David Field: September 2005 Archives

It seems counterintuitive: in an age when the only airlines making money seem to be low-fares mass-marketers, why would someone start an all business-class carrier? Well, in the lucrative skies between London and the US, the discriminating flyer has always demanded more, and next month two US-based business class-only ventures will be offering it.

Eos Airlines, in development for more than two years by former BA executive David Spurlock, will fly Boeing 757s with just 48 seats each between New York's JFK and London Stansted with a basic roundtrip costing $6,500. An introductory offer brings that down to just $5,000 for a roundtrip that gets a flier 21 square feet of personal space and a 78-inch lie-flat bed. Eos will add a second daily frequency on the JFK-Stansted route in January.

Also on the first of November, another luxury class service starts between JFK and Stansted. This one, Maxjet Airways, flies 767-200ERs with 102 seats each. Maxjet, like Eos privatively held, will ask $1,558 and up for a roundtrip for each of its 60-inch pitch seats. It will add a second JFK-Stansted flight but is not saying when, and will also eventually add routes from London to other cities-most likely Washington Dulles, where it is based.

Both face challenges including the historical fact that no US carrier has been successful using Stansted as a London terminal, and carriers flying between New York/Newark and London's two main airports, Heathrow and Gatwick, simply have more frequencies: 17 a day between JFK and Heathrow on US and UK flag carriers.

History is littered with both low-fare and all-luxury ventures that tried the market and lost - from Freddie Laker's efforts two decades ago to the failed PeopleExpress transatlantic venture. Still, with more than 3.7 million people flying between London and New York every year, some one has to be willing to pay for a good time.

Aloha is a Hawaiian word that covers greeting, farewell, good wishes, and general welcoming warmth. It's also the smaller of the two major carriers native to the Islands and Aloha is saying hello to a major new infusion of equity that should take it out of bankruptcy reorganisation in short order. The airline went into Chapter 11 on 30 December of last year, a few weeks after bringing in noted airline doctor David Banmiller, who had just finished a fix-up at Air Jamaica.
Now, Aloha has $100 million to finance its exit from bankruptcy with an equity and debt investment from Yucaipa Cos. and a Los Angeles-based private equity firm, IBS Capital Holdings. Yucaipa will become the majority shareholder in Aloha, while Aloha's longtime owners - heirs of Hawaiian investor Hung Wo Ching and developer Sheridan Ing - will become minority shareholders. IBS Capital is managed by former Chicago Bears wide receiver Willie Gault, whose Aloha Aviation Investment Group recently acquired ERA Aviation, a regional in Alaska.

The $100-million investment, half cash and half debt, will allow Aloha to keep 3,600 airline jobs while paying off more than $65 million to lenders, including a Goldman Sachs unit. The airline also will repay $4.7 million in loans from the two longtime owners' families. Banmiller tells Airline Business that he spent the first few months getting down costs and "getting rid of things that made no sense" such as some Aloha routes into the South Pacific. "Now we have our costs down and can look for new secondary cities where nobody else goes". Aloha already serves Orange County, Calif., and Oakland. While in court protection, Aloha brought its seat mile costs down 14%, he says, forecasting "solid profits next year even with fuel costing as much as it does." It will compete with profitable Hawaiian Airlines, which itself went though a bankruptcy that ended this past June with a major infusion from another California investment group.
Banmiller, who also did a turnaround at Sun County Airlines, says Yucaipa's managing partner, Ron Burkle, "got serous about Aloha in the last few weeks and we met to see of the chemistry clicked. It did." Burkle, who has financed numerous buyouts, sits on the Yahoo! board of directors (along with fellow Yahoo! board member Gary Wilson, the chairman of Northwest Airline's board). A supermarket magnate and hockey team owner, Burkle has received a positive reaction from labour, with the Aloha pilot union chief welcoming him.
Banmiller says Aloha will be out "by November, one year after I came. I promised myself it would be a year". That's just in time. On the same day that Aloha told the bankruptcy court about its new investors, Mesa Air Group's Jonathan Ornstein said the carrier will begin an interisland low-cost regional unit early next year. Mesa likely will start operating with six 50-seat RJs and eventually end up with 12 to 15, he said. The new airline, whose name will be disclosed later, could use CRJ 700s and 900s. Ornstein, who has been interested in the Hawaii market since 1990 when he looked at now-defunct Discovery Airways and later at Hawaiian, said he believes Mesa will be profitable. It will fly head-to-head with both Hawaiian and Aloha airlines along with smaller carriers Island Air and startup FlyHawaii Airlines, which also plans to begin service next year.

It's a bad word in the lexicon of trade unionism, not far from 'scab,' but 'raids' are a fact of labour life. At Northwest Airlines, where unions stand to lose even more ground to the powers the airline gains while in bankruptcy, one union is fighting another for the loyalty, votes, and dues of the airline's 9,700 flight attendants in a 'raid' that began just hours before the carrier's 14 September bankruptcy.
The Association of Flight Attendants, a nationwide union representing 45,000 workers at 22 airlines, wants to take over from an independent union, the Professional Flight Attendants Association. The PFAA, an in-house union, itself ousted the Teamsters as the cabin crews' union for more than 25 years in a close election back in 2003. The Teamsters had represented Northwest flight attendants since 1976 but were ousted after agreeing with management on a concessionary contract.
Paul Dire, the Northwest flight attendant who is leading the drive to enlist his colleagues in the AFA, says the independent PFAA union "failed to build a strategic contract-plan which garners the trust, involvement, and mobilisation" of the workers. He says Northwest's flight attendants need the strength of the AFA, which is part of the 700,000-member Communications Workers of America--which is itself part of the national trades-union congress, the AFL-CIO. AFA has access to a strike fund of about $300 million and experience both at the negotiating table and the bankruptcy courtroom-it represented United flight attendants and those at US Airways in their trips through reorganisation.
Under the rules, when just over half the Northwest flight attendants sign a list saying they want to join the AFA, the feds hold an election which requires that 50% plus one vote for the union for AFA to win. If the union doesn't win, it can keep trying, and raiders often do: it took the PFAA three tries before it won enough votes to take over from the Teamsters. Speaking of which, another group of Northwest flight attendants want to bring them back but the 1.4 million-member Teamsters, who aren't saying if they like the idea or not.
This isn't the first time there's been raiding at NWA: back in 1999, a little group called the Aircraft Mechanics Fraternal Association ousted the longtime metal-bashers' union at NWA, the International Association of Machinists. And back on 20 August, the AMFA began a strike against NWA.
But that somehow seems like ancient history.

They're keeping us safe on Capitol Hill and they've got two homeland security committees to make sure. One of them on the House side has had no chairman since chair Cox, the California Republican (and spouse of a Continental Airlines lobbyist), was tapped by Bush to head trading watchdog the Securities and Exchange Commission._Since spring when Bush picked Cox for the post, House Republicans - who have the power to pick committee chairs - have argued over who would get Homeland Security and with it the perks of power such as the power to "suggest" which states, counties, cities, and towns, airports, and seaports get grants from the federal homeland security agency. _Prime contender was on Don Young, who already runs the House Transportation and Infrastructure committee, sits on its aviation subcommittee and is noted if not notorious for taking care of friends, neighbours, and constituents. Young shaped a $286 billion (that's billion, with a 'B' as in 'big') transportation bill, loading it up with bridges, tunnels, highway interchanges and the like for his sparsely populated home state of Alaska, with concrete goodies for Young's many many friends and supporters. Foes and friends point to a $450 million (that's million with an 'M' as in 'massive') "bridge to nowhere" linking an Alaska town to an island with about 50 inhabitants as typical Young "pork barrel" largesse. He's also made sure every year that rural air service gets its subsidy.
Young didn't get the homeland security chairmanship, though. Some said that's because he had opposed making homeland security a permanent committee a few years back, while some said they feared Young would use the panel's power to move many Coast Guard facilities in its jurisdiction to Alaska, where the guard's vessels could berth in ports that Young had funded, perhaps next to highways that Young had the panel fund. Others say New York congressmen (and women) fought him over this fearing that their state, home to Ground Zero as well as two major airports would be deprived of grants, etc. The leaders ended up picking a Republican from the Long Island suburbs of New York City, Peter King. As the old saying goes, why buy the cow when you know you'll get the milk for free. Perhaps the same is true of pigs and pork.

It's a plane. No, a train. And Northwest Airlines' striking mechanics are picketing it. Yes really. In the second week of a strike largely ignored by the flying public, the union formerly known as AMFA picketed a railroad marshalling yard about 60 miles from the airline's Detroit hub to draw attention to its grievances. An Aircraft Mechanics Fraternal Association spokesman said the action was "a legal secondary strike" but added that the picketing at CSX Transportation and Norfolk Southern freight facilities in Toledo, Ohio, would be brief.

Northwest meanwhile continues to fly at what it claims are near normal levels, although it warned AMFA that it would replace strikers permanently and hire the temporary workers it has used since August 20 if the 4,400 strikers didn't return to their old positions by the week of 13 September. It did acknowledge it was cooperating with FAA safety inspectors whose probe began in response to the request of a Democratic-Farmer-Labor Senator from Minnesota. 

Repeating its warning of a looming bankruptcy reorganisation, Northwest did say it was suspending its daily New York-Tokyo B747 non-stops as of 2 October because rising fuel costs "were severely affecting the financial viability of some routes."  And authorities at the Minneapolis/St. Paul Int'l Airport, Northwest's #2 hub, said they would consider postponing for a year the expansion of a terminal where new gates were to have been available by 2007. No word what the freight trains were carrying.

When they struck Northwest on 20 August, the Aircraft Mechanics Fraternal Association said the airline was going to go into bankruptcy anyway and would just blame the union. Amost two weeks into the AMFA strike, the airline said it may well be forced into Chapter 11 soon - but not because of the union.

The strike has not had a significant impact on revenue, it said in a Securities and Exchange Commission filing, but it is running out of time to avoid bankruptcy because of spiking fuel prices. Predicting it will lose as much as $400 million this quarter, Northwest expects to pay $1.90 to $1.95 per gallon of jet fuel, for a total of $900 million for the quarter.

It will spend at least that much in the fourth quarter, for a total of $3.3 billion for all of 2005. That is a 50% increase over the $2.2 billion it spent on fuel in 2004. Its cash had fallen to $1.7 billion as of the first of the month, down from $2.1 billion on 30 June. Some of the decrease was due to holdbacks or set-asides required by the company that processes its credit-card transactions. (This is the same dilemma that has squeezed rival Delta into a corner).

Northwest pilots said they would negotiate a new round of paycuts, but the airline said it has run out of collateral for additional loans. So who's happy now?