Americas
You gotta’ admire Marion Blakey, the FAA chief in the U.S. of A. She’s always been what the call a ‘steel magnolia’, all Southern charm beneath which lies a mind like a steel trap and a firm personality that takes no gruff from nobody.
She wended her way to the National Press Club in Washington the other day, and Airline Business was lucky enough to get a nearby seat to hear Blakey discuss the FAA’s plans to open up the mandatory airline pilot retirement age of 60 to debate and comment with an eye to raising it to age 65 for pilots on the major US-flag carriers.
This has been a hotly debated issue in the States, with most portraying the Age 60 rule as unfair to a generation of pilots who are exercise freaks, pre-dawn joggers and who are like the rest of us, or most of the rest of us, are living longer and healthier. All of which would seem to have near universal acceptance, except by the major pilot union, ALPA. ALPA, which represents about 60,000 pilots at almost every major airline (except American Airlines) opposed any rule change, arguing safety but in reality fearing that the adding five years to pilot careers would upset the apple cart for younger members who make sacrifices early in their ‘back-loaded’ career so they can get promotions over to the left seat and higher paying jobs.
The airlines had been wary since adding five years to what is often a career of just 25 years does weird stuff to actuarial tables and would probably raise the pilot salary ceiling even higher, though they didn’t fight it the way ALPA did. (ALPA actually reversed its position on the issue a few years back after serious internal debate).
An industry panel that was supposed to tell Blakey if it was a good idea to raise the retirement age broke down in a stalemate late last year, sending her not a recommendation but study. So for Blakey, now in the final year of a fixed five-year term, it was risky to make any decision. To come out for raising it would seem to be a brave decision, but here she had political cover; after all the advisory committee punted, giving Blakey no political cover, one way or the other.
She could however find justification in the ICAO position. “I’m a big fan of international co-operation and we’re going to do what ICAO recommends”, she told the Press Club. When people asked about individual waivers, about retroactivity or about the guys who will be caught in the gap during the year of two of debate that is bound to follow, Blakey’s response was the same: “we’re following ICAO”. Discretion is after all a part of valour. Read the advisory committee’s pros and cons and the FAA’s reasoning: http://dms.dot.gov, search for docket 26139.
‘Coincidence? You be the judge’, the announcer would boom in conspiratorial tones on the radio or television programs heralding the latest unidentified flying objected or other phenomenon.
Two flash headlines from the other day brought this to mind: ‘US Airways Ordered to Stop Serving Alcoholic Drinks’ and ‘US Airways Withdraws Bid for Delta’. Not to put too fine a point on it, but the bosses at US Airways seemed to have sobered up, and quickly, after they ran into roadblocks from the Delta creditors who were the deciders of the Airways $10 billion bid for the number three Delta.
A “disappointed” US Airways Chairman and Chief Executive Officer Doug Parker said, “We would have created a better and more financially stable airline that offered more choice to consumers and increased job security to its employees”.
Parker was much more mellow about the alcohol problem; it seems state liquor authorities in New Mexico found that the airline did not have a licence to serve booze there, and until it gets said state permission, the carrier may not serve or sell beer, wine, or hard stuff to people on any of its flights that take off or land there.
But seriously, folks, as the announcer might say, does this mean an end to consolidation? Some observers think that the legacy carriers will just breathe a sigh of relief and go back to their restructurings now that they don’t have to pursue merger negotiations begun largely as defence manoeuvres in response to ‘Deltaways’, as some dubbed the hypothetical US Airways/Delta combination.
Meanwhile the ever-reliable Ray Neidl of Calyon Securities says big deals are probably off for the next six months but after that “consolidation will occur”. Neidl notes that Parker and the US Airways management team have clearly established themselves as credible with the financial powers-that-be and would probably be an acquirer.
But Parker’s entire rationale for going after Delta was that it was easier to do a deal within the context of bankruptcy, so one has to ask if US Airways will abandon this strategy. On the other hand, they’re making so much money at US Airways that they can afford champagne when other carriers are still on a beer budget.
Stay tuned.
Going? Gone? The US Airways hostile pursuit of Delta Air Lines seems to be losing altitude.
Chief Executive Officer 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 through this link.
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”?
DENVER - It isn’t real till you’ve seen it. The snowstorms that blasted the Rocky Mountains and Denver between Christmas and New Year made headline news after some 4,000 flyers were stranded in Denver’s decade-old airport for as long as 45 hours, but not just because it was a slow news period, writes Americas Editor David Field.
The weather out here is a real thing, and people take it seriously as the snaking coils of doubled-up queues at Denver’s airport demonstrated this week, as thousands of people flocked to flee an impending storm. The snow and ice of the last two storms was still heavy on the ground, as deep as two or three inches and thick. Wary of a new wintry blast headed in from the Pacific, people lined up to get away. As one seatmate pointed out: “Westerners are supposed to be hardy, but a third storm will be too much.”
The cost of the December blizzards was just coming out as Airline Business visited Frontier Airlines here. Frontier’s chief executive, Jeff Potter, put his head in his hands as he predicted a “humongous” bill for de-icing glycol, let alone the forgone revenues. Frontier, the number two here, lost as much as $12 million in all.
United, the largest by far at the airport said that the wintry storms here and a blast at its Chicago O’Hare hub would cost it as it as much as $40 million and probably force it into a deficit for the fourth quarter.
Denver International Airport officials said the two storms added some $7 million above budget and cost it about $4.5 million in lost concession fees.
The storms carry a powerful reminder: weather is still an inestimably crucial factor in aviation, and even an experienced hand needs a reminder now and then of the natural forces that are beyond our control.
The old saying goes, "it’s easy to make a small fortune in the airline industry. Just start with a large fortune". But the industry is attracting some big and deep-pocketed who may have a better way to spend their money: deals to take over airlines just as the industry’s fortunes are rising.
A leading player here is so-called private equity, which means investment groups that have no public shareholders to answer to quarter after quarter but have merely to satisfy their own long-term needs. One of the biggest of these is the Texas Pacific Group, now a key player in the airline industry, having helped put together the winning bid for Qantas.
For Texas Pacific, the Qantas deal represents a return to an area of its early triumphs. The group’s first, big deal was the 1990s deal that took Continental Airlines out of bankruptcy protection. Two of the four original members or partners of Texas Pacific, co-founder David Bonderman and Rick Schifter, worked on the original Continental deal and were deeply involved in the negotiations over Qantas. Schifter stayed on the Continental board until this autumn even though Texas Pacific had a smaller and smaller role in the airline.
At the time of the Continental deal, Bonderman was working for a legendarily wealthy Texas oil billionaire, Robert Bass, who himself was a noted investor. He left the relative security of the oil patch for Continental Airlines, turning his initial $66 million investment into a $700 million take. TPG has since turned its focus to turnarounds, management-led buyouts and recapitalisations that include media and telecommunications, industrials, technology and health care.
Among its other deals are the July 2002 buyout of Burger King, the takeover of several big name retailers such as Neiman-Marcus and Debenhams, since re-floated, and hi-tech deals such as the Lenovo purchase of the IBM ‘ThinkPad’ PC business. It has also taken over Gate Gourmet, the former Swissair in-flight caterer that has suffered industrial action and other turmoil.
Texas Pacific was a major backer of the $4.5 billion privatization of travel-distribution giant Sabre. That deal that came days after a privately held travel tech firm, Travelport, took over another major distribution firm, Worldspan. Travelport is owned by private equity firm Blackstone, one of the few investment groups large enough to rival Texas Pacific.
After a smaller investment in America West following its Continental deal, Texas Pacific had stayed away from airlines for a long time as the industry writhed into its down cycles. For instance, when Air Canada went on the auction block in 2004, Texas Pacific made a low-ball bid and lost out to Cerberus Capital Management.
At the time, Bonderman (below) said that the kind of profits of a Continental deal were a thing of the past, given the competition from low-cost airlines. But in recent months, private equity firms such as Texas Pacific and other private investors have shown increasing interest in airlines despite the industry’s famously risky landscape.
And smaller private-equity firms were big investors in the recent reorganizations of ATA Airlines and Aloha Air Group while hedge funds, a first-cousin of private equity, were major players in the reorganisation and merger that created the current US Airways Group.
Victoria ‘Vicki’ Moreland, well known among airline network planners, has left Spirit Airlines, the South Florida-based, leisure-oriented carrier she helped found. At Spirit, Moreland had served as sales and service director and more recently as vice-president of planning.
The airline has not named a replacement, and Vicki says in an e-mail that she is proud of her accomplishments there and is looking for the next exciting opportunity. Moreland, who led an in-flight service upgrade that helped Spirit gain a following among bargain-hunting Michiganders seeking to escape the Midwest’s harsh winters, was a strategist of Spirit’s 1999 move from the Detroit area to Miramar in South Florida and of its network expansion into a vacation-oriented airline with national reach and scope. Spirit has undergone a change of control as new investors have infused it with new capital, but network strategy has not changed.
The world’s airline association IATA has carried out its threat to take the Argentinian government to court over the charging structure proposed for the country’s airport operator AA2000. This dispute particularly involves the country’s main gateway Buenos Aires airport and is being supported by ALTA, the Latin American Airline Association.
The move is the third time IATA has taken legal action against what it says are flawed airport deals: in June it took the French government to court over its fee hikes at the Paris airports, and in May it filed a case against the Dutch government’s charging increases at Amsterdam Schiphol airport.
The issue in Argentina dates back to 1998 when the government privatized the country’s airports creating AA2000. The complaints against AA2000 and the government already fill several pages of IATA documents, but include price discrimination between foreign and domestic carriers and against the structure of a renegotiated contract between the two players.It really does make for some gruesome reading. Speaking at a global IATA press briefing today (12 December), the association’s director general Giovanni Bisignani said: “There is a cosy relationship between the airport and government. That is going to turn a failed privatization into a disaster.”
The Argentinian case is a political hot potato, partly because the government plans to take an equity stake in AA2000. In fact the issue is so sensitive in Argentina that IATA has had to previously unheard of lengths. When Bisignani went to testify at a hearing in Buenos Aires about the airport contract he had to have body guards, and the association has had to have special phone lines installed as it suspected it was being bugged.
Being popular is great. But popularity brings its own problems – chief amongst them for airports is queues. And Cancun this weekend showed why it is a victim of its own success.
A flood of humanity was departing the soft sands and bright lights of this Mexican playground for visitors from North America, and Cancun Airport struggled to cope. The lines for that most active of Mexican immigrants, Continental Airlines, were the longest and most tragic. Average check-in time was at least an hour.
No wonder Cancun’s privately owned operator ASUR is seeking permission from the country’s Government to construct and operate a new airport on Mexico’s Mayan Riviera. Judging by Saturday’s crush, and admittedly this could have been the busiest part of Cancun’s week, it could not come too soon.
There are plenty of carriers queuing up to join the queues at Cancun. One of the latest is JetBlue Airways. It launched daily Airbus A320 flights on 30 November between Cancun and its New York JF Kennedy Airport base. Read JetBlue chief executive David Neeleman’s blog about the launch via this link. He is seen here doing the big foam scissors thing after touching down on the first flight last week.
In fact its flights will be popular, not only because it is a cool carrier but because switched on travellers will use the less frequent visitors to Cancun, like JetBlue, Spirit and United, simply because the check-in queues could be shorter. Continental suffers because of the sheer scale of its operation in Cancun.
Cancun and ASUR are between a rock and a hard place. Its aggressive route development programme is designed to pack the airport with aircraft and passengers.
ASUR needs strong revenues to invest in its proposed new airport. But these are suffering because of terminal congestion – the long queues give travellers less time and less inclination to spend. And we all understand how important non-aeronautical revenues are to airports.
Gary Rogliano, who led all-business class Maxjet into the high-end transatlantic luxury airline wars, left the year-old Washington Dulles-based carrier after an apparent dust up with his board of directors. The airline said he was "leaving to pursue other opportunities", which is press release for "shown the door".
Rogliano left shortly after the carrier began flying its 102-seat Boeing 767s between London Stansted and Las Vegas. That was its third route after New York JFK and Washington Dulles routes to and from Stansted, and the Las Vegas flight is reportedly doing box-office business.
But the market is getting more crowded with a UK-based entrant, SilverJet, planning to start up next year, as well as an French all-business carrier, Elysair, also eyeing an early 2007 start.
Eos, offering all sleeping seats, began on the same week as Maxjet, and now plans an expansion with a new $75 million infusion of capital that will let it buy new Boeing 757s to convert into its 48-seat configuration.
The Maxjet marketing and selling point was "affordable luxury", which it defines as an almost lie-flat seat in an all business-class aircraft. Eos, by contrast, has full beds in small, enclosed sections. Competition in the market, though, has made fares competitive in this niche segment, chipping away slightly at the Maxjet advantage.
Taking Rogliano’s place as president and chief executive is Bill Stockbridge, its chairman and one of its founders. A veteran of the air cargo industry, Stockbridge is a member of the Richmond, Virginia, group of wealthy investors who started Maxjet. Rogliano was a chief executive interview in these web pages.