Monthly Archives: February 2007

US Airways Pilots File Suit Against Airline

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As if migrating to a new reservations system was not enough to cause an airline angst, today the pilots at US Airways filed suit against the airline, claiming that the airline’s move to one reservations system, and one electronic code scheduled to take place this weekend — violates pre-merger agreements to run both airlines separately until new single contracts are in place.

This comes after the Arizona Daily Star reported Wednesday that the International Association of Machinists filed a federal lawsuit Monday, accusing US Airways of using bankruptcy court protection to avoid giving pay raises.

The paper reports arbitration on the matter was scheduled to begin Tuesday, but US Airways filed a complaint in bankruptcy court to block it, prompting the IAM lawsuit. US Airways refused to attend the hearing, according to union representatives.

US Airways is attempting to use the bankruptcy court to shield itself from its contractual obligations 17 months after exiting bankruptcy,” said IAM General Vice President Robert Roach, Jr. “If companies can get bankruptcy court protection without filing for bankruptcy, no business contract, labor or otherwise, is enforceable. Lessors, vendors, bondholders, stockholders and other creditors are also at risk.”

US Airways spokeswoman Andrea Rader, told the paper the carrier concluded the dispute “was properly a bankruptcy issue.” “The more we looked into it, we realized it shouldn’t be in arbitration,” she said.

The union argues that the 2005 merger of US Airways with America West forced a change of control, which then triggered contractual clauses guaranteeing annual raises.

In other US Airways’ related news, the airline is apparently in talks to refinance its debt.

In a statement today the airline said that it had entered into an agreement with Citigroup Global Markets, Inc. and Morgan Stanley Senior Funding, Inc., as Joint Lead Arrangers, to arrange a debt financing transaction of up to $1.6 billion. The deal would see US Airways to refinancing $1.25 billion of its existing senior secured credit facility, refinancing $325 million of unsecured debt, while raising its incremental liquidity.

Got all that? Okay, good. You’re going to be tested on it in the morning.

Ticker: (NYSE:LCC)

AirTran versus Midwest Airlines: Time to Stock Up on Tender Vittles

Woo hoo.

If anyone out there thought that management at Midwest Airlines had been a bit too reticent in terms of responding to some of AirTran’s comments about their airline and a potential merger — I think those thoughts can now be safely tucked aside the freshly-opened bag of Tender Vittles we just purchased for these two today. Yeah, you can forget the warm and fuzzy chocolate chip cookies.

Flying-Cat-Fight
Midwest Airlines issued a statement today to its shareholders — rebutting many comments that have been made by AirTran or its fearless leaders over the last couple of months.

Here you go, in all its glorious claw-bearing beauty.

February 28, 2007

Dear Fellow Shareholder:

During the past several weeks, the Midwest management team has met with numerous Midwest shareholders, customers, and business and civic leaders. We have received consistent, strong support for our strategic growth plan and for our long-standing commitment to providing travelers with an unparalleled travel experience. It is clear that our strategic plan is resonating with investors. We believe that investors recognize the value of our plan and believe in our management team.

However, we have also been confronted by many false and misleading claims made by AirTran about its offer and Midwest’s business — comments we believe are designed to divert attention from AirTran’s deteriorating performance, lack of planning, and absence of a credible and profitable growth plan for its future. It is time to set the record straight.

AirTran’s Business is Deteriorating

AirTran’s low-cost carrier business model is in trouble. By virtually any metric, AirTran’s business is deteriorating. AirTran is desperate to buy Midwest to stave off further erosion of its business.

– AirTran’s profits are deteriorating while Midwest’s are improving. For the last half of 2006, AirTran’s earnings per share (EPS) dropped $0.09, year over year, to a $0.09 per share loss. During that same period, Midwest’s EPS improved $2.58 to a positive $0.25 cents per share.

– AirTran’s share price lags behind its peers and Midwest. Between January 3, 2006 and February 27, 2007, the average share price of low-cost carriers is down 7.7%, while the average share price of network carriers is up 35.5%. Midwest’s share price is up an impressive 156.1% in the same period, compared to an unattractive 35.8% loss of value for AirTran’s shareholders.

– AirTran’s earnings continue to disappoint while Midwest’s show strong momentum. AirTran has failed to show a profit in three of the last four quarters, while Midwest has been profitable in three of the last four quarters. In an effort to obscure its own current poor performance, AirTran’s statements about Midwest focus on years-old data that is heavily influenced by the after-effects of 9/11, which devastated the airline industry.

– AirTran’s load factors are on a downward track. AirTran’s load factor declined 0.7 percentage points in 2006 and declined again in January 2007, down 1.6 percentage points. On the other hand, Midwest’s load factor increased 5.2 percentage points in 2006, with increases of 6.6 percentage points in December 2006 and 3.8 percentage points in January 2007, placing Midwest among industry leaders in load factor improvement. AirTran’s declining load factors reflect a pattern of excessive capacity expansion leading directly to lower unit revenue, lower profits and lower value for AirTran shareholders.

– AirTran appears to be focused on adding capacity, not profits. In the last half of 2006, Midwest’s revenue per available seat mile (RASM) was 12.40 cents — a 12.1% improvement from the last half of 2005.AirTran’s RASM was 9.54 cents in the last half of 2006 — down 2.1% from the same period of 2005. AirTran’s deteriorating RASM performance underscores its inability to efficiently utilize its existing capacity. To further compound the problem, AirTran has committed to purchasing an additional 60 planes with no clearly articulated strategic plan to deploy and utilize these planes on a profitable basis.

AirTran Consistently Fails to Deliver on Its Promises

AirTran leaves a trail of broken promises in markets it enters with great fanfare. AirTran typically promises growth and enhanced service in new markets, only to quietly retreat when it can’t keep its word. Since 2004, AirTran has exited 29 markets it had promised to serve, sometimes returning in a scaled-down version and sometimes not. Notably, at Dallas/Ft. Worth, AirTran promised a bustling mini-hub with 30 flights a day to seven destinations by the end of 2004. Regarding Dallas/Ft. Worth, AirTran famously boasted in 2004, “No matter how intense the competition gets … We’ve never been driven out of a market before, and there have been plenty of attempts to push us out … We’re here for the long haul.” The reality told a far less impressive story: AirTran never attained more than 17 flights a day at Dallas/Ft. Worth and now, two short years later, it has only eight flights a day to two destinations. Similarly, AirTran dropped service at Washington Dulles from 16 to seven daily departures and Pittsburgh from 13 to six.

Now AirTran wants everyone to believe that it will add and retain 74 daily departures and 29 new destinations out of Milwaukee alone. 23 of those markets are smaller than the smallest market AirTran currently serves. In fact, AirTran’s speculative plan for Milwaukee would have more flights and many more destinations than its current operation in Atlanta — a city much larger than Milwaukee. Why believe AirTran this time?

AirTran Offers an Inferior Product and Inferior Service

Midwest has been recognized as “the best” domestic airline more than 45 times in the past 17 years by a variety of renowned ratings surveys. AirTran ranks poorly, if at all, in many of the same surveys. Most recently, Midwest placed first among single class service in the 2006 Conde Nast Traveler Business Travel Awards poll; AirTran finished last of 10 in its business class category. In fact, Midwest far outranked AirTran on all five of the categories on which both airlines were rated. At Midwest, we know that customer service excellence requires committed, highly trained and loyal employees. AirTran has not demonstrated that it has the will or the infrastructure to maintain or build the marketplace differentiation that Midwest has mastered for more than 22 years.

Midwest’s Plan Provides Shareholders With Greater Value Than the AirTran Offer

The Midwest Air Group Board of Directors recently reiterated its belief that AirTran’s offer is inadequate because it does not fully reflect the long- term value of Midwest’s strategic plan, including our strong market position and future growth prospects. Midwest’s superior performance and positive trends demonstrate that the Midwest business model and strategic plan provide attractive value creation. We believe that Midwest’s business model has staying power and can thrive in the restructured aviation marketplace. With a capable management team delivering strong results, projected 21% capacity growth in 2007 and projected 10% compounded annual capacity growth over the next three years, we believe Midwest shareholders will enjoy superior results by owning shares of Midwest. Midwest understands its markets and how to grow them profitably.

Midwest Air Group’s Board of Directors has unanimously recommended that you reject AirTran’s offer and not tender your shares. All of us on the Midwest management team fully support this position. We believe it is far wiser for you to own and hold Midwest stock than to tender your shares to the AirTran offer — a company of declining value and broken promises. We are working hard every day to make sure that Midwest lives up to its potential. Thank you for your continued support.

Sincerely,

/s/ Timothy E. Hoeksema

Chairman and Chief Executive Officer

Now, being the cynical type I am, here’s my bet as to why Midwest decided to drag out the heavy artillery. I would guess that AirTran has been making some inroads with some major shareholders involved here — thus the need for a full-frontal assault.

Ticker: (NYSE: AAI, AMEX:MEH)

Boo Hiss to Boeing

Postponed

So what’s the deal?

Today it was reported that the delivery of that new gorgeous Alaska Airlines’ retro-livery 737 aircraft has been delayed by Boeing.



The plane, called the “DC-3 Starliner,” was expected at ceremonies in Seattle Tuesday and in Alaska on Thursday. Those receptions have been canceled, Alaska Airlines told the Puget Sound Business Journal.

The livery was voted on by the airline’s employees — and is part of the airline’s 75th Anniversary.

“The Boeing Company has notified Alaska Airlines that it is unable to deliver a 737-800 adorned in a classic paint scheme on Feb. 27 as scheduled,” officials at the Seattle subsidiary of Alaska Air Group said in a statement.

Boo hiss to Boeing.

Ticker: (NYSE:ALK, NYSE:BA)

FInal Market Stats for the Day

Dow Jones Industrials 12.216.56 Down 415.86 (-3.29%)

Dow Jones Transports 4863.76 Down 172.96 (-3.43%)

AMEX Airline Index 56.03 Down 2.30 (-3.94%)

Nasdaq 2407.87 Down 96.65 (-3.86%)

These should be fairly close, although it appears that complaints have surfaced that the new “hybrid” system of the NYSE was not able to keep up with the volume, and as a result, we saw changes to the final figures after the official close of 4 p.m.

Market Update: Dow Jones Down 475 Points

At 3 p.m., the market took a header. The DJI A dropped about 200 points almost immediately — falling back to more than 500 points down on the day.

However, as I write this, looking at numbers from 3:28 ET, prices seem to be creeping back up.

Here’s how the stocks we track at PlaneBusiness are faring with about 1/2 hour to go before the close of trading.

Stocks227.07

Foto Fridays?

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Little did I think my little note posted in the wee hours last week about possibly posting photos from readers would get a resounding response, but it did! Thanks for all the comments, and in some cases, photos.

So I tell you what. We’ll do it. As long as the photos are taken by you — and they have something to do with the airline industry — they are fair game.

For now, I’ll simply post them here — but we’ll set up a separate little gallery page for them going forward so they won’t slow down the speed of the blog pages for all other readers.

Cool.

Be creative!

This Friday I’ll post the first one in our Friday Foto series. To have your photo considered for posting, just send a copy to me at buzznotes@planebuzz.com. Be sure and put “Foto Friday” in your subject line. You’ll need to tell me what the picture is of (if it’s not evident), the name of your picture, and your name.

Oh, and to protect your images, I’d suggest you send a .jpg, no more than 800 pixels in any direction, and no higher than 72 dpi in resolution. That way nobody can rip your pics off and print them, because the resolution will only be adequate for web purposes only.

It’s Tumult Tuesday On Wall Street

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We’ve mentioned the red hot stock market in China in PBB more than once of late — primarily because it’s gyrations and overheated condition have contributed to the two Chinese airline stocks we follow performing in a similar fashion, i.e, jumpy, volatile, and overheated.

For those paying attention, it was also interesting to note that China’s consumption of oil was actually much lower for the last six months of 2006 than had originally been forecast.

Good news for us — but a sign that perhaps the overheated Chinese economy was hitting some bumps along the superhighway of economic froth.

Today — in case you’re wondering why Wall Street is having such a bad day — there’s one big reason. The falling stock market in China.

The Shanghai Composite Index, which tracks shares listed on the larger of China’s two stock exchanges, tumbled 8.8% to 2,771.79 before closing Tuesday. The decline rank as its biggest single-day drop since the benchmark plunged 9.4% on Feb. 18, 1997, which reportedly came after the death of reformist Communist Party elder Deng Xiaoping.

As for Wall Street, as of 2:46 ET, the Dow Jones Industrials are down a hefty 260 points, or just a little more than 2%. As for the airline sector, it’s a sea of red with no airlines up on the day as of this writing.

Meanwhile, the price of oil is hanging around 61.60, after having been as high as 62.25 in intra-day trading.

Crack! Adam Air 737-300 Buckles After Hard Landing

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That’s a sad looking aircraft if I ever saw one.

According to the Sydney Morning Herald,

“Indonesia’s government has grounded budget carrier Adam Air’s six Boeing 737-300 planes for safety checks after one of its aircraft cracked during a hard landing, officials said on Thursday.

The Boeings, almost a third of the airline’s fleet, will not fly until they have passed the safety inspection from the government, Adam Air safety director Hartono said.

The Indonesian government has stepped up safety investigations since an Adam Air plane carrying 102 people disappeared in January.”



You can read the rest of the story here.

FL Group Now Largest AMR Shareholder

Well, isn’t this interesting? FL Group, which took a substantial position in AMR earlier this year, said today that it has increased its position in AMR to 8.63%. Unless one of the two biggest AMR shareholders has recently upped their positions, that would indeed make FL Group the largest single AMR shareholder.

Very interesting. Because as we all know, investment funds like this don’t take a position in a company unless they see a potential for turning a nice profit. And I can’t see that happening unless some kind of “deal” is part of the short-term landscape.

Ticker: (NYSE:AMR)

Photo of the Week?

For those who don’t know, I have an expensive hobby. It’s called photography.

Looking for photos every week as I do for both PlaneBuzz and PlaneBusiness Banter, it struck me that there are a lot of you out there who might have photos you’d like to share with us.

I think it could be cool. Or maybe not. But I at least thought I’d put the offer out there.

I guess what started me thinking was when I was in Flickr this week and noted some really nice airplane shots by a particular member there.

Anyway, if you do happen to shoot something you think our readers would be interested in looking at and it’s in some way airline related, drop me a copy. Worldwide fame and notoriety could be yours.

Well, maybe not, but it’s always cool to see one’s work online.