Insight: Myanmar's aviation industry booms despite grim safety record By Aubrey Belford and Min Zayar Oo KONEMOE, Myanmar (Reuters) - Htay Aung was riding pillion on a motorbike last Christmas morning, wending through the cool hills of eastern Myanmar, when Air Bagan Flight 11 came down on top of him. The Fokker 100 - more than 24 tonnes of aircraft, plus 65 passengers and six crew - sheared its way through trees and powerlines, across the road and into a field short of nearby Heho airport. Htay Aung found himself sucked into a scorching maelstrom of debris. I felt my body go up into the air and then drop. Fire was all around me," recalled Htay Aung, who is now 19 and lives with the effects of burns across his head and body. His uncle, who was driving that day, was killed. The crash, which also gutted the jet, killed one passenger and injured eight, most of them foreign tourists, capped off a horror year for air safety in Myanmar. Out of the country's tiny fleet of domestic commercial aircraft, four were involved in serious accidents in 2012, one of them causing death. But the appalling safety rate has hardly dented a broader trend in Myanmar's aviation industry: spectacular growth. After decades under the thumb of xenophobic generals, one of Asia's last frontiers of commercial aviation is opening up. Passenger numbers are surging as new airlines spring up and foreign carriers rush in. Some officials and executives talk grandly of turning Myanmar into a regional hub. The country, however, appears ill-prepared for the pace of change, putting both safety - and the prospects of many hopeful airlines - at risk. "They've opened up, in my personal opinion, far before they're ready for it," said Shukor Yusof, an analyst who specialises in the aviation sector for credit-ratings agency Standard & Poor's in Singapore. The infrastructure is not there to cope with demand. There's going to be a point where it's going to get choked up," he said, adding that safety is "not going to improve any time soon." In the 2011/12 peak winter season for foreign tourists, who are driving much of the growth, there were 50,000 seats per week in and out of Myanmar provided by 13 international airlines, including flag carrier Myanmar Airways International (MAI), according the CAPA Centre for Aviation, which advises airlines, and flight industry database Innovata. Last year, that jumped to 80,000 seats, with CAPA predicting it will surpass 100,000 this winter. The number of international airlines in the country nearly doubled to 23 as of early October, with MAI and Golden Myanmar the only locals. There are signs too many airlines are entering at once, meaning the number could shrink in coming years as some carriers merge or die off, said Brendan Sobie, chief analyst at CAPA. Win Swe Tun, deputy director of Myanmar's Department of Civil Aviation (DCA), is shockingly candid about Myanmar's air accident rate. "It's nine times higher" than the global average, he said. In the 1950s, Yangon, then known as Rangoon, was Southeast Asia's aviation hub. But after the military seized power in 1962, civilian aviation entered a long decline. International isolation made it hard to deal directly with manufacturers, import equipment, train staff or finance infrastructure. Some of those problems were lifted with the end of European Union sanctions this year. The United States has suspended sanctions, but not ended them entirely. State-run Myanma Airways, a domestic airline that partly owns international flag carrier MAI, grounded its three Chinese-made Xian MA60s last year after two of the turboprop aircraft suffered accidents on landing within a month, said Win Swe Tun. The purchase of the aircraft in 2010 was a direct result of sanctions, he added. Locally owned airlines began to emerge before the advent of a quasi-civilian government in 2011. Many, like Myanma Airways, are losing money. Seven carriers, six of them private, are operating regular flights. Four more domestic airlines are planned. International airlines are jostling to get in. VietJet Aviation Joint Stock Co, Vietnam's only privately owned airline, is in talks with an unidentified local carrier. Thai AirAsia has entered into joint venture talks with "some potential partners," said Tassapon Bijleveld, chief executive of the unit of Malaysia's AirAsia Bhd. Japan's ANA Holdings Inc (ANA) announced in August it was buying 49 percent - the maximum under Myanmar law - of tiny domestic carrier Asian Wings. The new deal will add international routes and expand its fleet with jets and turboprop. As Myanmar's skies get busier, so are its antiquated and under-funded airports. Only three of Myanmar's 33 airports - Yangon, Mandalay and Naypyitaw - are international. Others often lack bigger runways, advanced navigation and safety equipment and adequate security. Yangon airport, the country's busiest, is already over its annual capacity of 2.7 million passengers, accepting 3.1 million last year. A $150 million upgrade to Yangon airport was recently awarded to a consortium led by an affiliate of Asia World, a conglomerate run by Tun Myint Naing, also known as Steven Law, the U.S.-sanctioned son of the late drug kingpin-turned-tycoon Lo Hsing Han. A Japanese consortium has been charged with revamping Mandalay's airport, seen as a future logistics hub. The big project, however, is a plan to build a new $1.5 billion airport for Yangon at Hanthawaddy, northeast of the city, a job given to a consortium headed by South Korea's state-run Incheon International Airport Corp. The new airport will be designed to handle 12 million passengers a year on its opening in 2018, and will eventually become a regional hub in its own right, handling 30 million annually by 2030, Win Swe Tun said. That compares with 48 million at Bangkok's Suvarnabhumi Airport and 51 million at Singapore's Changi Airport. Heho Airport, where Air Bagan crashed last December, shows just how far Myanmar has to go. Sitting inside a control tower with shoes outside the door, Win Myint directs air traffic via a set of radios atop a linoleum table. With no computerised systems, Win Myint organises the landing schedule by scribbling on plastic slides, which are then lined up in order as new information comes over the radio. The airport, near the scenic Inle Lake, has seen tourist arrivals surge in recent years, said the manager, Htay Aung. The government promises to revamp Heho and other airports by expanding runway capacity and adding security, safety and navigation equipment. Heho's lack of navigation equipment was likely one factor in last year's crash. Although no final report has been issued by the DCA, Win Swe Tun, who is head of the investigation, told Reuters that Air Bagan Flight 11 had attempted to land in fog without the assistance of on-the-ground navigation equipment. Having misjudged the approach, rather than go around for a second attempt, the co-pilot tried to rush the landing, he said. The aftermath of the crash has been an ongoing headache for Air Bagan, part of the Htoo Group of companies owned by Tay Za, a businessman who remains subject to U.S. sanctions for his links to the former military junta. Many foreign survivors now complain of a drawn out and difficult compensation process. Air Bagan, one of the biggest domestic airlines, has not been profitable since the 2006-2007 financial year and faces pressure both from sanctions and the growth of new players, deputy managing director Sao Thanda Noi told Reuters. Sanctions, she adds, pose hurdles in critical areas -- from training and supplies to maintenance and financing. Our costs are much (more) expensive than other airlines. That's what sanctions cost us. But...we never compromise on safety. One tycoon who appears to have more comfortably negotiated the reform era has been Aung Ko Win, president of Myanmar's largest private bank, Kanbawza Bank, and formerly the target of EU sanctions. His domestic airline, Air KBZ, enjoys steadily rising revenues and is seeking to expand, says deputy managing director Khin Maung Myint. It controls 30 percent of the domestic market, carrying nearly 240,000 passengers in its last financial year, and plans to soon add "two or three" aircraft to a fleet of six, he said. Still, Air KBZ lost one of its ATR 72-500s in a crash last February. No one was injured. As airlines queue up to enter the country, the biggest international carrier flying to Myanmar, Thai Airways, sounded a note of caution. Infrastructure constraints mean there is "not now" any money to be made on domestic routes, executive vice president Chokchai Panyayong told Reuters. "I think in a couple of years we'll move in," he said. Additional reporting by Manunphattr Dhanananphorn in Bangkok, Tim Kelly in Tokyo and Jared Ferrie in Yangon.; Editing by Jason Szep and Simon Cameron-Moore