November 2005 Archives

Two months ago, former British Airways boss Sir Rod Eddington used his valedictory speech at the Aviation Club in London to rage against Chapter 11, the US legal mechanism that allows, in his view, badly-run airlines to limp on when they ought to be put out of their misery, dumping capacity on the market and providing unfair competition for rivals who do not have the luxury of not paying creditors.

At today's monthly Aviation Club lunch, United Airlines chief Glenn Tilton hit back, providing a robust defence of the bankrupcy protection regulation. This was his argument:

1. Chapter 11 is not an "airline phenomenon". Any US company can apply for it.

2. Most companies don't survive Chapter 11. Off 166 airlines that have filed for it since 1978, only three are still in business.

3. It's a much more rigorous process than the back-door infusions of state aid that go on in Europe.

4. Creditors don't lose out. Its purpose is to re-create an enterprise that is worth more as a going concern than it would be if the company was liquidated there and then.

Above all, Tilton was insistent that United Airlines did not have a "right" to continue operating and had to prove its worth to court and creditors. So who is right? Chapter 11 is probably not the "safe harbour" Eddington claimed, although it does give airlines a chance to sort out legacy cost structures such as salaries and pensions deals and lease agreements that they could never do under normal circumstances. It may be the lesser of two evils for creditors, but, in the meantime, it certainly distorts the market. While it is sorting itself out structurally, an airline in Chapter 11 must, above all, generate cash. Bankrupcy isn't exactly great branding, so carriers in Chapter 11 tend to slash prices to get bums on seats. This in turn forces rivals to cut their fares, which is great in the short term for consumers, but disastrous for the financial health of the sector as a whole.

Although Tilton was right to have a dig at European state aid in the past, this (with a few exceptions which skirt on the edge of legality) pretty much does not happen in Europe these days. If British Airways or Lufthansa fail to make money over a period of several years, they will go bust, simple as that. They have to do their "dirty work" outside the protection of the courts.

It will be interesting to see what sort of United Airlines re-emerges from Chapter 11 in February. Tilton promises that it will be a very different beast. But it will still have to compete with two rivals in bankrupcy protection and able to dump capacity on any of United's profitable routes. The fundamental problem is that, whatever changes Tilton makes to United, the sector as a whole is still fundamentally in need of consolidation. And that won't happen until either the competition authorities allow mergers or one or more of the majors - currently operating either in or with the safety net of Chapter 11 - is allowed to disappear.

It takes a lot to impress British Airways. Losing all your flight instruments at night, for example, hardly merits a mention. Respect!

So, in this story an A319 crew is climbing out of Heathrow on a clear night when suddenly everything goes dark. No flight instruments at all, a standby horizon that it seems almost certainly wasn't illuminated, and just the external horizon to fly by. No radios either.

Unsurprisingly the captain, aged 53, with 11,800 total hours and 4,000 on-type, coped serenely. When the power equally mysteriously returned after a couple of minutes, he spent 40 minutes in the hold fruitlessly investigating the problem and then pressed on to Budapest.

In Hungary, BA's engineers failed to find a fault and cheerfully put the aircraft back into service. The pilots duly filed a mandatory occurrence report and life carried on much as usual.

When the MOR landed at the CAA however the reaction was less relaxed. Not long after it was at the Air Accidents Investigation Branch, and not long after that the aircraft was grounded with Farnborough's finest climbing all over the avionics.

I doubt that my mortal flesh is ever in safer hands than when it's securely inside a BA aircraft, and particularly with a 12,000 hour, silver-templed veteran guiding us through the skies - night or otherwise. But I think there will be some debate over this one.

Few commodities are viewed more differently across the Atlantic than petrol (gas). In Britain, I suppose uniquely, it's priced in garages (filling stations/on the forecourt/gas stations) in pennies per litre. The way the maths (math) works, we've recently been heading for the incredible figure of 100p - ｣1 - per litre for the first time ever. At the last second it swerved off - reached maybe 98p - and I can now get it at 88.9p.

(Anecdotally, the price went straight through ｣1 and kept going on a filling station in Mayfair, in London's moneyed heartland, - and people actually paid it.)

After the recent drop, it wasn't a surprise when those masters of marketing at Virgin Atlantic Airways took the opportunity to announce that they were cutting their 'fare surcharge' - so taking ｣5 or $6 off one-way fares. Nice publicity (although they didn't push it too hard - after all they still have a ｣25 surcharge in place.)

This is interesting. The equally marketing-obsessed Ryanair (which doesn't compete with Virgin but does with British Airways) makes a huge deal of the fact that it doesn't and "never will" impose fuel surcharges.

What great guys Ryanair must be! Well, not really, Ryanair has to pay for its fuel like everyone else (although they're past-masters of hedging) and one way or another those costs filter through into their ticket prices, same as everyone else. They can call it what they like.

As long as Ryanair gets away with the marketing message it's great propaganda. But, by highlighting their surcharge in the first place, people like Virgin and BA are in a great position subsequently to 'cut' fares.

Which is smarter? Damned if I know - but I know which airline is making most money.

I just had the great privilege to listen to some Google folks explaining some of the do's and don'ts of making money out of web-publishing - something that Flight Group's ultimate owners - Reed Elsevier - are rather keen on. They addressed the UK Association of Online Publishers, which organises some terrific little events like that.  

Being from Google they were all aged about 13, absolutely charming, and with more university degrees than you could shake a stick at (as we say in Britain.)

They're also wonderfully self-effacing. Brian Axe, a Californian who's "product manager for Adsense for content business" (so in fact Google titles are just as dire as every other big company's) was explaining the cool stuff they're doing via mobile devices - like instantly translating foreign languages.

He related how he had just visited Paris with colleagues and found himself in a nice restaurant trying to understand if they should add a tip or not. The guidance was on the menu, but in French. And French to Californians...well it just doesn't work.

So they sent the French guidance to Google via PDA or cellphone or whatever and instantly got told that "service compris" meant they didn't have to cough up any cash.

Without a trace of irony, Brian explained: "So we didn't look like dorks...well, we did look like dorks because we were doing searches at the dinner table...but we didn't look like dweebs who didn't know if we should tip." And, honest, these people are really smart! 

The world's august body of visceral Airbus-haters (and some more considered souls) is already queuing up to dance on the grave of the A340. Four engines just aren't necessary, they say, we always told you so.

Well, unfortunately for Boeing's sales team, some very sophisticated airline purchasing execs were a long time learning how 'wrong' they were. While they were absorbing this apparently obvious point, Airbus was shifting just shy of 400 of the type and another 500 A330s. How many of the A330s would they have sold anyway - hard to tell, but a good deal fewer I think.

The -500 really has turned out to be a step too far, but the same doubts surround Boeing's investment in the ultra-long range niche - and if anything deserved to be called a 'niche' then this is it. For both of them, in the game they're in, it just comes with the territory.

Anyone who thinks the four-engined idea was misguided either didn't live through the ETOPS debates of the last decade or has a short memory. Airlines and their staff at that time were quite understandably ambivalent about the assurances of the ETOPS gurus. And that was for fear of ending up in the ocean - not the much greater risk of making an unscheduled visit to Siberia with 300 passengers in an aluminium tube.

The fact is that the ETOPS debate will never be settled. If just one aircraft is lost mid-ocean because of consecutive engine failures (or conceivably concurrent engine failures) then what will that do to the market? I don't know, but if and when Airbus ends A340 production I bet they'll keep the CADCAM files nice and safe somewhere. You know, just in case...

A year ago Russia's calls for international co-operation to develop its proposed Kliper spacecraft (see picture below) seemed fruitless and likely to end as another initiative from a space faring nation that would only ever appear as a graphic in a powerpoint presentation, but 2005 has seen the situation change dramatically.

There's an interesting tension at each year's International Aviation Safety Seminar (IASS) nowadays, and this years' session - in Moscow - was no exception.

The IASS, originally a modest affair run by the Flight Safety Foundation (FSF) for its member airlines, manufacturers and organisations was, more than a decade ago, merged with the annual safety assemblies of the International Air Transport Association (IATA), and the International Federation of Airworthiness (IFA). As a result it has become a much larger event, and more of an eclectic one, with a consequent exponential increase in the amount of influence it exerts on the individuals who condition the airline world's safety culture. Since these organisations pooled their safety thoughts there has been less of the feeling that the speakers are preaching to the converted. The delegates' disciplines and points of view are now are sufficiently numerous and widely distributed that they are bound to influence fundamentally what happens in the real world of airline operations.

At the FSF/IATA/IFA IASS there is plenty of potential for rivalry. This could be productive or destructive, so which is it?

Here is an over-simplification of the situation: the IASS organisers divide into two camps: the safety purists and the practitioners. The FSF is purist and mainly operations-orientated, even though its membership comes from all sectors of the industry. The IFA is in the purist camp too: true engineers always are - being at one remove from the life-and-death world of operations.

Then there is IATA. It is not really purist, but has the down-to-earth advantage of being usefully practical and being able to call on a huge spectrum of expertise. IATA knows that safety not merely an end in itself, it is also good business.

But during the gestation of that first-class safety-promoting tool, the IATA Operational Safety Audit (IOSA), IATA briefly lost sight of the difference between the achievement of high safety standards being good business for its member airlines, and safety consultancy being a moneyspinner for IATA. That episode appears to be in the past, but at the time it began to look as if IATA though it did not need the FSF or IFA any more.

A risk remains, however, that IATA could come to believe that its safety services are all that's needed. They are, indeed, a vital part of the total equation, but the purists will always be essential to provide independence of thought, some academic rigour and a dedication to principles that could never be corrupted by the purely practical. The latter is essential for the total system's credibility, which would suffer if IATA - however high its standards and pure its intentions - were to become judge and jury for its membership. Long may this healthy tension exist between the various parties as they fight together to improve aviation safety.

The flight into space of Mojave Aerospace Ventures' Scaled Composites-designed SpaceShipOne (SS1) on 21 June 2004 was a momentus event in the history of aviation, a new Wright brothers moment for a 21st century space age; but does it really pave the way for low cost space access?

SpaceShipOne is now hung in the Smithsonian National Air and Space Museum after winning the $10 million Ansari X-Prize on 4 October 2004, following two flights into space within two weeks. Its said to be the basis of SpaceShipTwo (SS2).

As soon as President George Bush pulled funding for the X-38 vehicle (seen in picture below) in 2001, effectively cancelling the programme, NASA and the wider space community has known that buying Russian spacecraft was inevitable. Now it waits for Bush to finally sign the act that will allow NASA to do just that.

One of the big announcements here at NBAA yesterday was the naming of Embraer's new light jet and very light jet as the Phenom 300 and Phenom (See Flight Evening news on www.flightinternational.com). Now it gave the editors on Flight Evening News an easy headline - Phenom-enal - but where did the name come from? Embraer boss Mauricio Botelho says the name reflects the quality of the aircraft's design, but designating aircraft today is a tough challenge: you either go down the rather boring but safe number route (Embraer 170, Boeing 787, Gulfstream 550, Airbus A380...which normally relate to some aspect of the aircraft's size, sequence in terms of product lines etc) or you have to think of a name: Avanti, Javelin, Eclipse or whatever. It's harder in business aviation, because, like cars, you are trying to convey an image, a lifestyle choice with the moniker, and most of the obvious ones from the animal kingdom - Hawk, Falcon, Puma - are taken already. I used to work in the automotive sector and the classic attempts by the Japanese manufacturers in particular to give their models global, English-sounding names as they began to break into the world market in a big way in the 1970s and 1980s was a constant source of amusement. To some Japanese marketing director the Nissan Cedric van no doubt conveyed a macho, no-nonsense appeal to the builders' merchants and plumbers who were its target market. Today, things are much more sophisticated and the Japanese and everyone else (including Embraer) employ international brand consultants and market researchers to come up with this sort of stuff. Still, someone told me that in Vietnam, Phenom means something very different. Perhaps someone familiar with the language can help.

US business aviation service companies - for decades stay at home joes who were happy to make the most of the Continent's ample opportunities - suddenly seem to be waking up to the fact that business aviation is stirring in Europe too. Landmark Aviation is the latest. The now snappily-named former Garrett/Piedmont Hawthorne/Associated is one of the US's biggest fixed base operation and business aviation maintenance companies. After buying three FBOs in Canada, it now says it is looking seriously at a purchase in Europe, with France, Switzerland and the UK the most likely locations. It would have to be a fairly big acquisition though to justify appointing a senior management team in Europe, says vice chairman Dean Harton. Otherwise it would be impossible to run from the other side of the Atlantic. The rise of the European Business Aviation Convention & Exhibition in Geneva - the NBAA show's smaller sibling - over the past five years has shown US companies that Europe is not a fringe region for the adventurous, but evolving into one of the most promising growth markets for business aviation services.

Old habits die hard in aerospace manufacturing and one of them - rages Eclipse Aviation founder and CEO Vern Raburn - is a "you'll get it when you get it" mentality to delivery schedules among component suppliers. Cynics have expressed doubts about the Albuquerque, New Mexico company's ability to meet the production deadlines for the Eclipse 500 very light jet, which Raburn has to build at a rate of four a day to meet customers' promised delivery dates from certification early in the second quarter of next year. Raburn says the problem does not rest with his team's ability to assemble aircraft quickly enough - Piper used to build 17 a day in the 1970s - but rather suppliers' infuriating tendency to miss delivery slots. "We're having to do the same as Wal-Mart. We need parts to turn up two days in advance," says Raburn. "When Wal-Mart has something on promotion on Monday, it sure as hell has to be sitting on the docks on Friday." If some aerospace companies were in the retail market, they would be toast in days, he says. "Too much of the industry is attuned to Boeing and Airbus production schedules and the defence procurement business which is batch-based." The reason Eclipse can keep to its famous $1.5 million price tag is because "we keep down our overheads," says Raburn. "There's no magic bullet in building a $1.5 million jet. We just have to build it in four days. It's all about controlling that balance sheet."

Old habits die hard in aerospace manufacturing and one of them - rages Eclipse Aviation www.eclipseaviation.com founder and CEO Vern Raburn - is a "you'll get it when you get it" mentality to delivery schedules among component suppliers. Cynics have expressed doubts about the Albuquerque, New Mexico company's ability to meet the production deadlines for the Eclipse 500 very light jet, which Raburn has to build at a rate of four a day to meet customers' promised delivery dates from certification early in the second quarter of next year. Raburn says the problem does not rest with his team's ability to assemble aircraft quickly enough - Piper used to build 17 a day in the 1970s - but rather suppliers' infuriating tendency to miss delivery slots. "We're having to do the same as Wall-Mart. We need parts to turn up two days in advance," says Raburn. "When Wall-Mart has something on promotion on Monday, it sure as hell has to be sitting on the docks on Friday." If some aerospace companies were in the retail market, they would be toast in days, he says. "Too much of the industry is attuned to Boeing and Airbus production schedules and the defence procurement business which is batch-based." The reason Eclipse can keep to its famous $1.5 million price tag is because "we keep down our overheads," says Raburn. "There's no magic bullet in building a $1.5 million jet. We just have to build it in four days. It's all about controlling that balance sheet."

Once again, Flight is here at the National Business Aviation Association show www.nbaa.org in Orlando, Florida, producing Flight Evening News, our innovative concept in bringing today's news to air show visitors today in the form of an evening tabloid newspaper. It's a frenetic and exhausting task: journalists' stories from the morning's press conferences and other nuggets of information which they pic up around the convention hall and static park are collated, laid out together with live pictures, and sent to press at lunchtime. Four hours and a whirl round the presses of Orlando's most efficient printer later, NBAA visitors have the newspaper in their hands, either when they leave the convention centre or static park, or picking it up in their hotel that evening. Our competitors' newspapers - carrying much the same stories - don't hit the halls until the next day. We shouldn't gloat but we like to use the slogan: "Today's news today…everything else is yesterday's news". You can read breaking news from NBAA - including Bombardier's new Challenger and a new name for the Hawker Horizon - on www.flightinternational.com over the next three days.

The UK aviation industry enjoyed an amusing talk over lunch in London from ILFC founder and president Steve Udvar-Hazy last month.

Recounting with some regret how the airline industry has lost the glamour of the 1950s and '60s, as well as some of the household names from the era, he commented that the overcapacity that exists today results from "the availability of irrational capital…that makes it very easy to start an airline but very difficult to kill one". He added that aviation bankruptcy rules are too lenient, allowing ailing airlines to "trample around the jungle indefinitely, doing damage".

Udvar-Hazy joked that with the industry, in such dire straits, particularly in North America, ILFC plans to patent a six point plan to ensure the industry returns to good health:

1. Shut down Embraer, Bombardier, Airbus and Boeing production for a year which would remove 1,000 airplanes from the system.
   
2. Shut down airline certification bureaucracies for a year or two so that no new airlines can be formed.
   
3. Shut down all pilot training schools.
   
4. Accelerate production of new born human babies with the aim of delivering more passengers in the years to come.
   
5. Shut out all government subsidies and overhaul bankruptcy laws to allow airlines to fail.
   
6. Divert all new capital to fund drilling of oil wells in Alaksa and have lessors invest in oil platforms rather than airplanes.

Perhaps ILFC could be on to something…..

Nestled in the US Mid-West and the British midlands, managers at General Electric and Rolls-Royce must love the Boeing 787.

Boeing's decision to kick-start the mid-size, long-haul sector when it did, dragging Airbus along with it, was a dream made reality for the engine-makers. Although, as ever, they are having to spend more R&D money, it is well worth the price.

The aircraft, with the A350 too, shows huge promise for the airlines and is an easy purchase decision for many of them. For the engine-makers it means increased returns through derivatives of well-established designs - effectively the icing on the cake - and earlier than it might have been too.

It's one of the reasons why Rolls-Royce shares, worth less than ｣2.00 in January 2004 are now within touching distance of ｣4.00.

But I'm not sure the two companies feel the same way about the A380. I'm a great believer in the aircraft, but I suspect it will be a long time before either Rolls-Royce or GE, with its partner Pratt & Whitney in the Engine Alliance, sees a meaningful return on their investment. I've been able to put that question to management in both companies at various times during the A380 development and the replies are much more cautious than on any other programme that they run.

On top of what was always a demanding business case, both of them then had to swallow a substantial extra R&D hit when the fan design had to be changed to improve the A380's noise characteristics. How much that cost and how it was financed has never been explained.

And there have been industry rumours - they are no more than that - for a good while that relations at the programme level have not always been sweetness and light. Airbus may have negotiated itself a very good deal it now seems, and the engine-makers are feeling a bit bruised.

Still, the new CEO of Boeing, no less, previously had views on all that and believed there was enough wiggle-room for GE at least to make a buck whatever happened.

Back in July 2000, when he was CEO of GE Aircraft Engines, he said that if Airbus sold the 750 aircraft it then believed it would, and the Engine Alliance powered only half of them, then GE would do very well out of it. But he added that he personally thought they would sell only 500, in which case GE would still be OK. And finally, he noted that he had actually underwritten the investment assuming that sales would be even worse than that.

Wonder what he thinks today? 

It's a brave man who suggests Ryanair CEO Michael O'Leary might be reading the market wrong - but as I'm just blogging and not telling him to his face, I'll take a chance.

The airline's recent experiment with in-flight entertainment showed just how hard it is to get people to pay to watch a screen on a short-haul flight. I know people like JetBlue have made it work, but US flights are longer than in Europe and JetBlue's customers are not quite as brutally cost-conscious as Ryanair's. Plus, JetBlue is showing live TV, which may have attractions for business travellers on a budget, whereas pure entertainment is hard to justify if the only reason you chose your airline was to save serious money.

Now O'Leary's talking about on-board gambling. The history of this concept in air travel is not encouraging however. I wrote about all this stuff for a living back in the mid-90s and at that time there were umpteen companies who thought gambling was how they were going to make a living. I don't think any of them actually did - even on long-haul flights. And I know that one of the biggest didn't come even remotely close to breakeven.

Ryanair are going to experiment by offering gaming on their website first. Well, that's all very well - and Ryanair has about the 1,600th most popular website in the world (not as good as EasyJet, but better than JetBlue for comparison) - but that's just not the same as gambling in an aircraft.

Same problem with another Ryanair idea - mobile phone use on-board. Hardly anyone's going to pay a premium to make calls from an aircraft, and if there's no premium then the margins will be razor thin - just ask the phone companies.

Ryanair's business model depends increasingly on getting travellers to pay for anything other than their ticket, so the ticket can be cheap or free. But stuck in a long metal tube with a little screen in front of you and not even necessarily during a mealtime it could just be that all you want is the ticket.