Monthly Archives: April 2008

More Fun and Games on Capitol Hill; FAA and Airlines In Hawaii

The Senate Committee on Commerce, Science, and Transportation is now holding hearings on Aviation Safety. You can watch them live here.

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Nick Sabatini from the FAA is on the hot seat as we post this — and he’s not having a particularly good day. Much like last week. Senator Claire McCaskill (Missouri-D)is now asking Sabatini why it was that no one has been fired at the FAA for “lying.” She is referring to a comment made last week in reference to the Dallas Ft. Worth tracon by the office of the DOT special counsel. The DOT special counsel, who is at the hearing, just said that problems have “reoccurred” in the Dallas office, but that their investigation is “not yet complete.”

McCaskill is now pressing the issue of the need for accountability at the FAA, and what Sabatini intends to do about it.

Meanwhile, for those of you who are interested in the Hawaiian air service environment (and you certainly know who you are), the committee is scheduled to hold hearings this afternoon on that hot topic. These hearings will start at 2:30 pm edt. You can click here to see who has been invited to attend.  State of Hawaii officials will be there in addition to David Banmiller, CEO of Aloha and Charles Willis, CEO, along with his COO, Leslie Murashige from Island Air.

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American Airlines: What a ^$*$#(*%^ Mess

Captainmarvelbuzzbomb

It just gets worse and worse.

Whether you believe that the FAA is on a mission to make itself look better, merely do what it should have been doing all along, or catching up on a few “loose ends” by demanding that the bundles inside the wheel wells of MD-80s be tied at one-inch intervals — one thing is pretty clear.

American Airlines has done a god-awful job of communicating with its employees, the press, and most importantly, its passengers, about this whole incident.

Yesterday, way too late after the fact, and after one of its corp comm spokespersons had walked off camera, rather than answer a safety-related question put to him by a reporter, the airline finally put an executive in front of the press — acting in an official capacity. Even worse, this “better-late-than-never” attempt was not a pretty sight.

Dan Garton, the airline’s marketing guy, called a press conference and attempted to give the company’s side of the story.

If you haven’t read about it, you can do so at the Dallas Morning NewsAirlineBiz blog.



The problem is — if American Airlines takes maintenance and safety seriously — why are they trotting out their marketing person to talk about it? And folks, I have to tell you, Dan was not very good. If the bet on someone’s part was that he would be better on-camera then Bob Redding — well, that bet was wrong.

Example:

Q. Did your mechanics not understand it or did they ignore it?

A. It’s a relatively significant engineering change order. It’s about 30 pages. The mechanics understood it. When they accomplished it, they took what I would call certain latitudes in accomplishing it. My example would be where they tied those cords.

I think what they didn’t understand that there is a sort of greater focus on strict enforcement or strict compliance with the rules of the AD. The rules have gone to a very strict level of enforcement, and we will meet that and get the planes back in the air.

We had a call last night from someone who told us that the reason American Airlines’ Gerard Arpey has been missing in action on all this was because he left the morning it all began to fly to Los Angeles and a meeting of oneworld. Consequently, he then faced a problem in trying to get back to Dallas.

Does he fly back on a private jet? Does he fly back on Southwest? Does he drive a Hertz rent-a-car? Does he bump an already-inconvenienced American revenue passenger?

Well — my response this morning would have to be, “Why not call a press conference in Los Angeles?” They do have media in LA. It’s not like he was in Slovenia. Or up with the ice truckers in Yellowknife.

Finally — as of this morning, the airline still does not have an easy way for passengers to find out if their flight has been canceled or not. People can’t get to the airline on the phone — as reports of system overload abound. And when you go to the airline’s website, there is no easy to find list of canceled flights.

Terrible, terrible, terrible job by the airline in handling this. Five thumbs down. (I got the cats to join in so we’d have enough.)

Unprecedented happening today here at PlaneBuzz. Two Buzz Bombs in one week. One to union leadership at one of American’s unions for its action against one of its members who dared speak the truth.  And today — the second one to American Airlines’ management — which seems to be having real problems in figuring out what the truth is, and more importantly, in conveying that truth to the general public.

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American Airlines: Time for Union, Management to Face Reality

Mitchell Schnurman, writing in today’s Ft. Worth Star-Telegram picked up on our theme in our PlaneBuzz Buzz Bomb award posting last week, as he commented,

“Who can handle the truth at American Airlines?

When a union official said soaring fuel prices might limit the gains on a new labor contract, there was such an outcry that he was put on administrative leave.

Never mind that John Conley of the Transport Workers Union wasn’t negotiating the new deal with management. Or that he was merely stating the obvious, a fact borne out last week after three airlines ran out of money and shut down.

Conley’s error was telling it like it is, rather than how union members want it to be — an impolitic move for someone in a political position.

But contract talks are under way with the carrier’s unions, and that makes this the silly season at American Airlines, to borrow a phrase from the presidential candidates.”

Mitchell is an equal opportunity observer. Unions and management both get a finger wagged in their face, after which he concludes,

“But try justifying the [AMR management] payouts to maintenance workers who’ve saved billions for American and never been made whole.

‘They feel betrayed,’ Conley said, ‘and I don’t know what to do about it.’

How about a reality check for all? If a fuel crisis puts a drag on labor contracts, it should put the brakes on executive bonuses, too.”

(NYSE:AMR)

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Delta Tries a Bit of Arm-Wrestling With Its Pilots

Deltapin-4

If at first you don’t succeed….

The WSJ reported this afternoon that Delta Air Lines is attempting to get its union leaders to abandon parts of the Delta pilot labor contract in hopes of pushing forward a merger deal with Northwest Airlines Corp. as early as next week.

In return, Delta is promising its 6,000 pilots pay raises, equity and a board seat in the combined carrier.

This reminds me. Where has Delta MEC Chairman Lee Moak been? He was so visible/vocal in the US Airways/Delta merger fight, but I haven’t seen or heard him publicly anywhere during this ordeal.

I’m still not that optimistic about these reports, if they are true. Because it sounds to me like even if the Delta pilots agree to these changes, so what? Both airline pilot groups are still going to have to agree on how to integrate the seniority lists.

Furthermore, it sounds like Delta is trying to strong-arm its pilots into coming to terms on a new contract — which would then take effect with a merger.

But where does this leave the Northwest Airlines’ pilots? They already make less than their Delta counterparts.

It  would seem to me that Delta is trying to get its pilots “in-line” with some sort of semi-sweetened contract deal — and the assumption is then that after the merger is announced, the Northwest pilots will then be “positively motivated” to negotiate a seniority agreement that would be acceptable to their Delta brothers and sisters, because they will want the same “sweetened” deal as their co-horts at Delta.

That is one big assumption.

Don’t know about this. Then again, the “we’ll let the pilots negotiate their seniority agreement before the deal” idea wasn’t a huge success either.

Ticker: (NYSE:DAL); (NYSE:NWA)

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Mesa Air Group Shares Fall into the Penny Stock Pit

Mesa Air Group 225X215-2

Another day, another huge sell-off in Mesa Air Group shares.

After the stock gained a small bit of footing yesterday, today was another story.

On massive volume of more than 4 million shares (the average daily volume here is about 400K), shares of the beleaguered airline ended the day down 27% to 96 cents.

Yep, the stock has dropped below a buck.

Market cap for the airline is now only $25.8 million.

The airline filed with the SEC Tuesday, saying that it will ask shareholders on May 13 to approve a plan that would allow the company to issue $37.8  million in new stock that can be used to repay the senior convertible notes that are due in June.

Holders can force the company to repurchase the notes on June 16, 2008.

The airline was also the subject of a big two-page spread by Dawn Gilbertson in the Arizona Republic today. PlaneBusiness Banter and our recent awarding of our PlaneBusiness Ron Allen Airline (Mis)Management Award to the Mesa Board of Directors was mentioned in the piece. That column, which was first published in our Mar. 7 issue of PlaneBusiness Banter is publicly accessible here.

According to Dawn,

“Industry newsletter PlaneBusiness Banter last month gave its annual airline-mismanagement award to Mesa Air Group’s board of directors, skewering the airline for its financial performance and other woes.

Ornstein dismissed the newsletter and some of its comments about the airline’s finances.”

I’m speechless. Thanks to my attorney.

Speaking of — I just realized that I have not posted an update to our ongoing lawsuit with Mesa Air Group here in PlaneBuzz — although PlaneBusiness Banter subscribers get more or less a weekly update.

I’ll do that this week.

Ticker: (Nasdaq:MESA)

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Safe or Not Safe? AA Spokesperson Simply Walks Away from Reporter

Charley

Look, the situation American Airlines finds itself in today is not something I envy. Nor would I want to be the person talking to Suzy Bubblehead or Joe NewSuit about it on television on behalf of the airline.

But you know — there is an old adage that Boy Scouts know very well.

It’s called. “Be Prepared.”

Apparently spokesperson Charley Wilson from American Airlines is not familiar with this advice, as it appears in this video that he was not prepared to respond to a reporter’s questions last night on a local television station in Dallas. Charley, you knew the safety issues were going to come up. That was his first mistake. His second was walking away from the interview on camera — with his microphone still on. Although it could have been worse.

Definitely not one of the American PR department’s shining moments.

Not Good News on the Oil Front; Oil Surges to $111 Plus

Oil Derrick-6

Wednesday is the day the government releases its energy inventory information — and depending upon the news the markets can either be made happy — or nervous.

The result today? Nervous. And when that happens we all know what that means. Yep, higher prices.

The nation’s stockpiles of crude fell to 316 million barrels for the week ending April 4, the Energy Information Administration reported this morning.

This was down 3.2 million barrels on the week. Analysts surveyed by Platts had been looking for an increase of 2.7 million barrels.

But wait, there’s more.

U.S. gasoline supplies fell 3.4 million barrels in the latest week, while distillate supplies, which include heating oil, diesel and jet fuel, dropped 3.7 million barrels.

Both of these are bigger than expected drops as well.

You all know what’s coming next. Yep. Bad news.

The price of a barrel of crude is now trading at about 111.30, as it has shot up almost $3 on the day.

Update: Oil ended the day at 110.87.

American Cancels More Flights; Oasis Airlines Shuts Down; Frontier Stock Drops Below $2

Oasis

Busy day out there in Airlineland today.

First, we have another airline shutdown to report. Last night Oasis Hong Kong Airlines ceased operations.

The airline has applied for a voluntary liquidaton and is seeking new investors, CEO Stephen Miller said at a Hong Kong press conference.

According to Bloomberg, “Oasis began flying to London in October 2006 and added services to Vancouver about a year ago. It initially offered tickets to Gatwick for as little as HK$1,000 one-way, less than 20% the price then charged by Cathay Pacific for flights to Heathrow. British Airways Plc, Air New Zealand Ltd., Qantas Airways Ltd. and Virgin Atlantic also fly between the two cities.”

Quote of the day from this shutdown has to be the one from Cheah Cheng Hye, Chairman of Value Partners Group, LTD., which purchased $30 million in convertible notes in the airline last year.

Bloomberg quotes Hye as having said today as a press club luncheon in Hong Kong, “Of course I’m disappointed, but life goes on.”

Meanwhile, closer to home, life goes on and the MD-80 grounding continues to affect American Airlines. And not in a good way. As of a few minutes ago, the airline confirmed that it has already cancelled more than 1000 flights today. This, after the airline cancelled 460 MD-80 flights yesterday.

Nasty weather is also expected to roll into the DFW area later today. Then again, with so many airplanes grounded, maybe it won’t make any difference.

Finally, just a mention about the free-fall in shares of Frontier Airlines.

The airline’s shares closed under $2 yesterday, and today, shares are down again. As we post this, shares are down another 5% or so, hovering around 1.88.

It can’t help that Frontier is being mentioned in almost every article we read regarding the fragile financial state of the airline industry.

The airline, which we first put on the PlaneBusiness Titanic Watch a couple of years ago — once again was posted to the list in this week’s Titanic resurrection.

Ticker: (Nasdaq:FRNT); (NYSE:AMR)

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Only So Much Oil In The Ground

Godzilla.jpgIn 1974 my favorite band (Tower of Power) released one of my all-time favorite tunes called “Only So Much Oil In The Ground”. Although known more for their unique and hard driving music, Tower was prescient in its message; there isn’t an endless supply of oil, so we better find something else. [If you want to see the band doing it at the 2006 Montreux Jazz Festival, check this out]. TOP is STILL my favorite band.
Thirty-four years later we can add to that “There’s Only So Much Cash In My Checking Account”; we’ve still got oil but it is just expensive as hell.
There’s a neat chart put out by the California Energy Commission that compares the annual and peak price of gas for the years between 1970 and today, adjusted for 2008 dollars. Using that chart you can see that until sometime in 2006 the average price for a gallon of gas never exceeded the level attained in 1980. At it’s peak in 1981, the cost of oil topped out at $87 a barrel (in 2008 dollars).
Oil is now at ~$110 a barrel and last week four U.S. airlines went toes up, with rumors rampant about the imminent demise of a few more.
At some point (some would say we’ve already reached that point) the effect of high energy costs become ubiquitous, making everything from a loaf of bread to electricity more expensive. But although airfares have inched up, they’ve obviously not been raised sufficiently to offset the increased fuel costs. There are lots of reasons for this, but I believe there are three primary causes; 1) Demand for air travel is somewhat elastic and therefore raising prices could temper demand, 2) There is a significant amount of excess capacity, and 3) Airlines typically have high fixed costs.
Items 1 and 2 are somewhat related, since a reduction of demand caused by raising fares will exacerbate the capacity problem. I don’t totally buy that argument, but I will concede the point. Although four domestic airlines did cease service last week the capacity impact was minimal. Capacity pruning has been announced by several carriers. Whether or not the reductions are sufficient to return the industry to profitability is dependent on whether the price of oil continues to rise or not.
Which brings us to item 3; high fixed costs. Reducing capacity removes the variable costs involved in flying an airplane, but not the fixed costs. For an airline with a fleet of fairly new airplanes, the cost of ownership can be as onerous as putting fuel in the tanks. Airlines with older and less costly airplanes can afford to park those airplanes more readily and ride out the storm, so to speak.
However, even with airplanes temporarily parked there still is the question of what to do with flight and maintenance personnel made superfluous by parking airplanes. Personnel costs can be absorbed more easily than bleeding red ink on losing routes, but there’s only so much training and maintenance that can be done before negating the savings of parking the airplane. In an environment where oil prices are volatile, temporarily parking airplanes is a good strategy, as long as the cost of oil comes back down to a level at which those parked airplanes can be flown.
If oil prices stay high however, the capacity reductions need to become permanent. Whether these are done through mergers or more airlines just closing their doors, capacity needs to be significantly reduced so that fares can go up. There, I said it. Fares are too damn low. Consumers who pay $60 a week to put gas in the SUV can not expect to pay $99 one way for a 1,000 mile trip.
To date, higher gasoline prices have not significantly affected the consumer’s appetite for driving their personal car, though at $3.50 for a gallon gas we may be at the brink. Most experts agree there is too much airline capacity, so maybe the high oil prices will provide both the opportunity for airlines to cut losing routes as well as the justification to raise fares on those routes still operating.
Perusing the web for some archival fare information I found an old PeoplExpress timetable, which although crude, makes a point about airfares in 1981. On their June 1981 timetable they advertised weekday flights from Newark to Jacksonville for $79, which in 2008 dollars is just shy of $188. Each way. And that was when oil was at $87/barrel, adjusted for inflation.
Thinking any airline can offer $99, $89, or $79 fares, even when charging $50 for checking a bag, is illogical. Ancillary, schmancillary, if an airline can’t make money selling air travel I just don’t see how it can be a viable business for anybody.

American Grounds MD-80 Fleet

One of our readers at American just sent me a note that says:

“Last night, the FAA conducted a spot inspection

of the S80 fleet to check compliance with AD 2006-15-15,

as incorporated into an American ECO (engineering

compliance/change order).

Using their method where they sample a statistical

number of aircraft and extrapolate to the entire

fleet, the FAA examined 10 aircraft at DFW. 9

were found not to be in compliance with the ECO.

As a result, the entire S80 fleet is grounded

as of now.”



He included this list:

This is only one page of many.

2020 2135 SP80XL DFW /ATL SEG CNLD CODE910-MECH RMKS OPNL

2211 2135 M83GXL DFW /PDX SEG CNLD CODE911-MECH RMKS OPNL

0497 2140 M83GXL DFW /ICT SEG CNLD CODE910-MECH RMKS OPNL

0657 2145 M83GXL DFW /ABQ SEG CNLD CODE911-MECH RMKS OPNL

              — CHG EQ M83G/4YU TO SP80/

1251 2145 SP8VXL DFW /MCI SEG CNLD CODE911-MECH RMKS OPNL

              — CHG EQ SP80/586 TO SP8V/

0541 2150 M83GXL DFW /DEN SEG CNLD CODE910-MECH RMKS OPNL

2059 2150 M83GXL DFW /SLC SEG CNLD CODE911-MECH RMKS OPNL

1601 2200 M83GXL DFW /SAN SEG CNLD CODE910-MECH RMKS OPNL

              — CHG EQ SP80/470 TO M83G/

0343 2205 SP80XL DFW /ELP SEG CNLD CODE911-MECH RMKS OPNL

0785 2205 SP80XL DFW /AUS SEG CNLD CODE910-MECH RMKS OPNL

2380 2205 M83GXL DFW /ORD SEG CNLD CODE911-MECH RMKS OPNL

              — CHG EQ SP80/422 TO M83G/

0403 2220 SP80XL DFW /TUS SEG CNLD CODE910-MECH RMKS OPNL

              — CHG EQ SP80/4WB TO M83G/

1079 2225 SP80XL DFW /OKC SEG CNLD CODE910-MECH RMKS OPNL

2285 2235 SP80XL DFW /PHX SEG CNLD CODE910-MECH RMKS OPNL

0550 2240 SP80XL DFW /SAT SEG CNLD CODE910-MECH RMKS OPNL

1410 2255 SP80XL DFW /TUL SEG CNLD CODE910-MECH RMKS OPNL

1274 2300 M83GXL DFW /AUS SEG CNLD CODE910-MECH RMKS OPNL

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