New Livery for American Airlines?

For decades American Airlines has flown unpainted, polished aluminum airplanes. But that may soon change.  American’s livery has been in use since 1967, outlasting mergers, failures and shifting tastes across the industry. A new exterior also may mean dropping the signature bare-metal skin that dates to the era of propeller-driven airliners, which the airline has called a fuel-saver because an unpainted plane weighs less.

Months ago, American Chief Executive Tom Horton hinted at a meeting of corporate travel managers that a new logo and new paint scheme for jets are coming, likely as the company emerges from bankruptcy-court reorganization and tries to set a new course.  Given the events of the past month, emerging with a new image is as important as ever.

“This is going to be a new airline,’’ Mr. Horton said at the Global Business Travel Association convention in Boston. He was referring to American’s plans to emerge from bankruptcy as an independent carrier, not to an ongoing exploration and evaluation of a possible merger with US Airways or some other airline.  “ We're working on modernization of the American Airlines brand and we'll unveil something in the future. We're also thinking about the look of our airplanes,’’ Mr. Horton said. “Stay tuned on that.’’

Besides image and fuel savings, there’s a structural reason American is going to have to start painting its planes. The Boeing 787s American has on order don’t have aluminum skins, but are constructed with composite materials that are essentially super-strong plastics that must be painted. Large portions of the new Airbus planes American has ordered are also fabricated with composite materials.

Change is rarely easy and almost never pleases everyone.  But it's almost a certainty that American Airlines will emerge from bankruptcy looking much different than it does today.  Hopefully the change will be more than skin deep.

A quick google search produced a handful of creative ideas for what the "new" American may look like.  In no particular order.  Take a look and see what you think.  

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Grounded Jets at American and Southwest - History Worth Remembering

View of the hole taken from the cabin

I’ve been sitting around this morning perusing stories about Southwest Airlines and their third explosive depressurization in as many years.  This all got me thinking about the FAA’s $7.2 million dollar fine against Southwest in 2008 followed quickly by a $24.2 million dollar fine against cross town rival American Airlines for a separate but related offense.  This past Friday, a 15 year old Southwest Boeing 737-300 lost pressurization while cruising at 36,000 feet after developing a large hole in the fuselage. 

The picture below illustrates how bad things could have been.  On April 28, 1988 a huge section of metal peeled away from the fuselage of another Boeing 737,  Aloha flight 243, exposing passengers to the elements as if the aircraft had been equipped with a convertible top.  They lost a crew member on that flight when Flight Attendant C.B. Lansing was sucked from the aircraft and fell to her death.  In addition to FA Lansing’s death, another 65 passengers and crew were injured. 

Aloha 243. April 28, 1988

As a result of the Aloha accident, the FAA ordered mandatory inspections of all Boeing 737 series aircraft.  Almost twenty years later in March of 2007, Southwest Airlines representatives notified the FAA that it had inadvertently missed these inspections on some of its aircraft. Some were nine months overdue.  It was revealed during the investigation that Southwest flew 46 Boeing 737s on 59,791 flights without the required maintenance inspections.


The aircraft in question were supposed to be grounded immediately, but the Southwest planes were not. For another nine days, the jets in question made more than 1,400 additional flights.  The airline was initially fined $10.2 million in March of 2008 for their lapse in procedures.  Southwest appealed the fine and eventually settled the case after agreeing to pay $7.5 million.  The largest fine ever levied against an airline.  The record wouldn't last.

As the record setting fine at Southwest rippled through the airline industry, it became apparent that many of the issues with Southwest's planes held true for other types of aircraft as well.  After the FAA found that Southwest had failed to comply with inspections of its 737s, the agency announced that it would conduct unscheduled inspections of aircraft owned by other airlines including American Airlines. As a result, many airlines began canceling flights in order to check or double-check their planes and maintenance records.

It was at this point that maintenance repair discrepancies surfaced at American Airlines and its fleet of MD80s.  At issue with the MD80 was the wiring that electrifies the planes' auxiliary hydraulic system.  But the problem wasn't with the functionality of the wiring. It was determined years ago that the wiring harness for the auxiliary hydraulic pump on the MD80 series aircraft was susceptible to rubbing and chafing as a result of its proximity to the landing gear doors.  



MD80 Auxiliary Hydraulic Pump - The wire bundle from center screen to right (white).  Closed gear door in the foreground.



The FAA, aircraft manufacturers and airlines became very concerned about wire bundles and the possibility of electrical sparks after the loss of TWA 800 in 1996 off Long Island which resulted in the deaths of all 230 passengers.  But the TWA 800 accident involved a Boeing aircraft, not McDonnell Douglas, the maker of the MD80, and the explosion on TWA 800 initiated inside a fuel tank after fuel vapors were ignited by an electrical short circuit.  The wire bundle in question on the MD80 is not in or even near the fuel tank.

The FAA issued an Airworthiness Directive (AD), an order to complete an inspection or work on an aircraft.  It should be noted that, as the largest operator of MD80s in the world, American Airlines was often called upon by the FAA to help write such directives and they did in fact write the initial version of this AD.  The initial version called for a protective sheath to be installed around the auxiliary hydraulic wire bundle and called for the sheath to be held in place by a series of ties that were to be placed one inch apart for the entire length of the wire bundle(This can all be seen in the picture above).  While American’s initial version of the procedure called for the ties to be one inch apart, it also allowed for slight variations of up to 1/8^th of an inch.  The final FAA version came in the form of a 38-page handbook and omitted the 1/8^th inch allowance.  American Airlines admitted that its engineers may have had some trouble deciphering the procedure.   





What occurred behind closed doors between American and the FAA at this point is unclear.  But it appears that an agreement could not be reached on a number of issues.  Were the aircraft in compliance?  If they were not, how much time, if any, would the airline have to correct the issue?  In the case against Southwest, the FAA allowed the airline to continue flying their jets while the required inspections were completed.  It was during this time that another 1400 flights took place with uninspected aircraft.

It is a misconception that the FAA grounded American’s MD80s…that decision was made in house.  But the massive and recent fine against Southwest was weighing heavily on the decision makers at American.  Grounding the fleet probably resulted in a smaller fine, but when you consider the lost revenue and massive inconveniences to the flying public, an argument could be made that it was a “cut your nose off to spite your face” move. 

^th of an inch.  The airline has long disputed the agency’s findings, claiming that the violations were minor and never endangered passengers.  The FAA fined American Airlines $24.2 million for failing to properly follow the agency's Airworthiness Directive.  The fine reflected a more aggressive stance by the F.A.A., which has been criticized for being lax on some maintenance issues, particularly surrounding American Airlines and in the case involving Southwest.

The transportation secretary, Ray LaHood, said in a statement, “We expect operators to perform inspections and conduct regular and required maintenance.” 

The previous highest fine was set at $9.5 million in 1987 against Eastern Airlines. But the company paid only about $1 million before going out of business.

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A Tale of Two Airlines

I took to the sky for the very first time at the controls of an avocado green and white Cessna 172, N4664L. I saw a picture of the old girl recently…hasn’t changed a bit. Same paint job, interior unchanged. The images rekindled positive memories of an outstanding flight instructor and a summer learning the skills that became the foundation of my career in aviation. The date was September 13, 1986...13 years to the day before I landed what I thought was my dream job.

I was a junior at J.J. Pearce High School in Richardson, Texas in 1986 when I chose Aviation Science as an elective course. Taught by the varsity golf coach, the class was basically a Private Pilot ground school course and the leaping off point for my career. On a regular basis, our class was visited by a local flight instructor, former Braniff and current (at the time) corporate pilot and photographer for Steak and Ale who volunteered his time and offered to take anyone who wanted go, flying in his little green and white Cessna 172. We went three at a time…each of us getting about 15 minutes at the controls. After flying with the entire class, he chose one person who, in his opinion, possessed the ability and the desire to make a career of aviation, and taught that person to fly for free…well, almost free. It was more of a time swap deal. One hour in his yard for one hour of instruction. He chose me and I spent the summer mowing, trimming, clipping and learning the skills of aviation.

Thirteen years to the day from my first flight, I stepped onto the property at American Airlines as a gainfully employed airline pilot. Dream job obtained. Grey pin-striped suit, burgundy tie, brief case…we all looked the same…pumped up and feeling like we had just one the lottery. But I’d like to back up about 30 days and describe a unique perspective of two career paths. 30 days earlier, after years of preparation and training. Four years of college. One year as a CFI. One year flying cancelled checks single pilot at night with no radar or autopilot. Six years at a regional airline flying the EMB-120 Brasilia and the ATR-72 and years of applications and updates. Then, in one day, I got two calls. One from American and one from Southwest. Here’s what happened.

The airline industry can be a perilous place to hang your hat. My father, retired in 2004, was hired by Delta when the airline was a regional carrier with no international presence at a time when the desirable airlines were names like Pan Am, TWA and Eastern. Leap ahead 36 years and Delta is the largest airline in the world and all my father‘s first picks are fading memories. In 2004, the pay rates at Delta were unmatched anywhere in the world and may never be achieved again in commercial aviation. A B777 Captain at the time could easily bring home something north of $300,000 per year. Who knows what the future holds…another 30 years in the future and Delta could be on the same list as the other bygone greats. No one knows, and that is the most significant pitfall of an airline career.

A pilot is married to an airline for life due to a little thing called seniority. The guy who has been there the longest is number 1 on the list. The guy hired last is at the bottom and everyone hired in between populates the list in a position relative to his hire date. Everything, and I mean everything, is determined by seniority. Monthly schedule, base, equipment, vacation, compensation, the list goes on…everything is based on seniority and you can’t take it with you. As a new hire pilot at American Airlines in 1999, I earned a little less than $24,000. Today, I make 11 year MD-80 FO pay…roughly $100K per year. If American Airlines closed up shop tomorrow, if I was furloughed, fired or just chose to leave and work for another airline, my seniority would reset to day one. I would start over at the bottom in every sense of the word…and that is why pilots are careful about where they work and never leave unless forced to do so.

As soon as I was hired by a regional airline, I put my career plan in high gear. Part of that plan was that moss would never grow on this stone. I would spend every waking moment attacking the idea of working for my airline of choice. I thought I was sitting pretty at the time. I was making descent money, working for a reputable, stable airline and upgrade to Captain was in sight. There was no pressing desire to move to another “stair step” airline. That is, another step to a company where I would not spend my career. I wanted my next step to be my last. So I made a short list of what I thought were the best U.S. airlines and sent my first application to a major before I finished new-hire training at my regional airline. American, Delta, Continental, United, Northwest, Southwest, UPS and FEDEX all made my list. Yours may vary. Mine would certainly look different today.

UPS and FEDEX never responded to me at all. You never quite know why one airline jumps and another gives you the finger and my story was no different. Continental, Northwest and United responded to each of my updates with a pleasant enough postcard inviting me to try again later. Delta was a top choice for me, but my father was a pilot for them and they had a nasty nepotism rule that excluded me as candidate for employment. That would change later when they dropped their little “no family” rule, but it would prove too little too late for me.

So that left American and Southwest. American’s response to my attention was no different than the rest at first. Southwest was different. Their minimums were higher and a little more complex than the rest, so I had been focused on the other airlines for quite some time before I met the minimum requirements at Southwest. At this point, almost 6 years had elapsed since I sent in my first major airline application, but only 2 months since I applied at Southwest. I was astounded by how fast things worked with this great airline and quickly shifted all my hopes and dreams to Southwest. I was hired by Southwest two weeks later and put into a “pool” of available pilots. Sadly, there was no rhyme or reason to the method of pulling pilots from the pool, and I stayed there for months. All that momentum came to a screeching halt.

Then, in August of 1999 in the presence of a good friend and pilot with whom I had a friendly, yet vigorous, competition to see who would be hired first, the phone rang. It was American Airlines calling to offer me a job and unlike Southwest who placed me in a pool of available pilots, American offered me class date. Remember, seniority is everything…and seniority starts on your first day. It can never be taken away and never improved. You get what you get and you don’t throw a fit…as my 9 year old would say. I had always said that I would only apply where I really wanted to work and accept the first class date that came up. So I accepted. Happily…and I won the competition too!

Later that same day, smile still firmly affixed, the phone rang again. It was Southwest Airlines. You’ve got to be kidding me, I thought. My two top picks on the same day. It was the toughest decision I have ever had to make. At the time, American paid more, had a better retirement, flew bigger, more exciting airplanes and flew them around the world. Captains at the time were receiving yearly bonus checks large enough to purchase a new Cadillac and Southwest just seemed like a better paying regional airline job. At least that’s how I rationalize my decision today. Plus, I always said I would take the first job I was offered and never look back, so I stuck to my plan and accepted the job at American Airlines.

I won’t know until the day I retire if I made the right decision. My employment history at AA has been a roller coaster ride. I was hired at a time when the airline was taking on 100 pilots per month. By September 2001, when everything changed, I had almost 3000 pilots junior to me on the seniority list. Since then I have steadily lost seniority due to the shrinkage of this once great airline. When I was hired in 1999, my seniority number was just over 10,000. The pilot ranks at American swelled to over 13,000 with vigorous hiring and the merger with TWA in 2000. At one point I was displaced out of my home airport and forced to commute to reserve in a distance city. A situation that lasted almost 4 years. Today, I am based where I want to be based and have a 20 minute drive to work. But with almost 11 years seniority, the right seat of the MD-80 is the only thing I can hold, I’m on reserve, unable to hold a regular line of time and upgrade to the left seat is at least 10 years in my future…if at all. At Southwest, I would have been a Captain 5 years ago, in the same city where I live now, making double what I currently earn. Did I make the right choice? You may have your own opinion. I know I have mine, but time will tell.

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Auf wiedersehen to Lufthansa's A300s

The last Lufthansa Airbus A300 flight flew earlier today, as the culmination of the airline's plans to phase out the 26-strong fleet. Lufthansa flight 3853, operated by aircraft D-AIAM, left Rome and arrived in Frankfurt shortly past 9:00am local time. The A300s have been a key part of Lufthansa's 'continental' fleet since 1987, and the airline used them extensively on inter-European routes. But the A300s got the axe as part of a cost-cutting plan that Lufthansa has implemented, which is expected to save €300 million ($420 million).

American Airlines, another big A300 operator, is also expected to retire the last of its A300s this year on August 24th. Those of you who have yet to fly on an A300 (myself included) might want to look at booking tickets before it's too late...

photo by eigjb on Flickr

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US Airways CEO: Consolidation needed

It seems like a few years can't go by without US Airways CEO Doug Parker talking about a merger. Parker came over from America West Airlines when it merged with US Airways in 2005, and by the end of 2006 had made a hostile bid for Delta. That fell through pretty quickly, but didn't put an end to speculation that Parker would be interested in shopping his airline around or looking to combine it with another. Back in April 2008 Parker mentioned in a letter to employees that the airline would merge if the time was right, and yesterday, addressing the company's annual meeting in New York, he said that further consolidation was much needed in the airline industry.

"The industry continues to be far too fragmented... The result is far too many hubs across the nation and far too many seats competing for those same passengers," Parker said. He also stated that the Delta-Northwest merger was a good thing, since it went pretty far in helping to simplify the industry, but that it wasn't enough: the industry needs to get smaller if it wants to become profitable.

Who could US Airways potentially merge with? The first option that people seem to mention is United. The airlines tried to merge back in 2000, but this was rejected on antitrust grounds; United and US Airways talked last year about a merger once again, but this time United walked away. Nothing has been ruled out between the two airlines in the future, though. American could be a good fit for the airline, too. And even if US Airways doesn't end up merging, the fact remains that capacity needs to be further cut for airlines to stay afloat during these tough economic times.

photo by matt.hintsa from Flickr, licensed under the Creative Commons

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Air France and Delta finalize joint venture

A Boeing 777 in Air France's new livery. Photo courtesy Air France

Air France/KLM and Delta yesterday put the finishing touches on a $12 billion-a-year joint venture deal that would allow them to operate as a single carrier on North Atlantic routes. The pact extends a previous joint venture that KLM and Northwest have had since 1997. Air France merged with KLM in 2004, and Delta recently took over Northwest, allowing for a four-way alliance (all are already members of the SkyTeam alliance).

The deal is a revenue- and profit-sharing venture, and will have antitrust immunity (something that American and British Airways are seeking right now). It affects more than 200 daily transatlantic flights to over 400 destinations in Europe and North America, or around 27% of total trans-Atlantic capacity. It also allows them to more effectively combine operations. For example, if both Delta and Air France have a flight from New York to Paris, but both flights are only 1/3 full, they can be combined and flown on one aircraft. Marketing, pricing, and ticketing will also be shared, and these result in very impressive cost savings (about $150 million per airline).

As previously mentioned, American, Iberia and British Airways in the oneworld alliance and United, Lufthansa (and soon Continental) in the Star Alliance are working on similar deals. This means that airlines without an alliance affiliation - like Virgin Atlantic - might suffer as a result. And while this means that Air France and Delta are cooperating even more closely, they can't actually merge - under US law, a foreign company can't own more than 25% of a US airline, although this rule might end in the future.

Some slides from the Air France/Delta news conference in Paris on Wednesday:

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AA/BA alliance a "monster monopoly"?

photo by Jun Seita

Virgin Atlantic president Richard Branson has called upon the US Department of Transportation to reject a proposed alliance between American Airlines, British Airways and three other airlines, claiming that it would form a "monster monopoly" that would pose a serious threat to the survival of rival airlines and would mark the end of "red-hot competition."

In an address to the National Press Club in Washington last week, Branson warned that a tie-up would be "disastrous" for consumers, and highlighted the fact that American and British Airways, combined with their oneworld alliance partners, would control almost half of the takeoff and landing slots at London Heathrow. "It doesn’t make sense to encourage even less competition by allowing dominant carriers to increase their stranglehold by setting prices together and agreeing schedules," he said. "...Our arguments are as strong today as they were on the previous two occasions when BA and AA tried to merge. Their dominance has grown even further between then and now."

Under the proposed alliance, American, British Airways, Finnair, Iberia, and Royal Jordanian Airlines would receive antitrust immunity on transatlantic flights - something that has already been granted by the DOT to carriers in the rival SkyTeam and Star alliances. "This permission or antitrust immunity has already been granted to 10 airlines in Star and six in SkyTeam - including the recently merged and now world's largest airline Delta," said an American spokesperson, in an email to AFP, adding that the proposed alliance was "simply seeking to level the playing field."

But Branson predictably did not agree with this logic, stating: "I understand that it is tempting for regulators to say, 'We’ve given dispensation to one alliance, we should do likewise for others' as they’ve done previously. But they must resist temptation. Each anti-trust application must be considered on its merits and it’s clear that the application for a merger between BA and AA must be rejected."

Branson has lobbied against proposed two AA/BA tie-ups in the past (1997 and 2001), both of which failed due to regulatory concerns. American's argument that 'it's only fair that we get this too' certainly has credit to it, but the sticking point is likely to be Heathrow - the AA/BA presence there is already enormous. The DOT has six months to issue a ruling, so we'll just have to wait and see if Branson is successful in putting down a proposed AA/BA alliance for a third time.

Last month, former American CEO Robert Crandall said that "any objective observer would have to look very hard to find a way in which alliances have benefited consumers." He also believes that "airline alliances have been far more beneficial for international airlines than for US carriers, and for that reason alone, I think they should be disallowed." Interestingly, he also noted that if Star Alliance and SkyTeam are allowed their own antitrust agreements, "AA-BA should be permitted as well."

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Virgin America's top 10 requested cities

photo by Johnny Vulkan

Virgin America recently released a list of the ten cities that are most requested for new VA service. The survey is still up, so if you don't see your preferred route listed below, you can still vote.

1. SFO- Chicago
2. SFO- Honolulu
3. SFO- Miami
4. LAX- Miami
5. SFO- Portland
6. LAX- Chicago
7. SFO- Phoenix
8. JFK- Miami
9. SFO- Denver
10. LAX- Portland

Many of these routes are currently flown only by a few legacy carriers. The San Francisco - Chicago and Los Angeles - Chicago routes, for example, are currently flown only by United and American. JFK - Miami is flown only by American and Delta, and American has a monopoly on the San Francisco - Miami and Los Angeles - Miami routes. Even though Virgin America would certainly be taking a risk by flying into the fortress hubs of legacy carriers (United in Chicago, American in Miami, etc.), their relatively premium product would probably attract quite a few unsatisfied AA and UA customers. Those are the routes (LAX-MIA, SFO-ORD) that would be best for Virgin America to fly, especially as they would avoid head-to-head competition with other low cost carriers (i.e. Frontier on SFO-DEN).

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American takes delivery of new 737s

photo by caribb

American Airlines has taken delivery of its first new planes since 2006 - seventy-six additional Boeing 737-800s. AA plans to use them to phase out out about a quarter of their MD-80 fleet, which are older, less efficient, and more prone to maintenance issues than the 737s. The new 737s will also carry more passengers (160) than the airline's previous 737s (sometimes as low as 134); this will be accomplished by a thinner divider between first class and coach and using thinner seats, which AA claims are more comfortable than the old ones. The galleys in coach class are also gone, since meals aren't served anymore in coach.

American is also going to base some of the new 737s out of its Chicago hub. Previously, it had kept almost all of its 737-800s flying out of its Dallas and Miami hubs, and kept the MD-80s at Chicago. But when the MD-80 faced serious mechanical issues last year, the airline was forced to scrub hundreds of flights at O'Hare. The introduction of 737s there should lower their reliance on a single aircraft type for the bulk of their domestic flying.

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American's new deal with BA, Iberia

American Airlines, Iberia, and British Airways announced earlier today that they were forming a three-way alliance that would allow them to cooperate on flights between Europe and North America. Although the three airlines are already part of the oneworld alliance, the deal allows them to work more closely together and to cut costs. Not surprising, Virgin Atlantic's Richard Branson took a dim view of the deal, which he said would create a "monster monopoly".

The announcement comes at a time when other airlines are also seeking to link up: United, Continental, Air Canada and Lufthansa are working on a transatlantic alliance, similar to the AA/Iberia/BA one announced today.

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American to retire A300

photo by Vidiot

American Airlines CEO Gerard Arpey said earlier today that the airline's fleet of Airbus A300s, which were due to be retired by the end of 2012, will instead be phased out by the end of 2009. Right now, the type is based at either JFK or Miami (there still is a significant AA A300 presence in San Juan, but this has declined as AA has started to downsize operations there slightly) and flies mainly on routes to and from the Caribbean. The A300 is also a pretty versatile aircraft - it's used on AA's Miami - Orlando route three times a day.

It's unclear as to what American will replace the A300 with, but they might not choose to replace it at all. Instead of going for higher capacity, AA might just choose to have higher fares for fewer seats.

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Continental rejects United as merger partner

photo by Drewski2112

Well, it was a bit of a surprise. After the linkup between Delta and Northwest a few weeks ago, many (myself included) expected to see continued industry consolidation. And a merger between United and Continental was seen as a likely one; rumors floating around pointed to an announcement as soon as this week. The merger would have created an airline that might rival Delta/Northwest in size, as well as international coverage (United's strong Asia presence would fit nicely with Continental's extensive European route network).

But last week, a little something occurred that made Continental think twice: United posted a $542 million loss for the first quarter of 2008. Even in the airline industry, a half billion dollar loss is pretty big, and it's a sign of an ailing airline. United's huge loss scared away Continental, which announced on Sunday night that it was abandoning merger talks with United.

The airline made the announcement in a letter to employees from CEO Larry Kellner and President Jeff Smisek. "We want you to know that our Board of Directors met today and has unanimously supported management’s recommendation that, in the current industry environment, the best course for Continental is to not merge with another airline at this time," it read... The Board very carefully considered all the risks and benefits of a merger with another airline, and determined that the risks of a merger at this time outweigh the potential rewards, as compared to Continental’s prospects on a standalone basis." The letter - which never identified United Airlines by name - went on to say that the airline will "continue to review potential alliances and our membership in SkyTeam. We are considering alternatives to SkyTeam as we carefully evaluate which major global alliance will be best for Continental over the long term."

Continental's decision is certainly a setback for United, which has been looking to merger for some time now. I don't think that the decision to not merge was arrived at easily, since there could have been some benefits from linking with United. But the folks over at Continental are betting that a merger with United, which is racking up heavy losses, could also drag them down as well. Even though Continental definitely wants a better Asian route network - and they could have obtained it through a merger with United - it might be able to get it another way. If United files for bankruptcy again, Continental might be able to grab the Asian routes by themselves, without having to deal with United's poor financial shape.

Continental has also reportedly been in talks about forming a three-way alliance with American Airlines and British Airways, although, from an anti-trust standpoint, this might be a bit difficult.

And as for United - well, this is certainly bad news. CEO Glenn Tilton tried to remain upbeat in a statement released Sunday night: "Our strategy is consistent. Consolidation is underway - ensuring you have the right partner is everything. We will pursue all options to ensure a strong, sustainable future for our airline and will not shy away from the tough choices necessary to create value for our shareholders and benefit our employees and customers." A United-US Airways merger might happen, but I don't know if it will do much good. Both airlines are still dealing with their respective trips to bankruptcy court, and I don't think that a merger between them will solve anything.

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US Airways CEO mentions mergers

photo by caribb

In a letter sent to employees yesterday, US Airways CEO Doug Parker said that "airlines are going to have to make dramatic changes" if they want to survive. Although he said that he couldn't "comment on any specific discussions or transaction," he said that the media have suggested that US Airways is in merger talks with United and that American would make a good match as well. "Rest assured," said Parker, "if US Airways chooses to participate in any industry consolidation, we will do so because we believe it is the best interests of our employees and our airline."

Would US Airways be a good match for United, which has been seeking out merger partners? They already code-share (a benefit that the Delta/Northwest combination has), and US Airways has a strong presence in the Northeast and Southeast (two areas where United's route structure is weaker). But I don't see US Airways' route network as being as much of a plus for an airline like United, which needs more international routes. Of the six largest legacy carriers, US Airways has the smallest international route network. United might prefer a rumored merger with Continental to one with US Airways.

US Airways still has problems of its own, too, from its last merger (between US Airways and America West). And let's not forget that the last time United and US Airways tried to merge, it was rejected by the Justice Department on anti-trust grounds.

By the way, here's the original message sent out by Parker (posted on the US Aviation boards):

From: Corporate Communications
Sent: Wednesday, April 16, 2008 8:36 AM
To: Corporate Communications
Subject: USNews Now: An Important Message from CEO Doug Parker
Importance: High

An Important Message from CEO Doug Parker

April 16, 2008

Dear Fellow Employees,

With the recent news of a potential Delta/Northwest merger, analysts and media are speculating about the next potential combination. While we had hoped to remain on the sidelines of this speculation, today’s Wall Street Journal suggests we may be in merger talks with United and another article in the Dallas Morning News suggests we might make a good merger partner for American.

While I can’t comment on any specific discussions or transaction I certainly didn’t want you to hear this speculation without hearing directly from me about what this might mean for US Airways.

Most of you know my views on consolidation and those have not changed. Our industry is far too fragmented and consolidation, if done properly, could result in a much healthier industry which would be good for our employees, our customers and the communities we serve. Rest assured if US Airways chooses to participate in any industry consolidation, we will do so because we believe it is the best interests of our employees and our airline.

Despite all of the challenges of merging two airlines, we are a much stronger company today as a result of the merger of US Airways and America West. We posted the highest pre-tax margin of the big six airlines in 2006 and even with our operational challenges we posted the second highest pre-tax margin in 2007.

And we have an improving airline. We’ve made great strides with our operational improvement plan, including top three performances in on-time arrivals for three consecutive months. As we continue through 2008, we feel extremely good about our ability to continue to improve our operational performance relative to the industry.

But we can't ignore what's happening in the world around us. Oil has risen to over $113 per barrel and Wall Street is anticipating a recession that, if it happens, will lower all airline revenues. And the DL/NW combination potentially creates a formidable competitor. In that world, all airlines are going to have to make dramatic changes to their existing business models in order to be viable.

I know airline merger speculation can be distracting so for now, I encourage all of us to remain focused on running a great airline. Our work on the reliability, convenience and appearance initiatives continues and we are running an extremely reliable airline as a result. Whatever we do, we will always take great care to ensure the path we choose returns value to our shareholders and customers, and also provides long-term stability for our employees.

Thanks for all you do for our customers and keep up the great work.

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American cancels more flights

photo by caribb

Only a few weeks after canceling hundreds of flights, American Airlines today canceled over 900 flights, affecting an estimated 100,000 travelers. The airline also canceled 460 flights on Tuesday and nearly 1,100 yesterday. The cancellations, which affected American's 300 MD-80s, are in response to an FAA directive involving the covers of wire bundles for the MD-80's fuel pump.

The problem was first identified back in 2006, and if American had taken steps to solve the problem immediately, the current problem would have been averted. But instead, the airline is being hit with this crisis at a time when fuel prices and a weak economy are affecting airlines in general. Because the cancellations are their fault, American is responsible for handing out $500 travel vouchers and hotel rooms for travelers - not to mention paying overtime for mechanics. And, perhaps even more significant, is future business that will be lost.

CEO Gerard Arpey apologized: "We have obviously failed to complete the airworthiness directive to the precise standards that the FAA requires, and I take full responsibility for that," he said. But it's little consolation to the travelers affected.

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American, Delta inspect MD-80s

photo by Kevin Boydston

American Airlines yesterday announced that it was canceling 300 flights on Wednesday in order to inspect wiring covers in its 300-strong MD-80 fleet, with an American spokesperson calling the move an "abundance of caution" by the airline. Later in the day, Delta also said that it would voluntarily reinspect 117 of its MD-88s as well as 16 MD-90s. Delta said that as of last night, it had not found any problems, but the airline was nonetheless forced to cancel about 325 flights yesterday, with a few more following today.

Other airlines flying the MD-80 also reviewed their fleets as well: Allegiant Air said that it reviewed its 35 MD-80s without needed to cancel flights; a spokesperson for Alaska Airlines said that its 10-strong fleet of MD-80s operated "normally".

The checks come at a time when airlines are scrambling to comply with FAA audits and safety directives. Earlier in the month, the agency fined Southwest Airlines $10.2 million for flying 46 of its Boeing 737s without proper safety checks. American Eagle grounded 25 CRJs last week in order to double-check inspection papers on the hydraulic systems and rudders.

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Delta-Northwest, United-Continental mergers soon?

photo by Cubbie_n_Vegas

The Wall Street Journal is reporting that a merger deal between Delta Air Lines and Northwest Airlines could happen as soon as next week. Talks between the two were previously strained as the senior management of both carriers disagreed over whom would keep high-ranking management positions, but they have since come to an agreement.

As a result of Delta and Northwest's merger potential, merger discussions between United Airlines and Continental Airlines have also reportedly "grown more serious," said the article. United has proposed a merger with Continental before and has been turned down, but if Delta and Northwest announce a deal, Continental could change its mind very quickly and agree to merge with United, which has been actively looking for a merger partner for some time now.

An interesting point in all of these merger talks is Northwest's so-called "golden share" in Continental. This is basically some preferred stock that allows Northwest to abort a merger between Continental and another carrier. If Northwest and Delta do merger, however, Continental has the option to acquire the "golden share" for $100. Continental would be able to get the stock even if the Northwest-Delta deal later falls through.

The mergers raise a lot of inevitable questions - what types of aircraft will the combined operations operate (what will happen to Northwest's A330s)? Which hubs will stay open and which will close or be downscaled (Memphis, Cincinnati, etc.)? What international routes will be dropped or added? It's most likely that the answers to these questions will be worked out before the merger is announced (after all, it would be pretty stupid to merge first and then tackle those problems). As always, lots of things could happen. American Airlines, which is being left out of all of the "merger madness" at present, could intervene somehow. Labor unions or antitrust regulators could always prevent these mergers from going through (and with the size of these airlines, any mergers would get a high amount of scrutiny from the antitrust folks).

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British Airways launches OpenSkies

Although it’s no secret that British Airways has been looking to expand in the transatlantic market, the airline made an announcement yesterday that it is starting an “airline within an airline”. OpenSkies, as the new entity is called, will start flying in June with a single Boeing 757-200 from New York to either Paris or Brussels. Another 757 is planned to join the fleet later this year, with six aircraft in all by 2009. In a statement, Willie Walsh, BA CEO, said that "by naming the airline OpenSkies, we're celebrating the first major step in 60 years towards a liberalized US/EU aviation market which means we can fly between any US and EU destination”. Future cities will probably include Milan, Frankfurt, Amsterdam, and Madrid.

This is a smart move on BA’s part – the Open Skies agreement signed between the US and the EU would add a lot of pressure at BA’s London Heathrow hub. Currently, only United Airlines, American Airlines, BA, and Virgin Atlantic can fly from the US into Heathrow, but this is expected to change soon as more US carriers add the airport. It’s also a smart idea that British Airways decided to buck the “premium transatlantic” trend that pushed MaxJet into bankruptcy last month – OpenSkies will have business class, premium economy, and economy class (each with 24, 28 and 30 seats, respectively). But BA isn’t alone in this area – British carrier bmi, Delta Air Lines, and Air France/KLM are all expected to follow suit with Heathrow-US routes.

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American to spin off Eagle

photo by caribb

American Airlines announced today that it will be spinning off its regional carrier American Eagle. In a press release earlier today, parent company AMR said that the spin off, which is expected to be completed by 2008, "is in the best interests of AMR and its shareholders". American Eagle could be spun off to AMR shareholders or to a third party (or in yet another way).

AMR went on to say that the spin off will allow American to focus on its mainline operations but still have access to a "cost-competitive regional feed". However, this depends upon how the spin off proceeds - if Eagle gets sold in parts (i.e., if one airline were to take its operations at Miami, and another airline were to take its operations at Chicago), then this might be a bit problematic.

A possible explanation for the spin off (besides the official corporate explanation) that I've seen comes down to finances. American Eagle uses a capacity purchase agreement with American Airlines. Eagle only makes money if it can operate for less than American Airlines pays it. But if Eagle's costs go up compared to other, similar carriers, the cut that American Airlines gives Eagle might have to go up to. It might be that AMR is looking for lower-cost regional feed in the future.

Since the event was only announced today, there are certainly going to be a lot more details announced in the future - stay tuned.

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United's "urge to merge"

The world of airline mergers has been buzzing since last week's report that United Airlines and Delta Airlines were being pushed by Pardus Capital Management (which owns a sizable stake in both airlines) to merge. Delta CEO Richard Anderson stated that "there have been no talks with United regarding any type of consolidation transaction and there are no such ongoing discussions." In a press release, Delta said that it "will not speculate on possible airline consolidation".

It's no secret that United has been shopping around for a merger partner for some time. They haven't bought any new planes in quite some time, and United has relatively thin profit margins and high debt.

That said, rumors have been flying for the last few years that United would find a merger partner. These partners have included Continental (which already said no) and Northwest (which wouldn't work out because the two airlines both have strong Midwest hubs) - almost everyone except American (a United-American merger couldn't happen because the combined airline would be too big). The latest to crop up on the aviation forums involves jetBlue, since the two airlines have complementary fleets/networks. United would use jetBlue as an opportunity to become a player again at JFK, which would tie in nicely with international feed from Star Alliance carriers and make it more competitive on the East Coast. And a United-jetBlue merger would also put an end to the fight at Washington-Dulles between the two airlines.

But a United-jetBlue merger isn't too likely, and any merger wouldn't be a cure-all fix for United. Even though United may be holding out on buying new planes to attract merger partners, they're going to need to upgrade eventually to keep up with competitors. And employee-management relations aren't very good, either. Merger or no merger, United really needs to address these issues (and others) if it wants to remain a viable competitor in the industry.

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Amazing 757 Landing

Another slow news day, so here's a video clip of an amazing landing of an American Airlines 757 at Tegucigalpa, Honduras:

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