Turkish Airlines Inc. (TüRk Hava Yollari A.O.) Business Information, Profile, and History

Company Perspectives:

Turkish Airlines' mission, as the flag carrier of Turkey, is to provide air transportation services in order to: Pioneer the country's attempts to penetrate world markets; connect all regions with a certain passenger potential within Turkey; serve as a bridge between the Turkish Republics of Central Asia, the Balkans, the Middle and Far East, the Americas and Europe; act as a leading technical service provider for the aviation industry.

History of Turkish Airlines Inc. (Türk Hava Yollari A.O.)

Turkish Airlines Inc., or Türk Hava Yollari A.O. (THY), is the flag carrier of Turkish air transportation. Its 70 aircraft comprise one of the youngest fleets in Europe. More than ten million passengers a year fly THY's network of 100 destinations, three-quarters of them international.

THY was formed in 1933 as a domestic carrier. It built up an international network after World War II but eventually was hindered by mishaps and poor customer relations. The airline began a turnaround in the mid-1980s. It slowly began a privatization process in 1990, when 2 percent of stock was floated. This was accelerated in late 2004 with the offering of an additional 20 percent of shares.

Origins

Turkish Airlines was established on May 20, 1933 as Devlet Hava Yollari (DHY) (State Airlines Administration), a department of Turkey's Ministry of Defense. Its fleet was made up of a handful of four- to ten-seat aircraft.

In 1935, the administration was placed under the Ministry of Public Works. Three years later, it was renamed the "General Directorate of State Airlines" and became part of the Ministry of Transportation.

Postwar Growth

The airline benefited from the postwar U.S. assistance program to Turkey. With the help of Pan American, the fleet was upgraded with Douglas DC-3s, and THY became the largest airline in the Middle East, according to one source.

THY made its first international flight in 1947, connecting Ankara with Athens, Greece, via Istanbul. Soon added to the route network were Nicosia, Cyprus; Beirut, Lebanon; and Cairo, Egypt. Domestic service remained the airline's focus until the 1960s, however.

The Turkish government reorganized the airline in 1956 under the name Türk Hava Yollari A.O. (THY). It was capitalized at TRL 60 million. British Overseas Airways Corporation (BOAC) began supplying technical support after acquiring a 6 percent shareholding, which it held for about 20 years.

The fleet was upgraded with Viscounts and Fokker F27s in the late 1950s. The company began operating its first jet, a DC-9, in 1967. This was followed by the addition of a leased Boeing 707 in 1971. Other jets operated in the early 1970s included the DC-10 and Boeing 727.

Turning Around in the 1980s

THY lost TRL 2 billion in 1980. However, it was soon profitable again, as flights to West Germany made up for loss-making internal operations. Fares were kept low on domestic routes, £30 for the 40-minute hop between Istanbul and Ankara, noted Britain's Financial Times. This compared to a £20 (first-class), 12-hour train ride. West Germany and the Middle East attracted a number of workers from Turkey.

Unfortunately, the airline was plagued by a several difficult issues. It developed a reputation for poor customer service and delays. It also endured hijackings and suffered seven accidents between 1974 and 1983, noted Air Transport World.

However, a new government came to power in 1983 which recognized THY's importance as Turkey's ambassador to the world, beginning the airline's make-over into a modern operation. It would maintain one of the youngest fleets in the world. Security was intensified, causing one shipper to compare it to Israel's El Al, at least in terms of delays.

THY built a new, state-of-the-art technical center at Yesilkoy Airport in 1984. It was capable of both light and heavy maintenance on a number of different aircraft type. Technical staff then made up one-quarter of the airline's 6,000 employees, according to Air Transport World.

In 1984, the company's capital was raised to TRL 60 billion as it was classified as a state economic enterprise. Three years later, the capital was raised again, to TL150 billion.

By the mid-1980s, THY had a fleet of 30 aircraft. It was flying about three million passengers a year to 16 domestic destinations and three dozen international ones. The airline was Turkey's largest source of foreign currency, according to Air Transport World. Turkish Airlines operating Airbus 310s in 1985, allowing the addition of flights to Singapore in 1986. A route to Brussels and New York was added in 1988.

The company posted losses in 1987 and 1988, largely due to high payments on its dozen new Airbus A310s, according to Air Transport World. The fleet also included 11 Boeing 727s and nine DC-9s. THY ended the decade with 8,500 employees.

Partially Privatized in 1990

Private investors took 1.8 percent of shares in a small public offering in November 1990. However, the process leading to the greater privatization was delayed by several years of economic and political setbacks.

By the end of 1992, the company was capitalized at TRL 2.5 trillion. This allowed it to maintain a current fleet, operating Boeing 737s, Airbus A340s, and RJ-100s in the early 1990s. In fact, the airline's fleet would double in size during the decade. Staffing levels would be kept around 8,000 employees, greatly increasing productivity.

Looking to acquire 40 percent of a new charter airline, Sun Express, along with Lufthansa and German tour operators, THY now held a 50 percent interest in Cyprus Turkish Airlines (Kibris Turk Hava Yollari). Turkish Airlines merged with its partially owned domestic subsidiary THT Inc. (Turkish Air Transportation) in September 1993.

The company suffered in the global aviation crisis following the Persian Gulf War and would not break even again until 1994. However, business was again booming in the mid-1990s, with the greatest growth coming from North American destinations. THY launched a nonstop to New York in July 1994.

The company's capital continued to be raised, reaching TRL 10 trillion in 1995. During that year, the airline also converted three of its Boeing 727s to dedicated freighters. (The old DC-9s had been sold off.) The company posted a $6 million profit on revenues of $1 billion for the year. While profitable, THY had to contend with Turkey's exorbitant inflation, making capital improvements difficult.

The domestic market was deregulated in 1996, allowing new scheduled competition from charter airlines. At the same time, larger international carriers were providing stiff competition on routes to Western Europe. THY entered into marketing agreements with other international airlines to enhance its competitiveness. The company teamed with Japan Airlines to offer service to Osaka and Tokyo in 1997 and 1998. Other jointly operated flights soon followed with Austrian Airlines, Swissair, and Croatian Airlines.

Cargo operations were growing as Turkey's manufacturing sector took off. Situated at an ancient crossroads, the country had strong ethnic links with several former Soviet republics, although trade with Russia collapsed during that country's economic crisis in 1998. According to Air Cargo World, THY had a 40 percent share of Turkey's international cargo market, with most business coming from Germany, where there was a large expatriate Turkish population. Cargo was then accounting for about $5 million of THY's annual revenues.

By the end of the 1990s, the company had TRL 175 trillion in registered capital. Its fleet consisted primarily of Airbus A310s and A340s and the latest generation Boeing 737s. Unfortunately, it posted a $167 million loss in 1999 in the face of terrorist threats and an earthquake.

Challenges in 2000 and Beyond

A new terminal opened for the airline in January 2000 at Istanbul's Atatürk International Airport. Turkish Airlines continued to extend its international reach, forging marketing agreements with Asiana Airlines (Seoul, Korea), American Airlines, Malaysian Airlines, LOT Polish Airlines, Czech Airlines, and Cathay Pacific Airlines (Hong Kong) in 2000. An Antalya-Frankfurt route was added in 2001 through a code sharing agreement with Sun Express. However, THY withdrew from the Swissair-led Qualiflyer Alliance in order to help attract a strategic investor in its privatization.

Turkey underwent an economic crisis throughout most of 2001, cutting traffic on domestic routes in particular. THY managed to survive after the September 11, 2001 terrorist attacks on the United States without a government bailout or mass layoffs, although 300 middle management positions were eliminated, 400 part-timers were laid off, and wages were cut 10 percent. Turkish Daily News credited the airline's survival to entrepreneurial management, which was quick to cancel loss-making routes at home and abroad.

In 2003, the war in Iraq prompted Turkish Airlines to close some routes in the Persian Gulf, while flights to Asia were suspended during the SARS epidemic. However, the airline soon recovered, increasing frequencies on existing routes and adding service to India (New Delhi) after an 11-year lapse.

Another fleet expansion program kicked off in 2004, helping THY maintain one of the youngest fleets in Europe. In July, the airline announced the massive order of 36 jets from Airbus, worth $2.8 billion, plus another 15 Boeing 737s.

THY was not just ordering new planes. It was planning to spend $350 million on a new technical and training facility at Istanbul's underutilized Sabiha Gokcen International Airport, reported Air Transport World. The airline had built up a significant technical services operation, maintaining not just its own aircraft but those of third parties. Turkish Technic employed 2,700 and was planning to hire another 2,000 by 2010. THY also had three flight simulators and offered flight training services.

Floating in 2004

Although the company was publicly traded, the government owned 98 percent of shares. The privatization program was revived in 2004 with a public offering of 20 percent of shares on the Istanbul Stock Exchange. The Turkish government owned 75 percent of shares after the offering, which raised $170 million. THY was divesting its 50 percent holding in Cyprus Turkish Airlines (Kibris Turk Hava Yollari) in 2005.

THY faced the entry of new competitors into the liberalizing Turkish aviation market. However, tourism was booming, with 20 million people expected to visit the country in 2005 versus 12 million in 2003.

THY's financial statements should be read in light of a new currency created in January 2005. One New Turkish Lira (YTL) is equivalent to one million of the former Turkish Lira (TRL).

Principal Divisions: Turkish Technic.

Principal Competitors: Azerbaijan Airlines; Cyprus Air; Fly Air; Lufthansa A.G.; Onur Air.

Chronology

• Key Dates:
• 1933: Airline is founded.
• 1947: The airline's first international flights connect Ankara and Istanbul to Athens.
• 1967: The airline begins flying jets.
• 1984: A new technical facility is constructed as the airline begins a turnaround.
• 1990: Türk Hava Yollari A.O. (THY), is earmarked for privatization; 2 percent of the company's shares is floated.
• 2004: An additional 20 percent of shares is floated.