Island Air Gets Smart...

OK, I have to admit, when I saw on the DOT docket that Island Air was bidding for EAS routes using Dash-8's, I was a little perplexed.

How on Earth did they figure they'd be able to make money flying a 30+ seater in markets where Mesa, undoubtedly one of the lower cost outfits around, was unable to make it work with 19 seaters?

Well, today, Island Air came to their senses and announced that they were declining the contract, and sticking to their core business of flying inter-island routes in Hawaii. Now, if you'd told me that they were branching into SJU or the Caribbean, perhaps that would have made a little more sense. But flying the corn routes in Nebraska?

One by one, the carriers flying EAS service have been walking away from it. In Big Sky and Air Midwest's case, they had to cease operations to rid themselves of the albatros known as Federally subsidized air service.

Getting into the EAS arena would have probably caused them to bleed even heavier than they probably already are being caught between Go! and Hawaiian...

EAS's time has come and gone, and it's time for Congress to let it go for good.

Another Shutdown?

Another casualty in the Cargo arena...

Last week it was ABX and Astar. This week, we heard that Tradewinds just furloughed 70% of its total staff, and is shutting down their B747 operations. I've heard immediate shutdown, and I've heard June 30th. Regardless, it's a considerable impact to an airline their size. No word yet on their A300 North American operation.

Tradewinds (headquartered in GSO) has been a niche player in cargo for almost 40 years, previously flying DC-8's and L1011's, and now operating a thirsty fleet of five 747-200F's and six A300-B4's. Domestically, they were flying out of Aguadilla, PR to IND, BDL, GSO and DFW. They also had some MIA-SJU service. Internationally, they were doing ACMI flying for between Shanghai and BOS/JFK, and Almaty, Kazakhstan to Warsaw via Luxemburg and Dubai.

Total damage? 80 pilots furloughed, with 35 remaining employed to fly the A300 operation. Teamsters were certified as their bargaining agent back in March, but it doesn't appear they had a contract just yet. This isn't going to help things much.

Granted, they're a small player, but they've been around a very, very long time in airline years.

[updated 6/8 with furlough numbers]

Batten Down The Hatches...

As expected, United confirmed the retirement of 100 aircraft yesterday -- 94 of their 737s and 6 of their 747-400's. No specifics on the number of employees affected, but a friend with UAL says he expects about 1100 pilots, give or take, so that would probably be at least 2000 flight attendants. And that's just the crews. Until it's known where their schedule reductions will be focused, there's no way to guess the impact on agents, rampers, or mechanics.

Unexpected, Continental was out the gate this morning with their own announcement -- 67 aircraft in addition to six already removed this year. They expect cuts of up to 3000 employees across all workgroups.

The most striking tidbit in CO's announcement: their CEO and President are foregoing their salaries for the rest of the year. Take that, UA & AA... Gordon must be really proud of Kellner right now.


On Monday, seven of the ATA carriers filed a petition with the DOT asking for a blanket waiver on dormancy restrictions for the various international route authorities they all have. UA and US have both announced delaying the startup of routes to China that they just were awarded last year, and there's some speculation that other carriers may be re-thinking service that they'd otherwise stand to lose if they were to put it on hold.

Case-in-point: if UA (just as an example) decided that they were going to cease ops to Brazil, they could do so on a temporary basis without risking the ability to resume that service in 20 months if fuel drops and the economy recovers a bit.

While we have open skies agreements with a lot of countries, they don't exist to some of the major South American and Asian countries. Personally, I think if you were awarded the service on the merits of a business case, you need to provide the service or step aside for someone who can. Oil prices aren't just impacting one set of carriers -- they're impacting everyone.

Impending Doom...

April was a bad month for the airline industry, in that we saw more shutdowns in that month than ever recorded in airline history.

At AMR's annual meeting two weeks ago, it was announced they were going retire 40-45 mainline and 35-40 regional aircraft during the rest of 2008. As has been long anticipated, A300's will be returned to lessors as the leases start to expire this month. The remainder of the mainline aircraft will no doubt be MD80's. Overall, capacity will be down about 11-12% from 2007. Cuts announced so far include SJU dropping from 38 to 18 mainline departures, and pulling Eagle from 55 to 35 departures. Other cuts include long haul flying out of ORD to EZE and HNL.

Yesterday, rumors started flying out of United's World Headquarters faster than jets out of Miramar MCAS... UA had planned to ground 30 of their smaller 737-500's, but has apparently decided to increase that to include the 64 larger 737-300's they also operate. Now, considering UA operates 460 aircraft, 94 is simply a staggering number, but desperate times call for desperate measures. In UA's case, it is between 15% and 17% of their current system capacity. Also on the chopping block... between 7 and 9 of their 30 747-400's, which are mostly based on the west coast and operate across the Pacific. The formal announcement is expected tomorrow, at which time it's also expected that John Tague will be named as Glenn Tilton's successor.

And last week, the carnage also stacked up among some smaller US carriers.

German freight giant DHL announced they were no longer going to use ABX and Astar Aviation to fly for them in North America, and would instead have UPS provide lift. ABX was operating 39 aircraft and Astar about 35. Somewhat ironic, in that DHL had spent a lot of time and effort setting up Astar as a proxy carrier, which was long contested by both UPS and FDX. Something else this may signal -- softness at UPS.

Meanwhile, unconventional and privately held Spirit informed its unions they were issuing WARN letters to 60% of their flight attendants, and 45% of their pilots... They made no specific announcement as to the number of flights being reduced, but they're closing several crew bases, including two that just opened last year. Conventional wisdom is it's pretty serious, but without the transparency that comes with SEC filings, it's only a guess as to how bad things really are...


Obviously, when airplanes get grounded, jobs obviously go with them.

AA has only announced 400 layoffs in SJU, but there are obviously going to be more to come. As I said, they've kept their plans a little more close to the vest, but if you assume around 100 employees per aircraft, that's 4500 employees at a minimum.

UA has hinted at up to 25% of their current employees. That could be up to 13,000 employees. Again, staggering...

ABX and Astar? Between 6000 and 8000, the brunt of those being ground employees at their shared Wilmington, OH sortation hub.

NK expects up to 448 flight attendants and 242 pilots.


By the end of the week, the announced cuts could exceed 30,000 jobs. But I don't think that's going to be anywhere close to what the summer holds in store for us...

[updated 6/8 to correct gross overestimate of current UAL employees... it's 55,000 and not 80,000!]

Silverjet Shuts Down

Last Friday, shares of Silverjet PLC were suspended for trading. The reason? Financing expected to help shore up their operations between London Luton and both JFK and Dubai had fallen thru.

Today, they announced they're ceasing operations. It's been almost a month since the last airline shutdown due to oil prices...

And since I can't help but mention, this is the third of the three all-business class airlines serving London, and all failed within almost five months to the day of each other. The business model just doesn't work...


And yes, I haven't posted much lately. Travel called, and I'll have more to write about that when I'm home.

Air Midwest Latest Victim of Oil Prices...

Well, sort of. Today, Mesa Air Group announced they were beginning an orderly shutdown of their Air Midwest subsidiary, starting of next week. That segment of Mesa operates their Essential Air Service contracts to about 20 hotspots such as Kingman and Prescott AZ, Athens GA, Harrison AR, Ely NV, and Grand Island and McCook NE.

Don't feel bad if you can't locate a lot of those towns on a map. They're tiny markets that only had air service because of some poorly crafted language in the Airline Deregulation Act... Instead of allowing the market to dictate, these services have been long subsidized by federal funding. Until fuel prices started to climb, it was a fairly lucrative market to chase. Today, the subsidies don't cover the operating costs.

They'd announced their intention to exit the EAS markets in January, so this is not at all unexpected. DOT required them to continue operating the routes as long as they were in business, so as with Big Sky last month, the only option available for Mesa to stop the bleeding was for that operating subsidiary to cease operations.

The net effect is that Mesa's bleeding. And sadly, that actually warms my heart somewhat...

Oddly enough, Island Air (based in Hawaii) will be their replacement in four of the EAS markets. Island Air was the smallest player in the hotly contested interisland market that eventually claimed Aloha, and wound up returning two Q400 aircraft and laying off about 65 employees last year because of Mesa's Go! operation.

I'm not sure which move is the smarter one -- Mesa getting out of the EAS business, or Island Air getting into it.

United-US Airways Redux

There's been a lot of talk the last couple weeks about United & Continental linking up, Continental deciding they want to stay independent, and now, United and US Airways linking up...

While there's been a lot of chat over Skyteam's involvement with the Delta/Northwest deal, what hasn't been talked about much is how United's membership in Star Alliance is going to figure into a potential merger.

UA/CO presents some serious issues for LH. My impression is that Wolfgang Mayrhuber is in Anschluss mode, given their takeover of Swiss, potential takeover of LOT, and last week's announcement that they plan to take over Michael Bishop's stake in BMI.

Given those actions, it shouldn't be a great leap of faith to believe LH wants UA to function as a puppet, and Tilton serves that role pretty well. If you put CO's management team in place at the operating company, LH's ability to manipulate gets minimized quite a bit. Kellner's team knows they don't have to use an alliance partner to expand internationally, and they know how to run an airline without strings attached.

Switch to Frankfurt's view... if CO exits Skyteam (which they've hinted at), they see Skyteam with one strong partner in the United States. oneworld has one strong partner in the United States. What Star really needs is one healthy partner in the US, and not two fractured partners.

So, taking labor out of the picture, UA/US might not be so dumb of an idea.

It gives me fits thinking abou merging the various employee cultures, but you have a more homogonous fleet.

Hubs?

Yeah, something's gotta give there. ORD and CLT seem to be far enough apart to stay as-is, but IAD and PHL have too much overlap to Europe. If I were UA, I'd concentrate on IAD given the better dependability of the airport, the profile, and the fact that PHL is smack dab in-between NYC and Washington.

PHX and DEN are too big to go away, and could remain a decent size, but combined with LAS, you do have some serious hinterland issues similar to what legacy US had with PIT and PHL, and what will be made worse with MEM/CVG/DTW/MSP once DL/NW is consumated.

Control? Tilton could appear to stay in control at Chairman, Parker could run the show with his team of misfit toys, and Wolfgang can continue to pull the strings from Germany...

Now, you'll ask... Didn't LH just invest in Jetblue.... Yep. They did.

Again, they've got a homogonous fleet with both UA and US, and relative strength in an area where UA & US perhaps aren't as good -- Florida. The JFK hub isn't such a bad addition either (see above regarding PHL...).

As I said earlier, this is ignoring labor. From a labor standpoint, it would rival merging Texas Air's pile of crap in 1987, but drastic times call for drastic measures.

A friend and I were having this same discussion... and he pointed out something I managed to miss....

Despite all the crap that happened cobbling together People Express, New York Air, remnants of Frontier, and pieces of Eastern, look at how well that managed to turn out... it's the Continental we know today.

Eos files & shuts down

Not at all unexpected, Eos filed for bankruptcy on April 26th, and flew their last flights today.

Like Maxjet, they were trying to fit into a niche where just about every US airline trying the model has failed... all-premium.

Unlike Maxjet, they had the right fleet -- 757-200's outfitted with 48 seats. But the economics just didn't work.

A few months back, a former colleague contacted me about doing some contract work for them. I passed. Had I done the work, I'd probably be an unsecured creditor as well.

In the past weeks, it was said they had new financing lined up. Based on today's shutdown, it appears that financing fell thru, and their private investors decided to call a loss a loss.

April 2008 will no doubt go down as one of the more notorious months in airline history -- this marks the fifth airline bankruptcy and fourth shutdown this month, plus the announced merger of NW & DL, which will no doubt wreak havoc on employees despite assurances to the opposite by both companies management teams.

And there are still three business days left to go...

The week ahead...

After a couple of rollercoaster weeks, it looks like this coming week will be no better.

News reports coming out of ATL and MSP have a potential announcement for the DL/NW merger. Getting anti-trust approval last week didn't hurt things.

As I've said a few times, DL/NW has some serious impact potential for both Airtran and Midwest. Right after the Frontier filing, Airtran stock fell over 30%, and management had to go to the extent of issuing a press release confirming that they had no similar exposure for their credit card agreements, and that yes, they had about $250M in unrestricted cash at the end of 1Q08.

That was quickly followed up by reports from Virgin America that they'd received an additional $100M from their investors, which will certainly buy them some time.

Midwest? They announced they're pulling down capacity at MCI...

As Meatloaf sang, two out of three ain't bad...

Unfortunately, if DL/NW goes forward, Airtran's got much bigger problems. Combine NW's ruthlessness with DL's gorilla status at ATL, and things could get ugly really quickly.

And, as I've said a few times, it's yet to be determined what DOJ would say about NWA's passive investor status at Midwest.

Worst case? Midwest gets cut loose and collapses on their own.

Almost worst case? Airtran gets to take another run at Midwest, but that's unlikely given their cash position... TPG paid $450M in cash not even a year ago, and I just don't see them giving it away.

The new elephant in the room is what will UA & CO do in response to DL/NW.


Then there's Mesa...

Remember the convertible offering? And Mesa's stock price of $1.23...

Last week the stock tanked, and closed Friday at $0.67/share. That almost 30M shares that Ornstein was counting on to raise cash for the conversion is now somewhere around 50M shares. Or more, depending on what happens this week...

Now, if you're a shareholder, would you willingly allow your stock to be devalued by the issuance of almost 100% the current equity?

Probably not. That was the scenario a week ago. Now, shareholders will be asked to dilute their shares even further.

Second impact of the stock price, as mentioned before, is delisting by Nasdaq. If they spend another couple weeks, they're going to get the formal letter, and then another 90 days later, they become a pink-sheet stock.

I think they're done, but I've been wrong before...


So... what's going to happen this week? No fracking idea. But it's certain to be interesting.

Frontier Files.... still operating

As anticipated, Frontier Airlines filed for bankruptcy late on Thursday, and said it planned to keep operating its schedule.

The reason cited?

Credit card holdbacks.

Credit cards make up the majority of ticket purchases, and banks decide how much of the funds for advance ticket sales (also called float) get sent to the airline based on their credit-worthiness. Stable airlines get the benefit of low holdbacks and higher float from those sales. They then use that cash for operations, or hoard it and get the interest....

What happened with Frontier is the banks decided they were a risky proposition, so they increased their holdbacks. That way, if Frontier did go under, the banks would still have the funds with which to be able to refund credit card holders. If holdbacks were left alone and they shut down like other carriers did, they'd be an unsecured creditor for the funds already advanced to the airline which they'd then have to refund to cardholders.

Holdbacks are what pushed ATA into their 2004 filing, and I was commenting to some friends the other night that it wouldn't surprise me if some of the more questionable carriers are seeing some increases in their holdbacks all of the sudden...

That seems to have happened. And I don't think Frontier will be the only one impacted. This could be a triggering event for Virgin America, Midwest Express, Airtran or even Jetblue. Since regional carriers don't typically issue tickets, it's less of an issue for Mesa, but definitely a concern for ExpressJet's private label operation.

Based on the track record so far of airlines who have filed for bankruptcy this year, it doesn't look good for Frontier right now. They could beat the odds and be the first to survive and actually restructure, or they could shut down and liquidate.

MESA Meets The Dollar Menu

I have a strange way of ranking stock prices...

Today, AMR was worth a lunch entree at Macaroni Grill -- $9.17, along with LCC, DAL, and LUV.

United? A nice dinner at Red Lobster -- $21.16. ALK and CAL were in the same menu.

Jetblue? A combo meal at Burger King -- $5.25

Frontier? A Diet Coke at Chili's -- $1.79

Mesa?

They hit the dollar menu. $0.96 a share.

They're the first airline stock to hit the dollar menu in a long time. If they stay there another 30 days, they get a warning from Nasdaq. If they stay there another 90 days, they get delisted from Nasdaq.

American Shuts Down

Well, not in the same sense that everyone else has been lately... Over the past two days, AA put most of its MD80 fleet on the ground for re-inspection. And yes, the same inspection that forced them to ground the MD80 fleet two weeks earlier...

I've tried not to write about AA's problems, but it's just too big to ignore. Over the past two weeks, AA's been caught under the FAA's scrutiny, and it's been ugly to say the least.

The cause of the FAA's scrutiny?

Tie wraps... AA completed an airworthiness directive on their MD80 fleet, which involved a wiring bundle. Apparently, the FAA thinks that the exact spacing of the ties securing the wiring bundle was not done to specifications... Some of them are 1", some are 1.3", some are 0.5"...

The FAA, who has been so concerned about your safety over the years, has determined that being off by more than a quarter of an inch is a threat to your safety....

Sorry, but as much as I want my planes to be safe, I'm having a hard time accepting the concept that the spacing of a piece of string or wire securing a wiring bundle is a threat to the safety of flight. It's not. It's over reacting, and there's nothing AA can do except kiss the FAA's butt.

Why AA?

Got me. It could have been any airline, except for Southwest.

Southwest? Aren't they the ones who screwed up last week? Yep. And they made the FAA look like fools in front of Congress and the world. So, if Southwest had been the target, it would have looked like retribution.

So AA gets to be the sacrificial lamb for the FAA's and industry's indiscretions...

Oasis Hong Kong.... shuts down.

OK, guys, this is getting old already...

We had enough airlines go out of business last week. Just as I was getting ready to turn in for the night, the following came across the wires....

Oasis Hong Kong Airlines, struggling amid mounting losses, said Wednesday it halted operations, grounded its aircraft, and asked the Hong Kong High Court for protection as it explores how to liquidate its assets, media reports say.

Under Chinese business law, I'm guessing there's either not an equivalent to Chapter 11, receivership or administration as there is in US and most European countries, or the situation was just so grim that Oasis's owners threw in the towel. They'd been looking for potential new investments for a while according to a Bloomberg article I read, so perhaps it's really just a matter of cutting losses while you still can.

Oasis was operating a fleet of four 747-400's between HKG and both YVR and LGW, and had been in business since late 2006.

Again, a small carrier with a somewhat over-ambitious business plan goes belly up...

Ornstein In A Corner?

Yesterday, I listed my "oops" list of airlines on the verge of failure.

Today, Mesa Airgroup issued a proxy notice for a special shareholder vote on May 13, specifically to get shareholder approval to issue a little stock to help make ends meet.

How much stock?

Oh, potentially 30 million shares... or more.

Back in 2003, Mesa issued a convertable bond offering to raise cash. The holders of those notes have the option to convert those into cash this June. If the full value of the bonds are converted, Mesa would need to come up with about $37.8M.

So what's the big deal?

Simple. They don't have the cash. And because they're listed on NASDAQ, they can't issue more than 20% of their existing shares without 50%+1 approval.

That's going to be a hard sell for shareholders to swallow. If they don't approve it, their shares are likely to become worthless in a bankruptcy filing. If they do approve it, their shares are likely to become worthless because the number of outstanding shares will double overnight.

Read the SEC Filing

My guess is that Mesa won't get shareholder approval, and they'll be forced to hand over up to $30M in cash. They were down to about $90M on 12/31, and assuming they've lost a few bucks, the payout could start a cascading effect with regard to loan covenants.

Yes, friends, Mesa moved up a notch or two on the failure probability list.

Who's Next?....

If you had asked me if three airlines could fail so quickly a week ago, I probably would have said no.

But, it's becoming obvious with oil over $100/barrel that not only are airlines in a world of hurt, but unlike previous collapses, there aren't a whole lot of investors willing to put money into a potential turnaround.

So... who's next?

Here's my short list:

• Skybus. Oh, wait, they already shut down last night...
  
  
• Virgin America. Yes, I know that everyone thinks Richard Branson has endless pockets, but he's a minority investor, and can't legally put anymore money into VX. He could lobby American investors to do so, but I think it would be a hard sell when you look at what's happened in the past week. Plus, Virgin's business plan seems to bank on the fact that they're going to be able to steal business travelers. Guess what? Lots of companies are putting the screws on business travel right now....
  
  
• Mesa. It would be poetic justice considering Ornstein's role in Hawaii's unraveling. Their cash position is questionable, they're stuck with way too many 50 seat RJ's, and they stand to lose a court case filed by Aloha which goes to trial in October. Delta just announced they're canceling a contract with Mesa for 50 seaters, and United has already had to backfill with Skywest to make up for Mesa's inability to perform 50 seater flying per their contract for flying as United Express. Mesa has said they plan to fight Delta, but I don't think they'll win. Even if they win, they lose. If they lose one of these two contracts, they're screwed....
  
  
• Frontier. Sad to say, they're in pretty much the same position Aloha was -- playing third chair in DEN, and caught between Southwest and United... The few attempts they've made to break free of their dependence on DEN have failed -- a focus city in LAX, and point to point flight to Mexico from DFW, BNA, and IND. Plus, they just did a whole fleet modernization in the past two years, and between fuel, UA, and WN, they're in a world of hurt trying to pay for all those new Airbii....
  
  
• Midwest. They're the elephant in the room when Northwest started talking about capacity cuts... Add to that renewed talk of a Delta-Northwest merger, and, well... they're the elephant in the room.
  
  
• Airtran. Their cash position is shrinking, and they don't have a lot of furniture to burn. Like Frontier, they're also a one-trick pony and have lots of new Boeings to pay for. They've tried to be a success other than ATL, but aside from some limited success at Orlando, Atlanta's where they'll live and die. And, if Delta-Northwest does happen, it will get uglier at DL. Add a dash of NWA's ruthlessness to DL's fortress hub, and it'll be ugly to say the least.
  

That's my list, in no certain order and with no degree of certainty or inside information...

I didn't list ExpressJet, but considered it. They seem to be striking a balance between private branded flying and contract flying. Getting more business at United and Delta certainly helps shore things up a bit.... so I don't see them being in too much trouble for the time being.

Also note that Midwest and Airtran have some probability hinging on something happening between Delta and Northwest. Something tells me it's more likely to happen this time around. You've got major partners Air France/KLM sitting in the catbird seat, and I suspect they're already a little pissed about not getting Alitalia on the terms they wanted to...

I've just noticed that Holly Hegeman has posted almost the same list on her Titanic watch in PlaneBusiness. It probably looks like I wrote this after reading PBB, but I didn't. She's included Sun Country and Spirit, and I've included Midwest.

What a week.... Three Airlines, You're Out...

It all started with Aloha... Three days later, ATA was closing up shop.

ATA's failure was a little unexpected. For years, their bread and butter has been charter, specifically military charter. There was little question that they were about to close up their scheduled passenger operations -- ATA announced closing their MDW hub just a few weeks earlier, and it was widely speculated that they would be pulling their west coast to Hawaii routes up until the point Aloha collapsed. When that happened, some thought it would probably survive. Oops.

While many people saw ATA as a "new entrant" like Airtran, the fact is that they were around from 1973, which predated Southwest. In 1986, they dipped their toe into scheduled service from IND, and they expanded that to include a hub at MDW during the mid 1990's. They survived a bankruptcy filing in 2004, which lead to a bidding war between Southwest and Airtran (Southwest won), and were eventually taken private by an investment group in 2006. ATA Holdings was later renamed Global Aero Logistics, and bought World Airways in April 2007.

Ironically, the acquisition of World is what lead to ATA's demise. There are two major military charter teams with international airlift contracts from Air Mobility Command, one headed by FedEx, and the other anchored by North American/World. Prior to the World acquisition, ATA was participating on the FedEx team. After GAL acquired World & North American, it was pretty obvious they were getting the benefit of having ATA on one team, and World and North American anchoring the other team. FedEx decided to kicked ATA off their team at some point in early 2008, invoking a fail-to-perform clause. Rather than fold ATA into the World team, GAL decided to fold up the operation. Sad that 35 years of history had to end this way, but it did.

Sadly, when ATA closed up shop, another 150 employees from Aloha were laid off. Aloha held the ground handling contract for ATA's Hawaii operations...

On Friday, Skybus announced that it would be their last day of operations. In case you never heard of them, they were yet another attempt at hubbing an airline in Columbus, Ohio. Sounds like a great idea on a map, since hubs in Dayton, Pittsburgh, Cincinatti and Cleveland have worked at one point or another. Big difference with those examples is that they weren't the main hubs for Piedmont, US Air, Delta, or Continental.

Interestingly, Skybus didn't close due to bankruptcy. Instead, their investors decided it wasn't worth putting any more money into it.

Aloha O'e...

Sadly, 62 years of history came to a close today, with the arrival of the last Aloha Airlines passenger flights. Yesterday, they announced they were closing down their passenger operation, and laying off 1900 of their 3500 employees.

It's no doubt a sad day for Aloha's 3500 employees and their families, and I wish them all well. Some will keep their jobs if the proposed sale of Aloha's cargo operation goes thru, and some will continue to work for the short term with the various airlines who currently contract with Aloha for ground handling.


As I posted ten days ago, between high fuel prices and a ruthless war of attrition being waged by rival Go! (a subsidiary of Mesa Airlines), Aloha simply ran out of cash and time. Long time competitor Hawaiian Airlines found a way of co-existing with Aloha for 60 years, but it only took Jonathan Ornstein less than two years to bleed them dry.

In what is likely to become a textbook example of predatory pricing, Ornstein's surplus RJ's were sent to Hawaii in 2006 after he and the Mesa management team abused privileged information that they'd received from Hawaiian Airlines. Hawaiian filed a lawsuit, and in October 2007, Mesa was found guilty of violating the confidentiality agreements and fined over $80M (which is still under appeal by Mesa). Aloha's own case against Ornstein is slated to go to trial next month. Hopefully, they will continue to pursue a judgement.

But as much as I'd like to see Mesa wind up bankrupt, the fact remains that any possible judgement against them will be too little too late for Aloha's employees.

Aloha Files

Most of you know that oil prices have been over $100 a barrel for the past 10 days or so, and finally dropped to the mid 90's today. What you probably haven't noticed unless you drive a diesel is how high diesel and its close cousin Jet-A have been trading at during the past six months. In some places, I've seen diesel at $3.99/gallon. Take away the federal and state taxes, and that puts Jet-A just below $3.00/gallon, which is unsustainable for the airlines.

Unfortunately, it's a little too late for Aloha Airlines, who filed for bankruptcy today, the second time in about three years they've had to do so. The likelihood of surviving one bankruptcy is fair, but the likelihood of surviving two in short order is another story. Continental and US Airways filed twice within a few years of a previous filing, but the latter was bought out by a competitor. TWA filed twice, and eventually liquidated after selling itself to American.

Unfortunately, I don't think Aloha will be the only US airline to file for bankruptcy in the immediate future. Several other carriers are in just as bad shape (if not worse) than Aloha was, including Virgin America, Skybus, Midwest, Frontier, and yes, even Mesa.

Maxjet already fell victim to oil prices a few months back, but they also had a questionable business plan. Unfortunately, so do a few of the other airlines I listed....


The list of potential suitors for Aloha isn't short by any means:

• Last May, United Airlines announced it had taken a minority stake in Aloha, but I never saw any disclosure on how much of a stake it was. Would it be in their best interest to up their stake?
  
  
• Gordon Bethune is Chairman of Aloha, and former AirCal president David Banmiller has been CEO of Aloha for many years. Could Gordon's ties to CO or Banmiller's ties to AA be a factor?
  
  
• Will the merger with Hawaiian (as was attempted in 2002) finally happen?
  
  
• Could Southwest step in? Aloha's all-737 operation is a unique opportunity, plus it would give Southwest the ability to close the door completely on their somewhat diminished codeshare with ATA. All that's left for ATA's scheduled operation is West Coast - Hawaii, and Aloha's 737 fleet is overwater equipped...
  
  
• Even more bizzare, could Mesa try to offer up a reorganization plan? Not that they have the money or credit to do so, but Aloha vs. Mesa goes to trial next month, and based on the $80M+ already awarded to Hawaiian, Ornstein's got to be worried about another multi-million dollar judgement...
  

Time will tell. I don't think we'll be saying Aloha to Aloha quite yet, but we're in the midst of one of the worst economic storm to ever hit the US, much less the airlines. There are going to be a few more casualties, and I don't know that mergers are going to be an option for all of the victims.

It's that time of year again... airline earnings season. The best place to keep track? Holly Hegeman's Plane Buzz.

Mesa already announced a $81.561M loss, which wasn't exactly a surprise. Then again, anytime Jonathan Ornstein loses, people rejoice. Including me. I'd tell you what I think, but he might sue me. That's how he works.

Of course, I'm most interested in what happens with AMR. They'd expected to post a full year profit and possibly pay out profit sharing, but I don't think that's going to happen. Fuel prices were simply too brutal. So were some of the December storms, and most airlines decided to sit aircraft down and cancel flights rather than try and operate a schedule (thanks to all of you who support passenger bill of rights legislation...).

So, start watching the wires around the time the market opens tomorrow morning. It's gonna be ugly.

AMR Executives Return To The Trough

As Mike Rowe would say... "Tracking airline stocks.... that's a dirty job....."

Once again, brace yourself for impact. AMR will be paying out bonuses to their executives...

        Open      Open      Open       Close          1 Year     2 Year     3 Year
Symbol  1/3/2005  1/3/2006  1/3/2007   12/31/2007     Change     Change     Change
AAI     10.82     16.26     11.89       7.16           60%        44%        66%
ALK     33.70     35.83     40.25      25.01           62%        70%        74%
AMR     11.65     22.25     30.65      14.03           46%        63%       120%
CAL     13.75     21.27     41.95      22.25           53%       105%       162%
DAL                                    14.89                   
FRNT    11.21      9.20      7.37       5.26           71%        57%        47%
HA       6.80      3.75      4.75       5.10          107%       136%        75%
JBLU    23.20     14.72     14.34       5.90           41%        40%        25%
LCC               37.20     53.89      14.71           27%        40%   
LUV     16.34     16.37     15.46      12.20           79%        75%        75%
MEH      2.94      5.65     11.46      14.80          129%       262%       503%
MESA     8.03     10.51      8.65       3.09           36%        29%        38%
NWA                         14.51                   
RJET    13.50     15.21     16.72      19.59          117%       129%       145%
SKYW    20.10     27.06     25.72       6.85           27%        25%        34%
UAUA                        44.80      35.66           80%        
XJT     12.97      8.15      8.01       2.48           31%        30%        19%

As most of you who know me know, I'm opposed to this plan, mainly because it doesn't go top-bottom, and second, because it's based on stock price alone, and not financial or operational performance. If you've watched the DOT statistics, AMR stinks. And I mean "Dirty Jobs" stinky...

MaxJet Shuts Down

On Christmas Eve, Maxjet chocked their wheels, and announced they were filing for bankruptcy and liquidating the airline.

I'm sure this was not the Christmas gift the airline's customers and employees were expecting, but I can't say it came as a shock aside from the day they chose to close down.

In fact, I'm surprised they made it this far. With all due respect to the planners & founders, what were they thinking? Premium-only service is something that many have tried, but few have succeeded at.

From memory, here's the list of carriers that have tried to market an all-premium class airline that I know of:

• McClain's. Based out of PHX, flying 727-100's, failed in mid 80's


• Midwest Express. Based out of MKE, flying DC9-30's. Still in business, but switched to a two class product after 9/11


• MGM Grand Air. Based out of LAX, flying DC8's and 727's, failed in early 90's


• Ultrair. Based out of IAH, flying 727-200's, failed in mid 90's


• Legend. Based out of DAL, flying DC9-30's, failed in late 90's


• Privatair. Based out of DUS, flying 737-BBJ


• MaxJet. Based out of JFK & IAD, flying 767-200's


• Eos. Based out of JFK, flying 757's


• Silverjet. Based out of LTN, flying 757's

Now... on that particular list, can you see anything that jumps out?... Anything?

Buhler?... Buhler?...Buhler?...

Yep, it's the equipment choice....

Personally, I think the 757 is too expensive of an aircraft to be flying in a luxury configuration (approx. 48-50 seats on Eos and Silverjet). But MaxJet took it to an even more absurd level with the 767. I don't know what the operating cost per hour difference is for the two types, but it's got to be pretty significant when you figure in the extra weight of the widebody airframe. Yet somehow, they believed they'd sell enough of the 100 or so seats on every flight to break even. Unfortunately, that didn't happen.

In my opinion, the all-premium concept has yet to work.

It's too soon to say regarding Eos & Silverjet, and while Midwest has been operating since 1984, they've also struggled. More on that in a moment. Privatair has the backing of Lufthansa, so even there, it's hard to say if they're a success, or if LH is having to subsidize losses on this in order to save face.

Midwest is clearly the odd man out -- their business plan worked. But you have to look at their history: Midwest Express was born out of the corporate aviation division of Kimberly-Clark, and was a wholly owned subsidiary of K-C for the first ten years of its existance. They didn't become publicly traded until 1995, and K-C divested of their ownership by late 1996. Just a few years later, Midwest was teetering on the edge of bankruptcy, and found itself abandoning the all-first-class service they'd become known for. This year, they survived a nasty proxy battle with Airtran, but only after selling themselves to TPG and NWA...

Why MaxJet thought they could make all-premium class work is still puzzling, especially post 9/11, and considering all of the failures that had come before them.

Perhaps they weren't counting on open skies coming to LHR in April 2008? Between that and the impact of rising fuel prices, it was just a matter of time before their luck and their money ran out.

Make no mistake: Eos and Silverjet will be facing that same challenge as well.

I'm sure there will be those who think Continental, American, British Airways, & Virgin Atlantic conspired to put them out of business, but the fact is that even without head to head competition, Maxjet had a very risky business plan, and it failed.

I do feel bad for the employees who now find themselves grounded, and hope they find new jobs quickly. My advice: stay out of the airlines. A wise man once said they can be hazardous to your wealth...

Did AA Really Kill Braniff?

It's a pretty popular airline legend that AA killed Braniff. Especially in North Texas, where there are still hard feelings over 25 years later.

If you truly believe that BN would have survived without having AA as a competitor, look at the facts.

In 1980, the year before AA started to grow DFW as a hub, BN's annual report stated that "the Company may be unable to continue as a going concern." In English, "The Company is almost insolvent."

Here are the profit, total debt, and aircraft order commitments for BN starting with 1971 for history, and then 1976 through 1981, the last year that whole year results are available.

Year	Profit/Loss	Debt	Aircraft Orders
1971	+ $8M	$188M	$63M
1976	+ $26M	$257M	$62M
1977	+ $36M	$287M	$186M
1978	+ $45M	$362M	$792M
1979	- $44M	$601M	$748M
1980	- $128M	$673M	$236M
1981	- $156M	$668M	$180M
1Q82	- $47M loss, bankrupcy filing 2Q82

Up to 1976, debt and aircraft orders stayed consistent. Profits from 1971 climbed from $8M to $26M, which was reasonable considering the economy and oil embargo.

1976 was their last stable year. In 1977, they started to head south. Outstanding aircraft orders almost QUADROUPLED from 1977 to 1978, and their debt almost DOUBLED from 1978 to 1979.

To recap, $375M in losses from 1979 to 1982, and debt growing by $306M in the same timeframe, mostly due to the huge value of aircraft orders placed in 1978.

AA hubbed DFW in July 1981.

AA certainly didn't help BN, however they were clearly "financially troubled" starting in 1977, and were unable to pull out of that situation.

Why did they implode?

Explosive expansion triggered by deregulation. It's as simple as that.

Harding Lawrence, Braniff's legendary and iconic CEO, decided to apply for every dormant route authority he could get. He (along with a lot of others) believed that deregulation was going to be a short-term experiment, and wanted to have a lock on the domestic market when it was re-regulated.

That never happened while Braniff was still around, but there are some who still believe that re-regulation is inevitable...