NEWS: House Drags its Feet on Pension Reform

The House of Representatives made the next move the political chess game that is pension reform. The House has simply decided not to vote on the Senate sponsored "Pension Protection Act" (HR 2830) before the current Congressional session runs to a close. This bill garnered wide support in the Senate (approved 97-2) and has the backing of several majors airlines and a fair number of airline related unions. My aren't they a noble group...or not...because their support is based on the fact that the reform bill cuts airline some slack by giving them more time to deal with their underfunding problem. Of course, the House has another pension protection bill being introduced by the Education and Workforce Committee and the Ways and Means Committee so all this wrangling makes perfect sense...right?. Click Read More! for why Congress needs to quit playing political ping pong with this legislation.

Meanwhile, back at the ranch, the Pension Benefits Guarantee Corp (PBGC)finds itself the proud owner of defunct pension plans that are $22 billion underfunded. Two airlines, United and US Airways caused a significant chunk of that deficit and two more might like to add to the problem (Northwest and Delta). Then there's the whole matter of existing pensions across the US that are underfunded to the tune of....wait for it...$450 BILLION. Congress needs to pass something NOW that clamps down on underfunding and increases the fees paid to the PBGC in a effort to prop it up before you and I, dear tax payer, get caught holding the bag.

NEWS: EU Open Skies...Maybe

The United States continues to grind out talks with the EU on a new "open skies" policy and the latest incarnation appears to be on hold while the two sides fall back and give it a reality check. There are some big terms to be ironed out, not the least of which is the EU's desire to see foreign ownership restrictions of US Airlines eased. On the US side of the pond there are several big airlines that would love to see the deal go through. Click Read More!.

No doubt Richard Branson, head of everything "Virgin", would be delighted if the US would ease up on foreign ownership restrictions. He has struggled mightily to wangle the right financing packaging for his planned US airline, Virgin America. He's close but I wonder if he might drag his feet a bit to see if the EU can swing some better terms for him.

"Open skies"is an important deal for the big US Airlines who feel that profit margins are better on the long haul flights. They would like to expand in that market to shore up their bottom lines. Delta Airlines is especially interested having been locked out of the coveted Heathrow market while watching American Airlines and United Airlines operate there via rights purchased from TWA and Pan Am. Its noteworthy that Glenn Tilton, President of United Airlines, has also come out in favor of an open skies policy.

NEWS: AirTran Grabs a Little Midway

AirTran is taking up some of the slack created by ATA's departure from Chicago-Midway airport adding service to both Minneapolis-St. Paul and Boston. You will recall that Southwest recently used its advantage with ATA to grab up another 4 gates at Midway in preparation for their own expansion in that market. Southwest's advantage lies in the fact that they own about 30% of ATA via a loan to keep the airline afloat in bankruptcy.

NEWS: Airbus is All About China

Airbus just landed a $10 billion order for 150 narrow body jets (A320 family). It follows deals China made earlier in the year for 70 Boeing narrow body jets (737) and up to 60 of the yet to be built 787. What may be even more interesting are the other opportunities being handed to China by Airbus and France as a whole. The competition for aircraft sales to China has moved way beyond aircraft price and services. Click Read More!

A Reuters article lists some of the recent business deals between Airbus/France and China. Folks there's a lot of "business" being done here. They include:

Airbus will consider expanding its assembly lines by building a site in China to build narrow body jets.

Airbus has offered China a 5 percent share of the fuselage work for the yet to be built A350 aircraft on a risk-sharing basis.

An agreement with Airbus's sister company Eurocopter to co-develop a heavy lift helicopter for the world market.

Bilateral agreements with France, China for construction of its high-speed Shitai railway link.

China ordered a satellite from telecoms equipment maker Alcatel Alenia Space

Like I said, there's a lot of "business" going on here.

ACRONYM: Bankruptcy Fun with EBITDAR

The airline industry has its share of acronyms (EGPWS, METARS, IFR...I could go on) but the financial world is not to be outdone. Today's acronym is EBITDAR which stands for "Earnings Before Interest, Taxes, Depreciation, Amortization and Rent". Why is this important to the airline world? Weeeelllll, EBITDAR is used as a key performance measure during bankruptcy and the airline world has more than its share of bankruptcy. The important thing is that EBITDAR strips out all of the financial hocus pocus (especially depreciation and amortization) that can cloud what you really need...a good measure of revenue to cash flow. Still awake? Great...then click on Read More!

Last Friday, Delta's hired financial gun, Timothy Coleman, senior managing director at The Blackstone Group, took the stand and talked about, amongst other things the airlines EBITDAR margin (once again from the AP):

"The airline's EBITDAR margin, which estimates the amount of operating cash flow generated by each dollar of sales, fell from 23.3 percent in 1999 to 3.2 percent in 2004, Coleman said.

"The biggest event is the margin has collapsed. When you are at a low percentage you are not a viable entity," said Coleman.

Next year the airline expects to see revenues of $16.08 billion, and the pilots' wage cuts would help the airline achieve an EBITDAR margin of 11.4 percent, Coleman said.

Well, duh! Everybody knows that.

And finally lets not forget that EBITDAR is the more refined but not as popular brother of EBITDA and EBIT...stepbrother to EBITDAX...wahoo! I'm dizzy.

NEWS: Judge Tells Delta and Pilots to Get Back At It

Judge Prudence Carter Beatty (awesome judge name) presiding over Delta's banktruptcy has told the airline and its pilots union to go back to the negotiating table. The other option would be hand it over to a mediator but Beatty says "I have never had much luck with mediators.". Delta maintains their ready to negotiating anytime and the pilot's union says "yeah us too" but questions whether the airline folks really understand the term "negotiate". Union chairman, Lee Moak was quoted by the AP as saying, "What she (Beatty) was suggesting is that the other party could learn how to negotiate," he said. "It's hard to negotiate if one party does not move off one position." Delta claims they are just asking for the minimum cuts they need to stay afloat. I think the next sit down with these two groups could end up being pretty brief.

NEWS: LAX Expansion Plans Get the Smack Down

An $11 billion dollar LAX modernization plan has been halted by a tenacious grassroots effort. After 10 years of planning and court battles LAX has conceded and agreed to a deal that will limit passengers served and will actually reduce the number of gates at the airport. $150 million has already been poured into the planning of the project and now its back to the drawing board. The question in my mind is, what does this do to the plans to rework LAX for the Airbus A380? LAX is already under pressure from future A380 operators that are threatening to take their business elsewhere if the airport cannot keep needed improvements on schedule.

NEWS: Better Financials for Airlines in 2006?

The whole airline sector dogged it all the way through 2005 but Lehman Brothers airline analyst Gary Chase thinks 2006 will be better. He notified client that they have raised price targets for many airlines, including legacy airlines, noting that "a recent disconnect between energy prices and airline shares" has created "upside opportunity." Perhaps what Mr. Chase points to is simply an investment opportunity based on share price but I would not take it as a revelation that airlines are set to get back on track in 2006. Click Read More! for my opinion on the matter.

The airline business model in the US has not changed in any significant fashion. Most airlines still feel the best way to combat profit stifling fuel prices is to whine about them continuously and loudly in the hopes that the government will give them a handout. If that doesn't work the next best option is to file for bankruptcy, clear out the labor contracts, shove new lease and debt terms down everybody's throat and then exit so they can pick up where they left off. All they have done is cut costs and that is not enough to support their penchant for capacity dumping and fare battles in the name of "preserving" their market share. What good is market share if the prices in that market are so depressed that you can't make money. Its a vicious circle and I, for one, am dizzy. Please stop the ride.

So sure, maybe there is some Wall Street market play to be made here, but that has nothing to do with the health of the industry.

NEWS: Old Ghosts Haunt the "New" US Airways

The ghost of broken rules past came to visit the "new" US Airways today in the form of background check violations that occurred at America West in 2002-2003. The TSA has given them formal notification that they will be fined nearly $180,000 for failing to background check people working in secure areas at their airport facilities. Ummm...oops? A few things hit me regarding this:
-Its 2005, damn near 2006, what took the TSA so long to figure this one out!?!
-I wonder what, or who, put the TSA onto this trail in the first place.
-Why do I feel good about posting something involving an airline and a $ sign without having to add the word "million" or "billion"?

NEWS: This Just In...American Airlines in Love!

American Airlines has issued a brief statement indicating that they will be begin the process to apply for service out of Love Field in Dallas. The press release simply states the move was prompted by the recent passage of a bill that exempts Missouri from the restrictions of the Wright Amendment. Notably absent from the release was the marketing spin pomp and circumstance that normally accompany an airline starting service at a new, or in this case...old, location.
UPDATE 1: They better get it done fast...Southwest is expanding again at Love Field. Run Forest run!

UPDATE 2: Quote from Southwest spokesman Ed Stewart, "It's one of the most ridiculous business moves I've ever seen,". Click Read More! for additional comments

RRRRRRiiiiggghhtt. Next Southwest will be saying "Pay no attention to the man behind the curtain"...or waving their hand in Jedi fashion "This is not the airport you seek". Come on Southwest. I mean seriously did you expect them to just walk away from Love Field at this point?

But check out American spokesman Tim Wagner as he steps up to the plate with this hum-dinger, "We agree that it's a bad choice, but we think we're making the best of two bad choices: To abdicate those passengers to other airlines or to compete for those passengers at Love Field"

Sit down...this is just getting good.

Folks, adding the state of Missouri back into the Love Field equation is not what's at the heart of the matter for American. In a larger sense its tacit acknowledgement from American Airlines that they believe the Wright Amendment is going to suffer a slow piece by piece death over some extended time frame. I think you will continue to see exemptions work their way through Congress until the Wright Amendment is effectively legislated out of existence. American recognizes they'd better get their foot back in the door before every other low fare carrier in the nation tries to get with the Love too. But that's just my opinion...what do I know...I never thought United would make it out of bankruptcy...oh wait...they haven't yet...but they say they will soon.

Good article here.

NEWS: Delta Airlines Loss is Breathtaking

If Northwest's post bankruptcy losses put you a bit off-balance then make sure you're sitting down for this one. Papers filed in bankruptcy court by Delta Airlines indicate that it lost $1.1 BILLION between Sept 15 and Oct 31. Once again there's some bankruptcy related financial wrangling going on but taking that out of the equation still leaves you with a $472 million in losses...$10 million A DAY. With those numbers its painfully obvious that the $3 billion in cost savings that Delta is pursuing in bankruptcy will not save it. Something more is needed.

NEWS: Northwest Airlines Continues its Losing Ways

Losing ways as in losing money...a lot of it. The latest court filings show the airline has lost $346 million since filing for bankruptcy on Sept 14th. A quick math check tells me that comes out to about $4.4 million a day. I'll say that again...A DAY! If you scrape the normal bankruptcy induced financial chicanery off you still end up with $136 million and that's STILL $1.7 million a day. Sure, fuel costs weigh in heavy but people, really, something else is wrong if your business model cannot compensate for changes in normal operating costs (that would be fuel amongst other things). Airlines have been droning on about fuel costs for a year or more yet no one has figured out how to get around it save Southwest who simply bought a bunch of fuel in advance. Get on with it boys and girls, get this figured out or just admit defeat.

NEWS: Southwest Adds Missouri to its Love Field Repertoire

The ink is barely dry on a bill freeing up airlines to fly to Missouri from Love Field in Dallas and Southwest is all over it. Southwest has announced new service to both St. Louis and Kansas City starting Dec 13th. While the good folks of these two cities will surely welcome the low fare competition American Airlines is taking a double hit. American picked up market share in St. Louis and Kansas City when they absorbed TWA and have enjoyed a competitive advantage there. Now Southwest is set to pilfer that business from both ends...the other end being Dallas. On a final note...I just used the word "repertoire" in a post...kick ass!

NEWS: Mexicana Sold Off, Aeromexico...Not So Much

Mexico's "state airline entity" Cintra approved the sale of Mexicana leaving AeroMexico as the final state run airline still in need of a new owner. I had posted previously on the difficulties Cintra was having in ridding itself of both airlines auction style. Grupo Posadas is the new owner of of Mexicana (details here)in a deal that also included low fare carrier Click. This is a pivotal time for Mexico based airlines. Click Read More!

Can AeroMexico be repackaged and sold off in time to compete with a privately run Mexicana which should benefit from an infusion of private dollars? More important, can the Mexicana's new ownership make it successful? There's been much debate regarding Mexicana's inability to make money with some attributing this failure to being "state run" while others point at the internal workings of the airline itself. When I look at this whole process and the fact that major players like Spain's Iberia and Icelandair backed out of bidding on these airlines I have to wonder. Mexicana may indeed be dysfunctional to a point where the larger players didn't want the headache. Finally, any airline trying to operate out of Mexico faces a lot of competition from airlines based north of the border. In my opinion, Grupo Posadas has it hands full.