David Field: January 2007 Archives

Going? Gone? The US Airways hostile pursuit of Delta Air Lines seems to be losing altitude.

Chief executive Doug Parker said on a conference call that US Airways would drop its $10 billion bid for Atlanta-based Delta on 1 February if the Delta creditors committee does not move to force the bankrupt carrier's executives into merger talks. "They know exactly what they have to do and they know that if they don't do it, our proposal is gone", he said. But if the Delta creditors are not ready to play ball, "we're not willing to pursue this transaction anymore."

Parker was telling securities analysts about the airline's better-than-expected fourth-quarter profits of $86 million after specials, one-time charges and gains. This is the sort of conversation in which observers will want to weigh every syllable and nuance, and you can too, by listening to Parker's comments.

Parker says more than once that US Airways' deadline is firm, buts seems truly surprised that anyone would not take the cash-and-stock offer and "make the right decision." He spoke just hours after Delta revealed that it had $2.5 billion in financing lined up to support its emergence from reorganisation as a stand-alone airline - an airline that hasn't merged with anyone.

Is this what T.S. Eliot meant with the line in the poem about ending "not with a bang but a whimper"?

US Airways chairman Doug Parker may well be glad that the Senate doesn't get to decide airline mergers, given the buzz-saw of hostility that Parker ran into in defending his $10-billion unsolicited bid for Delta Air Lines. It's easy to stack a congressional panel for or against whatever pleases or displeases a committee chair, given the prerogatives of power, but the Senate Commerce Committee's Delta defence and 'love-in' should also carries a serious warning: rural and small town America, hurt more by airline service cutbacks than it can bear, is against this or any merger. All of which would be the stuff of jokes, along the lines of "Ma and Pa Kettle can't get to the big city no more", but for a serious fact: farm states and rural states have senators and members of Congress, and they tend to have the same senators and representatives for years and years, giving the much-derided 'flyover country' of Mid-America unusual seniority and clout.

So Parker was listening closely when Senator Byron Dorgan, the North Dakota Democrat, denounced the proposed merger as the first domino to fall in a chain reaction that would starve farm states like his. "Inevitably, what's going to happen is the other network carriers are going to decide, 'we've got to merge'." Dorgan is the chairman of the powerful appropriations subcommittee that sets the Transportation Department's budget, and even though DoT does not have the final say in mergers, its findings carry great weight with the decider, the antitrust and competition regulators at Justice.

Even though Parker tried repeatedly to assuage senators, other senior Democrats including Jay Rockefeller of West Virginia said that this or indeed almost any merger would reduce service to small and rural communities. Rockefeller's worries matter: he now chairs the committee's aviation subcommittee. You can listen to the entire Senate Commerce Committee hearing here, click on hearings.

Parker got cold comfort from Republicans, who are supposed to be pro-business. The gentle-lady from Maine, Olympia Snowe, was downright outraged that some of the major towns in her rural state would be "down to one carrier" after a merger. And Mississippi's Trent Lott, now the Senate's number two Republican, said, "This merger causes me concerns and I just want to get that on the record". Noting that Delta is based in Atlanta, Lott told Parker, "you're an aggressive suitor, but the lady from the South doesn't want to be forced into this shotgun wedding". Delta chief executive Jerry Grinstein played up this fear, telling the committee that small communities would be "the major losers in this proposed takeover". Grinstein was in his element in the hearing room, having served as the chief of staff and lawyer for the committee's legendary deal-making, power-wielding chairman, Sen. Warren Magnusson of Washington, back in the 1960s.

The only DoT representative at the hearing, assistant secretary for aviation and transportation affairs Andrew Steinberg, offered some hope for the folks down home , saying the new generation of very light jets such as the Eclipse and the planned 'air-taxi' services they have spurred would fill in the lacunae. He said he could "envisage at some time in the future a much more vibrant market of on-demand service that can be operated profitably". But Steinberg conceded that airline deregulation and mergers since 1978 had hit rural routes the hardest and that subsidised service had not made up the difference.

Zoom, the Canadian-flag carrier offering low fares across the North Atlantic to the UK and to Paris, may be going south: it has told US regulators that it wants to bring its brand of discount service to the UK-US market, which it intends to do through a UK-based subsidiary it set up in 2006. Zoom last summer sold an $11-million minority stake to the Bank of Scotland, and used that funding to set up ZoomUK at London Gatwick.

The carrier, controlled by Direct Holidays founder Hugh Boyle, wants to starts daily Boeing 767-300ER flights between Gatwick and New York John F. Kennedy, adding that city pair to its routes linking eight Canada points with Gatwick, four other UK cities (Manchester, Glasgow, Cardiff, and Belfast) and Paris. Its Transportation Department application does not offer sample fares, but its website lists fares between western Canada and Paris starting at about $260 (US) or £130 Sterling each way. This level of fares would aid Zoom in its new competitive situation: Delta flies daily between JFK and London Gatwick, while Continental, using the Newark Liberty International Airport on the other side of New York City, serves Gatwick twice daily along with Belfast, Glasgow, and Manchester. But Zoom's marketing material clearly targets the truly price-sensitive traveller, and if the DoT clears the way, Zoom could help write the next chapter in long-haul, low-fares service.

You can never be too early. That's the belief at Delta, which has applied for an international route right that won't come up for competition until late in the year. It's a route to China, and Delta, still steamed that it couldn't join in the competition for a China route that just ended with a successful bid by United, has already put its papers in at the Department of Transportation. Delta was shut out because the last competition, under terms of the last US/China open skies deal, was limited to only incumbents, the US-flag airlines already flying between to China. This is Delta's third try for a China route and access to the growing mainland. It lost earlier competitions to other airlines or to all-cargo carriers. This time it's determined to win, even if that means getting letters of support from every mayor, city council member, delegate, travel agent and peanut-farmer in the south.

Delta's argument that it deserves a route follows the lines of one made by American in the last case: a region of the country without a China gateway deserves the route. The argument that whole regions of the nation without service deserve service would seem to be a compelling one, and indeed it was in the China route case just decided. In that case, American Airlines was the front runner for a long time with its argument that its Dallas/Fort Worth hub had no non-stop China service and indeed the entire south-western region was without a link. Most people agreed. Right up until American ran into a problem with its pilot union and couldn't persuade them to change their work rules and fly the route non-stop; after that American said it would have to stop in Chicago on the way from Dallas to Beijing. And was promptly rejected by the DoT, which said it was looking for non-stop plans. United won with a plan to link Washington Dulles and Beijing, in a capital-to-capital route.

Delta is making its case very publicly: it has its workers and its state and city lined bigwigs up, with a news conference at city hall to announce the bid it has mayors, chamber of commerce types, airline employees, business leaders and the like. It also had another argument: it is the only mega-carrier without a route to China. United is already a major transpacific player, Northwest, once called Northwest Orient, is big into Asia, and American does have China routes from Chicago. Delta's plans to use Boeing 777s to Shanghai rests on the argument that with the recent United award, Beijing has more flights from the USA than Shanghai, seven versus five, even though Shanghai is the mainland's major business centre. Read some supporting rhetoric here.

The losing carriers will go after the routes too, and aggressively, it is expected, repeating the publicity stunts such as the fortune cookies that Continental handed out on Capitol Hill, the parade it organised in New York City's Chinatown or the special websites, letter-writing and congressional sponsorships other carriers used to make their cases. Northwest, stung by charges in the Detroit papers that it lost the route because it didn't gather enough congressional suport, is not going to be a stranger in Congress. We can expect all sorts of publicity stunts this time around, but Delta arguably is playing it smart starting so soon. Any bets on Georgia peaches finding their way onto Capitol Hill?

The world's largest airline posted the US industry's biggest financial turnaround yet. American Airlines' corporate parent AMR Corp. said it earned a fourth-quarter profit and an annual net, in sharp and welcome contrast to losses in the 2005 quarter and full year. In fact, the results reflect the airline's first fourth-quarter and full-year profits since the year 2000, back in the much better if not good old days of the pre-disaster era. The annual profit of $231 million represents a $1.1 billion improvement over the net loss of $857 million the airline incurred in 2005, while the fourth-quarter net of $17 million represents a $617 million improvement over the quarter of a year before; this quarter is usually a weak one for airlines as business travel drops off with the colder weather and leisure travel slumps off except for the holidays. But this quarter was American's third profitable quarter in a row.

Talking to analysts and reporters from headquarters near the Dallas/Fort Worth airport, AMR president, chief executive, and president Gerard Arpey repeatedly stressed that employee cooperation and initiatives were key to the strong performance, and pointed out the positive gains of labour/management cooperation in its maintenance services unit. AMR Fourth Quarter Earnings Conference Call  And Arpey repeatedly stressed that AMR stepped as deeply as it did into black ink without the advantages of bankruptcy court protection, unlike some of its competitors. It was these very factors that led the judges in the Airline Business Strategy Awards to nominate and select Arpey and his team as winners in the Strategy Awards for 2006 in Executive Leadership (http://www.strategyawards.com/2006%20pdfs/AB-037-Aug06.pdf ).

All, however, is not coming up roses in the Texan winter: the immediate reaction of American's pilots union, the Allied Pilots Association, was to express "outrage" that the strong results could end up as executive bonuses. Based on closing prices of AMR shares, performance bonuses to be paid in April could easily total about $218 million, said APA president Ralph Hunter. Because a "disproportionate share" of AMR bonuses would go to some 50 senior executives, Hunter said "it is insulting for senior managers to be receiving a windfall that may equal or exceed all of our airline's earnings in 2006". APA Outraged That Executive Bonuses Could Match or Exceed American Airlines' 2006 Net Profit The union has been vocal recently, refusing to agree to a management request to change work rules to allow American to fly its proposed Dallas/Fort Worth to Beijing route non-stop. The Transportation Department rejected American's China proposal after it amended its plan to make a stop at Chicago O'Hare on the Beijing route; American's archrival United instead won the route rights with planned non-stops between Beijing and Washington Dulles. Arpey didn't address any of labour's "unfortunate rhetoric", as he called it, but noted that American was recalling furloughed pilots at an increased rate.

They were not drinking. Or smoking that funny stuff, they swear, but a serious number (several dozen) of serious United Airlines workers at Chicago O'Hare swear that they saw an aerial phenomenon they can't explain, or, in other words an Unidentified Flying Object (UFO). It happened late last year but the news is just now coming out that the United people say they saw an object hovering low over O'Hare for several minutes and then taking off through thick clouds leaving "an eerie hole in the overcast skies", one of them tells the Chicago Tribune.

United says it knows nothing, nothing, but the Federal Aviation Administration said its air-traffic control tower at O'Hare received a call from a United supervisor asking if controllers had spotted a mysterious elliptical-shaped craft sitting motionless over Concourse C of the United terminal. What's interesting is that airline employees, who daily serve unidentified fried objects to the passengers and who daily see strange things aloft, do not report more UFO-type sightings. But an air traffic controller in Chicago has made the best of the strange situation, quipping, "Wherever they were from, they should have known better than to try to land at O'Hare in the afternoon rush. After all, they came all those zillions of light years only to find they couldn't get to their gate".