the Commonwealth Bank, handing over the reins to Rob Fyfe. But Norris still feels a strong sense of attachment to, and continues to take a strong interest in, Air New Zealand.

“I feel a sense of satisfaction in the fact that the job’s complete. ”

From dream to reality

Tasked with leading Air New Zealand’s planning and preparation for the 787-9 has been Kerry Reeves, the airline’s program director for aircraft programs.

He explains that the airline first started planning for the 787 in the 2007-08 timeframe until the aircraft’s delays meant planning was put on hold.

“The project really started in earnest about three years ago, knowing that we had some certainty around delivery dates,” Reeves recalled.

That planning began with a careful look at what the mission of the aircraft would be. “What do we actually want it for, where are we going to fly it, who is going to fly on it?” Defining the aircraft’s mission meant consideration of the sectors the aircraft would fly and the markets it would serve. Those factors drive the seating configuration considerations, and that in turn has an effect on range.

“Getting into what is its mission, what do you actually want from it? That then starts to give you a sense of how you might start building it from there. So you have got to have that very firmly understood, because those decisions, which we made three years ago, we won’t know the benefit of those until we get the fleet operating en masse to know is it actually giving us thereturn [we projected], are the load factors how we predicted, is the class mix right? That can be four to five years from the point you made that decision. ” Reeves said there was much discussion within the airline about where to operate the 787-9 and how to configure it.

“So would we make it a North American aircraft or would it be Asia-orientated, what would it replace? In the end the 787 was the best fit to replace the 767 fleet and to be used for new thin, skinny routes that would be starting up. That then helped us say ‘what is the 767 operating now, where does it go, what sort of configuration do we need for that?’ ” The result was a 302-seat interior more optimised for leisure travel with 263 economy, 21 premium economy and 18 Business Premier seats.

As a result, in Air New Zealand’s configuration the aircraft is still capable of flying trans-Pacific, but it would be payload restricted on return flights to New Zealand because of prevailing headwinds, “That’s because we’ve put quite a few seats in there, 302 is a reasonable capacity (in a 787-9) and that’s largely because the front part (premium cabins) is a little lighter on numbers, and that’s because this configuration is very much pitched to a tourism market, so your Asian markets,” Rob McDonald had explained earlier.

“We will turn our mind to whether another configuration is required – has it got enough business class, has it got enough premium economy – and as you take that seat count down you lift the range up. ” That may come as Air NewZealand looks to grow new and existing markets or to ultimately replace its 777-200ERs.

“As the 777-200 gets older and we look at its replacement this becomes an obvious candidate, but to do that we would need to give it more range, and the way to do that is to shrink its seat count. ” Seat count has a key bearing on performance, as Reeves further explained. “Every person you add is another 100 or so kilograms with their bags, so if you put another row in there’s a tonne of weight, so it does have an impact which we did have to take into account. ” By comparison, Etihad, for example, will configure its 787-9s (which will operate direct Abu Dhabi-Brisbane flights from mid-next year) with just 235 seats.

“It’s not so much about the range of the aircraft, it is more about what is the market it is serving, so it’s those China, Japan, Asia routes, [plus] Vancouver, Perth,” Reeves said. “But it also has to be efficient on those shorter Pacific region routes – Fiji, Rarotonga, across the Tasman. ” Certainly Air New Zealand worked particularly closely with Boeing on the 787’s interior, and much else besides, as the 787-9 launch customer.

“I think the influence we’ve had on the aircraft as a whole, because we’ve been working with Boeing on the spec of the aircraft, trying to push them to improve that, to bring new technology, new supplier products onto the aircraft as quickly as they can – we’ve had a big influence there. ” One example of that influence is the tilting seatback IFE screens in the premium and economy class seats. Originally Air New Zealand would have been required to specify economy seats from the Boeing catalogue with fixed screens.

“That was because the IFE supplier said the viewing angle was satisfactory. Our position was technically the viewing angle was ok but someone who is tall is forced to look down at it from an angle, so they would tend to slide down in the seat to make the viewing angle more square, and that puts them in a really uncomfortable position and gives them a neck and back problem.

“So we said to our mind that is not achieving the outcome, so we wanted to get a tilt system built in, so we were able to challenge those things and get those things qualified for the aircraft. ” Indeed in the Air New Zealand interior configuration the only items ‘off the rack’ from Boeing’s interior catalogue offering for the aircraft are the lavatories and galleys.

The end result is an interior that arguably has a level of integration and cohesion that effectively blends the design features of the 787 (from the large windows to the mood lighting) with Air New Zealand’s interior fitout, with its dark ink and chalk colour palette.

“That was our vision,” said Reeves. “It is fair to say that we didn’t see that realised until a few weeks ago when it was all put together, so there was a bit of ‘what is this really going to turn out like?’, but I am so happy, it has exceeded my expectations. ” On the flipside, the 787’s performance is still a few percentage points shy of its contracted spec.

“Boeing have struggled a little bit because of the weight versus the original performance expectations. So it is not where we probably wanted it to be, but it is still miles ahead of any other aircraft flying. There is no such thing as a bad decision to buy this aircraft. It is still awesome as far as that goes. ” And despite the minor shortfall on spec, Reeves described the relationship with Boeing as “very, very good”.

There is no such thing as a bad decision to buy this aircraft. KERRY REEVES

“We’re very happy to work with them, they’re great people, they understand us and what we want to achieve. We try to work very collaboratively with them. If we have an issue about something we try and go to them with a solution, rather than contractually saying they’ve got a problem and they have to deal with it, and they like that. ” Reeves felt that Air New Zealand was able to benefit more from the relationship than other airlines might have.

“We’ve had many challenges with the certification of the aircraft along the way, which could have easily compromised the product specification we wanted, but by working with them we were able to maintain that standard of product specification all of the way through and we haven’t had to compromise on anything. ” For Boeing’s part, Mark Jenks, vice president, 787 airplane development, had earlier observed that: “The great thing about Air New Zealand is they really are the airline that pushes this airplane. Their range requirements were really what drove us to the kind of performance that we are now delivering. So having them there was really fantastic from the development perspective. Frankly it pushed us to really push the airplane.

“And they are also extremely innovative when it comes to the interior of the airplane, and what their customer, the flying passenger, will actually see, so they really gave us insight into some of the things we really had to think hard about as we were developing the airplane in terms of what the ultimate passenger will feel. ”

Entry into service

After a single customer acceptance flight (on which the biggest issue discovered was a sticky flightdeck door) Air New Zealand then took formal ownership of the ZK- NZE on June 30, which allowed the airline to make some airline-specific modifications, including activating the Skycouch and business class seats.

“Then we started our proving flight process from Seattle. We had six flights to complete with the dual role of proving the aircraft and our procedures but also starting to qualify the crews as well. ” Reeves said that process threw up a few small challenges that proved a good test for the airline’s processes and procedures.

“We had a few technical glitches that delayed us doing some of the proving flights, nothing too dramatic, just the normal things that happen. But it was a really good exercise because the aircraft was under our control so our engineers, our procedures and flight operations were managing all of those, so it was a great exercise for us. ” After arriving in Auckland ZK‑NZE was due to undergo further minor modifications to meet the airline’s operating standards, before different areas of the airline have the opportunity to validate processes and procedures developed for the 787.

“We want the aircraft to be in its operating standard when the rest of the organisation basically proves the procedures that they have designed for the aircraft. That could be catering, it could be the cabin crew, it could be some of our engineering teams towing it around the airport making sure it fits all of our gates, that the communications systems to the aircraft all work. ” As part of that process the airline will also conduct trial flights on thewith full cabin crew service.

“We want to do that to make sure that we have tested all of the different service flow propositions, and stress-tested the IFE with 302 people operating the IFE and thrashing it to make sure we understand how it will perform. ” That will be followed by a proving flight process to satisfy the NZ Civil Aviation Authority that the airline’s procedures for the aircraft are satisfactory.

“So there are some additional flights to do once we get back to New Zealand and then we will be in a position to start operating commercially after that. ” When that will be has yet to be decided, but it will be much sooner than the publicised mid-October launch of scheduled Auckland-Perth services.

“We haven’t set a date for that yet, it will be very early in August at some stage,” Reeves said.

“We’ll operate Auckland-Sydney for a few weeks. That’s the optimum sector length to qualify our crews as fast as we can. ” And the 787 will also appear on the Auckland-Perth route ahead of the formal mid-October launch.

“We will actually operate to Perth before that, but that is the date we’ve guaranteed that we’ll have this aircraft on Perth. So by that date we will have two aircraft, we’ll have the second one in service, and so we just want to make sure that because we are selling it in the schedule as the 787 that we have the comfort level that we will actually be able to operate that schedule. ” Reeves said the 787 should start operating into Perth in September.

“But again we haven’t actually defined when that will happen, and that will be on a day-by-day basis swapping the existing scheduled aircraft out for this aircraft. ” Not having definitive dates is the result of an overall conservative approach to introducing the aircraft into service.

“It is a conservative plan, but we have the option, if we feel comfortable, of bringing a lot of those milestones forward. ” Beyond that, the airline has announced the 787 will begin flying to Tokyo from November and Shanghai from December. And apart from Perth the aircraft will be a regular on the trans-Tasman to the Australian east coast, just as 767-300ERs and 777‑200ERs are today.

The airline’s 787-9 delivery profile sees three deliveries in 2014 (June’s handover of ZK-NZE, plus subsequent deliveries in September and October), three in 2015 (July, August and October), two in 2016 (July & September) and the final two in 2017 (August & October). As for the eight options, the first would be available for delivery from 2016, “should we want it, and subsequently through to the end of the decade from there”.

Trusted to deliver

Whenever that final 787-9 delivery occurs, it will have been a successful end for Reeves’ small project team.

“Our team that develops these aircraft is very small compared to other airlines,” Reeves observed. “We’re very lucky that we have very good expertise in the organisation and very good support from the leadership. We have a lot of autonomy to make decisions, we don’t have to go back to the leadership all the time, and so that allows a lot of flexibility and instantaneous action, whereas other airlines have much more of a hierarchical process. But the organisation has to trust the people to make the decisions to do that.

“And what you see here is a demonstration of the fact that we’ve got a really good, high level of expertise and an understanding of what our customers expect to have onboard, and what they appreciate and value. ” In all, Reeves said, seeing the 787 come to fruition has been “pretty awesome”.

“When we took off this morning, for me that was the last hurdle in making sure that we left on time without any issues. Having a fairly testy proving flight process last week with a few wee little glitches was a reminder that we’re not there yet. But the culmination of three years of intense work, to see it all come together, and the combination, the amalgam of all of the things that you think will work actually have fitted and did work very very well – that’s hugely exciting and hugely rewarding.