Archive for April, 2008
April 17, 2008
American Airlines doesn’t need to take part in a big merger to stay competitive in an industry set to be transformed by consolidation, the chief executive of its parent company said on Wednesday.
Speaking after AMR reported a hefty quarterly loss due to skyrocketing fuel costs, Gerard Arpey said the No. 1 US airline has not decided what its role in a consolidated industry might be, two days after Delta Air Lines announced its plan to buy rival Northwest Airlines.
“We’re fortunate to have a very strong network regardless of any consolidation that may or may not take place in the industry,” Arpey said.
“We may or may not participate in consolidation,” Arpey added. He said, however, that the airline would be alert to opportunities to buy assets that could be sold during the merger of rivals.
AMR on Wednesday reported a first-quarter loss as the company grappled with the soaring fuel prices that have walloped the industry overall.
Those rising costs combined with a weak economy helped prompt the proposed Delta/Northwest deal on Monday and could spur a wave of further consolidation amid fears of falling travel demand.
AMR said it would cut capacity and accelerate its fleet renewal plan in hopes of boosting revenue and cost savings. Its shares 10 percent after an 8 percent sell-off on Tuesday, but pared those gains later in the day.
“The first quarter proved yet again that fuel prices remain one the of the biggest threats to our industry and our company, and we also can’t ignore the ongoing concerns about the US economy and the potential impact on travel demand,” said Arpey in a statement.
AMR is still smarting from last week’s public relations debacle when it canceled 3,000 flights for maintenance checks. Arpey apologized again to passengers who were affected.
The impact of the crisis will not be clear until the release of second-quarter results, although Chief Financial Officer Tom Horton reiterated that the cancellations probably would cost the airline “tens of millions” of dollars.
Also on Wednesday, AMR said it would sell American Beacon Advisors, its asset-management subsidiary, to Lighthouse for about USD$480 million.
The carrier’s first-quarter loss amounted to USD$328 million, compared with a profit of USD$81 million a year earlier.
Revenue rose to USD$5.7 billion from USD$5.4 billion a year earlier. AMR ended the quarter with USD$4.9 billion in cash and short-term investments.
AMR shares closed Wednesday 4.1 percent higher at USD$8.92 on the New York Stock Exchange.
Jet fuel was by far the carrier’s biggest expense in the quarter. AMR paid USD$2.1 billion for fuel — USD$2.74 per gallon, which is a 48 percent increase over the same quarter a year earlier. The company predicted a fuel price of USD$3.01 per gallon for the second quarter.
The airline industry has been hit this year by high fuel prices, which are directly related to the price of oil. Nymex crude oil notched a record high above USD$115 a barrel on Wednesday.
American and other major carriers have attempted to offset this burden by raising ticket prices, although fare increases have not kept pace with rising fuel prices.
The carrier said it planned to reduce its 2008 mainline capacity by 1.4 percent for the year. It would cut domestic capacity by 3.6 percent and increase capacity on lucrative international routes by 2.5 percent.
Additionally, AMR said it will speed the replacement of its aging, thirsty MD-80 aircraft with more fuel-efficient Boeing 737-800s. The company expects to take delivery of 34 737s in 2009 and 36 737s in 2010.
(Reuters)
April 15, 2008
British Airways is parting company with two senior managers following the airline’s chaotic move to a new terminal at London’s Heathrow Airport.
Europe’s third-biggest airline has cancelled hundreds of flights and misplaced tens of thousands of pieces of luggage following the opening of the new GBP4.3 billion pound (USD$8.5 billion) Terminal 5 at Heathrow last month.
The airline said on Tuesday that Gareth Kirkwood, director of operations, and David Noyes, director of customer services, would both be leaving the company.
A spokesman declined to say whether they had chosen to go or been asked to leave.
A source close to the matter said they would not receive any special payments beyond their contracted entitlements.
“The departures follow the airline’s move to Terminal 5,” British Airways (BA) said in a brief statement.
“The airline is looking to appoint a chief operations officer to combine both roles.”
BA said earlier this month that the disruption at Terminal 5 had so far cost it about GBP16 million (USD$31.6 million).
(Reuters)
April 15, 2008
The chief executive of Delta Air Lines said he did not foresee any regulatory block to the company’s deal to buy rival Northwest Airlines announced late on Monday.
“The regulatory issue is going to be confined to the United States,” said Delta CEO Richard Anderson in an interview on CNBC on Tuesday, referring to last week’s Department of Transportation decision to grant Northwest antitrust immunity in coordinating schedules with its SkyTeam alliance partners, including Delta.
“In the United States we have not quite 20 percent market share,” he said. “You still have many other carriers, including many discount carriers, that have free access to every market in the United States.”
In a separate interview, Anderson said he was hoping to win over Northwest’s pilots, despite the lack of any agreement between Delta and Northwest pilots, which the airline had originally aimed to achieve before a deal was announced.
“We’re going to work hard, and we tried very hard to have an agreement with both the Northwest and Delta pilots,” said Anderson in an earlier interview on NBC’s “Today” show, addressing an issue that some analysts say could pose a serious block to a successful merger.
“We want to have, prior to closing, an agreement with both the Northwest and Delta pilots,” he added. “We’re halfway there, it’s part of the process and we think we’ll be successful in getting the Northwest pilots under the Delta collective bargaining agreement with a resolution on the seniority between the two groups prior to closing.”
(Reuters)
April 14, 2008
Delta Air Lines and Northwest Airlines aim to finalize a merger agreement within days to create the world’s largest airline, a source familiar with the situation said on Sunday.
The airlines aim to push ahead with an agreement even if they have not yet received the support of Delta’s 6,000 pilots, the source said.
The airlines, which have seen deal talks collapse before, still must finalize significant details on the timing and terms of the agreement, the source said.
The Financial Times said a deal could be announced as early as Monday, while The Wall Street Journal said the agreement could be unveiled on Tuesday.
Delta and Northwest declined to comment.
The talks between the companies previously fizzled out in March when the pilots’ unions on both sides failed to agree on how seniority would apply for their roughly 12,000 members in a combined carrier.
Seniority is important for pilots because it helps determine pay, work schedules and the size of aircraft they fly.
Earlier this year, pilots at Northwest had said they would support a merger with another carrier if the workers received a stake in the combined airline.
Delta’s pilot union helped derail a hostile takeover bid by US Airways last year by rallying opposition from the company’s bankruptcy creditors committee and employees.
(Reuters)
April 14, 2008
US airlines can expect tougher safety scrutiny, but the worst disruptions from a government crackdown appear to be over, for now, following two weeks of aircraft groundings and mass flight cancellations.
With American Airlines running a normal schedule on Sunday after canceling more than 3,000 flights last week to re-inspect and re-secure wiring on 300 MD-80s, and rivals having sidelined planes for similar or other problems since mid-March, the immediate shakeout driven by the Federal Aviation Administration (FAA) appears to have run its course.
The FAA is still investigating a handful of airlines for possible lapses in maintenance as part of an unprecedented industrywide review of compliance with its safety orders. But preliminary results of the audit, a response to congressional and other assertions this spring of some industry indifference to compliance and ineffective agency oversight, show 99 percent adherence, the agency said.
“Based on the high compliance we saw, we’re optimistic we’re not going to see problems like this again,” FAA spokeswoman Laura Brown said.
FAA officials expressed public concern about compliance with a 2006 MD-80 wiring order. The agency worried improperly safeguarded wheel-well wires could be damaged over time and trigger an electrical short, possibly igniting a fire. American twice failed to satisfy FAA requirements on this issue.
Delta Air Lines and Alaska Air grounded planes and canceled flights to address MD-80 wiring, but they, too, have addressed FAA concerns, both said.
American and Delta, with 130 MD-series planes, comprise the bulk of MD-80 flying by US carriers. Alaska is phasing out the planes and has just a handful in service.
Groundings, political pressure, and a proposed record FAA fine of USD$10.2 million against Southwest Airlines in March for missing structural inspections have jolted an industry already losing altitude due to financial pressures.
“The FAA is stepping up surveillance and doing their job,” American’s Chief Executive Gerard Arpey said last week.
But Robert Mann, an airline consultant, sees an industry engaged in a very messy transition from a relatively lax environment for verifying compliance with FAA safety directives to a more rigorous approach.
The FAA reassigned a senior safety official and two others while two Southwest maintenance employees have been moved to other jobs over the fiasco at that carrier, which centered on lapsed inspections for fuselage cracks.
“There are thousands of directives out there that require absolute compliance,” Mann said.
One veteran lobbyist who has worked for airlines on safety issues said it is dawning on airlines the cozier way of doing business with the FAA is over. Potential fines as well as lost revenue from canceled flights — as demonstrated by Southwest and American — stretches into the tens of millions of dollars.
“That’s a hell of a lot of money,” he said.
Mann believes closer oversight and a greater willingness to act by the FAA could lead to more flight disruptions.
“When the FAA casts a wider net and looks at other (safety directives) and other planes, I think whether it’s next week or next month we could see another episode with another aircraft type with other operators,” Mann said.
John Goglia, a former mechanic and past member of the National Transportation Safety Board, is a recognized expert on maintenance. He believes Washington politics too heavily influenced FAA’s crackdown on American and criticized the groundings, but he said other issues need fast attention.
“I hope these events drive the FAA and the industry and manufacturers to review their maintenance manuals and how they are written,” Goglia said.
How American maintenance personnel interpreted the FAA order on MD-80 wiring is a key question in that case. Goglia said mechanics are often stuck with overly complex instructions to a problem that requires immediate and correct action. Trouble-shooting is too common, he said.
As part of its initiative to increase accountability, the FAA has said it plans to improve clarity of its directives as well as enhance the embattled system used by airlines to voluntarily report compliance with safety orders.
The FAA issues about 250 directives annually on more than 83 aircraft and engine models. Many require repeat structural checks of aging aircraft, The Boeing 737s involved in the Southwest case and much of the MD-80 fleet are both older.
(Reuters)
April 9, 2008
The next round of US/EU “open skies” talks set to start in May could lay the groundwork for trans-Atlantic airline mergers — but proponents of greater European involvement in US carriers must overcome hurdles in Washington.
Political opposition to foreign control of US carriers remains strong, but industry executives are wondering how long financially struggling airlines can resist international market forces and consolidation.
US negotiators have long expected Europe to present its case for foreign ownership, which federal law caps at 25 percent of voting stock.
“We approach this with an open mind. This is a very difficult issue. It has to be studied before we commit to any change. Some issues you have to grapple with and grapple with seriously,” said John Byerly, a senior State Department official and the chief US negotiator in the upcoming talks.
The first phase of “open skies” took effect on March 30 and replaced restrictive treaties dating to World War Two. It allows EU and US airlines to serve any route between the EU and the United States for the first time.
But EU states have threatened to scrap the deal if Washington does not agree by 2010 to a second phase allowing foreign airlines to buy more voting rights in US carriers and permitting them to run domestic services.
Washington also has provisions to suspend the pact.
“Like any other industry, the airlines need the ability to be able to have international mergers and consolidation,” said Steve Lott, a Washington-based spokesman for the International Air Transport Association (IATA), a trade group for international airlines.
“So the stage-two talks absolutely must address the liberalization of ownership rules so that airlines can consolidate where it makes business sense.”
Bush administration attempts to ease ownership caps were rebuffed by Congress. While some US airline executives have voiced support for an easing of ownership restrictions, pilots and other unionized workers fear foreign control could cut wages or cost jobs.
Byerly said in an interview that union concerns are serious and have to be understood, analyzed and addressed.
“I don’t see any way around that. They are real,” he said.
Negotiations on foreign ownership are also expected to address national security matters. Questions about how any change in the law would affect business and consumers are also an important component.
The US side also wants to ensure opportunities in Europe for domestic investors, if it were to push for changes in foreign ownership at home.
“It’s one thing to have rights on paper but we’d want to know that US investors would be able to have expanded opportunities with respect to European carriers,” Byerly said.
Patrick Murphy, principal of aviation consulting firm Gerchick Murphy Associates in Washington, believes changes in ownership limits will occur in the long run.
“The airline industry enables global commerce so I have to believe at some point these companies can become global like the companies they serve,” said Murphy. “But whether it will happen in the next two years… I can’t be hugely optimistic about that.”
The initial round of talks is expected to last 18 months at least, and Byerly said it was premature to make a judgment on possible outcomes.
Dorothy Robyn, a principal at Brattle Group economic consultants in Washington, who was from 1993 to 2001 a senior economic adviser to President Bill Clinton, outlined a process through which a trans-Atlantic merger could occur.
“There are two ways it might happen,” said Robyn. “One is that it will be driven by some proposed transaction that is very desirable to labor.
“Alternatively, it will be done purely as a policy matter after extended debate and consideration on how to address some of the pilots’ concerns.”
Over the years, there has been limited foreign investment in US carriers.
Most recently, privately held Virgin America started a low-cost service in August 2007 after a protracted fight to win regulatory approval to operate. It cleared the Transportation Department only after being forced to restructure ownership and distance itself from Richard Branson’s Virgin Group.
Several US-based carriers and unions had opposed Virgin America’s entrance, claiming that the British entrepreneur would control the company. Virgin Group holds a minority stake in Virgin America.
Lufthansa holds a 19 percent stake in JetBlue Airways.
(Reuters)
April 10, 2008
American Airlines canceled 1,094 flights, or nearly half its schedule, on Wednesday to re-inspect aircraft, a disruption that affected about 100,000 passengers and triggered chaos at the busiest US airports.
The airline said it expects more than 900 cancellations on Thursday.
The disruption at American follows 460 cancellations on Tuesday and hundreds of cancellations two weeks ago. The March disruption was for the same reason as this week’s problem — to ensure compliance with a Federal Aviation Administration safety directive on wiring inspections for MD-80 aircraft.
“We have obviously failed to comply with the airworthiness directive to the precise standards that the FAA requires,” AMR Chief Executive Gerard Arpey said at a news conference in Los Angeles. “I take full personal responsibility.”
Delta Air Lines canceled about two dozen flights on Wednesday and Alaska Airlines, 14, to address the same situation on their MD-80s. Delta canceled hundreds of flights at the same time as American in late March.
Dan Garton, American’s marketing chief, told reporters the carrier hoped to have full operations by Saturday. “We’re working hard to get the airline back to normal,” Garton said.
Airline officials could not estimate the hit financially but Arpey said the episode would be “costly.” A spokesman estimated about 100,000 passengers were affected by the 1,094 cancellations.
Shares of AMR fell more than 11 percent in regular trade, outpacing losses by stocks of other US airlines. However, AMR gained about a third of that back after-hours to USD$9.51.
American said in a statement on Tuesday the FAA raised new concerns about recent wiring inspections and related work on the narrow-body MD-80 aircraft. The airline’s 300 aging MD-80s make up nearly half of American’s fleet.
The inspections stem from an industrywide FAA review of airline compliance with agency safety directives. In addition to American and Delta, several others have grounded aircraft as a result of the audit, which was triggered by inspection and maintenance lapses at Southwest Airlines.
Inspections at American relate to a 2006 FAA order to ensure that wiring in the right MD-80 wheel well is properly installed and secured to guard against electrical shorts and possible fire.
American first performed the work two weeks ago but an FAA review of that effort found some wire bundles were not secured exactly as the directive specified.
The FAA is under enormous pressure from Congress and government watchdogs for not closely overseeing compliance with its safety orders.
American said late on Wednesday that it had so far inspected 179 MD-80 planes, of which 119 still needed more work. The company said 60 were returned to service, and 121 remained to be inspected. Each MD-80 must be cleared by an FAA inspector before returning to service.
American said it would hire an outside company to review compliance with FAA requirements.
Delta voluntarily re-inspected about half of its 117 MD-80s on Tuesday night and canceled about two dozen flights on Wednesday. About 20 planes required extra work. The airline was to recheck the other half of that fleet on Wednesday night. It rebooked passengers on other Delta flights and expects no additional customer impact, a spokeswoman said.
Delta said it was working directly with the FAA on the new inspections.
Alaska Airlines also inspected its MD-80s, resulting in 14 cancellations on Wednesday.
American’s cancellations angered travelers at several airports where agents struggled to book passengers on other flights. Dallas was hardest hit with 208 cancellations, followed by Chicago O’Hare with 138.
American offered vouchers to travelers willing to take a later flight. Garton said American also provided meals, hotels and ground transportation.
Terry Trippler, travel expert at TripplerTravel, said the inspections did not raise safety concerns for him. Rather, the disruption itself is a bigger worry and the airline should have performed the inspections correctly the first time, he said.
“Somebody at American should be on the unemployment line,” Trippler said. “Do you know how many people they’re disrupting? This is unbelievable.”
He said the financial cost to the airline would be high but the carrier also would have a lot of work to do to improve its relations with infuriated passengers.
(Reuters)
(eTN) – The European Commission on Monday introduced rules making it easier for airlines to offer passengers the chance to safely make and receive mobile phones while flying.
The measures announced by the European Union’s executive harmonize the technical and licensing requirements for the use of mobile phones on board aircraft.
Telecoms commissioner Viviane Reding said she expects “operators to be transparent and innovative in their price offerings.” Reding called on airlines and operators to create “the right conditions” onboard aircraft to ensure that those who want to use in-flight communication services do not disturb other passengers.
National licenses granted to individual airlines by the member states in which they are registered thus will be recognized throughout the EU.
OnAir, a joint venture with SITA and Airbus offering in-flight communications, said it welcomed the measures. The company said the move “will ensure European consumers will be able to use their mobile phones and BlackBerry-type devices during flights.”
Airlines wishing to offer such a service throughout the EU will only need apply in one of its member states. Air France is among the European airlines that have begun testing such a service on its flights. “One regulatory decision for all European airspace was required for this new service to come into being,” said EU telecoms commissioner Viviane Reding.
On the technical side, the service involves fitting planes with their own cellular network. The existence of the so-called Mobile Communication services on Aircraft (MCA) means mobile phone transmissions need only travel a few meters inside the cabin, making their use perfectly safe, officials said.
The bad news for passengers is that because their mobile phones will link to the airline’s network rather than to their own operator’s, calls will be subject to roaming charges similar to those incurred when traveling abroad.
Moreover, airline calls will not be subject to EU restrictions on terrestrial roaming charges, and will therefore likely be higher.
But officials in Brussels insist these type of calls will nevertheless be “substantially cheaper” than the prohibitively expensive satellite phone calls offered by some airlines in the past.
Another major source of concern is the end of peace and quiet aboard flights.
Germany’s Lufthansa, for instance, has no immediate plans to launch such a service, since a study found that many of its clients would feel disturbed by other passengers speaking on the phone.
Other airlines are thinking about limiting the service to text-messaging and internet surfing.
EU officials said the commission would not regulate on this issue, treating it as a matter of common sense.
In-flight calls are expected to be introduced by some European airlines in the coming weeks and will continue to be prohibited during take-off and landing.
April 9, 2008
American Airlines canceled up to 500 flights on Tuesday to conduct additional safety inspections of its MD-80 aircraft, the airline said.
American said in a statement that the Federal Aviation Administration (FAA) raised new concerns about recent MD-80 wiring inspections that resulted in canceled flights two weeks ago.
The current and previous inspections stem from an industry wide FAA review of airline compliance with agency safety directives.
Several carriers have grounded aircraft as a result of the audit, which was triggered by inspection and maintenance lapses at Southwest Airlines and pressure from government watchdogs and congressional investigators to take action.
American said additional cancellations were likely on Wednesday.
“We’ve been working in good faith to ensure that we are in compliance with this airworthiness directive,” said Gerard Arpey, AMR’s chairman and chief executive.
American operates nearly 300 MD-80 aircraft, about half its overall fleet, mainly on routes servicing the carrier’s Dallas and Chicago hubs.
The inspection at American relates to a 2006 FAA order that wiring in MD-80 wheel wells was properly installed and secured. The FAA had additional questions about how the work was performed at American.
Any plane that does not conform to detailed technical specifications of the order will be grounded while the work is completed, American said.
American re-accommodated passengers on other American flights or those operated by other airlines.
(Reuters)
April 8, 2008
The US Federal Aviation Administration has reassigned a senior agency safety official days after whistle-blowers and a government watchdog told Congress about maintenance lapses and ineffective oversight at Southwest Airlines, the agency said on Monday.
Thomas Stuckey, the senior flight standards official for the US Southwest region, which includes Southwest Airlines and American Airlines, is now in an administrative post with no safety responsibilities, spokeswoman Laura Brown said.
Brown would not comment further about the matter.
Stuckey becomes the third FAA employee and the highest ranking official to be removed from their jobs over the Southwest controversy. Two Southwest maintenance officials have also been reassigned.
The FAA, Congress and the Transportation Department inspector general continue to investigate Southwest. Inspection lapses in 2006-07 prompted the FAA in March to propose a USD$10.2 million fine against the company, a record.
Maintenance practices at other airlines are also under investigation, the FAA has said.
Calvin Scovel, the Transportation Department inspector general, told the House of Representatives Transportation Committee last Thursday that FAA oversight of Southwest was so cozy the agency allowed the carrier to violate safety orders repeatedly for years and put travelers at risk.
Scovel’s investigation was based mainly on FAA inspectors who testified as whistle-blowers about sloppy record keeping, incomplete procedures and alleged indifference by superiors. They said their concerns were dismissed or not investigated and they alleged threats and other retaliation for speaking up.
The whistle-blower complaints, first disclosed by the Transportation Committee in March, led to a reexamination of Southwest maintenance records and the grounding of jets for missed structural cracks.
The heightened scrutiny of Southwest triggered a preliminary FAA audit of inspection records at all airlines that was completed last week. Other carriers, including American and Delta, grounded planes and canceled flights during the review.
(Reuters)