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Aviation History
1990
1990 - 1535.PDF
BUSINESS Pan Am puts shuttle on sale BY KATHRYN CREEDY IN WASHINGTON DC Pan Am has floated the sale of its lucrative Washington DC- New York-Boston shuttle service as losses in the first quarter rose by $40 million compared with last year. The shuttle sale, along with the sale of its Internal German Services and additional sale and leaseback transactions, is needed to provide additional capital for operations. The first-quarter results are significant because the $190.7 million loss is greater than that immediately after the Lockerbie bombing in December 1988. The shuttle, however, has been profitable since shortly after its startup in October 1986. An alysts say that if Pan Am is able to sell the shuttle it will cure the airline's financial problems in the short term. The airline says that the shut tle enjoys a market share of be tween 53% and 55%. When Donald Trump bought the East ern shuttle operation for $365 million last year, the Pan Am BA—record profits but rising costs start to bite British Airways (BA) has an nounced record profits for 1989 but will conduct a tight expenditure review in an effort to contain rising costs. Presenting the financial year 1989/90 figures, chairman Lord King said: "We have retained our place as one of the most profit able airlines in the world". He added, however: "We are aware that our costs require constant scrutiny, particularly in view of the increasingly competitive nature of the' market we serve, and the softening of Western economies." The pre-tax profits of £345 million are a 28.7% increase on the previous year's figures, and scheduled passenger numbers rose by 5% from 22.6 million to 23.7 million. Including its non- scheduled traffic, BA carried more than 25 million passengers for the first time last year; more than three-quarters of that total travelled on the airline's inter- Lord King (urns sights on control of airline costs Ceselsa buys UK simulator business Ceselsa has acquired SD-Scicon's flight simulation business for £200,000. The business will be trans ferred to a new company called Aeronautical Systems Designers in which the Spanish defence electronics company will have a majority share. SD-Scicon, a UK software company, will retain a minority share in the new company. Ceselsa's chairman, Jose Perez-Nievas, says that the Span ish company's simulation opera tions are "mainly defence orientated at the moment. The new company will enable us not only to enter the civil systems market but also to extend our experience into the UK". SD-Scicon supplies flight simulators, cockpit system train ers and simulator upgrades. • national scheduled services. Yields improved, with the traffic revenue increase at 13.6%. Rev enue tonne kilometres rose by 8.6%. Costs, however, increased by 14% overall, "including a 30% rise in fuel and oil costs and 44% increase in aircraft lease costs as new aircraft enter the fleet", says the airline. BA calls its costs control plan a "margin improvement pro gramme". King says that this ". . . includes, at present, five initiatives to review and control expenditure". Support activities worth £700 million are to be reviewed; there is to be a value- analysis of bought-in goods and services and a review of opera tional planning. • shuttle market share had reached 75%. Trump Shuttle president Bruce Nobles suggests that the airlines are now about equal. Although Pan Am would not discuss a price, analysts have suggested that the shuttle opera tion would be worth between $300 million and $400 million. Trump, also in need of cash, wants to sell his shuttle. This would normally drive down the price, but Airline Economics chairman George James says that one of the principal values of these shuttle operations is that they are a government-mandated duopoly. "There can be no more than two competitors in these markets because of slot restraints [at LaGuardia and Washington DC],"he says. Nobles suspects, however, that Trump does not necessarily want to sell the shuttle. "There has been a tremendous interest and Trump has retained Merrill Lynch to help evaluate the possibilities," he says. "He said a number in the range of $500 million to $600 million would get his attention." It has been suggested that an airline such as America West is likely to be given government approval for a shuttle purchase if it should be able to find the financing, because the Govern ment would not want one of the majors to extend its power into this influential corner of the market. • Boeing AEW offsets top $800m The UK Ministry of Defence (MoD). has accepted $338 million of the $448 million in contracts submitted by Boeing during the fourth report on the $1.5 billion offset agreement for the Royal Air Force's Sentry AEW.l. Boeing's offer to the UK MoD in late 1986 provided for the placing of 130% offset against the $1.5 billion purchase , of seven Sentrys for the Royal Air Force. In this latest reporting period, from July to December 1988, $95.3 million of contracts Were rejected outright by the MoD as not fulfilling the terms of the agreement. Some $8.8 million of contracts were rejected because of insufficient data and a further $5.9 million discounted because there had been no responses from any UK-based companies. Together with $23.4 million, which has already been approved as part of the fifth report, Boeing can now claim total offset credits of $800.1 million. • NEWS IN BRIEF UTA FINANCE Air France is launching a Frl billion ($180 million) bond issue this month to help fi nance its purchase of UTA. The ten-year bond will have a fixed coupon. Air France agreed in January to buy UTA for Fr3.8 billion and almost half the capital of UTA's char ter subsidiary Aeromaritime for Fr 343 million. FLIGHT INTERNATIONAL 30 May-5 June 1990 I!
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