enplaned

Monday, March 06, 2006

Great British Design Contest

No, it's not an oxymoron. Via Flight, the BBC is having a contest to choose UK design icons and two of the three semifinalists are aircraft, the Concorde and the Spitfire.

Now, we generally have little time for military designs because they're just not very interesting to us. But in terms of utility, there's no question about which of the aircraft finalists is the most important, and that's the Spitfire. R.J. Mitchell's brilliant Supermarine Spitfire (along with the Hawker Hurricane) were the two main tools RAF pilots used to win the Battle of Britain (never in the field of human conflict was so much owed by so many to so few, and all that). In contrast, all the Concorde ever did was transport I-bankers and other overpaid parasites across the Atlantic quickly. It didn't save the UK -- in fact, one could argue that devoting so much time and energy to this failure was damaging to the UK's aero industry. And it's half-French, what? Not to mention it was a wholly uneconomic technological dead-end, however fast it went.

So between the two aircraft finalists, we don't think there's much choice, and we fully endorse Flight's (unstated, but clear) favorite, the Spitfire (it would be typically British, however, to choose a magnificent failure like the Concorde. The spirit of Scott lives on).

However, the third choice is London's Underground map, and that truly is a design icon. Both useful and undoubtedly iconic. If there's any justice in the world, that will be the winner.

Image: Beautiful and deadly, the Supermarine Spitfire, via Aeroflight.

Boeing Eying Small Jet Manufacture

Flight article says Boeing is clustering 737 replacement studies around two entries, one the traditional 150 seat size, the other in the 90-100 seat size, squarely in the regional aircraft domain. Not great news for Bombardier and Embraer if true. Perhaps Bombardier should have left sleeping dogs lie, rather than promote a (now dormant) proposal for an aircraft that would have competed at the low end with Airbus and Boeing.

The old argument against Boeing getting into the smaller jet arena would have hinged on its high manufacturing costs. Perhaps Boeing has simply driven so much cost out of its processes that this is no longer as great an obstacle as it was. If it has, and if it can offer useful commonalities from 90 seats through the 747-size aircraft, Boeing might be a tough competitor.

Perhaps Bombardier should attempt to become Boeing's partner in such a venture. See our prior post on Bomber's murky future. Interesting to remember that Boeing once owned deHavilland Canada, which later became the turboprop portion of Bombardier's aerospace portfolio.

Ft Worth Alliance Airport: Wright Hypocrisy

Apropos of the previous post, there’s a perfunctory discussion about Ft Worth Alliance Airport (AFW -- picture above) in From Prairie to Planes in which the authors make the incredible claim that AFW was built to relieve the congestion at Dallas-Ft Worth (DFW) airport.

Alliance Ft Worth is an “industrial” airport within the northern city limits of Ft Worth. It also happens to be a major hub for Fedex. AFW was built in the late 80s by the Perot family.

AFW is important to the Wright Amendment fight because it’s arguably an underappreciated example of hypocrisy. In conjunction with building DFW, the cities of Dallas and Ft Worth signed covenants for the bonds that were sold to fund the airport. In it, the two cities agreed not to do anything that would undermine the prospects of DFW. In particular, they agreed to prevent certificated air service at any municipal airport other than DFW. This was the basis for the city of Dallas trying numerous times to shut down Southwest’s service at Love Field in the early 1970s, an effort that was ultimately prevented by court rulings. This is also a significant basis of the fight against further opening of Dallas Love Field.

The interesting thing is that the relevant covenant makes no distinction between cargo and passenger service, yet in 1997, Fedex (which is without question a certificated air carrier) opened its southwest hub at AFW.

Forgetting the legal argument for a moment, the idea that DFW is too congested to host a Fedex hub is ludicrous. DFW is physically one of the largest airports in the world, as anyone who has been there can confirm. Further, DFW has seven (count ‘em) full-size runways. It is not short of runway capacity, even considering that its American Airlines hub is the second-largest in the world (after Delta at Atlanta).

Further, Fedex hubs operate at night, mostly in the early morning, precisely complementary to daytime passenger activity. Not only that, but if Fedex had its hub at DFW (and was paying landing fees for using otherwise lightly-used runways all night) that would reduce costs for all other users of DFW (spreading fixed costs over more flights), thereby indubitably strengthening DFW (so one cannot argue that having Fedex at another airport is somehow neutral with respect to DFW’s fortunes).

We don’t know the exact reasons why Fedex chose to put its southwest hub at AFW rather than DFW, but given that Fedex is presumably a mostly rational profit-seeking corporation, it’s safe to assume that it ultimately boiled down to cost: Fedex presumably thought that AFW would be cheaper than DFW.

This is, of course, exactly the reason why Southwest wants to keep flying at Dallas Love Field rather than move to DFW – it’s cheaper. Totally rational and an unambiguously good thing for Southwest passengers, since the difference in cost per 1000 lbs landing weight at DAL is roughly 1/10th that of DFW.

We, of course, are not lawyers (thank heavens), so we’re not qualified to say whether AFW is, in fact, a legal violation of the DFW bond covenants. But it’s transparently a violation of the spirit of these agreements. If it is all so dang important that all commercial service go through DFW airport (something we don’t agree with, but is an article of faith for Wright Amendment supporters) what the heck is Ft Worth doing tolerating the presence of Fedex at AFW? And if DFW supporters were eventually successful in shutting Love Field to commercial service, surely this would also logically require that the Fedex hub at Alliance be shut down? Which, of course, makes no sense at all.

The reality, of course, is that big metro areas almost always have multiple airports with diverse uses, and that is simply normal.

Wright Reading/Wright Out the Door?

Anyone who is interested in the Dallas Ft-Worth Airport (DFW) vs Dallas Love Field (DAL) fight, find and read this book:

From Prairie to Planes by Darwin Payne and Kathy Fitzpatrick (1999).

Unfortunately, it’s no longer in print, but we got a clean used hardcover copy for about $2.50 (through an Amazon affiliate) plus about double that in shipping and handling. It’s the story of the creation of DFW, but it gives the history of Dallas & Ft Worth commercial airline history right back to the dawn of aviation. It’s not particularly well written (it’s repetitive in places, sometimes within the scope of successive paragraphs) but it’s jam-packed with useful Dallas Metroplex background. Required reading for anyone who wants to shoot their mouth off in public on the topic of the Wright Amendment.

The Dallas vs Ft Worth airport saga goes back to before WWII. Yes, there is 60+ years of rivalry here. It’s hard to avoid the conclusion that Dallas has almost always has lost the political argument, despite having by far the economics on its side. Love Field was the preferred airport of passengers through the early 1970s, and Ft Worth constantly sought ways of undermining it. Passengers preferred Love, but Ft Worth ultimately found a political way of shutting it (or nearly so) and moving the center of economic gravity closer to itself.

Both the old Civil Aeronautics Board (CAB -- the govt agency that regulated US airlines pre-1979) and the Federal Aviation Administration (FAA) explicitly forced Dallas into building DFW and (mostly) shutting down Love Field by saying they would not fund Love Field nor permit international flights from there. This level of government interference seems mind-boggling today, but was par for the course back in the days when regulators were sure they knew better. It’s interesting, for instance, that the Federal govt identification with Ft Worth went back to the very earliest days, when the local CAB office was established at Ft Worth Meacham Field.

Furthermore, originally Dallas and Tarrant counties (Ft Worth is located in Tarrant county) planned on creating a joint authority (with taxing power) to build and manage the airport, but the people of Dallas defeated it in a referendum (and it lost both on a county-wide and city-wide basis). So the Dallas city fathers simply ignored the results and went ahead and built DFW as a joint venture between the cities of Dallas and Ft Worth directly. So much for democracy.

Although this airport no longer exists (and was in fact a failure), the construction of Amon Carter Field (ACF) was probably key to the long-term success of Ft Worth in undercutting Love Field. Ft Worth built ACF as its airport in the 1950s, it was located just south of today’s DFW (today’s American Airlines HQ is on the former site of ACF). There’s a great website about the life and times of ACF here.

ACF was exactly halfway between Dallas and Ft Worth, and Dallas was, in fact, interested in participating in the project (Love Field was always land-locked and difficult to expand) until Ft Worth moved the entrance to the airport from the north side (equally accessible from both Dallas and Ft Worth) to the west side (facing Ft Worth). At that point, Dallas saw ACF as a blatant attempt by Ft Worth to move the local center of economic gravity closer to Ft Worth, and wouldn’t have anything to do with ACF. So Ft Worth blew an earlier opportunity to have a joint airport with Dallas.

ACF was a magnificent facility when it was opened in the mid-50s, with one of the finest terminals in the world, long runways, etc. On that basis it was widely expected to damage Love Field by the powers-that-be. Instead it was a tremendous flop. Passengers voted with their feet, and almost all the flights moved back to Love Field, because it was closer to where most people wanted to go (Dallas, then as now, being larger than Ft Worth). The powers-that-be had zero understanding of the economics of commercial aviation, it transpired, something that is still largely true today: most people just don’t understand how this business works, and some of the least educated are politicians and bureaucrats.

It’s pretty clear from the book that regulators viewed the if-you-build-it-they-will-come failure of ACF almost as an insult (the Ft Worth city fathers were, of course, very unhappy) – they’d predicted, and wanted, ACF to be the preferred airport, but in fact they were dead wrong. And it is unfortunately in the nature of bureaucrats to take such things personally. It seemed self-evident to regulators that there “ought” to be a single airport in between Dallas and Ft Worth. The fact that there de-facto was a single airport, and its name was Love Field and it was located in Dallas, was unacceptable.

Ironically, by the time DFW was opened, Love Field was in fact saturated (or close to it), meaning that had the bureaucrats simply not interfered, by the early 1970s ACF (or, as it was by then renamed, Greater Southwest International Airport) would almost surely have become a success. Instead, the entire airfield, including the whole passenger infrastructure built only 20 years earlier, was plowed under as part of DFW construction. Few people understand that DFW displaced a substantial airport that had been completed only two decades before.

The book also shows that there’s little new under the sun. Some Texas politicians are now trying to create a “local solution” to the DAL vs DFW issue that might include a regional authority to run all the Dallas Metroplex airports. This has been proposed many many times over the past 60 years or more – unclear why we should expect it to happen now. It’s also unclear why layering on another level of (expensive, tax-absorbing) bureaucracy would be a good thing.

Finally, we strongly suspect the two sides have very different agendas relative to such an authority. We suspect Wright-repealers (to the extent they sees it as desirable at all) sees an authority as a way of ensuring that a fully-open Love Field could share revenues with DFW, thereby ensuring DFW’s finances are not undercut by the repeal of the Wright Amendment. On the other hand, we bet that Wright supporters see it as a vehicle for shutting down Love Field once all Dallas-area airports are under common control.

The good news is that if this article (or this opinion piece) is at all accurate, it appears that the Wright Amendment is on its way out, as the “compromise” discussed in the article is all about elimination of the Wright Amendment, whether after two or five or ten years. The perception of the Ft Worth newspaper is that Wright is on its way out faster than many expected. Let’s hope so.

Map showing location of significant Dallas area airports:

Key:

A = DAL = Dallas Love Field
B = DFW = Dallas/Ft Worth International Airport
C = AFW = Ft Worth Alliance Airport (see also this post)
D = FTW = Ft Worth Meacham International Airport

Past posts on Wright Amendment here.

Wednesday, February 08, 2006

Aircraft Appraisals: Handle With Care

There was one other 737 article in the most recent Flight International that we haven’t yet mentioned (our prior posts here and here on FI’s recent 737 issue). Perhaps the best reason to click through to the article is the images of what Flight thinks the next generation Airbus and Boeing narrowbodies might look like. The rest is just a bunch of appraisers (and some other airline observers) giving their views on the narrowbody segment. Appraisers value aircraft for buyers, for sellers and definitely for financiers and investors. So it’s a good excuse for us to talk about appraisers, a small but important part of the commercial aviation ecology.

We previously said (in this post) that there are lies, damn lies and aircraft manufacturer list prices. Much the same could be said of aircraft appraisals, another rarely-realized price. There are appraisers you use when you want to buy an airplane and appraisers you use when you want to sell an airplane, and in our experience, too few outsiders understand which are which. Some of the bigger appraisers are Airclaims, Avitas, Aviation Specialists, MB&A, BACK Aviation Solutions and there are at least half a dozen others. Just as for cars, many aircraft appraisers publish half-yearly “blue-books” with their idea of current (and future) aircraft values, plus they’re engaged to do appraisals on specific aircraft, or aircraft portfolios.

Appraising an aircraft is, to be sure, not an easy task, especially projecting values (predicting the future is hard). First of all, no one is required to publish the price at which an aircraft, new or used, is sold, and in fact generally the buyers and sellers go to some lengths to keep the price a secret. So appraisers don’t even get to see most data on real transactions.

That said, you can sometimes get an idea of what the sales price of an aircraft was. For instance, Ex-Im (discussed in this post) might say it guaranteed a certain amount of financing for an aircraft. Since the maximum guarantee is for 85% of the net-net price (plus the 3% guarantee fee) and since chances are the airline asked for the maximum financing, well, it’s just a matter of math to unwind that. Or by carefully untangling the balance sheet movements of an airline, you can get a good idea of what, say, JetBlue pays for A320s or Southwest pays for 737-700s.

Used transactions are more difficult. But the more liquid an aircraft, the more it sells, the more information is around, the more likely an appraiser is to get wind of what the real prices are.

However, other things complicate the used market. As we discussed in this post, the maintenance condition of an aircraft can have a big impact on what it’s worth. How old is the airplane? How many takeoff and landing cycles has it undergone? Where was it used in the past? Does it have a special heavy takeoff weight? Does it have more powerful engines than the base model? Just like cars, aircraft types have optional equipment and the exact specification can have a significant impact on the price.

And there are many used transactions that involve an aircraft under lease -- the owner changes but the aircraft stays at the lessee. Suppose the airplane has many years to go with a very fat lease rate to a good airline. The sales price will include the present value of this over-market lease. The reverse is also possible – an aircraft may come with a below-market lease, in which case the resulting aircraft price will seem unnaturally low.

So these are all factors that an appraiser has to untangle before s/he judges how much a given transaction price is relevant to the market, and that’s assuming s/he can get the price in the first place. Although, for the record, we've only ever met one woman appraiser. It seems to be a heavily male-dominated job.

But appraisers don’t necessarily do their reputations any favors either. Consider the appraiser concept of Base Value (BV), as distinct from Current Market Value (CMV). CMV is the appraiser’s idea of what you could sell the aircraft in the market today. At least, that’s what it’s supposed to be. If you challenge an appraiser on this point (“so you’re saying that if I went into the market today with this aircraft, that’s the price I could expect to get?”), you will often get a distressing amount of waffling in response. But at least conceptually, CMV is straightforward.

Not so in the case of Base Value. BV “pertains to a somewhat idealized aircraft and market combination” according to the handbook (pdf) of ISTAT, the aircraft appraiser organization (yes, there are in fact standards). Hmm. Sounds quite subjective. It is. Conceptually (and these are our words, not ISTAT’s) it’s the value of the aircraft in a “normal” market, according to its “highest and best use” (that phrase is ISTAT’s). This is some sort of idealized value -- a slippery concept at best, but you might not realize that if you didn’t know a heck of a lot about the aircraft market.

Interesting thing is that many aircraft financings are based on BV – hardly surprising given that bankers are in the business of making their deals look good, and BV is almost always bigger than CMV – so using BV will reduce the apparent loan-to-value. For instance, this 1998 prospectus for a refinancing of Airplanes (a big aircraft securitization that we discussed in this post) is shot-through with references to BV – that was the appraisal concept used in that deal.

You’d have thought that perhaps a more conservative approach would prevail post 9/11. Not so. This post-9/11 EETC (enhanced equipment trust certificate – a structured bond financing and secured by aircraft) by JetBlue still uses BV. Were we investing in an aircraft deal, we’d want to see, at a minimum, CMVs, and from a conservative appraiser.

As we said, it’s concepts like BV that do appraiser reputations no good. Another issue is that sometimes the values that different appraisers give the same aircraft are almost laughably different. In our experience, this problem is generally the worst for rare/illiquid aircraft, where there is not a lot of data for appraisers to rely on. Still, for older, low-value aircraft, we’ve seen appraisals differ by as much as 100% across appraisers. Not a lot of comfort from that.

So, if you’re in the used aircraft market, or otherwise relying on appraised aircraft values, be careful, be very very careful. Don't say we didn't warn you.

EAS: Flying to Where People Don't Want to Go

Article in the Modesto Bee (never let it be said that we don't cast our net widely) about Mesa's EAS proposal to fly from Las Vegas to Merced, California. EAS stands for Essential Air Service, a program of the US govt to pay airlines to fly places to which people don't want to go (i.e., there's no viable commercial demand). The program subsidizes service to small burgs across the country -- in theory the airlines that receive such funds are supposed to make something like a 5% profit. Here's a list (pdf) of the cities subsidized this way, and the annual subsidy. There's a separate list (pdf) for Alaska.

Surprise, surprise, in general we think this is a waste of money. The airlines receive this money to ensure access to a community, and then those airlines often charge nosebleed fares that are quite at odds with the motive of ensuring access. For instance, the Mesaba service from Memphis to Muscle Shoals (which appears first in the list referred to above) has a one-way last-minute fare of over $300 for a 136 mile flight. If the govt is going to hand out money to ensure access, perhaps it should at least ensure that fares aren't quite as egregious as that. Of course, this program is a favorite of many congresscritters -- another way to direct pork to the local community -- so unfortunately it's likely to be with us for years to come. EAS service can lever other federal funds into an airport -- for instance, commercial service means a TSA presence...

In the case described in the Modesto Bee article, Mesa is trying to take away the EAS subsidy currently going to Scenic Airlines for providing service from Las Vegas to Merced, CA. Mesa's application with the Dept of Transportation (DOT) is here (pdf). While Mesa is not to everyone's taste (prior posts on Mesa here and here) it seems that logically Mesa has a pretty good case, since it's offering to fly to the main Las Vegas airport from Merced (where passengers have easy access to connections on Mesa code-share partner America West/US Airways), where as Scenic Air flies from the small North Las Vegas airport.

Nonetheless, the Merced city fathers have voted unanimously in favor of Scenic. One thing we noted is that Scenic actually charges pretty reasonable fares to Las Vegas -- as low as $99 for a 300 mile flight, not bad by the standards of EAS. However, the DOT doesn't necessarily do what the local community wants. Recently it awarded EAS service to Cedar City, UT to Mesa over the objections of the local community.

Our preferred solution: drive from Merced to Modesto (about 40 miles) or Fresno (about 60 miles) and use the unsubsidized air service available there -- after all, what's a 60 mile drive in California? For that matter, the article says that Scenic plans to start unsubsidized service from Merced to Reno, so it's unclear why Merced needs EAS service at all, to the extent any city truly "needs" EAS service.

Image: Scenic also runs sightseeing trips over the Grand Canyon in deHavilland Canada Twin Otters. Yes, that's the name of an airplane.

Yet Another Reason To Avoid Russian Airlines/Aircraft

Plundered from the excellent Airliners.net commercial aircraft website, a recent incredible picture of a Russian aircraft just barely making it airborne by the end of the runway at Phuket, Thailand. It's worth clicking thru here to read the caption.

The aircraft is a Il-86, in some ways a four-engine knockoff of the original Airbus A300 design. It was the first Soviet wide-bodied design, and not a very successful one. You couldn't pay us enough to fly on a Russian airline, and we'd be doubly reluctant if the Russian airline was still flying Russian equipment.

Tuesday, February 07, 2006

United Non-Wage Costs

United filed the slides that CFO Jake Brace presented today at a conference. Here's a pdf version of the whole thing or, less conveniently, here's the version presented directly to the SEC. There's a lot of interesting material in there if you're an airline junkie. We'll just touch on a couple of slides.

The slide above (double click for a bigger version) shows something that has been noted for some time, that American has been far more successful since 9/11 at reducing non-wage costs than United. This is a counter-intuitive result, since United restructured in Chapter 11 and American did not. Chapter 11 gives a company the right to abrogate "executory contracts" (as we discussed in this post) so with this significant additional flexibility you would expect United to have been able to reduce non-wage costs more than American. But instead, American has blown United away.

To be fair, United has chosen to pursue a more complicated business model. United, in fact, seems to love to create brandnames -- Ted, p.s., explus, etc. We're not sure that any of this is to any real purpose -- does this profusion result in material revenue gain or does it just result in confusion? We suspect a fair proportion of the latter. In particular, we're not a fan of United's low-fare Ted division for reasons explained here.

Still, we think the above slide is evidence that United's restructuring has been heavy on brute force (check out this slide on United's alleged annual savings and count how much of the pie is out of the pockets of other parties, whether employees -- a huge fraction of the pie -- aircraft financiers or United's regional partners -- and see also our earlier comment) and light on intelligence (American's done brilliantly to cut non-wage, non-fuel costs by 20% without the ability to simply eliminate contracts it no longer wants).

On the one hand, this presumably means there's a lot of cost savings left to be had at United. Perhaps it's simply the nature of bankruptcy that you only bother with the broad strokes. On the other hand, getting such savings requires two things that American has largely had in the last three years and United still does not: (1) best management in the US airline business and (2) good working relationship with employees.

Related: United pumping fares back up after Independence Air's demise. Via Ben Mutzabaugh's Today in the Sky. At the end of the day, there's something to be said for patronizing your local LCC, even if it doesn't have the tasty frequent flyer miles of your favorite legacy major. LCCs, broadly, are still the consumer's friend. Legacy majors, broadly, are not. Of course, the reality is that people are swayed by frequent flyer miles, and any new airline business plan that doesn't take that simple fact into account is extremely unwise.

Whither Bomber

In the wake of Bombardier’s decision not (for now) to build the CSeries aircraft (our earlier post), a popular question is what future does Bombardier have in the regional aircraft business. Flight Intl has articles looking forward and back. Assuming we were being paid a boatload of money to help Bombardier answer this question (which, alas, we’re not) here’s what we’d say.

First, does Bombardier still want to be in this business? One thing to note is that Bombardier has to date not produced an all-new regional aircraft. Bombardier is a former snowmobile (or snow-machine, as some prefer to call it) manufacturer made good. It got into transit and train manufacturing, then entered aerospace by acquiring Canadair (a Canadian bizjet manufacturer), Learjet (US bizjet manufacturer), deHavilland Canada (a turboprop manufacturer) and Shorts (a UK turboprop manufacturer). In the case of the non-US properties, at least, it purchased the companies for a song and with the intense gratitude of Canada or the UK for cleaning up money-losing state-owned companies.

The CRJ series of regional jets (RJs) was a derivative of the Canadair Challenger bizjet, with a design that dates back to the 1970s, way before Bombardier was involved. The current Q-Series of turboprops dates back to original deHavilland Dash 8 first certified in the early 1980s, again before Bombardier was involved. So again, every regional aircraft produced under Bombardier ownership has been a derivative.

To date, Bombardier has been the McDonnell Douglas of the regional aircraft business – McDonnell never built an all-new commercial aircraft after it bought Douglas (except for the DC-10 which was arguably already on the drawing board). Every aircraft thereafter was a derivative of an existing design. McDonnell Douglas eventually lost all credibility as a commercial aircraft manufacturer.

So it may be that Bombardier concludes it doesn’t make sense to be in this business long-term, in which case the CRJ series of RJs will simply be a 1990s one-hit wonder. That’s a totally understandable outcome, in fact we suspect a reasonably likely outcome. As Flight correctly notes, the 100-seat jet market is a tough one, littered with failed projects -- such as Boeing's recently cancelled 717.

In fact, historically (pre-RJ) the regional aircraft market has never been very profitable, though we think that has to do with the fact that this was a favorite place for governments to interfere, it being the place to lose money if you want a national commercial aircraft business. Against that, however, the number of such manufacturers has declined precipitously in the last decade or so: Fokker, Saab, Fairchild, Shorts, BAE Systems (and all its predecessors) etc all no longer make aircraft. There is some level of commercial demand for these aircraft and with the only real players left being Bombardier, Embraer and for turboprops, ATR, presumably someone can make some money at some point.

So let’s suppose Bombardier wants to stay in this business. It’s the largest player in bizjets, so it’s in aerospace anyway, and it has built at least one all-new bizjet, so far as we can tell (we think bizjets are a bit boring, so we don’t pay that much attention to them, but the Global Express (pdf) and the Challenger 300 (pdf) are basically all-new, is our understanding). Plus Bombardier did get the Canadian, Quebec and UK governments to stump up C$850mm in launch aid for the now foregone (for now) CSeries, so its governments are behind it. What’s the right strategy?

First, think longer term: Bombardier shouldn’t aim to launch an all-new aircraft in the immediate future, it should think about launching it when it has the right technology. Bombardier apparently doesn’t have the ability to produce a carbon fiber regional aircraft yet: the CSeries was designed to be conventionally built. There’s no point in being the last guy to build a conventionally built aircraft now that the 787 is out there. Thinking a little longer term lets Bombardier set a goal of making its next aircraft carbon fiber.

Second, think across the entire product range. The Q-Series turboprop (TP) suffers from the same problems as the CRJ series: the fuselage is too narrow and the design is fundamentally old. It’s simply not that comfortable four abreast in a Q-Series. OK, so TPs are typically optimal on short flights, so passengers aren’t cooped up there for long. But if Bombardier is committed, long term, to TPs, and if it truly believes they can be as attractive to passengers as RJs, then it should ensure that that’s true. Plus, ATR is Bombardier’s only real TP competitor, and as we noted once before, its design is also 20 years old, so it’s not too early to think of an all-new turboprop.

Why not work towards the design not only of a new RJ family but also of a new TP family with (as much as possible) a common carbon-fiber fuselage? This may turn out to be difficult. Like the Q-Series, TPs are often high-wing (which is good for rough field landings and whatnot) while RJs are generally low wing. Does a new TP need to be high wing? If so, does that make it more difficult to use the same components in both a new RJ and new TP family? TP and RJ aircraft have different operating characteristics. Does that make common fuselage cross sections impractical? Something to be answered. But clearly, the more commonality across both RJ and TP families, the more costs can be amortized across a greater number of aircraft.

Third, don’t antagonize Airbus and Boeing. As we said before, the CSeries was a clear attack on their territory. Ensure that a new RJ family doesn’t go near Airbus and Boeing territory. Perhaps it will then be possible to get the cooperation of one or both of them in developing carbon fiber technology for a new Bombardier RJ/TP family.

Fourth, co-opt wannabes. Russia’s Sukhoi wants to build a so-called Russian Regional Jet (RRJ), possibly with participation by Italy’s Alenia. In our view, this is foolish. Given a choice between flying in a Russian aircraft and a western aircraft, what would you choose? So would most people (although the observation has been made, correctly, that 30 years ago the idea that people would willingly fly on a Brazilian made jet – Embraer – would have been thought absurd). Sukhoi should be persuaded that it will do far better to make a part of a future Bombardier-branded aircraft that people will buy than to build a majority of a Russian-branded aircraft that will be hard to sell in the west. If Russian national pride requires it, agree to a second final assembly line in Russia.

Fifth, put your money where your mouth is. If Bombardier wants to stay a player without immediately launching a new aircraft it should make a very public commitment to develope regional aircraft technology (especially carbon fiber). Ask the governments that previously committed to back the CSeries to contribute some proportion of that money in the name of increasing national technological capital and then add a lot of dough on top. If Bombardier wants to demonstrate it’s still a player, nothing convinces like putting money where ones mouth is.

Sixth: make lemons out of lemonade. Orders for the CRJ200 50-seat RJ have come to a near halt, and there are blood-curdling predictions of hundreds of surplus 50-seat RJs in the US (see, for instance, Mike Boyd). Whether that comes true or not, we strongly believe that 50-seat RJ values will be under great pressure for the foreseeable future. OK, fine, low-cost second-hand CRJ100/200s mean that more airlines around the world can afford these things. This is Bombardier’s opportunity to place such aircraft at airlines that would never before have considered the aircraft, and thus develop airline relationships and Bombardier’s global support network. Make Bombardier global support second to none so that Bombardier customers want to buy a future Bombardier aircraft.

Bottom line – there’s no point in trying to chase Embraer’s 170/190 series aircraft, the idea should be, if anything, to leapfrog it -- or failing that, go gently into the night.

(By the way, at the end of 2003 the original snowmobile business was spun out as part of BRP, the former Bombardier Regional Products).

Image: Bombardier Q400 -- the latest, longest derivative of de Havilland Canada's original Dash 8.

More Flight Intl 737 Nutrition

As MRO Wire points out (and we somehow unaccountably overlooked) lots more Flight International 737 stories this week, all marking the construction of the 5,000th 737.

FI article on future 737/A320 replacement designs. Key takeaways:

Applying all current technology and aerodynamic tricks to a new design results in only a modest improvement over current efficiency. It's all up to the engine manufacturers: Airbus and Boeing need new engines to work with, currently not expected to arrive until 2013-14 or so. We also note that apparently the Boeing plans include a cabin cross-section "wider than the A320". We've harped on that deficiency quite a bit recently.

As we've pointed out before, by the way, most of the current players have an incentive for playing down the potential benefit of a new narrowbody. Neither Airbus nor Boeing is currently in a position to spend on a new program, and both programs are selling very well. Why would they want to disturb the status quo until they have to? Same, more or less, for the engine manufacturers: GE's CFM56 (which is on both the 737NG and the A320) is selling like hotcakes and both Pratt & Whitney and Rolls-Royce are getting some action through their IAE joint venture (which powers some A320s).

We're unsurprised to see Pratt mentioned as pushing a new type of engine. Pratt dominated the first generation of narrowbodies, and then was largely swept from this dominance by CFM. Further, it's been eclipsed by both GE and Rolls in engines for widebodies, so if any party has something to gain by disturbing the status quo, it's Pratt.

FI article on 737 history. Some key points:

Boeing once offered to sell the whole 737 program to the Japanese. This was during financial straits of the early 1970s, which we previously discussed here. It also considered shutting down the program.

Benefits of wing-mounting the engines vs tail mounting. At the time the 737 was developed, the standard for this size aircraft involved tail-mounted engines: consider such predecessors/competitors as the Caravelle by Airbus-predecessor Sud-Aviation, Douglas DC-9, BAC 1-11, and larger predecessors/contemporaries 727, HS Trident. Boeing instead crammed the engines under the wing ("crammed" is right, there wasn't that much room there, which is why on the original 737, the engines are mounted more or less directly to the wing, instead of on pylons as on most aircraft and in fact as on later 737s -- compare this picture of a 737-200 with this of a 737NG).

Benefits of tail mounting include the fact that the wing is "clean" -- no big engines attached, simplifies wing design. Tail-mounting also makes much of the interior of the aircraft somewhat quieter (though not if you're sitting next to the engines in back). Against that are two serious disadvantages. The first is weight. In flight, the wings obviously carry the weight of the rest of the aircraft. If the engines are rear-mounted, then the fuselage structure between the wing and the tail needs to be stronger to support the engines, whereas if the engines are mounted under the wing, no such additional structure is necessary, saving weight. Boeing says that it saved the weight equivalent to six people by wing-mounting the 737 engines.

The other problem with rear-mounted engines is that they generally are accompanied by a T-tail -- the horizontal stabilizer is mounted on top of the vertical stabilizer (there may be an additional weight issue from that alone, since the vertical stabilizer needs to support the weight and forces of the horizontal stabilizer). In such designs, if the aircraft nose is raised high enough, the wash from the wings can mask the horizontal stabilizer, rendering it ineffective with consequent loss of control -- a very dangerous situation that can and has resulted in crashes. To prevent such things from happening, T-tail aircraft are equipped with a "stick-shaker" device that warns (by literally shaking the controls) the pilot that s/he is coming close to raising the nose of the aircraft too high.

Image: 737 first flight.

Monday, February 06, 2006

BlogSpot Screwed Up

BlogSpot has been unstable the past few days. Sorry if you've had problems accessing the site.

Air Cargo Carriers Tragedy

When we saw the Flight Intl article headline:

Two Shorts 360 freighters collide over Wisconsin

our spirits sank. We didn't need to read the rest to know who it was. The airline is Air Cargo Carriers (ACC), the nichiest of niche players -- flying obsolete commuter aircraft largely under contract to package express companies (e.g. UPS, Fedex, etc -- though we have no idea whether ACC is currently under contract to those particular companies -- ACC's website is currently down, although at the time of this Milwaukee Journal-Sentinal article was written it was apparently up).

So why do we keep track (from time to time) of ACC? We like ACC because it's an example of good ole American homegrown ingenuity. ACC's aircraft are Shorts 330s and Shorts 360s, which were once commuter passenger aircraft. Shorts was once an independent aircraft manufacturer based in Belfast, Northern Ireland, now no longer building aircraft but instead a parts-manufacturing division of Bombardier. The Shorts factory is at Belfast City Airport, which in recent years has taken an increasing share of traffic into that city (versus Belfast International).

The 330 and 360 were unlovely and mostly unloved -- high-wing, boxy, slow, unpressurized (so condemned to flying at low altitude) turboprops, their appearance did not necessarily inspire confidence in passengers, although the aircraft were unusually roomy for a regional aircraft. The standard joke was that the Shorts was the box that the Fairchild Metro (a 19-seat turboprop with an unusually cramped interior) came in.

Boxy? Did someone say boxy? The Shorts has a big square cross-section -- what could be better for cargo, which mostly doesn't care about pressurization or about an additional 10 minutes on a short sector? Yes, in fact there's hardly a better candidate for short-haul low-density freight carrier than a Shorts 330/360, and that's why ACC flies them. ACC's business, at least the last time we checked, was picking up packages from a big package express company and flying them relatively modest distances to a smaller airport.

[This is generally a four-nights a week business -- Monday thru Thursday, since over the weekend it's much cheaper to drive a truck (this statement also applies to many routes flown by US domestic package and air freight carriers -- shipments sent on Friday are generally due to be delivered on Monday, so, for instance, many Fedex & UPS aircraft sit idle from Friday morning until Monday night).]

One reason we like ACC is that freight is almost certainly the best use of a 330 and 360 and there's something appealing about recycling these otherwise useless aircraft. But the other reason we like ACC is that it doesn't just fly airplanes. ACC also develops and holds the freighter conversion STCs -- supplemental type certificates. These are the FAA-approved licenses which make legal the conversion of a passenger 330/360 to a freighter 330/360. And not just that, ACC has also developed a home-grown cargo container system for the 330/360 that makes moving freight from a big package express company to the ACC aircraft a cinch.

In fact, ACC is a miniature Shorts 330/360 industry based at Milwaukee airport. Last we checked (which was over a year ago and, as we said, the website is now down), the company also had one of only two Shorts simulators in the world and had on-site repair shops for things like Shorts 330/360 avionics (cockpit electronics/instrumentation).

And all of this creativity home-grown in Wisconsin, America's dairyland (Hello Wisconsin!). The spirit of Orville and Wilbur Wright, tinkering in their bicycle shop, still lives. You have to appreciate that.

So we were very sad to see that two ACC aircraft, sent out together, had collided in midair, with the destruction of one aircraft and the tragic death of its three person crew. We really hope this is not the end of ACC. It goes without saying that we have nothing but the deepest sympathy for everyone involved.

Later addition:
Aviation Safety Network page on this accident
Preliminary FAA report (scroll down to Record 2)
via MRO Wire

Image: Shorts 360 aircraft of ACC -- double click for bigger version.

Flight Intl on 737NG

Flight International has two articles on the 737-900ER and -700ER this week that expand on material we discussed last week (including the new exit doors on the 737-900ER, shown above).

An excellent large article focuses on the -900ER but also discusses other 737NG innovations. Some topics that we did not mention in our post include:

New higher-thrust versions of the CFM56-7 engine that powers the 737NG. The article mentions the concept of exhaust gas temperature (EGT) -- modern jet engines are maintained "on condition", meaning that so long as an engine is operating within specs, it stays on the wing. Perhaps the most significant spec that is monitored is EGT. When that gets too high, the engine needs more than routine attention.
Short-field improvements -- Boeing is tinkering with the aircraft to boost short-field performance, initially so that Brazilian LCC GOL can use 737-800s at Rio de Janiero's downtown airport. Other airports specifically targetted by this package are Faroe and London City (we doubt an aircraft as large as the 737-800 will ever land at those airports, but perhaps smaller 737-600s or -700s with short-field adaptations).
Replacing steel brakes with those made of carbon fiber. In combination with replacing bias-ply tires with radials, this saves the weight of 4-5 people. Here's the related Boeing press release. It's now a no-cost option on the aircraft.

The 737-700ER article is less expansive, though it mentions that a Boeing 737-800ER was also once a possibility.

As we've said before, the 737NG appears to be aerodynamically more adaptable and in many ways superior to the A320 family. Again, it's a pity that it suffers from a narrower fuselage than the A320, which appears to drive a lot of sales towards the Airbus product. But if you need something in a narrowbody with more than plain vanilla performance, the 737NG rules.

Dream Team Complete: Carty Joins Virgin America

There was nothing over the weekend that was sufficiently interesting or irritating to us to induce us to blog. As a grain of sand results in a pearl, or perhaps as a sore throat generates phlegm, we require something to inspire or annoy us. And then we saw... Don Carty (left) is to become Chairman of Virgin America, joining CEO Fred Reid. A new flynamic duo!

Have there ever been two more successful US airlines than American under Don Carty and Delta while Fred Reid was there? Have there ever been two more dynamic, innovative, consumer- and employee-friendly airlines than American and Delta? Could anyone possibly think of two leaders more naturally suited to bringing to the world the next big thing in airlines?

Well, OK, we're trying, but the announcement is beyond parody. For those who don't know, then CEO Don Carty left American Airlines in 2003 after he damn near put it into bankruptcy when, just as labor was voting on big concessions that would keep the company solvent, it was revealed (through a required SEC filing) that management had previously (and quietly) taken steps to immunize its own retirement benefits from bankruptcy at the same time that it was essentially threatening employees with the consequences of the same. So much for solidarity.

In combination with Carty's much-resented imperial style of management, this generated such outrage that employees (in particular, the flight attendants, who unusually held the fate of the company in their hands) almost threw the company into bankruptcy (we understand that it was within an hour or less of filing at one point), a fate that was only avoided when Carty fell on his sword, leaving American in the hands of CEO Gerard Arpey, who most think has done an extraordinary job of healing the divisions and leading American -- at least up until the recent management bonus scandal (and always remembering that American is incapable of rational thought on the topic of the Wright Amendment).

Don Carty, of course, also presided over two pointless American Airlines mergers, with:

Reno Air (announced November 1998, which resulted in significant labor disruption in 1999 that cost more than American paid for Reno, as we previously described here)
TWA in 2001. This was not a disaster as such, but was in the long run fairly pointless as after 9/11 the extra TWA capacity was essentially eliminated, and American ultimately gutted the St Louis hub it inherited from TWA. At the very least, it was a waste of time and energy, one which after 9/11 American could ill afford.

And of course we previously dilated on the topic of Fred Reid's background.

The point is that were you to search for airline executives more associated with the recent failures of US legacy major airlines, you'd be hard-pressed to come up with better examples than Messrs Carty and Reid. Why anyone thinks these guys have anything to contribute to the success of a new LCC like Virgin America is mind bending. That this venture has attracted investment is truly a tribute to the surplus funds sloshing around the world looking for returns. Why anyone thinks Virgin America is a good idea is, as Churchill once said about Russia, a riddle, wrapped in a mystery, inside an enigma.

One thing, however, is that it appears that Virgin America does not propose to offer any competition to Hawaiian Airlines, as Carty is on the board of Hawaiian and the Virgin America announcement does not mention that he proposes to resign from that board. Also noteworthy -- this is the second airline chairmanship he's assumed recently -- Carty is also the chairman of the new Porter Airlines, an all-turboprop startup that is supposed to launch flights from Toronto City Centre Airport later this year (press release, do-nothing website). Have silver hair, patrician bearing, nominally relevant resume, will travel.

Friday, February 03, 2006

Airlines Behaving Badly

Last year about this time the European Union put in place new airline passenger compensation rules (details, pdf) that cover denied boarding, cancellations and delays. The rules are pretty stringent and the amounts the airlines have to pay quite high (up to 600 euros), which is why we've had a fair amount of sympathy with the complaints of airlines like Ryanair, where the ticket prices are often significantly less than the mandated compensation. After all, trains and other forms of transportation aren't subject to the same rules, which seems unfair.

But then there's this recent article about Thomas Cook being successfully sued for compensation in the UK for cancelling a flight at short notice, busing passengers from London to Manchester the next day for another flight with the same flight number.

First the airline claimed that because it was the same flight number, the flight wasn't cancelled, just delayed. Well, that's a stretch -- the flight was from a whole different city 24 hours later -- and the judge wasn't buying it.

But the part that ticked us off, as a passenger, was the following:

Thomas Cook also tried to claim that it was not liable because there had been a fault with an engine which it could not have foreseen. The company said that it did not keep a back-up aircraft “because the cost would be prohibitive”.
A Thomas Cook engineer admitted in court, however, that the fault had not been on the aircraft due to be used for Mr Harbord’s flight but on another aircraft.

First, don't ever lie to your customers (or in court, and while it's not entirely clear, the fact that a mechanic admitted something appears to imply that Thomas Cook originally left a different impression). Secondly who among us has not wondered whether a cancelled flight was really ditched because of airline convenience? So the airline ditched this passenger's flight, not because there was something wrong with it, but because it was more convenient to cancel this flight (and presumably use the equipment to cover some other flight).

This is exactly the type of behavior that angers customers to the point they agitate for stringent customer rights measures of the sort the EU implemented last year.

It's like unions. Ideally there shouldn't be any, but the presence of a union at a company is a pretty strong indication that the management at some point screwed up badly -- i.e. many companies deserve the unions they're stuck with. We don't much like the compensation rules, but when airlines act like this they shouldn't be surprised that such rules have been imposed.

Prior articles mentioning Thomas Cook.

Thursday, February 02, 2006

Two New 737NGs/Extreme Performance Models Drive Sales

Within the past week or so, two new Boeing 737NG models have been in the news:

This week, Boeing announced the 737-700ER, a long range version of the 737-700
Last week, Boeing announced the 737-900ER (which is primarily aimed at the charter market) was reaching design completion.

This reminded us of what we view as an axiom of new aircraft marketing strategy: "extreme" performance versions of an aircraft family drive sales of base models. But we'll get to that in a minute.

The 737-700ER is basically a slightly different version of two 737NG models that already exist, namely the Boeing BBJ business jet and the 737-700C, a convertible passenger/cargo version that was developed for the Navy, which designates it the C-40A Clipper. All three aircraft amount to a 737-700 fuselage mated to the wing of the 737-800, which is identical in exterior dimensions to the wing of the -700 but is beefed up internally to carry higher weights. This allows the resulting aircraft to carry more fuel. The 700ER is the commercial passenger version of its two more exotic siblings (our bet is that the -700ER is essentially identical to the BBJ, which is just a commercial airframe adapted to a bizjet role).

Is there a market for the -700ER? In our view that depends on something like the following. Privatair in Switzerland flies BBJs transAtlantic with all-business class service under contract to Lufthansa, KLM and Swiss Intl. Those aircraft have 40 to 50 seats on them. Can a 737-700ER economically fly useful trans Atlantic stage lengths with a more conventional load, say 12 business class seats and 80-some economy seats (Continental flies 757s across the Atlantic with 16 business class seats and 156 economy). If so, then airlines like Continental may be interested in using them to further splinter the North Atlantic (or some other) market, flying to even smaller destinations than Continental already does with the 757, or flying them at lower demand times of the day to get a frequency advantage. It need not be the North Atlantic, that's just an example. The fact that Boeing has waited this long to produce this aircraft suggests that airline demand is not necessarily heavy. Be interesting to see -- it's a new tool, and new tools are often adapted for unexpected uses.

The -900ER is a bit more involved. Boeing already has a 737-900, which has never sold particularly well because the seating inside is limited to 189 by the capacity of the exits. There's space for a lot more seats at tighter pitches, but to install them in the -900 would be illegal. So Boeing has added a whole new door to the -900ER. It's also done something clever with the pressure bulkhead.

As an aircraft flies to altitude, the pressure inside remains at bearable, life-sustaining levels while that outside is very low, leaving the contents are under pressure. At the back of the airplane is a pressure bulkhead, behind which the aircraft is unpressurized. Typically this is spherical in shape, and it is on the -900. On the -900ER, however, Boeing has designed a flat rear bulkhead, which allows the interior to pushed further back within the existing -900 fuselage. Hence galleys or toilets can be pushed to the rear, releasing more space inside for seats. The 737-900ER will be able to carry as many as 215 seats, and should be an awesome aircraft for European charter carriers, which to date have been uninterested in the -900.

enplaned aircraft product strategy axiom: extreme performance models drive aircraft sales.

Think about the Boeing 777-200LR. This aircraft that will never likely sell in volume, because there simply isn't a need for a huge number of aircraft that can fly halfway around the world. However, the 777-200LR can drive sales of other 777 models.

It appears clear that the 777-200LR comprehensively spanks the A340-500, the Airbus equivalent. Now it turns out the A340-600 isn't quite as good as its Boeing equivalent either (the 777-300ER) but even if that were not true, if you need the performance of the 777-200LR, you are very unlikely to buy that aircraft and then buy the A340-600. You're much more likely to buy the 777-300ER )and other 777 models) for the less extreme routes in your and reap the benefit of commonality over the larger fleet. So extreme performance models, even if they don't sell terribly well in their own right, can drive sales of other models in the same family.

[Aha! you say, but what about Singapore Airlines, which currently has nothing but 777s except for a small fleet of A340-500s? Yes, it's a situation that doesn't make long-term sense. We expect Singapore is probably receiving some sort of non-performance payment from Airbus for the less-than-expected performance of that aircraft. We also expect Singapore essentially wants Boeing to pay (in the form of low-cost 777-200LRs and taking the A340-500s in trade-in) for the privilege of eliminating the A340-500s from its fleet -- after all, there's a lot of prestige from being in the Singapore Airlines fleet. We could be wrong. But certainly the current situation makes little sense.]

Our other posts on the 777-200LR here.

What does this axiom have to do with 737NGs? We've always wondered why Boeing didn't bring out something like the 737-700ER earlier. It's an extreme performance version of the 737NG, we suspect Airbus can't match it (the 737NG has longer legs than the A320 family) and thus the 737-700ER, had it been available earlier, had the potential to drive some narrowbody sales in Boeing's direction. Well, better late than never.

Image: The first 737-700ER will be built for Japanese carrier ANA. It won't look that different from any other 737-700 with winglets.

Morgan Stanley's Bogus Aircraft Adventure

On Monday, Morgan Stanley announced the sale of its AWAS aircraft leasing subsidiary to private equity Terra Firma, the end of Morgan Stanley’s bogus journey in aircraft leasing.

Morgan Stanley’s adventure began with another leasing company, GPA. In the late 1980s there were two big leasing companies, GPA and ILFC. GPA was a private Irish company founded by Tony Ryan of Ryanair fame. The early 90s recession took the wind out of GPA’s sails, a 1992 IPO failed and the company hit the financial rocks. GE Capital, always interested in a depressed financing sector, took over the marketing functions of GPA, which it merged with two other GE Capital aircraft businesses to form the modern GECAS, now the world’s pre-eminent aircraft financier.

[Ireland looms large in the aircraft leasing business, both because of its advantageous tax laws (making it attractive to base a leasing company there) and because GPA created a generation of Irishmen (and women) with significant aircraft leasing expertise.]

However, although GECAS managed the old GPA fleet (collected the rents, re-leased the aircraft and so forth), GPA was still the owner and still needed to refinance its aircraft. And that was a problem because many commercial banks no longer wanted to finance aircraft. Plus, after the early 90s airline recession, it wasn’t clear if the fleet had that much equity left – and therefore it wasn’t clear whether GPA had much equity left.

Necessity is the mother of invention and the bankers applied asset-backed securities (ABS) technology to aircraft, resulting in an “aircraft securitization.” What is an aircraft securitization? Essentially, it’s a special purpose aircraft leasing company. Imagine 30 or more commercial aircraft owned by a trust. The aircraft are on lease to airlines around the world. The trust pays a leasing company to manage the aircraft on its behalf.

The trust issues bonds – generally four different classes of bonds, from highest priority to lowest priority (somewhat like a first, second, third and fourth mortgage). Principal and interest of the bonds are paid from lease rentals -- aircraft may be sold too, but that’s not the primary method of paying down the bonds. The bonds are rated by rating agencies, based on certain requirements (for instance, not too many aircraft in any one area of the world or at any one airline) and stress-testing against various downside scenarios (suppose there’s an airline recession and lease rates drop by a certain amount for a certain period of time).

Very importantly, the only thing backing the bonds are the aircraft and the lease revenues they generate. Whoever owns the trust has no obligation to pay off the bonds, only the trust itself has an obligation to pay off the bonds.

Aircraft securitizations, which did not exist prior to the early 1990s, were specifically invented to re-finance GPA. Think of it this way: having frightened off commercial banks, those who needed aircraft financing needed new investors. Aircraft securitizations permitted GPA to tap the asset-backed securities (ABS) market (part of the bond market).

(An aircraft securitization should not be confused with the Enhanced Equipment Trust Certificate -- EETC -- which is a structured corporate bond that finances and is secured by aircraft. A corporate bond is one issued by a particular corporation and for which a corporation has ultimate responsibility. EETCs were developed at the same time as aircraft securitizations and were the standard form of aircraft financing for US airlines from the mid 90s through 9/11).

Two small aircraft securitization deals were done for GPA in 1992 and 1994 by other investment banks. But Morgan Stanley refinanced the bulk of GPA in 1996, in a monster $4 bn deal called “Airplanes”, backed by 229 aircraft. You can follow the progress of Airplanes here. The Airplanes deal revived the fortunes of GPA. A few years later, its name changed to AerFi, GPA was bought by debis AirFinance, an affiliate of Daimler Chrysler. Then last year, debis AirFinance was bought out by the private equity fund Cerberus, changing its name once again to AerCap, a second tier aircraft leasing company (relative to the giants ILFC and GECAS).

Morgan Stanley made large fees on the Airplanes deal – above $30mm we heard, an enormous payday that almost certainly made the bankers heroes within Morgan. The most interesting thing about the deal was how much money Morgan Stanley raised against the value of the GPA aircraft. It was far more than banks would have been willing to advance. So Morgan Stanley decided to get into the business for itself.

In 1997, Morgan Stanley bought 30 or so aircraft from ILFC and in 1998, they securitized them into something called Morgan Stanley Aircraft Finance (MSAF). And our understanding is that MSAF sold significantly more in bonds than Morgan Stanley had paid for the aircraft, therefore generating cash for Morgan Stanley. Remember, Morgan Stanley had no further obligation to the aircraft in MSAF – at least in theory, MSAF would, over time, pay down the bonds itself.

In 1999 Morgan Stanley bought more aircraft from ILFC, and in 2000 added them to MSAF, which issued more bonds to buy them. And our understanding is that Morgan Stanley didn’t do quite as well on that deal as it did on the 1998 MSAF transaction.

But by that time, Morgan Stanley had something bigger in mind. This was AWAS, which originally stood for Ansett Worldwide Aviation Services. Originally this was part of Ansett Australia, the now defunct Australian airline we mentioned in a post about Virgin Blue, and in fact for much of its existence, AWAS was an Australian company. AWAS was at one point the third largest aircraft lessor in the world, but by 2000 it had been fairly inactive for some time (meaning it hadn’t changed its portfolio much). It was then 50% owned by News Corporation and 50% owned by the TNT, originally an Australian freight company that was bought by the Dutch post office.

News and TNT had supported the development of AWAS by guaranteeing many of its aircraft financings. Then they’d lost interest in the business, but the guarantees made it hard for them to sell or spinoff AWAS, so AWAS wasn’t very active during the mid and late 1990s. Morgan Stanley apparently found some way of terminating these troublesome financings (that’s our assumption, we don’t know how Morgan did it) and decided to buy AWAS, clean it up and sell it. So in 2000, Morgan Stanley bought AWAS.

This was essentially a big trade. Buy it, transform it and sell it. And to bulk up AWAS even further, Morgan Stanley decided to add the MSAF aircraft to it. This meant pre-paying the bonds that MSAF had just sold in 1998 and 2000, which meant paying compensation to the bond-holders for taking the bonds away from them early. Such compensation amounted to, in the case of MSAF, anything from an additional half a percent of par to an additional 28% of par, depending on which bond was being redeemed. You can see these amounts here.

It appears that Morgan Stanley believed that the portfolio would fetch the highest price if it was totally free of any sort of financing. Of course, in the meantime, Morgan Stanley was totally exposed to the portfolio. MSAF was no more, so the MSAF bondholders were no longer bearing the risk of the MSAF aircraft. Those aircraft, like the original AWAS aircraft, were all directly on Morgan Stanley’s balance sheet. Morgan Stanley issued a selling document for AWAS. It was the summer of 2001. Cue the ominous music.

We don’t know how far Morgan Stanley got in selling AWAS, all we know is that when 9/11 hit, Morgan Stanley still owned AWAS. Not good.

The problem was two-fold. On the one hand, because its portfolio had been relatively static in the 1990s, AWAS still owned a lot of aircraft that were somewhat marginal. An aircraft lessor wants assets that are in constant demand and can be easily leased to many parties, so that when an aircraft is returned, either through default or simply at the scheduled end of the lease, the lessor can quickly put the aircraft back to work. Such highly liquid aircraft also perform the best in a downturn, because they are the last aircraft that the industry grounds.

Unfortunately, many of the original AWAS aircraft were rather illiquid, especially MD-80s and A300-600Rs, and therefore these values were particularly badly hurt in the steep downturn after 9/11. Moreover, in a downturn, such marginal assets typically have the greatest permanent decline, because coming out of a downturn, airlines like to re-equip with more modern aircraft types.

Secondly, many of the MSAF aircraft were also fairly marginal (even though they were probably also somewhat newer on average than the original AWAS aircraft). Morgan Stanley had bought the MSAF aircraft from aircraft leasing giant ILFC. There are two possibilities, neither putting Morgan Stanley in a great light:

Morgan Stanley didn’t understand aircraft well enough to know that ILFC took the opportunity to sell it some of ILFC's least liquid, most marginal aircraft

Morgan Stanley understood the aircraft were illiquid, but since the aircraft were originally destined for MSAF (and therefore the aircraft would be the problem of MSAF bondholders), Morgan Stanley didn’t care that much

Whatever the truth, many of the MSAF aircraft weren’t very liquid.

Unfortunately, on 9/11, Morgan Stanley was fully exposed to the marginal aircraft of AWAS and MSAF as the aircraft market collapsed. Ouch.

Consequently, AWAS has been a chronic problem for Morgan Stanley, causing periodic writedowns that damaged Morgan Stanley earnings. In the old days, Morgan Stanley would have been able to take a one-time write-off of the estimated loss in value, thereby putting the problem behind it. That is no longer possible under new accounting rules unless Morgan Stanley had formally taken a decision to get rid of AWAS. But Morgan didn’t want to sell AWAS because to do so would crystallize an even bigger loss. AWAS, a trade gone bad, was a millstone around Morgan’s neck.

All this changed when Morgan Stanley’s long-time CEO Phil Purcell resigned last year after a highly publicized struggle with investors and employees. When new CEO John Mack returned to Morgan Stanley, it was a fair bet that Morgan Stanley would soon dump AWAS. New brooms sweep clean, and in particular, a new CEO has every incentive to resolve issues like AWAS, as any resulting losses can be laid at the door of the departing CEO. And that’s exactly what happened. Mack was appointed CEO the last day of June, 2005. Barely more than a month and a half later, on August 17 (lightspeed for a corporation), Morgan Stanley announced it was flushing AWAS.

What did AWAS cost Morgan Stanley? Morgan Stanley public financial statements show pre-tax aircraft impairment charges of $87mm, $74mm, $323mm, and $109mm in financial years 2001, 2002, 2003 and 2004 (check the financials yourself). That’s $593mm. Morgan Stanley originally took a further pre-tax charge of $1.7bn (!) in FY2005, equivalent to about $1bn post-tax, when it announced it was dumping AWAS. In light of a better-than-expected offer from Terra Firma, Morgan revised the post-tax charge down to the $500-550mm range, presumably equivalent to about $850mm or so pre-tax. So, the impairment bill would be somewhere around $1.45bn since 2001, which of course vastly exceeds any conceivable gain Morgan might have realized on the earlier MSAF deals.

That, of course, does not include the effect of all the Morgan Stanley management attention that was no doubt spent on this since 9/11. In all, AWAS was a singularly unsuccessful venture into aircraft leasing. Just goes to show that you can be very smart (and there are a lot of very high paid, very smart people at Morgan Stanley, and that’s not at all meant to be snarky) and still get your head handed to you in this business.

Wednesday, February 01, 2006

FT on JetBlue Earnings

The Financial Times is generally pretty good with its airline coverage (as we mentioned in this post), though it's not as if the competition is that tough. So it was with some disappointment that we read the following in its report (subscription required) on JetBlue earnings:

The New York-based carrier has captured market share from established rivals with a mix of low costs and high service levels, but has deviated from the industry’s standard business model by introducing 90-seat Embraer 190s alongside its fleet of larger Airbus A320s.
Jeff Neeleman, chief executive officer, last week admitted there had been teething troubles with the launch of the new aircraft caused by delivery delays and technical and training issues.

OK, so getting the number of seats wrong on the E190 (90 vs 100) is a relatively small matter, at least in isolation. But it looks like part of a pattern when, in the very next sentence, the FT gets David Neeleman's first name wrong. Jeff? Where is that from? Jeff Potter of Frontier, maybe?

It's not as if JetBlue is an obscure carrier, or that it's CEO is low profile... Oh, FT, say it ain't so...

US Govt Wants to Eliminate Airport Security Subsidy

Bloomberg article on how US govt wants to double the security fee at airports from $2.50 to $5 per one way nonstop flight (while keeping the existing cap on connecting tickets). This is not a surprise. The govt tried the same thing last year. The Air Transport Association (the US big airline club) is already crying foul (see article). We disagree with them. As it currently stands, the government is subsidizing airport security. That's not fair to the non-flying public.

It's worthwhile to separate the issue of airport security into two separate strands:

How security is provided
Who pays for it

On the first point, we think airport security is currently provided in an exceptionally costly and probably ineffective way. On the second, we think air travelers should bear the full cost of airport security, however it is provided, which is the rationale for why the US govt wants to double the fee. If the country has decided that the Transportation Security Administration (TSA) is the right way to supply security, then air travelers should pay the full costs of that. If that means doubling the current fee, then that's the way it should be.

Here's why. Every person who chooses to travel by air exposes society to risk it would otherwise not face -- the danger that a commercial aircraft will be used as a weapon. If we all chose to travel by car or train (or not at all), there would be no commercial flights and therefore there would be no such danger. Society mitigates the danger by requiring airport security, which of course, does not come for free. It is only because people fly that such expense is incurred.

Any economist will tell you that it is economically efficient to ensure that these costs are completely borne by those people who make this expenditure necessary, namely air travelers. If in raising the fees to eliminate the subsidy, some travelers choose to stay home, or choose some other mode of transportation, that is the economically optimal outcome. The fact of the matter is that the government is currently subsidizing the provision of airport security, and that's not fair to those who choose not to travel by air.

Some will say, "but airport security protects the general population too". Fine, but the general population is only in danger from aircraft terrorism because some people choose to fly. So why should a non-air traveler pick up any of that cost? In fact if you want to be really pure, since the danger can never be fully eliminated, perhaps non-air travelers should receive some additional on-going payment in compensation (no, we're not seriously advocating that, just making a point).

We think airlines have a much better case to make on improving the cost effectiveness of security than they do on air travelers avoiding the full cost of that security. Of course, it's a little trickier for the airlines to advocate the reform of government agencies from which the airlines need cooperation, but that's life in the big city.

Bomber Throws in the Towel

Bombardier has announced that it will shelve its planned CSeries aircraft. The Financial Times said (subscription):

Bombardier has shelved its ambitious plan to develop the CSeries, a new family of 110-130 seat aircraft, throwing the future of the group’s commercial passenger jet business into uncertainty.

Not really. The future of Bombardier's commercial passenger jet business was already greatly uncertain. This decision arguably just stops Bombardier from spending $billions on something the market had already decided it didn't much like. Since a lot of the cash was likely to have come from the Canadian and Quebec governments this decision is likely a huge win for Canada. If there's a lesson here, it's once again that companies that don't obsolete themselves run the danger of having others do it to them. That's what's happened to Bombardier, we think.

Bombardier invented the modern regional jet (RJ) by stretching its Canadair Challenger widebody business jet into the 50-seat CRJ100/200 RJ, which entered service in 1993. As we discussed in this post about the collapse of Independence Air, it took awhile for the legacy major airlines to figure out that the 50-seat RJ could be a very powerful tool, but when they did, they ordered 50-seat RJs (through their regional partners) in great numbers.

The CRJ200's one competitor was the Embraer Regional Jet (ERJ), the original 50-seat version of which is the ERJ-145 which was first delivered late in 1996. The essential difference between the ERJ and the CRJ is that the CRJ is a fatter, shorter airplane. Seating is two seats on either side of the aisle (2-2 configuration), wheras in the ERJ, seating is one seat on one side and two seats on the other (1-2). Bombardier's current predicament can in part be traced to this difference.

The ERJ-145 can't reasonably be significantly stretched. The CRJ-200 can and was. While both Embraer and Bombardier developed a family of aircraft, Embraer shrank its aircraft, while Bombardier stretched it. The ERJ-135 has 37 seats, the ERJ-140 has 44. The CRJ-700 has 70 seats, the CRJ-900 has 86. A 70-seat aircraft based on the ERJ would have been impossibly long and thin.

So when Embraer built a 70-seat aircraft, it had to start with a clean sheet. The resulting aircraft, the E-170/175/190/195 covers the 70 to 110 seat range, depending on configuration. From a passenger comfort standpoint, it is far superior to the CRJ700 and CRJ900. The CRJ fuselage cross section (which is essentially common across the whole CRJ series) derives from the Challenger business jet. What constitutes "widebody" in a business jet is minimally acceptable from a passenger comfort standpoint in a 2-2 configuration RJ. A CRJ is OK for an hour or two, but not much fun for any longer than that.

As a derivative, the CRJ700/900 was a much faster, easier development than the E-170/190 series, plus for airlines that already flew the CRJ200 it offered terrific commonality, with the same cockpit. So the CRJ700, at least, initially sold very well.

However, the E-170/190 is now the large regional jet of choice because of its far higher comfort level. Its seats are wider than that of the A320, for instance, and it offers usable overhead baggage space. The comfort level is broadly as good (or perhaps even better) than on an A320 or 737NG. JetBlue famously ordered (and is now flying) the E190 (complete with seat-back TVs) -- we can't imagine JetBlue would ever fly the CRJ. The passenger experience would simply be unacceptable relative to what JetBlue offers on A320s. As we've written before, the 100-seat segment of the market, which Embraer now owns, is potentially very important.

As Embraer started the design of the E170/E190, Bombardier also mulled the launch of a competing aircraft, the BRJ-X, which was originally scheduled for delivery as soon as 2003. This was to be a 90 to 115 seat jet. Bombardier originally billed the aircraft as being launched as early as 1999, but in September 2000, there were reports of it being on hold because of the fast sales of the CRJ700 and the launch of the CRJ900. Since Bombardier now had a 90-seater (or close to it) in the CRJ900, what did it need the BRJ-X for? It sank without a trace.

This was a mistake. The CRJ900 has turned out to be a slow seller, to date with just one big order from Mesa, a smaller order from a Lufthansa regional affiliate and an order of one each from two other small airlines (although it's also sold -- in small numbers -- in a low-density 75-seat version called the CRJ705). It appears that few airlines are willing to buy an aircraft with the CRJ cross section in such a large size. Meanwhile, in 2003 (when the BRJ-X was first contemplated to be delivered) the Embraer 170/190 family was gathering praise and looking like the product to beat. But if Bombardier had launched a new 80-110 seater at that point, it would have taken years to get to market, years in which Embraer would have had the market to itself.

So at the 2004 Farnborough airshow, Bombardier announced that it was designing the 110-135 CSeries aircraft, big enough so as not to be a direct competitor to the E170/190. It also started making the rounds of governments to get launch aid: Canada, Quebec and the UK (Bombardier has significant facilities in Northern Ireland, the former Shorts aircraft factories).

Unfortunately, the CSeries was indifferently received by the market. The CSeries was squarely aimed at the low end of the 737 and A320 family range. It is true that the smallest members of the Airbus and Boeing narrowbody families (e.g. 737-700, A319) are heavier than optimal because the same basic aircraft structure is designed to extend all the way to 200+ seats. However, these aircraft are part of much broader families, which gives them compensatory appeal. Further, it was hard to see Bombardier, which has not had an easy financial time of it recently, going up against Airbus and Boeing with their vast resources. Strangely (not) both Airbus and Boeing were uninterested in cooperating with Bombardier on the CSeries.

And then there's the fact that the next Airbus and Boeing narrowbodies are almost certainly going to be built almost entirely out of carbon-fiber, a la the 787. The CSeries was to be of conventional metal construction, which raised the obvious danger that the CSeries might be quite quickly obsoleted by whatever Airbus and Boeing produce in the early years of the next decade.

Consequently, Bombardier found it somewhat difficult to entice suppliers to work with it on the CSeries. Both IAE and CFM declined to develop an engine for the aircraft, so Bombardier ended up working with Pratt & Whitney Canada (PWC) conveniently located nearby Bombardier in Montreal, but to that point not known as manufacturer of jet engines of the requisite size (PWC specializes on small engines for turboprops and business jets). Further, it does not appear that any airline was exactly rushing to order this aircraft.

So Bombardier has not had an easy time, and has, for now, thrown in the towel. To the extent Bombardier had a future at the top end of the regional jet market, it was probably the BRJ-X. In 2000 Bombardier was an investment-grade company on the upswing and still the company to beat in the small jet arena, a company with which suppliers would be far more willing to share risk than today. In our view, Bombardier blew it by trying to rely on the CRJ900, a derivative of a derivative (CRJ700) of a derivative (CRJ100/200) of a business jet. Incidentally, what is Bombardier's current plan B? A further development of the CRJ900, we kid you not.

As Boeing hopefully learned in the 1990s with the failed 757-300 and 767-400, there comes a time when you can't paper over the cracks in your product line with a derivative, a lesson Airbus is now being taught with the A340-500/600. When that time comes, better to launch an all-new aircraft even if it kills your existing product line. Better to do it to yourself, than to have someone do it to you.

Bonus linkage:

Bombardier orders and deliveries
Richard Aboulafia on the CSeries

Tuesday, January 31, 2006

Judge Stops the Insanity

Yesterday an Italian judge stopped the acquisition of Volare by Alitalia. Volare is an Italian LCC that since November 2004 has been operating in under administration in bankruptcy (not dissimilar in concept to US Chapter 11 bankruptcy). Thank heavens for that.

First, as we've already written, we don't believe it makes sense for legacy carriers to run LCC subsidiaries or divisions. Secondly, it's particularly egregious that Alitalia, which is itself in financial crisis and which is shamelessly hiding behind the skirts of the Italian government, should be the one to take over Volare. If the Italian government stopped protecting Alitalia, LCCs like Volare wouldn't be in bankruptcy, instead they'd likely be rolling in cash from backfilling for Alitalia.

Previous Alitalia posts here and here.

Old Norse Above Britain

We were trying to figure out why we thought it was so cool that Atlantic Airways announced service this summer from Faroe to Shetland to London. And then it came to us -- it's an example in miniature of the benefits of liberalization.

Where are these places? The Shetland Islands are the northern-most part of the United Kingdom, out in the North Sea. The last few decades they've done OK on the back of North Sea oil, to which they are very close.

Faroe is even further north, between Shetland and Iceland, a group of nominally Danish but in fact self-governing islands which speak a variant of Old Norse related to Icelandic. Oddly, Faroe is part of Denmark but not part of the EU (there are other such anomalies -- the Isle of Man, for instance, is part of the UK but not part of the EU). Here's a map showing the locations. Faroe and Shetland are lonely places with small populations -- Shetland has about 22,000 people, Faroe about 47,000. Historically they've been harsh places to live -- the traditional Faroe diet was heavily fish-based, with dried sheep meat (yum!) for special occasions. Not a lot of arable land, so not many vegetables, but Faroe has some spectacular scenery.

Nonetheless, Faroe supports its own airline, Atlantic Airways which flies four BAe-146 aircraft (photo here). We've discussed this oddball aircraft (and its later derivative, the Avro RJ) a couple of times (post on the woes of Mesaba, post on SN Brussels/Virgin Express). The one thing this aircraft has going for it is that it can fly from short runways, which is good because Faroe has a single airport with a very short runway. Short takeoff and landing capability also makes the BAe-146/Avro RJ the jet of choice at London City Airport, which has a short runway built on a former ship dock.

Atlantic Airways has previously offered London Stansted-Faroe nonstop service in the summer. This year, they're doing something different, offering London-Shetland-Faroe service, the hope being that there will be enough demand to support a viable flight between people wanting to go to Shetland (the first time a nonstop flight has ever been offered) and those who want to go to Faroe.

So what? The so-what is that Shetland-London is an internal UK flight being performed by another European airline. Yes, this is hardly the first time this type of thing has happened, but it's definitely one of the most unusual, and thus (to us at least) the charm. Shetland and Faroe happen to be different countries, but that aside, they clearly have a lot in common, being isolated rocks in a similar patch of cold dark sea.

Under the bad old days of regulation, Atlantic Airways could never have attempted to leverage Shetland as well as Faroe. Now, maybe it will work, maybe it won't, but at least this tiny airline from this tiny country can give it a try. A miniature example of the benefits of liberalization.

Update: Nate Silva, in the comments, points out that the Isle of Man is not legally part of the UK either, but is instead a crown dependency according to Wikipedia. Even more anomalous...

A World of Pain

In the post on the problems with mergers we mentioned that the only thing unions hate more than a merger was two airlines being run under common ownership. That turns out to be a key issue in the World Airways strike which started yesterday, as this article says.

Actually, it’s not a classic strike. The World contract forbids pilots from striking military charter flights, which is a large part of World’s business (as we mentioned in our post on Sec 1113, in the US airline business, union contracts never end, they become amendable, with the terms of the old contract enduring until a new contract is in place, so the clause forbidding strikes on military charter business is still intact).

A significant issue is that last year, the parent of World Airways bought another charter airline, North American. World flies DC-10s and MD-11s, while North American flies 757s and 767s. World Airways pilots want to make sure World gets as much growth opportunity as North American, a guarantee that apparently World won’t give. And so, in part for this reason, World Airways pilots are on strike, which apparently means the pilots won’t fly certain civilian charter flights. As we said, trying to run two airlines under common ownership is just begging for union grief.

World has had a renaissance since 9/11 on the back of military charter business, which has been strong with all the US military activity since 9/11. North American also does some military charter. The revival of the company’s fortunes since before 9/11 is apparent from its long-term stock graph, and its stock has maintained its value in recent months, notwithstanding that World is a significantly delinquent filer.

Both World and North American have interesting histories. World dates to 1948 and for decades was based in Oakland, run by a colorful character called Edward Daly. For most of its history World has been a charter carrier, with occasional generally unsuccessful forays into scheduled business. World was famous at the collapse of South Vietnam for flying the very last flights out of areas about to be captured. These are recounted here on the occasion of the anniversary of another famous World flight, airlifting Vietnamese orphans to the US, an action which induced the US govt into launching a program of such flights.

North American was started in the late 80s as a proxy for El Al, the Israeli airline. As we recall it, El Al was flying passengers from Tel Aviv to New York to Los Angeles. Since it as a foreign carrier it can’t sell tickets from New York to LA, it was losing a bundle flying mostly empty airplanes from New York to LA and back. The solution was to help start up North American (El Al took the maximum 25% stake that non-US entities may own of a US carrier), which flew 757s from New York to LA and back on behalf of El Al.

More on American Fleet Replacement

Flight International article on American Airlines' fleet replacement, which we touched upon in an earlier post. There have been a rash of articles recently driven by American's recent media day. Couple interesting things:

Phasing out American's MD-80s could be a 10-year project (American has about 350 MD-80s)
Aviation Partners Boeing apparently has worked on the potential for retrofitting blended winglets (we talked about them in the context of 757s earlier) to MD-80s. Apparently the savings aren't as good as on other aircraft. It would be interesting to know why.
Winglets present gate space issues for American. MD-80 has a smaller wingspan than 737NG. American also currently exploits the fact that widebody wings are higher than MD-80s by letting wings overlap at gates. That doesn't work with blended winglets.

American has retrofitted one 737-800 with winglets, which it ordered at the same time as it acquired 20 shipsets of winglets for 757s (pdf). Presumably this is some sort of test aircraft as the Flight article says American will make a 737 winglet decision sometime in the next six months.

Monday, January 30, 2006

Articles: Southwest, Demand for Pilots in Asia

Airline Business story (cover story?) on Southwest and CEO Gary Kelly, who apparently does not particularly like being known as mild-mannered (hey Gary, think Clark Kent, he was also mild-mannered). Not a lot new there, but decent background reading for those who want to know more about Southwest and the Wright Amendment. We caught one small error while flipping through the story. Airline Business says that one of the restrictions of the Wright Amendment is that Southwest:

cannot, for instance, display connecting flights to or from Love on its website.

Not true. Look up, for instance, Albuquerque, New Mexico to Harlingen, Texas on Southwest's website and it includes a connection via Dallas Love Field. The Wright Amendment (and subsequent amendments) forbids carrying passengers from Dallas Love Field to outside a nine-state area. So long as transportation is within that nine state area (map here), Southwest can connect passengers through Dallas Love Field (and display it on its website). Our previous posts on Wright Amendment here.

Meanwhile, Flight International has good article on shortage of pilots in Asia. The huge expansion of Indian & Chinese carriers has resulted in huge demand for pilots, including foreign pilots. India has resorted to boosting the maximum age of pilots in stages from 60 to 65 and requiring pilots give 6 months notice of quitting. Clearly another factor limiting the growth of these carriers.

Another big source of pilot demand (not the subject of the article) is the Middle Eastern carriers (Emirates and its local wannabe competitors).

Ex-Im Bank in the News

MRO Wire noted that, coincidentally (see post below) Ex-Im Bank is selling a 737-400 that it recovered from Air Nauru. Not everything that Ex-Im guarantees works out. So in this case Ex-Im presumably has made good on its guarantee to whoever it was who actually lent money to Air Nauru to buy the airplane, and has recovered the collateral, namely the airplane. Now it's trying to sell the aircraft to minimize whatever loss Ex-Im is facing.

Nauru, by the way, is a tiny island in the Pacific that was once very rich because of phosphate mining (phosphate deposits are what you get when birds defecate for millenia in the same place -- no, we are not making this up). In its heyday, Air Nauru had an extensive network of flights across the Central Pacific and a fleet of Fokker 28s (a small Dutch twin-engine jet seating about 60-80, built in the pre-regional jet era, from which the later Fokker 100 was derived). Unfortunately, the phosphates are mostly now gone and the island nation has not been prudent in investing the proceeds. So now it's a tiny little basket-case.

Incidentally, the Ex-Im press release is interesting because it highlights an issue with all aircraft recoveries -- getting the maintenance records (the release says that Ex-Im is now gathering the records for the Air Nauru aircraft). Every part on an airplane needs to have a clearly documented history back to its manufacture. An airplane without maintenance records is useless. We discussed (in this post on Delta) how airlines can make things difficult for aircraft financiers in bankruptcy, and this is just one more way (records for your airplane? Yes, we have them around here somewhere, but we're so short-staffed, might take awhile to find them, so sorry) Better ways of record keeping (e.g. keeping complete, up to the minute, offsite duplicates) is a continuing pre-occupation with aircraft financiers, or at least those financiers who have a clue.

Later addition: In the comments, Lars Marius Garshol provides a link to this excellent Economist article on the sad history of Nauru.

737NG: Huge Strategic Error? Yes

Over the weekend, an anonymous commenter jumped in the wayback machine to a November post and said:

The 737NG a mistake? As a Boeing shareholder, I know I feel regret with every delivery of this ancient aircraft. It is really awful for Boeing to have milked this cow for all these years. 569 2005 orders seems pretty shameful. Boeing has delivered more 737s than Airbus has delivered aircraft of all types. There are more 737s flying than there are Airbus aircraft of all types. It is remarkable to think that at the inception of the 737 program, Airbus was not yet even a gleam in a Frenchman's eye and one could order factory new the 707, 727, DC-8, DC-9, VC-10, BAC 1-11, or Mercure. The 737 has outlived them all, as befits the true DC-3 replacement.

What we had said (that presumably was objectionable) was:

The huge strategic error in making the 737 New Generation instead of an all-new narrowbody, which conceded the A320 the technology and cabin comfort lead

Yeah, we stand by those words. Let us elaborate.

In the early 90s Boeing had to do something with the 737 Classic (737-300/400/500). The Classic sold very well, but that was luck more than design. Boeing thought the 757 and 767 would be the big short-medium haul sellers (Boeing designed them in the late 70s and the 767 was originally designed as a US domestic aircraft, whereas it's mostly been used in medium-long haul international applications), but once deregulation hit, it turned out airlines wanted smaller gauge aircraft.

Having used up its ammo on the 757/767s, Boeing needed to refresh the 737s. The Classic was a quick early 80s update of the first generation 737 (stretch, new engines, a little fillet in the tail), and in the absence of anything better (the McDonnell Douglas MD-80 wasn't that, and the A320 came along in the late 80s and was an untried quantity by a still relatively new manufacturer, it didn't get traction until into the 90s) it sold really well.

So, early 90s, A320 starting to get some traction, Boeing needs to do something with the 737 Classic. Solution: replace basically everything except the fuselage and the technology (i.e. in many ways still the same old 737 under the skin, although nice new screens in the cockpit). New wing, new (at least bigger) tail, new engines, new landing gear -- resulting in the 737 New Generation (737-600/700/800/900). Unfortunately, this left the A320 with clear advantages in fuselage width (which passengers seem to like no matter how often you tell them it's width at the shoulder that matters) and technology.

Don't get us wrong. The 737NG outclasses the A320 in some important ways. Want to fly above the traffic? The 737NG can go higher than the A320, giving it access to flight levels the A320 can't reach. The 737NG also has longer legs -- Aloha and ATA are flying 737NGs from the US west coast to Hawaii. There's a reason why A320 operators don't do that -- they can't, not economically. If you need range in a small package, there's only one choice. And the new 737-900ER looks to be shaping up as the best charter aircraft out there.

And the 737, all three generations, has a sales record that is probably unreachable by the A320. But that's because the 737 sold so well in the past -- many of those past sales have already been recycled into beer cans. Right now, right here, the A320 is outselling the 737NG. Is Airbus pricing the A320 at narrower margins? Maybe, doubt it (they have to be making money somewhere, the most likely place is in the A320 program). It's probably a huge cash cow by now, it's been in production for almost 20 years.

And that's a big problem for Boeing. Every airline that starts flying the A320 is one that gets used to Airbus. It expands the A320 parts supply line, increases the number of A320 qualified pilots, instructors, mechanics, sends Airbus into every corner of the world. With the common cockpit across the Airbus product line, other Airbus equipment will be the first thought of any airline that's grown up with A320 family aircraft.

Suppose Boeing had done (in our opinion) the right thing and launched a totally new narrowbody instead of the 737NG, including a fuselage that passengers liked even better than the A320, and a control system based on the 777 fly-by-wire (only electrical connections between the cockpit and the flight surfaces) system. Now you've got an airplane that outclasses the A320 in every dimension.

Would the A320 be selling as well today? Not likely. And in fact that would be a very big problem for Airbus right now. The A380 is not yet in service and is facing delays -- Airbus doesn't get any money beyond deposits until it delivers the aircraft, and even then it's not going to make money on the first ones it sells. The A380 sold in desultory numbers last year. The A340-500/600 program is only a few years old and already in trouble.

What does Airbus have going for it now? The A320, that's what. A 20-year old design to which Boeing has given greater longevity by pulling its punches in the early 90s. Would Airbus be an easier or a tougher competitor today if the A320 wasn't still selling?

And we're skeptical Boeing is currently making more on a 737NG than it would have made on a new aircraft. If you believe a new narrowbody would have sold better than the A320, then by now it would be well into cash-cow territory itself. Plus Boeing really screwed up the introduction of 737NG manufacturing in the late 90s. Perhaps (and no one can know) it would have been more careful if the aircraft had been all new.

One other thing: in the late 90s/earlier this decade everyone was worried that Boeing was getting out of the business (and that probably influenced a few sales around the world, don't you think?). That wouldn't have been on the table had the 737NG been an all-new aircraft.

So, we say again, 737NG, good airplane, bad Boeing mistake.

Image: Dassault Mercure -- French narrowbody from the early 1970s, definitely in the "what the heck is that" category (but mentioned by the anonymous commenter above), there were only 11 delivered (and one of those was a modified production prototype) and it only ever flew with Air Inter, the former French state-owned domestic carrier (now part of Air France). Last in service in the early 1990s. Good article here, if you want to know more. Dassault is far better known for its fighters (Mystere, Mirage, Rafale) and its Falcon series of high-end bizjets, oh, and also a killer CAD/CAM system through what is now a separate company.

Export Credit Agencies

Lufthansa not only publishes two yearly environmental publications (which we described as part of this post), it also publishes a periodic policy brief (pdf). The latest one contains a page (numbered page 3 but actually page 4) complaining of the subsidy other airlines get through ECA (export credit agency) financing. And we concur – ECA financing is a subsidy and one of the reasons why the airline business has too much capital.

[We did not include ECAs on the list of parties in this post that pump capital into the industry. Oversight is one reason, but another is that ECAs don’t play a big role in financing US mainline airlines (and the post was in the context of American) for reasons that will become apparent.]

ECAs support exports by subsidizing the financing thereof. Commercial aircraft are huge items of capital equipment and one of the major beneficiaries of ECAs. The US and Europe may claim they don’t subsidize aircraft manufacturers (except, in the case of Europe, through launch aid to Airbus), but the activity of their ECAs proves them wrong. Subsidizing aircraft finance makes aircraft cheaper, and that helps manufacturers sell more of them.

The ECAs most relevant to the airlines are:

US Export-Import Bank (Ex-Im Bank), a US government agency which, of course, supports Boeing export financing

Export Credits Guarantee Department (ECGD), a UK govt agency that supports Airbus export financing

Coface, a private French insurer that acts on behalf of the French government in supporting Airbus export financing

Euler Hermes, a public/private consortium that, similar to Coface, acts on behalf of the German government in supporting Airbus export financing

Export Development Canada (EDC) a Canadian crown corporation (essentially, a government-owned company) that supports the financing of Bombardier exports.

Banco Nacional de Desenvolvimento Econômico e Social (BNDES), a Brazilian govt development bank that supports Embraer orders.

The ECAs for Airbus and Boeing operate according to different rules (such as the Large Aircraft Sector Understanding, negotiated as part of an OECD agreement to limit export financing. OECD = Organization for Economic Cooperation and Development, the “developed, democratic countries” club). ECAs have nakedly mercantilist aims (make sure our manufacturers sell exports rather than the other guy’s manufacturers) in a world that is largely supposed to believe in free trade, and over the years the OECD has worked to ensure things don’t get out of hand.

ECAs for Boeing and Airbus first of all cannot finance aircraft in the home countries of Boeing and Airbus – the US, France, Germany, Spain and the UK. These countries, are, if you like, a demilitarized zone, which is why Lufthansa can’t take advantage of these offers. Since an ECA can’t finance in its own country anyway (it wouldn’t be an export then, would it), this is really an agreement not to poach in the other guy’s backyard.

Big exception: ECAs can, and do, finance aircraft for lessors located in the home countries, so long as the lessor is leasing the aircraft to an airline outside the home countries. Even huge aircraft leasing companies like ILFC benefit from ECA financing.

Airbus & Boeing ECAs can finance up to 85% of the net-net price of the aircraft (meaning after all rebates, coupons, credit memos, etc – the real price of the aircraft, which will often be 20-30% lower than the list price). The length (“tenor”) of the financing can be at most 12 years (10 years for narrowbodies) and the loan has to fully amortize over that term (it can either amortize on a straight-line basis – equal principal payments – or “mortgage style” – where principal plus interest is a constant). There’s also a set method to calculate the interest rate on such loans.

However, in practice, the Airbus & Boeing ECAs (especially Ex-Im, historically) have not directly lent money but rather provided “pure cover”, meaning providing a guarantee. When an ECA does this, it is putting the full faith and credit of its country behind it. The bank making the loan is then no longer relying on the credit of some random airline in some random country, but rather on the credit of, say, the US. And as you can imagine, that bank is then willing to lend at a very low interest rate because the loan is now relatively risk-free. In exchange for this, the ECA gets a 3% fee upfront (but this can be added to the amount borrowed). And, of course, the loan and guarantee is secured by the aircraft being financed.

But wait, there’s more. Often, the 15% not financed by an ECA is financed (at least partially) on commercial terms (think of it as a second mortgage on a house) by the bank (or syndicate of banks) that is arranging the export finance, so the financing approaches 100% of the price of the aircraft. Secondly, the 12-year term has, over time, become to be seen as rather burdensome, requiring too much principal be retired too quickly (12 years is also a lot less than the lifetime of a typical commercial aircraft).

So in the last decade or two, both Boeing and Airbus ECAs have agreed to share the first priority claim they have on the aircraft with a so-called mismatch (Airbus ECAs) or SOAR (Ex-Im) loan that starts at zero principal and increases (accretes) as the ECA-loan amortizes. So although the ECA loan lasts only for 12 years, the two loans, taken together, have a longer (15-year) amortization. Oh, the clever things that bankers dream up to make money and justify bonuses.

Billions of dollars of such aircraft financings are done every year each by Ex-Im and the Airbus ECAs. That this is a subsidy is undeniable – each such financing is clearly cheaper than any feasible commercial alternative, because otherwise the commercial alternative would have been selected. Moreover, it’s not just dodgy airlines in dodgy countries that take advantage of this. Ryanair, based in Ireland despite doing a majority of its flying out of the UK and Germany, has financed most of its 737s with a US guarantee. But easyJet, which also does a majority of its flying out of the UK and Germany, can’t take advantage, because it’s based in the UK (as we previously said in this post, any EU startup airline would do well to see if it makes sense to be based in Ireland. Access to ECA financing is just another advantage of being based in Ireland.)

In the case of Canadian EDC and Brazilian BNDES, the situation is different. First of all, Canada and Brazil aren’t limited by the large aircraft agreements, because Bombardier and Embraer make smaller aircraft (Canada and Brazil have been invited into the latest discussions because it’s clear that their aircraft increasingly are competitors to Airbus and Boeing aircraft). Secondly, EDC and BNDES generally make loans directly. In the case of the Brazilians, they don’t have much choice because a Brazilian government guarantee doesn’t carry much weight. Both EDC and BNDES have supported exports to US airlines. In fact EDC is one of the parties most at risk from the collapse of the 50-seat regional jet market.

In the case of Germany, ECA financing isn’t the only weapon in its arsenal. Germany also has a development bank, KfW, which is functions as a so-called “Market Window” (we didn’t know this term until we read this Ex-Im report (pdf), which is a good overview of ECAs). This is basically a government agency supporting exports but (at least purportedly) at market rates and terms. Uh-huh. If KfW is only supporting exports at market rates and terms, why is its presence necessary at all? We’re pretty confident that most see KfW as a source of below-market finance, whatever the legal niceties, although the EU has apparently recently forced changes at KfW that may reduce its ability to interfere.

What’s an ECA subsidy worth? Lufthansa claims up to $500,000 per year for an A330. We’re not sure where it gets this figure from. In theory, the benefit to the airline is the difference between the financing rate it would have paid, and the interest rate it pays with the aid of the ECA. Of course some airlines wouldn’t be able to borrow at all without ECA cover and would have to lease an aircraft. That makes the analysis a bit more complicated. Assuming the Lufthansa figure is right, it’s certainly an amount worth having.

The airline business has a lot of problems that need to be solved if it is ever to be a more normal business. Eliminating the ECAs is one of them. The manufacturers would sell fewer aircraft, but the airlines would be, eventually, on average, somewhat healthier.

Saturday, January 28, 2006

Sayonara Shannon

Another thing contained in the pending US/EU open skies deal is the elimination of the notorious requirement that airlines flying across the Atlantic to Dublin also fly to Shannon, Ireland.

Until 1994, Ireland required all commercial trans Atlantic flights to enter or leave Ireland via Shannon. This bizarre policy (the Shannon Gateway Policy) was in place to promote economic development in the west of Ireland. In 1994, the rules changed to permit airlines to fly into Dublin, but each flight into Dublin had to be matched with a flight into Shannon. Of course, far fewer people want to go to Shannon than to Dublin, but that's too bad, airlines have to serve Shannon anyway. Again, the motive was to support economic development. If US/EU Open Skies is approved, the Shannon Gateway Policy will be history by 2008 (details here).

Both versions crippled development of Dublin airport as a trans Atlantic gateway/hub for Europe. Dublin airport has done well anyway in the last decade and a half on the back of LCC growth, particularly Ryanair, but it's clear that this policy has constrained the opportunities for Aer Lingus, the national flag carrier, and for decades it's made Dublin and Ireland harder to get to from North America than need be.

While (if you can't tell) we believe strongly in free-market solutions, we do think governments should seek to ameliorate social and economic ills -- but there are better and worse approaches. In our view, a particularly bad way of encouraging development of a depressed region is by simply mandating an arbitary level of service or production by that industry in that region, unconnected to any intrinsic demand.

One of the worst things about this type of policy is that it obscures the expense of it. Over time, Ireland could have achieved the same sort of economic development entirely through direct means: subsidies, the placing of government facilities in the area, the establishment of universities, and so forth and you'd be able to say that western Irish development had cost the Irish taxpayer this many billions of Euros and ask yourself whether it was worth it.

By contrast, it's virtually impossible to say what the Shannon Gateway Policy has cost Ireland over the years. It is certainly significant. In this way, at least, arbitrary requirements are worse than, say, the idiotic tax France is imposing on air travel to support third world development. At least we'll have some idea what that's costing the airline business because we can see the total tax raised, we can estimate the suppression in air travel demand, etc.

Another problem is that some of the development near Shannon now depends on this artificial provision of trans Atlantic flights, and is unlikely to survive without it. So now that the almost inevitable has occurred and the significant market distortion seems likely to be corrected, the Irish government has a problem on its hands.

In any event, if US/EU Open Skies is adopted, this part of it will materially benefit Dublin, Ireland and Aer Lingus. Aer Lingus is finally being run on close-to-commercial grounds. One of the Irishmen at Emirates has come back to take the reins (and promptly started a route back to Dubai, the first long-haul Aer Lingus route to the east), and the company is likely to be privatized. Having unfettered access to the North Atlantic can only be a good thing for the airline -- better late than never. Aer Lingus might be come somewhat more than a bit player on the Atlantic.

It will also be interesting to see how Aer Lingus chooses to exploit it. We like Continental's strategy of carpet bombing Europe with 757s. There's few European cities better suited to returning the favor than Dublin because of its promixity to North America and it's modest size (Ireland is a small country). 757s launched from Dublin could easily reach as far west as Chicago and maybe even, at a stretch, as far south as Atlanta. Something smaller gauge than Aer Lingus's A330s would enable Aer Lingus to tap smaller cities nonstop. Whether, however, it's worth investing in a new (and out of production) aircraft type is another question.

As we've said before, halting production of the 757 has left a hole. No other narrowbody is capable of spanning the North Atlantic (ignoring 737s and A319s in business-jet drag).

Friday, January 27, 2006

Air Canada: Equal Pay

Supreme Court of Canada rules that the country's human rights commission may consider whether Air Canada flight attendants should be paid the same as pilots and mechanics. This is under the doctrine of "equal pay for equal work", which attempts to determine whether certain jobs are being underpaid because of sex discrimination.

We think the concept makes no sense (and are glad that it's not law in the US). It's true some women-dominated jobs pay less than some men-dominated jobs. But we can think of a lot of reasons why that might be true. Even if one believes (and not everyone does) that some women-dominated jobs pay too little in some objective sense (it's difficult to understand how one judges this "objectively"), it may be that it's a symptom of deeper underlying causes.

In which case, adjusting pay through some non-market mechanism is treating the symptom, not the cause, and at the expense of interfering with the market, which is something one should always be very reluctant to do.

For instance, if boys and girls are socialized differently, so that girls are subtly (or unsubtly) directed away from learning subjects and adopting attitudes that are useful in pursuing certain higher paying jobs, then surely the thing to do is to address that issue head on.

In the specific case of flight attendants, while we believe the job of a flight attendant is worthy and difficult, a flight attendant clearly does not bear the responsibilities of a pilot and a mechanic. If a pilot screws up big time, there's a smoking crater, ditto if a mechanic screws up. Both must be familiar with complex systems and technologies. Flight attendant unions like to style flight attendants as safety professionals but while there's an important component of safety to their jobs the reality is that most of the time safety is not the minute-by-minute focus.

If a woman wants to be paid like a pilot or mechanic (and these days that's a lot less pay than it used to be) let her become a pilot or a mechanic. We're all for it. If in doing so, she is denied access to those professions, or is paid less, or in any way differentially suffers because she is not male, let the offending parties be swiftly punished and make restitution. But we don't think any group of people (like Canada's human rights commission) is smarter than the market.

Good luck, Air Canada.

Later addition -- to clarify, according to the Toronto Globe & Mail:

The flight attendants said they were paid differently for work that was of equal value to that performed by the male-dominated mechanical crews and pilots.

and:

The ruling opens up the possibility of cross-comparisons of wages between other groups that are not in the same union

This really is about comparing wages across professions. The idea that someone might decide that a pilot should be paid some fixed multiple of another, wholly unrelated profession is absurd.

Later later addition: Hello folks, we are not saying that companies should be permitted to pay people doing the same work different pay based on sex. And note that for pilots, flight attendants and mechanics that's not an issue anyway, because there's a single hourly scale -- it's not as if there's a male pilot wage rate and a female pilot wage rate, for example.

We are objecting to any group of people getting together and deciding the relative worth of one profession versus another.

Later later later addition: a reader sends us this link to a snarky interpretation of what this might mean one day.

Prior post on Air Canada here.

4 Comments:

Jon Bright said...: Equal pay for equal work is a good idea. If women are doing the same work men are, let them be paid the same. I also don't see an issue with the human rights commission looking into the matter if they feel like it. There's only a difficulty if they take the utterly insane decision that flight attendants are doing the same work as pilots.

Female pilots should get the same as male pilots. Since this has historically been an issue (maybe not for pilots, but in other professions), making it law is probably a good plan.

Male flight attendants should get the same as female flight attendants. Flight attendants shouldn't get the same as pilots even if they're hermaphroditic martians - it's a different job needing different qualifications.

If Canada's law turns out to mean flight attendants get the same pay as pilots, the law needs changing - but the principle's still sound.; 27 January, 2006 13:48
Erich Finchley said...: I was thinking about this too. First, I don't think the story was suggesting that pilots get the same as flight attendants. It seems to me the issue is about pay changes.

For example, say the largely male pilots association is at average pay A at time T. The flight attendants (largely female) are getting pay average B at the same point. If at time T' the pilots are getting A+15%, but the attendants are getting B+10%, then what's going on?

Obviously pilots jobs are more complex, require more skill, etc. etc. But should they get more over time as a percentage of their starting salaries? I don't know. Maybe the planes are more complex, or they're all getting older (and getting raises). But wouldn't the same be true for flight attendants?

Two other factors might be a reason for less of an increase in average pay. One is that the representative union is worse at bargaining, has less bargaining power. The other is that the management (consciously or not) devalues the work of flight attendants.

Sadly, even for work of equal value, women make vastly less than men of equal ability. One good example is tenured professors. I think the figure there is around 15% less than a male of equal ability.

I do agree with the post's comment about addressing the source of the problem, however. What that involves is less clear.; 27 January, 2006 14:08
Jon Bright said...: The law should fix the problem with the tenured professors. (Granted, it's difficult to define "equal work" in that field.)

Experienced pilots, I'd imagine, are worth more. You can fly a plane better the more experience you've had (the same way you're a better driver the more experience you've had). There's probably some improvement in the performance of cabin staff over time - but I struggle to believe that it's the same increment. You might organise stuff better, you might get to know the average customer better, but at the end of the day, there's probably less improvement to justify the increment over starting salary.

Employees of <insert fast food chain here> doubtless get worthless increments if they get them at all. The difference between a burger flipper with 5 years' experience and a burger flipper fresh from burger flipping training just doesn't make it enough worth keeping the former to give him/her a noticeable increment.

I get the impression that idlewild's ideal solution would be to get the government out of the way and let the market deal with all this. Some airline pays female pilots less than their male equivalents, other airlines will get those female employees. They'll maybe lose out on good female employees (and maybe keep the bad ones). I'm pretty sure, though, that you could populate an airline entirely with male pilots and not be noticeably less competitive. There are enough pilots.; 27 January, 2006 16:46
Anonymous said...: The day they start paying mechanics the same as flight attendents is the same day I stop flying Air Canada.

If the are f*ed up enought to believe the inequality warrents it, they should increase wages for female mechanics and pilots to encourage more women to do it. The solution isn't to raise wages for flight attendents.; 03 February, 2006 11:45

Cache of defunct enplaned site by a fan

enplaned

Monday, March 06, 2006

Great British Design Contest

Boeing Eying Small Jet Manufacture

Ft Worth Alliance Airport: Wright Hypocrisy

Wright Reading/Wright Out the Door?

Wednesday, February 08, 2006

Aircraft Appraisals: Handle With Care

EAS: Flying to Where People Don't Want to Go

Yet Another Reason To Avoid Russian Airlines/Aircraft

Tuesday, February 07, 2006

United Non-Wage Costs

Whither Bomber

More Flight Intl 737 Nutrition

Monday, February 06, 2006

BlogSpot Screwed Up

Air Cargo Carriers Tragedy

Flight Intl on 737NG

Dream Team Complete: Carty Joins Virgin America

Friday, February 03, 2006

Airlines Behaving Badly

Thursday, February 02, 2006

Two New 737NGs/Extreme Performance Models Drive Sales

Morgan Stanley's Bogus Aircraft Adventure

Wednesday, February 01, 2006

FT on JetBlue Earnings

US Govt Wants to Eliminate Airport Security Subsidy

Bomber Throws in the Towel

Tuesday, January 31, 2006

Judge Stops the Insanity

Old Norse Above Britain

A World of Pain

More on American Fleet Replacement

Monday, January 30, 2006

Articles: Southwest, Demand for Pilots in Asia

Ex-Im Bank in the News

737NG: Huge Strategic Error? Yes

Export Credit Agencies

Saturday, January 28, 2006

Sayonara Shannon

Friday, January 27, 2006

Air Canada: Equal Pay

4 Comments:

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Thursday, January 26, 2006

Joe Sutter's New Book/747s and SSTs

3 Comments:

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Wednesday, January 25, 2006

Ryanair Charges for Bags (More Unbundling)

9 Comments:

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American to Review Bonus Policy

2 Comments:

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Slots a Factor in Jet's Purchase of Sahara/India's Private Airlines Arrive

1 Comments:

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Tuesday, January 24, 2006

Is There a Pilot (or Dispatcher) On Board?

6 Comments:

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Viva Mexico Followup

0 Comments:

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AirTran & ExpressJet 4Q05/FY05 Earnings Reports

0 Comments:

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Monday, January 23, 2006

Finding Alternate Airports for the A380

6 Comments:

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A Little More on Allegiant (and Ryanair)

1 Comments:

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ATR "Joint Top of Regionals League"?

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Monday, January 23, 2006