David Field: February 2006 Archives

It's not hard to read a lot into a symbol - especially when it's a self-declared symbol like "The Spirit of Delta", a Boeing 767 that was paid for through a voluntary fund drive begun by employees. Back in 1982, three Delta flight attendants began the campaign to persuade others at the nation's number-three airline to sign up for payroll deductions to finance the purchase, which was about $30 million in then-dollars.

Much has changed since then: Delta is desperately bankrupt, riven by internal strife, its employee contributions are now involuntary, and the carrier is retiring all of its older 767s. 'Spirit' is making a farewell tour of Delta cities, and after 3 March goes into a hangar at Delta's Atlanta Hartsfield-Jackson airport hub.

That is perhaps a happier fate than the airline's other vintage 767s, many of which will be converted to carry cargo in the overnight package-express trade, some of which have gone to Hawaiian Airlines, and some of which are headed, along with the type of spirit that Delta people showed nearly a quarter-century ago, for the runway of memory.

Hades, they say, hath no fury like that of...Try lawmakers, if a House aviation panel hearing, or grilling, of administration liberalisers is a gauge.

All the objections were there: loosening the interpretation of limits on foreign control of US-flag carriers to nudge EC agreement on sort-of-open skies would: (a) endanger US national security by weakening military airlift participation (b) endanger US jobs because European airline workers are lower paid, (c) allow nationals of suspect nations like Nigeria to take over US airlines, (d) threaten motherhood and apple-pie production, and (e) cause weight gain.

Well, maybe not the latter two, but the proposal, in the form of an administrative notice of proposed rulemaking, would, and indeed already has, outraged the gentle sensibilities of the men and women of the congress. Take for instance, Rep. Ted Poe, a Republican from Texas, who after repeatedly silencing the DoT's Jeff Shane with the minatory phrase "I'm not through yet", suggested that a foreign investor with a management stake could crimp a carrier's security budget and staff.

A criminal courts judge in Houston until his election in 2004, Poe recalled that he had often had to deal with misunderstandings of the role of the courts. Shane offered this deferential interpretation: The division of labour between executive branch departments like DoT and Congress "is pretty clear: we interpret the law; you write it", but Judge Poe was not placated. After all, he had just pledged Continental employees back home in Houston his support "to keep American airlines in the hands of Americans". He told them: "When I look out across these runways, I want to see American-made Boeing aircraft, not European ones."

Given the debate now burning bright in partisan hearts through Washington over presidential and executive branch prerogatives, perhaps that's an arguing point, but then there's Peter DeFazio, the Oregon Democrat who has followed aviation matters for nearly a decade, who called the proposal "claptrap".

And there's Rep. Eddie Bernice Johnson, a Democrat from Dallas, who found the proposal "arrogant" in its scope and was offended by the administration's admitted failure to consult the aviation subcommittee before issuing the proposal. "Tell me," she asked Shane, "did you ever think to tell Congress or this committee" before issuing the plan? No one, responded the still-diplomatic Shane, regrets more the failure to communicate.

The State Department's ever-diplomatic advocate, chief negotiator John Byerly, offered a bit of unintentional flattery. Byerly addressed the panel's senior Democrat, the well-respected Jim Oberstar, as "Mr Chairman", a title Oberstar held before the Republican takeover of the House in 1994.

Not to be out-finessed, the 32-year veteran Oberstar quickly cut off Byerly's apology with "no, that's all right, I'll take 'Mr. Chairman". Oberstar, who still has a chairman's eloquence, did make the point that this is a serious issue. The DoT proposal, he said, was "artfully crafted, carefully, shrewdly worded and stoutly defended. But its purpose is to hand over US airlines at their most vulnerable to their international trade competitors".

When the wise men and women of the United States Congress aren’t back home mendin’ fences, kissin’ babies or chompin’ down corn at the country fair, they do spend time under the Capitol dome, and some of the things they do here can easily escape notice of the newshounds chasing the latest lobbying or pork barrel story. So here are a few tidbits:

Penchant for reform: Speaking of lobbying scandals, the House leadership has changed now that Republican leader Tom DeLay, indicted in his Texas home district, has stepped aside from leadership posts; the outcome of a closely contested election to succeed him has some interesting news for the airlines.

The winner, John Boehner, may well be known to the airline industry not because of his politics - he’s a fairly conservative Republican from Ohio - but because of his interest in pension and retirement problems. Long the chairman of the House Committee on Education and Workforce - still known by its old moniker 'the Labour Committee' - Boehner pushed a pension reform bill through the House in late December.

That’s the good news. The bad news is that Boehner refused to put any special consideration for airlines in his bill, even though the counterpart Senate bill has some provisions desired by airline lobbyists. The two versions will be reconciled in a differences or conference committee, and now that Boehner is in such a high-profile position, hopes are that he will compromise. Interesting sidelight: Boehner’s pension bill nearly died in December when the acting House leader, the aptly named Roy Blunt, blocked it. Boehner’s main opponent in his winning race: the self-same Mr. Blunt.

The ‘F’ word and the ‘U’ word: They’re both back in Washington - User Fees that is. The airlines are gearing up for a big legislative battle over the formula for funding the FAA, the agency that employs the nation’s air traffic controllers and runs and maintains its radar, en-route, terminal, and tower facilities among other segments of the infrastructure.

The fight is over who pays how much for what, and the airlines, in the person of Air Transport Association chief executive Jim May, have already begun their campaign to get private pilots – general aviation - to pay more.

The last FAA rewrite was signed in late 20003 after monumental battles over user fees and ‘privatisation,’ and this time around, the FAA really needs the money, says Transportation Secretary Norm Mineta. So the DoT, which is the FAA’s parent agency, has allied with the airlines to move to force private pilots into paying more for their air traffic services. Both have begun using similar phrases: May says that air-traffic charges and fees “should be based on proportional use”. Mineta told another aviation group that “I expect that we are going to see a cost-based plan that creates a more direct relationship between revenue collected and services provided”. He called for a “stable and predictable” source of revenue for FAA capital improvements. To private pilots and corporate aviation, this is anathema. His words “sure sounded like an oblique reference to user fees”, Doug MacNair, the Experimental Aircraft Association’s vice-president of government relations, said after Mineta’s talk. It will be an interesting year.

Man on the move: They let the post sit vacant for a year, but the White House has finally made its pick for US Ambassador to ICAO, choosing Washington lawyer Don Bliss to represent its interests at the international body. Bliss, head of the O’Melveny & Myers aviation practice, is well-known in Washington circles, having worked at the FAA and having written a book on customer service. (This book, we hasten to add, was NOT in the series known as the “very thin-book” series.) Active in the city's aviation organisations, Bliss is widely regarded as a genial past master of these issues; he tells Airline Business that he's looking forward to getting his diplomatic passport - to make it easier to get through airport queues.

The deal was clinched in a mens room corridor in a public building downtown, but he's still proud of it. Dave Banmiller, peripatetic fixer-upper of ailing airlines, tells Airline Business that the delayed emergence of Aloha Airlines from its bankruptcy reorganisation is on for Valentine's Day, having been postponed from a Christmas date when last-minute pensions watchdog objections emerged.

The federal Pension Benefit Guaranty Corp (PBGC) filed several objections a few minutes before the deadline on the Friday afternoon of the last day of the objection period back in December, says Banmiller, who adds that he was in negotiations with the PBGC within hours.

After the PBGC's protest over the proposed termination of several pensions schemes, Aloha had to rewrite its plan to accommodate these added costs and the rising price of fuel. The final approvals and agreements came just minutes before a final hearing in the bankruptcy court building in downtown Honolulu, with Banmiller making mobile phone calls from just outside the restrooms.

"But coming out," says Banmiller, "we'll have more equity than before and better equity/debt ratio, one of the best in the industry." The modified deal, worth $98 million, provides $63 million in cash and $35 million in exit debt financing. The previous reorganization plan was worth $100 million and provided $50 million in cash and up to $50 million in debt. The new deal also includes $4.5 million more in cost savings.

Banmiller, who had earlier done workouts at Sun Country, one of the Pan Am resurrections, and other struggling carriers, is sorry he couldn't do the Aloha reorganization within the year he had set as a goal, back on New Year's Eve of 2004, when Aloha filed for Chapter XI, but he calls the delays "just sort of a bump along the way". Banmiller is too diplomatic to point out that its island rival, the considerable larger Hawaiian Airlines, took about twice as long to do its Chapter XI reorganisation. The next step: intensified marketing on the west coast mainland markets that Aloha serves.

When the federal pensions watchdog forced Manmiller to redo the Aloha plan of reorganisation it had an unexpected upside, he says: more hometown participation. The plan had always included the Ching and Ing families, two longstanding pillars of Hawaiian commerce that had helped found the airline in 1946 years ago as Trans-Pacific Airlines (TPA). The January plan brings in a new group, Aloha Hawaii Investors, which includes notable investors Duane Kurisu and Colbert Matsumoto, who have also helped rescue a Honolulu radio station and newspaper. The group added $2.2 million to the total, while the chief investor, California supermarket billionaire Ron Burkle added another $10 million.

Banmiller, who engineered a turnaround at Air Jamaica before heading to Hawaii, says the hometown investment has the advantage of supporting the airline's identity as the local airline. Honolulu locals recall that in the bad old days when island society was strictly segregated along ethnic, racial and class lines, the old TPA was seen as 'the peoples airline': local lore has it that on some airlines, Hawaii native people were removed from flights to make room for a visitor or a westerner - but not on TPA. Whether or not this is strictly accurate historically (and one has to hope against hope that it isn't) the hometown branding has to help in Aloha's bid to attract the large number of island expats, Hawaiians who work on the mainland but still travel home frequently. (TPA became Aloha in 1958).

Banmiller says that once the funding is completed and the exit formalised, "I'll send off a damned big check to Goldman Sachs" the Wall Street firm that has financed Aloha while the carrier reorganised. After that, says Banmiller, who was chief operating officer of Air California and then vice president-international at American after it bought out Air Cal, says that, "the focus will be on the employees. They have made the sacrifices and the contributions that kept Aloha alive".

Oh Baby Blue, who's singing the blues now? JetBlue and no baby she, but an adolescent with some real growing pains: the blue-eyed darling will lose money this year and posted a deficit for 2005, the first time since 2000 it was in the red.

For the full year, the net loss was $20.3 million, largely because of a fourth-quarter net loss of $42.4 million, when JetBlue's costs for fuel climbed by 90% from a year earlier. Labour costs at the non-union airline rose 22% as it hired workers to fly its new Embraer regional jets. Just like every other struggling player in today's airline industry, fuel and labour were its largest expenses.

Before the fourth quarter, JetBlue and role-model Southwest were the two biggest US airlines not to have reported a quarterly loss since the 11 September terrorist attacks. Southwest remains profitable, while the largest US carriers have lost more than $40 billion since the end of 2000, and pundits, analysts and legislators held out JetBlue as demonstrable proof that a well-managed airline could make money. Since it went public in 2002, JetBlue's shares have been a magnet for investors, peaking in late 2004 and retaining Wall Street's favour even as they have declined in price since. Its last quarterly deficit was in the closing period of 2000, a year for which it also lost money.

While growing pains, in particular the maturing of its workforce and fleet, its expansion and ambitious plans to integrate the Embraers, certainly combined to account for some of the red ink, stiffening competition from low-cost rivals, from Southwest to an aggressive AirTran, and rebounding legacy carriers such as US Airways and Delta's Song unit, presents a continuing challenge.

The other fundamental problem: fuel. A slightly embarrassed chief executive David Neeleman said almost wistfully: "I wish we had Southwest's hedging position, but we don't." Neeleman, who founded the carrier in 1998, some 18 months before it began operations, sees more costs ahead. The Embraers have presented some teething problems, and the airline is committed to heavy spending on a new terminal facility at its New York JFK hub, where it expects to have 26 gates by late 2008 or early the next year.

The public still loves JetBlue, but its revenue was, in the words of Merrill Lynch analyst Mike Linenberg, "a little light". Total operating revenue in the fourth quarter was up 34% to $446 million, but that was $15 million short of his forecast, and unit revenues were up just 5.3% in the quarter. That was short of the increase estimated by JP Morgan's Jamie Baker, who was looking for unit-revenue growth in the 9% range. As Baker put it: "The maturation of JetBlue has occurred far more quickly than we ever would have envisioned."

But, for just a few bucks more, things could be a lot brighter: Neeleman said that with an added $4 on each ticket, it would have made money. "What we really need is for fares to go up about $10 each." He may ask, but it may not be given.