Thursday, May 28, 2009

Updated: 4:42 p.m. May 28, 2009
Delta, pilots agree on severance deal
Kelly Yamanouchi
The Atlanta Journal-Constitution
Thursday, May 28, 2009

The pilots union at Delta Air Lines has agreed to a program offering incentives for pilot retirements to help the company cut pilot staffing.

Delta management had proposed the retirement incentive program to the Air Line Pilots Association at Delta to address “what management perceives to be a pilot staffing overage,” according to the union.

The union’s leadership voted Wednesday to approve the retirement incentive program. It will be offered from June 1 until July 15 to active pilots with at least 10 years of service and whose years of service and age total at least 55.

Pilots with less than 20 years of service will get six months of severance pay, while pilots with 20 years of service or more will get nine months of severance pay. The program also includes certain coverage of COBRA or retiree health care, as well as retiree travel benefits.
Delta pilots were not eligible to participate in the company’s buyouts this year and last year, which Delta used to cut about 6,500 employees.

The airline said in a written statement that it “continues to take every step possible to avoid involuntary reductions of front-line employees as a result of current economic conditions.”
Delta has about 12,000 pilots, including pilots from Delta and merger partner Northwest. Delta closed its deal to acquire Northwest in October.

Friday, May 22, 2009

US Airways pilots' seniority fight goes to jury
Dawn Gilbertson - May. 13, 2009 12:00 AM
The Arizona Republic

The bitter seniority dispute pitting some US Airways pilots against their new union is now in the hands of a federal jury.Jurors began deliberating late Tuesday after a day of closing arguments in the two-week trial in U.S. District Court in Phoenix.

The trial featured detailed background on how the dispute developed after the America West-US Airways merger in 2005 and the intricacies of union merger policies and politics. The case even offered a little star power in the testimony of the pilot and co-pilot of the US Airways plane that landed in the Hudson River in January.

At issue for the jury to decide: whether the year-old US Airline Pilots Association (USAPA) has been fairly representing all 5,000-plus pilots of the new US Airways.A group of six former America West pilots, representing their 1,800 co-workers, filed the lawsuit last year, alleging that the new union is ignoring their interests by pushing for date-of-hire seniority instead of a seniority system issued by an arbitrator two years ago.

The union says it is being fair to all because it has proposed several job protections for America West pilots in its new seniority proposal, some that go beyond those on the arbitrated list. America West pilots have packed the courtroom every day during the trial, some accompanied by spouses.Seniority is critical to pilots because it determines their pay, promotions, work schedules.

A big theme in the America West pilots' case is that the arbitrator's decision was final and binding and that pilots from both America West and US Airways and their then union, the Air Line Pilots Association, knew that from the start.

They say the new union was formed to try to get around the decision because pilots of the former US Airways didn't like the outcome. They generally fare better on a date-of-hire system because US Airways has been around so much longer than America West.

"No one said, "I'm willing to sign up for these rules but only if it goes my way," pilots' attorney Marty Harper said in his closing arguments.Harper used a gambling analogy, noting that you never hear the losers in a poker game say they were all in only if they won."That's sort of what's happening here," he told jurors.Harper took a swipe at the testimony, for the defense, of Capt. Chesley Sullenberger from US Airways Flight 1549.

Sullenberger told a story on the stand about how his daughter asked in grade school about the meaning of integrity, and he replied that it's doing the right thing if it's not convenient.Harper suggested that that's what the pilots of the former US Airways aren't doing by ignoring the arbitrated list."You can go back on your word under (a) certain set of circumstances," he said.Lee Seham, the union attorney who delivered its closing arguments, said the former US Airways pilots thought the arbitrated seniority list was "terribly, terribly unfair."

They didn't like the fact that many America West pilots were ranked ahead of US Airways pilots with much more seniority and that US Airways pilots out of work at the time of the merger were put at the bottom of the list.

There was such a strong sentiment against the arbitrator's decision that US Airways pilots would never ratify a contract that included that seniority list, Seham told jurors. The old union tried to get the two sides together to work out their differences, he said, with the added encouragement of US Airways executives, but the America West side wouldn't budge, he said.

"It takes two to tango," he said, suggesting that it could be argued that it was the America West pilots that were acting in bad faith.Seham said USAPA was acting in good faith because it was formed to resolve the impasse over seniority and get a long-awaited joint contract for all pilots of the new US Airways.

The two sides are still operating separately, under different pay rates and can't fly each other's planes. He said the pilots did not need USAPA to get rid of the arbitrated list because the old union was effectively doing that with its policies. Harper said the union has tried to downplay the sole reason it was formed - to get around the arbitrator's seniority list - because attorneys they consulted early on said it could land them in legal trouble.

He noted that an e-mail union officials brought up to show that they were balancing the interests of both pilot groups with the protections for America West pilots was sent after the lawsuit was filed. There are nine members on the jury, and their verdict must be unanimous.

Thursday, May 21, 2009

Southwest Airlines sells 3 planes for $104 million, then leases them back
Thursday May 21, 2009, 3:25 pm EDT

DALLAS (AP) -- Southwest Airlines Co., trying to pad its cash balance amid a downturn in travel, said Thursday it sold three planes for $104 million and leased them back.
It was the second such transaction in just over a month at Dallas-based Southwest, bringing to six the number of planes it has sold.

Southwest said in a filing with the Securities and Exchange Commission that on Tuesday it closed a sale-leaseback deal with a third party aircraft lessor involving three Boeing 737-700 jets. It immediately leased the planes back for 16 years.

Southwest said it will make monthly payments of about $4.4 million for the first six months of the leases. It didn't identify the lessor in the transaction.

The low-fare airline had a string of profitable quarters from 1991 until last year, the longest streak in the U.S. airline industry. But it has lost money the last three quarters, with falling traffic hurting its results so far in 2009.

Airlines have had a difficult time borrowing money to finance aircraft purchases and other purposes. The chief executive of American Airlines parent AMR Corp. said, however, that the credit squeeze seems to be easing.

Southwest shares fell 18 cents, or 2.6 percent, to $6.75 in afternoon trading.

Monday, May 11, 2009

May 11, 2009, 9:32 AM ET
Captain’s Training Faulted In Buffalo Crash That Killed 50

By WSJ Staff
The captain of a commuter plane that crashed Feb. 12 near Buffalo, N.Y., had flunked numerous flight tests during his career and was never adequately taught how to respond to the emergency that led to the airplane’s fatal descent, according to people close to the investigation, The Wall Street Journal reports.

Reporter Andy Pasztor writes:
All 49 people aboard were killed, as well as one person in a house below, when the plane crashed just a few miles short of the Buffalo airport en route from Newark, N.J. The Bombardier Q400 turboprop in the crash, which will be the subject of a National Transportation Safety Board hearing Tuesday, was operated by commuter carrier Colgan Air Inc., a division of Pinnacle Airlines Corp.

Capt. Marvin Renslow had never been properly trained by the company to respond to a warning system designed to prevent the plane from going into a stall, according to people familiar with the investigation. As the speed slowed to a dangerous level, setting off the stall-prevention system, he did the opposite of the proper procedure, which led to the crash, these people said.
Additionally, his 24-year-old co-pilot, Rebecca Shaw, had complained before takeoff about being congested and said she probably should have called in sick, according to people who have listened to the cockpit voice recording.

The circumstances surrounding Continental Connection Flight 3407 have prompted investigators and regulators to examine Colgan’s hiring and training practices. At the NTSB hearing, witnesses are expected to provide new allegations about training shortcomings, as well as the prevalence of chronic pilot fatigue and lapses in cockpit discipline. The NTSB also is expected to be critical of the Federal Aviation Administration’s oversight of the airline. The FAA, which has said it is investigating the airline over pilot scheduling, declined to comment on issues likely to be raised the hearing.

Pinnacle has said its pilot training programs “meet or exceed regulatory requirements for all major airlines” and crews “are prepared to handle emergency situations they might face.” On Sunday, spokesman Joe Williams confirmed in an email that Capt. Renslow had five “unsatisfactory” training check rides in his career — including two at Colgan — but passed a subsequent series of training tests and was “fully qualified in the Q400″ aircraft.

In recent weeks, Colgan’s top two training officials resigned; Mr. Williams has said their decisions were voluntary and not connected to the accident. Darrell Mitchell, Colgan’s departing director of training, is slated to testify at Tuesday’s hearing.

At the start of Tuesday’s hearing, the NTSB will open its public docket on the Colgan accident. Readers will be able to download the file, which includes reports, interview transcripts, cockpit voice recorder transcripts, flight data recorder information and other documents, once the hearing gets underway.

An agenda for the three-day hearing is available here.

Sunday, May 10, 2009

Airlines bank on fees in down times
By Kelly Yamanouchi
The Atlanta Journal-Constitution
Sunday, May 10, 2009

The onslaught of more airline fees on everything from checked bags to seat assignments is helping airlines bring in more cash, but for travelers it can mean muddled comparison shopping when seeking the lowest cost for a flight.

Add-on fees have become an effective way for airlines to boost revenue at a time when recession-weakened travel demand compels them to drop fares.

Atlanta-based Delta Air Lines in July starts charging passengers on international flights a $50 fee each way for checking a second bag. Other airlines are studying the move but have not yet matched. That means travelers who check two bags may find a lower fare on Delta compared with other carriers, but their cost for traveling could end up higher.

Various airlines have baggage charges that can add up fast. Pack a third bag on an international flight and Delta will tack on another $200 fee each way, for example. Overweight bags on a Delta international flight would each cost at least $300 extra round trip and oversized bags would each cost $350 extra round trip.

Even on domestic flights, “your $78 airplane ticket can be $600 or $700 in a New York minute just because you didn’t pay attention” to fees for extra, overweight and oversized bags, said Tom Parsons, founder of

The fees enable airlines to win bookings from customers using travel Web sites to compare prices and choose the lowest fare, then collect more revenue when travelers arrive at the airport with extra bags or seek other services.

Bill Swelbar, a researcher at the International Center for Air Transportation at the Massachusetts Institute of Technology, said airlines have had to look for other revenue sources because fares alone don’t cover the cost of travel.

“The airline seat is a commodity product,” Swelbar said. Airlines believe they must offer the lowest fares “because so many decisions on travel are based on price and price alone.”
AirTran Airways chief financial officer Arne Haak has said travelers will spend hours searching for fares online to save $8, then “come to the airport and spend $20 to buy a soda, a bag of chips, a candy bar and a magazine that they could have bought for half the price.”

Parsons said “John Q. Traveler” seems much more concerned about finding the lowest base fare. “All the other incidentals they don’t seem to be upset with,” he said.

While most airlines already charge for checked bags on domestic flights, baggage rules have been more liberal for international travel, where longer trips may require more bags and fares often are already much higher.

“Now they’re telling you you’ve also got to pay for bags,” Parsons said. “I remember when they used to give you bags. Where’s my old PanAm bag?”

Delta, which reported a $794 million loss for the first quarter, said it took in more than $160 million from baggage fees in the quarter. It expects the new international second checked bag fee to generate about $100 million annually.

Chicago-based United Airlines said it takes in about $14 in ancillary revenues and fees per passenger.

One carrier —- Southwest Airlines, which does not fly to Atlanta —- has held back on charging many of the extra fees, and it promotes the difference.

But other discount airlines, including Spirit and Allegiant, have gone further than the big carriers, including a fee for bookings made online and charges for non-alcoholic beverages.

And US Airways is adding a fee on top of a fee. On July 9, the carrier plans to begin charging $5 for paying checked bag fees at the airport instead of online. US Airways also charges for international checked bags to and from Canada, Latin America and the Caribbean, but not to and from Europe and Asia.

A consumer’s only defense at this point is careful research and adjusting plans to avoid fees.
Technology is in the works to make it easier for travelers to compare prices. The technology is being developed for reservations systems that airlines and travel agencies use to sell airline tickets.

Some travel Web sites also offer fee comparisons. TripAdvisor in February launched a flight search engine with a fees estimator that asks travelers how many bags they will check, whether they have elite frequent flier status —- which can affect which fees apply —- and if they will want food, drinks or entertainment in flight.

Other travel sites, including Orbitz, Expedia and Travelocity, offer charts that compare different airlines’ fees. Another site,, compares airline fees.

According to a TripAdvisor survey, 36 percent of respondents said they have been surprised by the cost of checked baggage fees at the airport.

“I thought there would be more backlash from the traveling public over the payment of fees than there has been,” Swelbar said.

Saturday, May 09, 2009

American Airlines global alliance soon to be OK'd?
12:00 AM CDT on Saturday, May 9, 2009
By DAVE MICHAELS / The Dallas Morning News

WASHINGTON – The U.S. Department of Transportation looks poised to approve antitrust immunity for American Airlines' alliance with British Airways, Iberia and other carriers.

"These alliances are life savers for airlines," Transportation Secretary Ray LaHood said Friday. "That is the premise from which we start. We believe it. The airlines believe it. And so we are going to continue to pursue those kinds of opportunities where we have them."
Two other global alliances have antitrust immunity, allowing them to cooperate on schedules, fares and cargo prices.

House Democrats are much more skeptical than LaHood of airline alliances, saying they are anti-competitive and drive up prices for international routes. Minnesota Rep. Jim Oberstar, chairman of the House Transportation and Infrastructure Committee, has said immunized alliances amount to a "de facto merger" of airlines.

American says alliances have resulted in more trans-Atlantic service and better frequent-flier benefits for travelers.

Legislation to fund the Federal Aviation Administration passed Oberstar's committee in March and included a provision that would retire existing antitrust exemptions after three years. It also would direct government auditors to study whether such alliances have hurt competition and whether applications should be subject to a merger analysis by the Department of Justice.
However, LaHood on Friday supported the idea that alliances are needed to achieve efficiencies in today's market. Last month, his department proposed to grant antitrust immunity to Continental Airlines for its participation in the Star Alliance, which includes United Airlines, Air Canada and Lufthansa Airlines.

"When I called the chairmen of United and Continental and told them our department was going to move ahead with their alliance, you know what they said?" La Hood said. " 'This is a life saver for us.' "

Parties interested in the Oneworld application have until May 18 to submit comments about it. American and British Airways have until May 28 to respond. The department would make a preliminary ruling after that and has until Oct. 31 to issue a final ruling.

The European Union recently began investigating the Oneworld and Star alliances for possible violations of antitrust rules.

Wednesday, May 06, 2009

May 6, 2009, 10:47 AM ET
Artist Allegedly Swigged Hand Soap, Tried to Bite United Flight Attendant
By Matt Phillips
Wow. It’s been a while since a tale of poor passenger behavior grabbed our attention as much as this one.

The Chicago Tribune’s Julie Johnsson reports:
United Airlines diverted a recent flight bound for London after an incoherent and disruptive passenger, apparently woozy from a combination of pills, alcohol and lavatory hand soap, allegedly tried to bite a flight attendant in the leg.

Galina Rusanova, a British citizen, was charged with interference with a flight crew and assault for allegedly disrupting United Flight 934 from Los Angeles to London Heathrow Airport on April 29, forcing the plane to land in Maine.

She could face up to 20 years in prison and a $250,000 fine.

In a Monday hearing in U.S. District Court in Bangor, Maine, Rusanova agreed to be detained pending trial.

Rusanova is described by the British press as a Russian-born artist, actress and author who rubs elbows with the rich and famous. She was returning home to the United Kingdom after traveling to California to visit a man she had met over the Internet, according to court documents.

“What wasn’t disclosed through the affidavit is that Ms. Rusanova is a very intelligent, charming woman,” said her attorney, Matthew Erickson. “This comes as a shock to her.”
Erickson added: “Her mistake was to mix prescription drugs with alcohol. After that, all bets were off.”

Of course the detail of this episode that really stands out is the hand soap. According to court documents filed May 1, a flight attendant approached Rusanova after passengers said the artist was being disruptive, “at which time she observed her drink a bottle of liquid soap that she had apparently removed from the bathroom.”

An affidavit also cites a written statement from a flight crew member “in which she reports that at one point while Rusanova was in the galley, she fell to the ground and began ’snapping like a dog’ and trying to bite flight crew member Donoho’s leg.”

Johnsson reports that while Rusanova could face a long stint in jail, guidelines for sentencing in cases like hers suggest jail terms ranging from time served to about six months, according to the artist’s lawyer.

Tuesday, May 05, 2009

Airlines: Where Capital Goes to Die
The big U.S. carriers have a broken business model and little relief in sight. Some long held assumptions about the industry could soon be upended
Justin Bachman

As U.S. banks grapple with federal "stress tests" on their balance sheets, a similar process is playing out in the airline industry. Mix a deep recession with tight credit and fear of an influenza pandemic, and there's plenty of stress on airline balance sheets this spring. That has carriers conserving every last penny and hoping the summer travel months provide a sufficient cushion to last through to an economic recovery.

But what if the summer is not bountiful, or the global recession turns nastier? What if another health or terror scare further depresses flying? For most of their history airlines have been growth enterprises, with heavy capital needs but plenty of people willing to invest. That was then, however; today a share of most airline stocks costs less than a six-pack of microbrew.

Those shares serve as little more than a proxy for the price of crude oil—a trading stock that can turn a quick profit. Legacy airline debt yields a 20% or better return, but only because the risk is so high. The current times are sapping cash; maintaining liquidity has become a central job for airlines. "We have in this business been able to fund long-term losses with outside capital … and that is going to be harder to do in the future," US Airways (
LCC) CEO Doug Parker said on May 4, citing "fundamental" changes for airlines' financial partners such as banks, aircraft makers, lessors, and other suppliers.

All Eyes on the Baby Boomers
So where will operating capital come from? It's a crucial question for airlines. If demand doesn't return to the same degree as in past recoveries—indeed, if in coming years aging baby boomers wracked by stock losses and shaky home prices fundamentally change their spending habits and don't travel as much as predicted—revenues could be severely crimped. That might combine with two rising expenses: higher payments to underfunded pension plans that cover older airline workers, and more capital to update aging jet fleets.

Yet as the recent experience of troubled American banks and car companies has shown, once far-fetched scenarios can quickly morph into solutions for vital yet ailing industries. U.S. taxpayers have been summoned repeatedly for aid, as have investors abroad. Uncle Sam has also offered enticing terms to spur certain investments—similar incentives could be devised for the airline industry. And for practical purposes, the Obama Administration has been managing General Motors (
GM), Chrysler, and American International Group (AIG). Why not an airline or two?

If airlines are eventually forced into bankruptcy, pensions may be jettisoned, as US Airways, Delta (
DAL), and United (UAUA) have all done in Chapter 11. But federal officials could require more funds from companies that wish to do so. As for aircraft, the U.S. lags Europe and Asia in terms of commercial fleet age because cash-strapped U.S. airlines have bought very few of the latest models (zero of the jumbo Airbus A380s, for example). Airbus and Boeing (BA) are themselves scrambling to keep business and tend to offer large customers attractive financing and other breaks, but that would hardly cover the needs of an industrywide order for 1,000 or more new planes.

Consolidation Among the Big Five?
"Looking ahead, with credit tight, where will capital—affordable capital—be found unless it is from another participant in the same industry?"
Bill Swelbar, a research engineer with MIT's International Center for Air Transportation and a Hawaiian Airlines (HA) director, wrote recently on his blog. "If companies are struggling to realize any return on invested capital today, then what happens as interest rates continue to increase in lockstep with capital scarcity?"

As Swelbar suggests, the logical answer would be consolidation among the five big carriers. A new round of bankruptcies might even see one or more of a large airline's best bits sold off to a rival, or outright liquidations—steps that were largely avoided during the reorganizations that followed the 2001 terrorist attacks. Even after the capacity cutbacks spurred by crude oil's spike in the summer of 2008, many observers say far more—25% to 35% of the current capacity—must be removed before any meaningful profit-margin improvements will be realized.

"There are too many airlines," says Vicki Bryan, a senior bond analyst with
Gimme Credit in New York. "Even last year when they were all just getting killed, slaughtered, massacred on fuel … the net reduction in capacity was just not significant."

Ownership Issues Coming to a Head
But airline consolidation remains a minefield that encroaches on union and political interests. Ditto for another potential source of capital, healthier European and Asian carriers. U.S. law restricts foreign airline ownership in U.S. carriers to a minority stake, but the International Air Transport Assn. and big European airlines have made that issue a central part of the debate over further liberalization in U.S.-European air links, with the matter
coming to a head in 2010 when a second phase of the "Open Skies" treaty is set to be negotiated.

"From California to the eastern banks of Europe, this should be one market, and we should treat it as one market," Lufthansa (
LHAG.DE) CEO Wolfgang Mayrhuber said Apr. 29 in a speech to the U.S. Chamber of Commerce in Washington. Lufthansa has been on the forefront of consolidation in Europe, taking controlling ownership since 2005 in various carriers: SWISS, Austrian, Belgian, and bmi, and a 19% stake in JetBlue (JBLU).

The long argument against foreign control of U.S. carriers, dating from the 1940s, has been based on national security and the government's ability to gain access to the civilian fleet in emergencies. Others worry that European or Asian operators would slash jobs and decline to serve small, less profitable U.S. cities. But nationalistic arguments may hold diminishing sway at a time when an Italian industrial group, Fiat (
FIA.MI), is negotiating to acquire one of Detroit's iconic Big Three automakers, and the largest U.S. bank—Citigroup (C)—has sold a nearly 9% stake to investors in Abu Dhabi and Saudi Arabia.

Going Private Not Likely
One other option that might apply in other industries—going private—is unlikely to come to airlines.
Jesup & Lamont analyst Helane Becker raised the question with United's management during a recent earnings call: With their public equity virtually worthless, why don't airlines seek funds from public debt? But to go private, airline executives would have to borrow heavily to buy their shares—and even if they did so, they'd be spending those funds on a severely distressed asset.

That's not a scenario lenders would care to see. As for an outside takeover, private equity firms have lost the financial firepower they deployed in 2006 and 2007 as the worldwide credit markets seized. And even if they had escaped the market collapse unscathed, an airline would be among the least favorable places to invest. Moreover, the legacy carriers already have substantial leverage on the books, leaving a takeover artist no space to add debt. "It becomes an opportunity cost, too," says Ben Baldanza, chief executive of privately held
Spirit Airlines. "If you got a billion dollars are you going to go buy an airline?"

For cash-strapped airlines, the looming crisis could produce relief in many forms: a new European owner, a government-overseen industry consolidation that forces travelers to pay more, or the sort of terms that may make a large investment fund scramble for its checkbook. As recent history demonstrates, old problems in this environment have a way of attracting new solutions.

Bachman is deputy news director for