The Old Pan Am is Finally at Rest

Ahhh Pan Am. One of the kings of "old school" airlines. One of the ruler of the skies when the words "glamor" and "mystique" could still be used in the same sentence as "airline". Did you know that the Pan Am globe logo was second most recognized in the world...just behind Coca-Cola. Yeah, they were that big.

Pan Am started their downhill run to bankruptcy in the 80's. Some say the airline's demise started as the industry began shifting. Others will tell you it was just poor management decisions. Whatever the case, their downhill slide to liquidation was accelerated by one of worst air disasters in that era when a bomb exploded on Flight 103 over Lockerbie Scotland. Finally on December 4th, 1991 Pan Am ceased operations. I remember browsing the web in the late 90's and reading some of the websites that had been started by ex-Pan Am employees. What caught my attention was the number of people that had worked for Pan Am their entire career...15, 20, 30 even 40 years. It became apparent to me that when Pan Am ceased a way of life went with it. If you're curious and want to learn more about what an airline of this size means to those who worked for it you should visit here or here.

Your physics professor will tell that a body in motion will stay in motion unless acted on by an external force. Pan Am was a very big body with a lot of momentum and the external forces acting on it took a very long time to stop it. Some 15 years later the final act came this week when the bankruptcy court approved final payments to be made to employees who were owed back pay and vacation pay. As is typical in these things those who are owed money will only receive about 5% of the total sum. Which illustrates what I believe to be one of the largest flaws in our bankruptcy system. The employees are the LAST in line to get paid and when they are its years too late at a fraction of what they are owed. Whatever...Pan Am is now at rest.

NOTE: The Pan Am name and logo has been sold three times since the original's demise. The Pan Am Connection is a small airline operating a few routes on the east coast between smaller airports.

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: 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: Aloha Airlines Completes a Tri-Fecta

Aloha Airlines is having a good week announcing its flight attendants have ratified a new contract and that it has reached an agreement on contract terms with its pilots. Completing the tri-fecta is the announcement that the bankruptcy court has cleared them for exit from bankruptcy as soon as December 15th. That puts their bankruptcy turn-time at less than one year...lightning fast in airline terms.

NEWS: More on Delta's Financial State

Delta warns of possible pilots strikeMSNBC has a nice wrap up on the information Delta released today regarding its financial state. Predictably its bad...really bad. I say predictably not just because the airline is in bankruptcy but because this is an airline seeking $325 million in concessions from its pilots. It is trademark cookie cutter airline bankruptcy stuff to release this info in parallel with any big negotiation. Click Read More!

Also threatened is the pension plan which Delta estimates needs about $3.4 billion, (b-illion, with a b) in funding to cover 2006-2008. Wow, suddenly $325 million from the pilots doesn't seem like nearly enough. Hello...Pension Benefit Guaranty Corporation?...This is Delta Airlines calling...

NEWS: Virgin America on Final Approach?

Virgin America is finally near launch
After months of wrangling to find the right group of investors perhaps Branson has finally got it all sorted. Laws preventing foreign ownership have really put a crimp in Branson style. With the investors forming up Branson can move on to the next step, airline certification. But wait...whats this...a short cut? Perhaps the recent bankruptcy of Independence Air could offer another route? Click Read More!

So here's the deal. Independence Air has already gone through the pain (and, trust me, it is a pain) of getting its certificate and even though its in bankruptcy that certificate is still valid. So what's a bankrupt airline need? Yes...you in the back...CORRECT, the answer is money. Now connect the dots. Who is amassing enough financing to launch a new airline...BINGO...Richard Branson. So whats the probability that the Branson coalition redirects their efforts to sweep in and "rescue" Independence Air. I even thought he might make a run at United but admittedly Independence Air is a much better target for this type of manuever. So hide and watch kids...lets see what happens because I'm not the only one thinking it

OPINION: United Airlines CEO and Foreign Ownership

United Airlines CEO Glenn Tilton has stated more than once (and as recently as yesterday) that the US needs to loosen up on foreign ownership rules for airlines. He goes on about how US airlines have "stood on the sideline" as international alliance formed left and right. He is worried, nay..."alarmed", that the US is not leading this charge. But I'm not here to talk about his quotes and noble concerns about the industry...I'm here to stir the pot with a lot of conjecture and speculation. Why is Mr. Tilton so vocal about foreign ownership laws? Think exit funding, Virgin America and Richard Branson and you'll have a hint of what I'm on about.

Reason 1: United needs money.
United needs cash to fund its exit from bankruptcy and my guess is they are having trouble finding this stateside. What leads me to say that? Hmmmm...maybe its the 3 years in bankruptcy and the continual exclusivity period extensions.

Reason 2: United is looking to merge globally
I've said before that CEO's normally don't make public statements without an agenda. Is it possible that United already has some ideas about who a possible suitor could be? I'll offer up the possibility of Virgin America, the start up airline struggling to start up backed by none other than Mr. Deep Pockets Richard Branson. (A) Branson has lots of money (B) Branson is struggling to find enough US funding to start a US airline because ironically he can't use his own money because of foreign ownership laws in the US!! Is he looking for a loophole via a merger with United?

NEWS: United Airlines Flight Attendants Approve Deal

United Airlines announced today that their flight attendants have approved their tentative contract. The deal includes wage reductions of 9.5% which should come out to around $131 million in annual savings. The approval margin of 56% was far slimmer than the pilots who approved their new deal by a margin of 75%. It makes one wonder if everyone at United really understands the severity of the situation. This contract, like all of the ratified contracts to date, must be approved by the bankruptcy court before going into effect. The court has made it clear that they will not review and approve any of the new union deals until ALL of them are ratified. So we all have to wait to see what comes of the tenuous situation between the mechanic's union, the airline and the bankruptcy court before we can move on to the next chapter of this soap opera. Twenty six months in bankruptcy and still counting...sigh.