Delta & Northwest file for Chapter 11

[MarkD]

http://biz.yahoo.com/ap/050912/delta.html?.v=4

http://news.independent.co.uk/business/news/article312316.ece

[Airbubba]

Here comes another industry leading contract...

______________________________________


September 12, 2005

Delta Asks Pilots for More Wage and Benefit Cuts

By MICHELINE MAYNARD

Delta Air Lines, which is said to be on the brink of filing for bankruptcy protection, asked its pilots for a second round of wage and benefit cuts late today, according to the Air Line Pilots Association.

The move came as Northwest Airlines, which is seeking more cuts from employees in order to fend off its own bankruptcy filing, considered giving permanent jobs to some substitute mechanics starting Tuesday.

Delta's request for cuts was disclosed in a message from the pilots' union to its 6,500 members. It said negotiators for the airline and the union met today at Delta's request. "The company presented the negotiators with a comprehensive, deeply concessionary contract proposal," the message said.

The message did not disclose the size of the cuts sought by Delta, which obtained $1 billion in wage and benefit concessions a year ago, including about a one-third cut in pay. Delta also did not give details. But in a statement, the airline said it had made proposals that were "necessary to address the severe financial problems that the company and its people are facing."

People with knowledge of the proposal said it would cut pilots' wages and benefits to roughly the levels of their counterparts at low-fare airlines. But pilots at those airlines, like Southwest and JetBlue, receive bonuses and other compensation because their companies are profitable. Delta, by contrast, has lost nearly $10 billion this decade.

The pilots' message said leaders would meet today to discuss whether to hold formal negotiations. But that may come after a bankruptcy filing, which could occur late this week, according to people with direct knowledge of Delta's plans. Delta shares fell 25 cents today, closing at 85 cents...

http://www.nytimes.com/2005/09/12/business/12cnd-delta.html?hp&ex=1126584000&en=6fba3422eb7edaf7&ei=5094&partner=homepage


____________________________________________

For perspective, a flashback to the heady days of 2001 when the wind was blowing the other way:

Delta, pilots reach deal

April 23, 2001: 10:08 a.m. ET

Four-year tentative pact with union averts strike, makes pilots best paid

NEW YORK (CNNfn) - Delta Air Lines won't face the risk of a pilots' strike next week after agreeing to pay billions more in a tentative contract agreement.

The agreement with the Air Line Pilots Association, reached Sunday, makes the 9,800 pilots at Delta (DAL: up $0.39 to $44.00, Research, Estimates), the nation's third largest airline, the industry's best paid. The union said it gives them raises of between 24 and 34 percent over the four-year pact.

It also closes much of the wage gap for nearly 600 additional pilots who fly 737 jets at Delta Express, the low-price carrier that flies between Florida and the Midwest and Northeast, and which had paid its pilots about 25 percent less than those who flew the same Boeing 737 jets for the mainline airline.

Those pilots would see raises of 63 percent over the life of the proposed contract. The company's previous offer had been for only a 38 percent raise for the Delta Express pilots.

An airline analyst said he wasn't all that surprised that Delta had stepped up to many of the union's demands.

"Peace at any prices appears to be a necessity," said Ray Neidl, analyst with ING Barings. "I won't say it's a good deal, but it's a necessity."

Delta's labor pains haven't completely abated though. It still faces a four-week long pilots strike at Comair Inc., its feeder airline unit that flies about half of its Delta Connection flights. That strike cost the company about $14.7 million in profit and $24 million in revenue in its first six days.

A spokesman for the union told Associated Press that the union is pleased with the tentative pact, that it would make up for concessions pilots made in 1996, when the Atlanta-based airline was emerging from several years of financial losses.

"This gives the pilots pretty much what they were looking for," said Gregg Holm, a union spokesman and Delta pilot. "I think this is going to go a long way toward repairing the rift that was caused by the 1996 contract."

Delta's statement said the agreement is good for the company.

"This tentative agreement gives Delta the financial and competitive framework required to be profitable and successful, especially in an uncertain economy," said a statement from Leo Mullin, CEO of Delta, in a statement issued Sunday.


Tentative deal will cost billions over four years

The new deal moves pay for Delta pilots ahead of pilot pay at United Airlines, the world's largest carrier. United pilots won a new deal from management of the employee-owned company last August. United has not posted a profit since, and warned last week it would lose money again in the second quarter.

Total cost of the new pact at Delta was not immediately available. The airline said earlier this month that the pilots' demands would add $3.7 billion to the airline's labor costs over four years, compared with the company's offer that he said would increase costs by $2.0 billion.

Earlier this month, Mullin had also called for intervention by President Bush to stop a possible strike, saying the two sides were too far apart to reach a deal by the 12:01 a.m. March 29 strike deadline. He said last week he had received assurances from federal officials that the President would have used his powers under labor law controlling the airline industry to keep pilots in Delta's cockpits.

The statement from ALPA did not declare victory in the deal, but said the union was pleased that it could be reached without presidential intervention.

"This is proof that if both parties are committed to the process, a solution beneficial to everyone can be reached," said Capt. Charles Giambusso, head of the union's bargaining unit at Delta.

The two sides returned to the negotiating table last Wednesday, in the middle of a 30-day cooling off period. The expiration of that cooling off period on Sunday without an agreement that would have opened the door for a strike by the pilots if there had not been Presidential intervention.

- Associated Press contributed to this report

[PAXboy]

Yep. Already being discussed in SLF & Pax.

At some point, someone is going to have to pull the plug on companies that are supposedly operating in a climate of commercial reality but actually get nursed by the state. The US air industry NEEDS someone to cease trading altogether. In the current trend of Ch 11, then everyone's wages and conditions get squeezed. Not nice and some unpleasant times ahead but, like a boil, it will be better when it is lanced.

[meaw]

If I add up the numbers correctly Delta would already have 3300 pilots on layoff?Is that correct?

Anybody have any idea how many are still laid off at other majors?

[er340790]

And if Delta is subsequently followed into Ch 11 by NWA, the vast majority of the US network will be operating in technical bankruptcy - so much for the 'free market'.

At some point, out of simple economic imperative, some of these carriers will have to be allowed to die, as Pan Am and TWA et al before them. Despite the ongoing artificial competition, South West and others have continually demonstated that it is possible to make money in this market and grow.

It really is very simple. The longer Ch 11 protection is given, the harder the eventual fall-out is going to be.

[Balmy]

Its a while since I flew with them (so perhaps its changed) but the part I dont understand is how an airline whose flights seemed to be so consistantly full, or nearly full, could be in financial difficulty?

Got to be something wrong with something.....now there is a profound statement!!!......did I write that?

[Golf Charlie Charlie]

Balmy

Load factor and yield are two different things. If you sell your tickets at a price which is lower than the costs you incur to run the flight, you make a loss. You could still make a loss even if your flights were 100% full, if you sold the seats at below cost. Problem these US majors have is their inability to raise revenues due to competition, plus a cost structure that remains, even today, too high.

[PAXboy]

Also, the reason that they are often known as 'legacy carriers' is the legacy that they carry! Typically these include:[list=a]
Large corporate offices
Numerous corporate staff
Big pension schemes covering several decades
Fierce competion from those that specialise in one niche - be it short/long/charter
High expectations from financial institutions
The inertia of already having grown to full size
The reluctance to do anything that might reduce the size of the company as only 'big' is considered good
[/list=a]
Somewhere in the future, people will be saying the same things about South West!

[whattimedoweland]

.............frequent flyer programmes that give too many miles too easily!!!.

WTDWL.

[brain fade]

It's funny how these big US airlines go 'bankrupt' yet continue to operate as if everything was fine. In the UK the whole shooting match would be down the lavvy and it would be Her Majestys' Government that would pull the handle!

It seems verging on dishonest, I mean, what does 'bankruptcy' mean?

Shades of Enron style accounting methinks:confused:

[egbt]

It seems verging on dishonest, I mean, what does 'bankruptcy' mean?

In the US it means getting one up on your competitors (protection from creditors then a big reduction in debt on emergence from Chap 11) then a 50% chance of going back into Chap 11 within 18 – 24 months. As my companies major competitor will probably do very shortly if it is not broken up.:{ :{ :ok: :E :confused: :confused:

[Golf Charlie Charlie]

The media popularly equate 'bankruptcy' and 'Chapter 11' together. This is because the US Bankruptcy Code is a body of legislation which is divided into a number of Chapters, which have different applications for different situations. Chapter 11 of this code is designed to assist companies in financial difficulties from avoiding payment of most of their immediate bills and obligations in order to give the business time to reorganize itself and, ideally, emerge from Chapter 11 down the line in a stronger position. A business requires court permission to enter Chapter 11.

Thus, paradoxically, when a company files under Chapter 11, it is ironically NOT bankrupt. It is, in fact, technically called bankruptcy protection, or protection from creditors. It is a still a live and active business, merely under new temporary management. In the case of the airlines, passengers rarely notice any difference.

Under Chapter 7 of the Code you would have bankruptcy, as filing under Chapter 7 you file for liquidation of the business. If United, for example, didn't come out of Chapter 11 (it plans to late this year, in fact), it would liquidate under Chapter 7, and only then would become bankrupt.

The question of whether the airlines in the US are abusing Chapter 11 is arguable and a very live issue right now. On balance, they probably are. I am sympathetic to the poster who says we need one big carrier to go out of business for shock value purposes, if nothing else.

[ChrisVJ]

How can one fly from Rome to Venice and Back for under 3 Euro? (Plus tax =40E) I understand the theory and the business model but booking it is a bit like going flying in a C150 and then getting on a Jumbo. They fly for the same reason but there has to be something wierd about it, doesn't there?

Just looking at the numbers from a passenger point of view you would think it would have to be the European LoCos that are in trouble. We flew American this Summer. The planes were nearly all full, the service was much reduced from the old days and everything beyond a coffee or soft drink cost and the tickets weren't particularly cheap. How can the big airlines be in so much trouble?

Yes, I know the answer, just seems wierd from Px point of view. THAT MUCH overhead?

[Golf Charlie Charlie]

<<<
How can one fly from Rome to Venice and Back for under 3 Euro? (Plus tax =40E) I understand the theory and the business model but booking it is a bit like going flying in a C150 and then getting on a Jumbo. They fly for the same reason but there has to be something wierd about it, doesn't there?
>>>

Probably because those 3 euros are being paid by only the first 10-15% of the passengers who book that particular flight. As the seats on a flight are sold, they usually become more expensive. So, on that flight, maybe the last 10 passengers are paying 200 euros, for example. The technical term for this is 'yield management'.

Also, the theory is that a low-cost carrier makes some more money on each passenger on things like refreshments, car hire/hotel booking commissions and even in some cases local authority passenger fees at certain airports.

The other thing is that low-cost carriers are really just that - low-cost, not low-fare carriers. Their entire structure is based on lower costs, ie. small head offices, flat management, no interlining at hubs, internet booking/e-tickets, quick turn-arounds, more poorly paid staff, much lower (if any) health care and pensions commitments etc. etc.

[RRAAMJET]

ChrisVJ - overall AA is just barely breaking even, and only slightly profitable internationally, and it's the best performing of the 'legacy' carriers...

A new CEO, early concessions, and the advantage of being on the outside of bankruptcy looking at the travails of others are what's making AA's staff tread lightly and try and keep the ship on an even keel. AA is weighed down by a crushing long- and short-term debt load, although the pension plans are in suprisingly good shape at over 80% (real) funding level.

I will admit though, that there are those who are still in the 'nuclear option' mode of passenger service - who just don't seem to get it. It only takes one disgruntled employee to ruin the travel experience that 40 others are doing their best to sustain.

One of the core issues that is inevitably going to come up sooner rather than later is whether Air Transport in the US is a utility and should be more closely regulated. The Republicans hate regulation, but some experts are now writing papers to the effect that permanent damage is being done to the US air network, particularly threatening places where the discounters cannot fly, such as the snow resorts. I think a double CH11 filing is going to raise eyebrows in Washington, and lead to hearings.....

[noodnik]

But guess who was in Glasgow today having a look around the Airport ?????

[20driver]

The thing that is interesting is all the 'legacy' US carriers are expanding international service. Delta is dumping domestic routes and adding flights to Europe and S America. I guess these makets are the only areas where they can generate more revenue than expenses (I won't say make a profit)

[mary_hinge]

http://www.bradenton.com/mld/bradenton/business/12644994.htm

ATLANTA - Delta Air Lines Inc., hobbled by high fuel costs and heavy debt and pension obligations, filed for bankruptcy protection from its creditors Wednesday, becoming the third major carrier to enter Chapter 11 since the 2001 terrorist attacks.

The filing came as Northwest Airlines Corp., struggling with similar issues, was also expected to enter bankruptcy proceedings.

Delta's total debt is roughly $20.5 billion, and it listed $21.6 billion in assets as of June 30. The asset figure would make Delta's bankruptcy the ninth-largest in U.S. history, according to bankruptcy tracker New Generation Research Inc. The ranking could change depending on how Delta accounts for its recent $425 million sale of feeder carrier Atlantic Southeast Airlines to SkyWest Inc.

Passengers were not expected to see any immediate effects from the filing. Delta was expected to continue its normal schedule. However, as the company makes its way through bankruptcy court, some changes to Delta's operations could occur, analysts say.

Atlanta-based Delta, the nation's third-largest carrier, has lost nearly $10 billion over the last four years despite announcing it would cut up to 24,000 jobs. In September 2004, it also said it would shed its Dallas hub as part of a sweeping turnaround plan aimed at saving the airline. It has since scaled back its operations in Dallas.

Delta follows into bankruptcy UAL Corp., the Elk Grove Village, Ill.-based parent of United Airlines, and Arlington, Va.-based US Airways Group, Inc., which is undergoing reorganization for the second time in three years. Fort Worth, Texas-based AMR Corp., the parent of American Airlines, the nation's biggest carrier, teetered on the verge of bankruptcy before winning deep concessions from its employees. The other so-called legacy carriers, those with a large presence in multiple regions prior to deregulation in 1978, are Eagan, Minn.-based Northwest and Houston-based Continental Airlines Inc.

[NZLeardriver]

Both filed for chapter 11 protection today. Interesting that they filed at the same time.
I hope peoples pensions will be ok.

Delta here (http://money.cnn.com/2005/09/14/news/fortune500/delta/?cnn=yes)
NWA here (http://money.cnn.com/2005/09/14/news/fortune500/northwest/?cnn=yes)

[barit1]

Delta, even before deregulation, were known for their agility in the marketplace. Their slogan should have been "Delta is ready when you aren't!" - they could eat their competitors' lunch.

NWA decades ago were known as Cobra Airlines: "We strike at anything!"

[MarkD]

20driver

it's the only place they can escape the LCCs...

[lead zeppelin]

Ohhh, to be a pilot in the USA.

http://news.yahoo.com/news?tmpl=story&cid=509&ncid=509&e=1&u=/ap/20050914/ap_on_bi_ge/delta_other_airlines_1

A Look at Major Carriers Wed Sep 14, 5:53 PM ET



The following is the status of the four major airlines in bankruptcy and two others that for now are safe from it.

Delta Air Lines Inc.:

_The Atlanta-based company filed for Chapter 11 on Wednesday. The nation's No. 3 carrier will spend the next several months or even longer working on a reorganization plan. It will continue to operate during that time.

UAL Corp.:

_The Elk Grove Village, Ill.-based parent of United Airlines, the nation's No. 2 carrier, has said it intends to emerge from bankruptcy Feb. 1 after 38 months in Chapter 11 — more than twice as long as expected. The company, which filed for Chapter 11 in 2002, used the leverage of bankruptcy law to slice $7 billion from its annual costs and dump its pension obligations. It said it expects to return to profitability next year, but that projection is based on much lower oil prices.

US Airways Group Inc.:

_The Arlington, Va.-based parent of US Airways, the nation's No. 6 carrier in terms of revenue and No. 7 in terms of revenue passenger miles, filed for bankruptcy protection in September, its second filing since 2002. It is poised to emerge from bankruptcy late this month or early in October and merge with Tempe, Ariz.-based America West Airlines. On Thursday, a bankruptcy judge will hold hearings to confirm US Airways' plan of reorganization.

Northwest Airlines Corp.:

_The Eagan, Minn.-based airline, the nation's No. 4 carrier, filed for bankruptcy Wednesday, entering Chapter 11 on the same day as its larger rival, Delta Air Lines Inc. The carrier said earlier this month it needs labor cost savings and changes in pension laws, and that it is hurting from high fuel prices. Doug Steenland, the company's chief executive officer, has acknowledged that the bankruptcy law changes that take effect Oct. 17 were a factor in the timing of the filing.

Continental Airlines Inc.:

_The Houston-based carrier had a big cost advantage over other traditional airlines after it slashed expenses during two bankruptcy reorganizations in the 1990s. Recently, the company set a goal of winning $500 million in annual concessions from labor groups. It got $418 million and is still negotiating with flight attendants. The company flipped to a $100 million profit in the second quarter of this year and padded its cash and short-term investments to $2.05 billion.

American Airlines:

_The nation's largest carrier, a unit of Fort Worth, Texas-based AMR Corp., may be the strongest financially of the traditional airlines, thanks to $1.8 billion in annual labor concessions it won in 2003, when it teetered on the brink of bankruptcy. AMR earned $58 million in the second quarter, only its second profitable period since 2000, but it has $3.40 billion in cash and short-term investments.




Copyright © 2005 The Associated Press. All rights reserved. The information contained in the AP News report may not be published, broadcast, rewritten or redistributed without the prior written authority of The Associated Press.


Copyright © 2005 Yahoo! Inc. All rights reserved.

[PAXboy]

Lets have a big Yeah for the best free market economy in the world. :rolleyes:

[Ignition Override]

I have no friends with Delta, and at Yahoo Airline News, an analyst today stated that:

1) The biggest problem at NWA concerns their pension obligations (Congress might give some relief, spreading it over many years).

2) But based on my reading and some dialogue, Northwest's inspirational "leader", Mr. Doug Steenland, stated that labor is the biggest problem. As for leadership, did General Patton tell his troops many times during WW2 that the troops were the problem? Is that leadership?
JetBlue's CEO might earn about $400,000 this year.
Northwest's Steenland, about $4,000,000, based on a business article somewhere (where did those extra 0s come from?).

Leader$hip by Example.

During the 70s and 80s, the Northwest CEO, a "gentleman" named Nyrop, looked forward to provoking NWA unions into a strike-hard to believe, is it not? Well, "his" airline made more money during a strike. Why? There was a reserve money fund which many airlines contribited to. With a serious problem, a company was allowed to pull out heaps of cash from this Mutual Aid Pact. After Nyrop converted Northwest into Cobra Airlines, the other airlines DISSOLVED the M.A.P., because of CEO Nyrop's cynical abuse of this fund, by way of provoking his "staff". Hence the origin of the striking name. This was well-known by pilots who retired years ago.
What happens to the NWA mechanics'/engineers' strike when it goes on during a Chapter 11 filing?

Any labor law tips from Airbubba? How about Huck? Wino, my favorite "Union Goon"? :hmm:


How is Delta's CEO providing leadership?

At Continental and American, if they file Chapter 11 after Oct 17, do they not have only 18 months to leave bankruptcy, without liquidation, other than hiding in a merger?

Let's hear the responses. Mir ist nichts klar. :oh:

[RRAAMJET]

PaxBoy, you made me snicker, even though it''s horrendous for the poor employees of NWA and DAL - you're absolutely right, of course.
De-regulation has actually cost the American public-at-large, according to one recent study (can't remember which Prof. wrote it), due to large defaults, lost share value, and picking up the wreckage of mature pension plans....:ouch:

[fmgc]

Could somebody explain chapter 11 to us unenlightened non americans, other than it is bankruptcy.

[manintheback]

There are different ways to enter bankruptcy in the US.

Chapter 11 is to have the company reorgainised under a courts supervision in order to stay in business and at some point exit Chapter 11 and resume business.

The court can grant relief from some or all of the debts (i.e. creditors) during Chapter 11.

[fmgc]

So what is the downside of going into Chpater 11, it would seem that you could mismanage a company and run it into the ground without fear of going down the pan and have all your debt wiped out.

[Rollingthunder]

If approved by a court it allows for protection from creditors seizing assets for a specified period of time. That time is used to re-organize the company. Contracts, pension funds, structure, size may all be modified. Usually there is an attempt to obtain interim financing (cash infusion against remaining assets). eg. Delta is seeking USD2 billion from GE Capital. The share price goes to zero and creditors usually get new shares (in what is essentially a new company) in exchange for debt relief. All subject to approval by creditors and the court.

[pax britanica]

WellI am not an accountant butI have had direct experience of the infamous Ch11

The first thing to remember is that it is NOT Bankruptcy as we know it in UK-its closer to but not the same as adminsitration

It is a 'filing for protection from creditors under Chapter 11 of the US Bankruptcy code'

It is an interim step allowing you to freeze claims against you while you get your house in order-in other words creditors cannot enforce their normal legal rights and youget to hold onto cash that otherwisewas out the door.

While it is mis-used the intent is good but the price is high. For a start the management loses control of the company to a creditors committee who oversee and approve everything-they are usually the nastier sort of bankers -the financial worlds equivalent of an organsied crime 'enforcer'.

While a company is in Ch 11 it must decide which of its contracts it will honour and which it will reject on emergence from bankruptcy so it can walk away from a long term contract thatwas hurting it. The Bankruptcy Court who supervise everything over and above the creditors committee impose timelines for a filing of a plan of reorgansiation which is essentially a new busine s plan for the going forward period.

During this time you try and come to agreement with creditors and decide which contracts you hold will be rejected (you can only reject US law contracts not foreign law ones)
For a big company this process takes time as the plan must be acceptable to the creditors and the court and usually involves slashing costs and staff and agreeing to settle certain debts for x cents on the dollar.

It may seem an easy get out of jail card but it isnt-its long painful and agonising process especially for staff and day today management.

Ch11 has ben used extensively in the US airline and more lately Telecoms industries -if a company has a reasonable business with prospects of making money day today after restructuring you can usually agree a plan with the concerned parties. If not then its Chapetr 7 and that is the end of the road or taxiway in this case

Both these companies have lots of assets aircraft-slots offices etc and can be effectively restructured but expect that process and the time in Ch11 to be around a year or even more

Theres lots more to it but I hope that gives a laymans explanation.Ive no doubt a financial proessional could pick me up on details In a nutshell its a process to preserve and protect assets and cash remaining in a troubled company, to allow it to restructure and save some value for stockholders (it will be bond holders cos the common shares are seldom worth anything) and preserve some, hopefully the majority of jobs
PB

[fmgc]

Thaks for your info guys.

While a company is in Ch 11 it must decide which of its contracts it will honour and which it will reject on emergence from bankruptcy so it can walk away from a long term contract thatwas hurting it

wrt the above, what protection is there for the organisations that have their contracts rejected? Is it not just a carte blanche to reject everything you don't like?

[pax britanica]

You can only reject 'Executory'contracts-I forget the definition but it covers what most of us would think of as a contract and has to be under US law.

There is little to prevent the rejection of any of these contracts in law but in practice there are issues to be taken into account. If for example you want to reject a contract with someone you want to do more business with in future or thats on very advantageous terms to you its not always wise to reject an existing contract. The replacement contract might be on worse terms- for example NW buys its lubricants from x yz co under a contract witha term of ten years that fixed prices at 2002 levels -sure you can reject it but you still need lubricants and a new contract is going to be much much more expensive.

In otherwords you cannot just reject the debt you reject the whole thing and a lot of time gets spent weighing these issues up.

Of course soem areas-bond holders are betetr ptrotected than others and I think that legal fees are actually rated as the highest priority debt under Ch11 as well- no cynicism there then.

Sadly-being the US- Joe public is guaranteed to be screwed as employee or stockholder and the consequences for employees can be dire. I used Delta a lot in the 1990s when i lived in that aprt of the world and then were always decent folks to fly with and I feel very sorry for many of them. However this dog eat dog stuff thats the way they like it over there so I am told , but as we have seen recently in the States its mentality that means only a city block seperates main street from the thrid world
PB

[DownIn3Green]

Thank You Jimmy Carter....

[barit1]

Thank You Jimmy Carter....

If DownIn3Green refers to Airline Deregulation which Jimmy originated, the ticket-buyer can indeed thank him for far lower fares, and more choices, than in the 70's. The growth of this industy has been unbelievable.

But it may be the ONLY thing he did right.

[METO power]

Delta and Northwest don’t get the antitrust immunity they seek as part of the sky team. If they file for chapter 11, resize and merge, they probably will get it……….IMHO, it is all part of a strategy.

[PAXboy]

it is all part of a strategy That's for sure!!! Two major companies that are competitors do not enter Ch 11 on the same by accident!! :hmm:

Shall we start thinking up the new name? I'm off to Jet Blast.

[RRAAMJET]

Barit 1 - yes, but refer to my previous post.....

The US public will, on average, pick up a far greater tab per capita than they have saved in lower fares. Approx 20 billion just in pension defaults alone, that our kids are going to have to pay for, and about 200,000 redundancies so far and counting. The notion that the LCC's are replacing these jobs is a fallacy - they replace them with packages worth one third or less the career value and no retirement.

One of the main backers of Deregulation at the time in 1978 recently stated that if he had known this would be the full effect he would never have voted for it. The overall economic damage of allowing competition from carriers providing almost slave-labour packages against the legacies (selling tickets below cost), has been too much and unforseen.:ouch:

[er340790]

The real impact of the Ch 11 filing for Delta and NWA is yet to be felt. Granting protection from creditors is fine in theory, but with four of the US majors now in this category, there is going to be a COLLOSSAL ripple effect as fuel suppliers, catering contractors, leasing companies etc etc etc suddenly find that the vast majority of their sales are either not going to be paid or only paid x months ahead at so many cents on the dollar........ most suppliers cannot stand such a disruption to cash-flow and will themselves go under or file for Ch 11.

It's simple - there's no such thing as a free lunch.

[LGS6753]

Not much mention in this thread about high labour costs, which is, in my experience a massive drag on company solvency if out of kilter with competitors.
Delta and NWA operate the same aircraft types, offer the same fares (it's a competitive market), and suffer the same fuel cost as Southwest, JetBlue, AirTran, etc. but have payroll costs that are massive in comparison. Well-paid and under-employed staff with perks designed in the fifties and sixties create a burden when trying to compete with locos.
As many British workers discovered in the 70s and 80s, a strong union often means a weak company. And weak companies fail.

[RRAAMJET]

LGS - that's a very over-simplified statement. Have a look at what a SWA pilot makes on the 737 and compare. It's mostly the pension costs and healthcare that's out of whack, and it's commonly referred to over here as the LCC's "juniority" advantage.

Younger workforce + not bothering with your retirees = cost advantage.

Let the public pick up the tab.

Having said that, there are still those (particularly the very senior) at the legacy carriers who try to do, and expect to do, less than a full day's work for their pay. 'I've earned it' just won't hack it any more. :rolleyes:

[None]

LGS6753 said: and suffer the same fuel cost as Southwest

I will argue that no other US carrier pays the same fuel cost as Southwest.


"Southwest's chief, Gary C. Kelly, said airlines could not grow and become
profitable by making workers pay the price.

"If you don't treat your people right, you pay the price," said Mr. Kelly,
whose unionized airline pays some of the highest wages in the industry, even
though its overall costs are among the lowest.

Mr. Kelly, whose low-fare airline has a higher market capitalization than all
its major rivals combined, likewise had little sympathy for the pain that
fuel prices had inflicted on Northwest and Delta.

Neither company has contracts protecting them from the rise in prices, while
Southwest locked in the price of 85 percent of the fuel it plans to
purchase this year."


DAL Mgt had some fuel hedging in place last year, but sold it for short term benefits (funding senior Mgt pension insurance?). Both airlines mgt teams chose to avoid hedging during the last 12-18 months.

Southwest is the only carrier to significantly hedge. No other US airline pays the same fuel costs as Southwest.

[Lartington]

I have a friend who is a sim instructor for Delta. He had a captain who had been downgraded from the MD-11 to the left-hand seat of the 767. He wasn't very happy and complained that he had to take a $50,000 cut in pay. When asked what his MD-11 pay was, the guy said it was $350,000!. My final monthly pay cheque after tax as a Captain for Air Europe Italy was about $6000 and that included expenses. AEI also went bust. They don't go into Chapter 11 in Europe--they just go bust. To quote Warren Buffett
the financial guru "anyone who puts money into airlines needs his head examined".

[barit1]

I am reminded of the massive displacement of the working force a century ago - when Henry Ford put buggywhip makers, blacksmiths, and streetsweepers out of work with his mass-produced auto.

An evil conspiracy, I tell you!

[bushpilot]

This is not to bash anyone, but Lots of employees who end up working for/at airlines; majority of pilots, probably all mechanics, air waiters, & ground staff simply don't understand the economics involved in running and ensuring an airline stays profitable, and how to ensure that they have a pension plan when they retire.

It's amazing if u look at the income stmts of SW over the last ten years and the new kid on the block, jet blue, how much cash revenue they generate......They actually bank/invest that cash for rainy days like when 9-11 happened and/or fuel prices go through the roof. At the other airlines, the employees under the stewardship of the "get it while u can unions" start plotting how they can get a huge piece of the pie over the nxt contract period, based on the most recent income and cash flow.

The morons running the unions at these faltering legends, herd the new employees into membership and blindly get them to wring every last dollar out of the revenues when the airlines have been profitable for a few quaters, and the new contract is up.

U wonder who's laughing now, the Southwest captain who gets about $150k a year plus profit bonuses, sure retirement benefits, or the united captain who made about 300K for about a year and a half starting around 2001,, and goes to sleep wondering if his airline will even exist next year, let alone his pension.

Sometimes mgmt sucks, but most unions let employees down even more, Unions need economists and financial investors to be heading them, not die hard morons, otherwise, they do more harm than good.

[rotated]

NEW YORK (Reuters) - Delta Air Lines Inc. (DAL.N: Quote, Profile, Research) will send a letter to some 3,500 retired pilots informing them of its inability to make their October pension payments, Delta lawyer Marshall Huebner said in a hearing on Thursday.

The letters saying there is a good chance the October payments will not go out will only be sent to pilots above a certain salary level, Huebner said during the hearing in U.S. Bankruptcy Court in Manhattan.

Source URL: http://today.reuters.com/news/NewsArticle.aspx?type=businessNews&storyID=2005-09-15T214216Z_01_FLE577711_RTRIDST_0_BUSINESS-AIRLINES-DELTA-DC.XML

So soon...

[None]

Lartington said: the guy said it was $350,000

I don't doubt what your sim instructor said. However, check out the pay rates for yourself here:

http://www.airlinepilotcentral.com/content/view/8/16/

No US airline has ever paid a MD-11 Captain a standard salary of $350,000.

[XL5]

The quoted $350k does need putting into proper context. The senior dozen where I work are even today capable of bringing in that kind of paycheck - they do so by selling back all vacation, bidding high duty trip lines and hoovering up overtime like pigs at a trough. The biggest pull last year was $370K with no life in which to spend it because the flight deck becomes home. Only the very, very senior though are able to compete in this competition. http://www.airlinepilotpay.com would appear to be accurate.

[PAXboy]

Any pilot working that much ~must have exceded their hours?

[XL5]

PAXboy : ref exceeding hours. Wrong actually. Pay is based on assignments, legalities upon hours flown. The two can differ by almost 2:1. Union contracts are both complex and wonderful things. You're making common sense assumptions. Don't.

[Airbubba]

These folks might be the lucky ones if they find other work before the market is flooded when and if NW or DL goes under. I've seen it happen before, we are strapped to the mast like Odysseus by the seniority system as the ship sinks. Why did I listen to that damn airline siren song in the first place <g>.

________________________________________


BLOOMINGTON, Minn. More pilots are being furloughed by Northwest Airlines, which filed for Chapter Eleven bankruptcy yesterday.

The Air Line Pilots Association says Northwest told the union that it is reducing flying levels, and 400 more pilots will be put on furlough over the next eight months.

That's in addition to the 500 Northwest pilots already on furlough.

A Northwest spokesman confirmed the furloughs, but had no further comment.

http://www.wlns.com/Global/story.asp?S=3857644

[Dani]

I'm no legal specialist for Europe, but I'm pretty sure that the "chapter 11" also exists throughout Europe. Before you go belly up, you can walk to the judge, who will decide if it's worth for the creditors to keep the company running on a limited time and power base, or if they make more money if you pull the plug now.

If you destroy a company you wont necessarily get more of your money back.

At least in Switzerland, that's for sure, we have this paragraph. And western legal systems are all pretty much the same. US is just more famous/infamous since companies are willing to go under protection sooner. This has historical reasons, and in the US you wont be blamed your whole life if you went bankrupt once (in contrast to "the old world").

Dani

[Ignition Override]

RRamjet and None attempted to enlighten some apparently educated people who still don't quite grasp some simple concepts.

Southwest pilots are about the highest-paid 737 pilots in the world. How are they low cost?
Southwest is one of the most heavily-unionized airlines in the world, therefore, to repeat the mindless mantra echoed by the idiot writers in our business and general media, unions are the problem? This makes no sense, not at all.....

Could Productivity be the key? For the hundredth time on Pprune, Southwest created their routes on a classic, linear structure: city to city to city...They are not Hub-Slaves. Hubs were never designed for high productivity-but they were supported by very high business ticket fare, and hubd also feed traffic to Euro and Pacific routes. Is that now clear? Now JetBlue and Airtran (formerly ValueJet) use hubs, but some of the initial ValueJet captains were Eastern scabs, and their monthly pay was less than that of many delivery truck drivers, plus, no sick leave, vacation or retirement pay. Hard to believe, isn't it? At a party in an Atlanta suburb, a major airline pilot overheard one of their ValueJet mgmt. guys bragging about how much they were, eh...shafting... their pilots (pardon the indelicate language, ladies). Scabs don't care how you pay or treat them. A former Captain there, who joined after leaving the USAF, calls Valuejet "Ghettojet". I can put you in contact with him.

At a traditional, classic hub-and-spoke airline, some crew flying narrowbody jets fly on many typical days through a 7-10 hour duty period. With many short legs connected to hubs, the block time for a day with only 3 legs might = about 4.5-5.5 hours. This is your pay for that day.

But here is the catch: although upper mgmt. constantly whines and moans about needing more productivity, their Trip Planning Staff give us some days (others are grueling: working 12-13 hours to fly block/pay credit worth maybe 6-8 hours, then you are quite tired, even in good weather: and we have no automation:uhoh: Our minimum layover time is only 10 hours and 15 minutes-this includes post flight, preflight and time to and from the hotel after an exhausting day, maybe with a pay credit equal to 7.5 hours, flying 5-7 legs...) that only have 3 legs to fly, and block time may be only about 4.5 hours. The PILOTS did NOT design our own trips-these are created by Flt Ops Trip Planning people, whatever their titles, using computers which should rival capabilities of those on Star Trek, the Next Generation! These trips are designed for the lowest operating cost-but how do they QUANTIFTY productivity, and input this factor to the HAL 9000 computer?

If you still don't believe this and have the nerve to e-mail me, I'll send you exact data from various trip pairings which will illustrate how many legs and long consecutive duty periods (without scheduled rest anywhere, anytime) are needed just for our productivity to exceed 6 hours pay in 1 day. Remember the mindless mantra: "unions' high costs are the problem...".

Why would our pilot union negotiators want narrowbody pilots, even when many crews are on time in good weather, sitting around between 2 and 4 hours in a hub, at least once each day? If we were allowed to work more block hours per day, we could have an extra day or two off per month, and some more junior (seniority) pilots might also be able to attend birthdays and Christmas with younger children. by contrast, many widebody pilots, who fly to Asia, sometimes have long strings of days off-but how long do their planes stay in their hour on most flights? Their trips rarely have trip or duty "rig" built in-they don't need them. Often, narrowbody A-319/320 and 757 pilots have no rig on many days-their payload/ range is much longer.

Our 4 hour 15 minute minimum pay, per day, was created to give company trip-planning staff the INCENTIVE to make us productive. Here is a secret: company negotiators always RESIST having a minimum daily pay guarantee of up to 5 hours, or more! But they claim that they want us to fly more block hours per day... But there is no proof. Is the contradiction here glaring? Have you a pair of cheap 'wayfarer' sunglasses with you? Remember the mindless mantra which the public consumes: "high union costs are the problem...".

This is why union negotiators (when not in Chapter 11) are allowed to build into their contracts trip and duty "rig" ratios. Without this pay INCENTIVE, the airlines would allow very sloppy scheduling and might allow narrowbody flightcrews to work only 2 medium or short legs per day-maybe more deadheads (riding in a passenger seat to re-position: very wasteful). We don't want to waste our time in a hub. Do you, when you can't work, but would like to? We can't fly on a laptop, at least not fly people or cargo. For airlines in Chapter 11, bankruptcy judges, with n prior knowledge of how flightcrew productivity is created, might throw out these rigs (I actually don't know), so despite a company's alleged demand for productivity, they try to tell the judge that rigs and minimum (i.e. 4.25 hours per day) are expensive for them! Don't forget the mindless mantra which the public (even many ignorant Ppruners) consume, on a daily basis: "high union costs are the problem...". Pardon this long length.:)

[WhatsaLizad?]

My final monthly pay cheque after tax as a Captain for Air Europe Italy was about $6000 and that included expenses.

Larthington,

How long have you been with your company and roughly how long was the upgrade to Captain? (or usual Euro upgrade time if direct entry)

Thanks

[DownIn3Green]

Regarding Airbubba's last post...He is 100% correct...the junior guys who are furloughed at these airlines may want to start looking for other employers if they want to stay in the business...just think back to 89 when EAL and PAA dumped over 5,000 pilots on the market within a 10 month period in s. Fla...

You couldn't buy a job flying a C-402 to the islands in those days....

[Lartington]

for Whatsalizad:
I came in as a direct entry captain as most captains did. The Italians were very reluctant to promote their own kind from the right-hand seat. I retired a few years ago after reaching 60. If it had not been for the French many of us could have gone on to 65.
The salary figures I quoted for Delta was based on salaries two years ago. I would have thought that the present salaries have been reduced due to across the board salary concessions from the union. I really don't know. I see in the press that current pensioners may not get their pension this month. It is a really sad mess. I would have taken as much of my 401 out of the pension fund as soon as retired.

[mary_hinge]

I’ve seen it mentioned that the laws regarding Chapter11 protection are due for a major shake-up this October:

Does any one have any indication as to what the main changes might be and why they are being introduced?

Thanks

[Airbubba]

>>Delta and Northwest don’t get the antitrust immunity they seek as part of the sky team. If they file for chapter 11, resize and merge, they probably will get it……….IMHO, it is all part of a strategy.<<

You might be right, Continental has also frequently been named as a potential merger partner with Delta and Northwest.

More speculation from today's USA TODAY:

_______________________________


Could airlines merge?

By Marilyn Adams, USA TODAY

Delta Air Lines (DAL) and Northwest Airlines (NWAC) entered bankruptcy court together this week, and few will be surprised if they emerge together — as a single combined carrier.
The twin Chapter 11 bankruptcy filings Wednesday night, almost simultaneous and in the same New York courthouse, are leading many industry experts to believe the carriers may be exploring a merger within bankruptcy protection.

"I wouldn't be at all surprised," Benchmark analyst Helane Becker said Thursday. "In the past, these two airlines have talked and they have very little route overlap."

JPMorgan Chase analyst Jamie Baker said his firm "already has coined the term 'Delta Orient,' " a play on Northwest's former brand name, Northwest Orient.

Atlanta-based Delta is concentrated in the East and launches more daily flights across the Atlantic than any other carrier. Eagan, Minn.-based Northwest is concentrated in the Midwest and has a strong route structure in Asia.

The minimal route overlap is considered an advantage with federal regulators.

Airlines proposing a major merger would have to convince government regulators that the combination would not significantly reduce competition, or that one or both of the airlines would fail without the merger.

Northwest declined comment when asked about a merger with Delta.

In a conference call Wednesday, Northwest CEO Doug Steenland said the timing and location of the filings was coincidental. He added he has long believed consolidation among airlines is likely.

Delta spokeswoman Chris Kelly said Delta "expects there will be more consolidation in the industry. Right now, Delta is focused on its own restructuring efforts."

The twin filings, outrageously high fuel prices and declining hope for financial relief from the government could spark a round of merger talks as the remaining big troubled airlines scramble for partners.

A judge today is expected to approve a merger between US Airways and America West Airlines.

Five big potential partners remain: United Airlines, Delta and Northwest, all of which are now in bankruptcy protection, as well as American Airlines and Continental Airlines.

A merger of No. 3 Delta and No. 4 Northwest would propel the combined airline to the front of the industry pack.

It would pass American and United and become the biggest airline in terms of revenue passenger miles, according to an analysis by Back Aviation Solutions.

http://www.usatoday.com/money/biztravel/2005-09-16-merger-speculation_x.htm

[PAXboy]

XL5 Pay is based on assignments, legalities upon hours flown. The two can differ by almost 2:1. Union contracts are both complex and wonderful things. OK, thanks for that. But it seems from subsequent postings, that folks might be very tired for achieving that number of legal flying hours? If someone regulaly gives up vacation days to work - can they be fit and ready for work?

Not trying to point fingers - trying to understand.

[JW411]

Paxboy:

I had lunch with one of my old F/Os from my Part 121 days some 20 years ago just yesterday. He is a current DC-10 captain with NW in Chapter 11.

His first concen is his pension (retirement) benefits. Now that his company has gone "Chapter 11" it is quite possible that he could lose his pension completely after 20 years with NW.

Now then, I don't think that FARs have changed that much in the last 20 years. In those days the limits were 100 hours domestic or 120 hours international in a 30-day period. There was a further limitation that no more than 300 in 90 days could be flown. So there is no question of pilots flying above those limits.

If you do and the FAA find out, then the first retribution is against the pilot concerned which would be something like a $5000 fine and his licence would be pulled for 60 days. That would mean no income for the best part of 3 months.

The question was as to how those hours could be flown in a purely financially beneficial basis.

I did not have an annual salary. I was given a 50-hour monthly guarantee which meant that I was paid for 50 hours flying at a given rate whether I flew or not. Once I had made 50 hours then I started making money and 100 hours was a happy month for I went home with double salary and then couldn't fly again until I "dropped time".

Now the "legacy carriers" have wonderful union rules. For example, if your number is high enough, you could bid for a reserve line. This could mean that you are guaranteed 75 hours a month if you are prepared to be called out at short notice and then be paid at 2X normal rate.

If you want any finer details, contact LHR Rain who has an encyclopaedic knowledge of the 1926 Railway Labor Act and the workings of all US Carriers.

[Ignition Override]

Delta's pilots, before Chapter 11, already gave up almost 50% of combined pay and benefits, according to a Delta FO, with whom we talked in Newark about a week ago. Is that not a major chunk?

Whether that includes cuts into future retirement, I have no idea.

Union pay is not the problem.

The problem now will be the bloated fees for over-priced bankruptcy attorneys and CPAs. United has paid about $10,000,000 per month for these jackals and sharks. Per month.

:E

[chrisstiles]

This is not to bash anyone, but Lots of employees who end up working for/at airlines; majority of pilots, probably all mechanics, air waiters, & ground staff simply don't understand the economics involved in running and ensuring an airline stays profitable, and how to ensure that they have a pension plan when they retire.

Problem is, very few pension funds were ever funded properly. Back in the day the acturial calculations weren't taking into account the length of time that todays retiree was going to spend drawing their pension.

Employers just promised jam tommorrow and paid peanuts for it, it was in no one's interest to examine things more closely - especially the execs as they expected to parachute out after 5 years.

[PAXboy]

JW411 Many thanks for the clarification.

[bushpilot]

Ignition, I stand corrected, but Southwest's pilots union is not part of the national union, hence their pilots work slightly longer hours, are more productive, so they do deserve to be the best paid 37 pilots if that's what u say! Jet blue has no union for their pilots and their pilots get paid just fine, and I doubt they will be wanting to join the national pilots union seeing how the legends are falling on their faces and the low costs are being paid fish bait. Ur hub to hub and city to city model explanation is not the main reason why these airlines are having problems, it's cost, costs, costs and productivity. U can't control fuel costs (unless u pre-bought it),,,, u can control productivity and labor costs;;but guess who has the big say on whether u can or not,,,,?The very distinguished national Airline Pilots Association-_-_ for member airlines that is., I hope u can answer why,, SW Pilots must be so smart to stay away from it. Don't forget that during the early years, the current legends, now having all these problems worked so deparately to try and snuff out SW, Herb Kelleher had his employees giving 110 percent to keep those birds flying, and they continue to date.

I worked for cessna as a flight line mechanic and was part of the IAM union, which is a humongous union. I hated every part of it, a bunch of F*%kN morons run that organization. They encourage laziness, "take ur time doing something for job protection", blah blah, blah...and want the company to hire more than the necessary hands because they belive that creates strenght in numbers. Unions don't mean anything in the long term if u have idiots at the helm. After 9-11, when the airline manufactures started shelving employees, I neva saw one union leader come down to the hangers...Quite simply put, the unions run a Ceaseresque modus operandis, make ur followers happy, and u still have a job and power, but what about 2morrow?

Because of the National pilots union, pilots lose senioirty when they move to another airline that's part of the union, that means, u are enslaved to their outdated and dubious dinosaur statutes or whatever they are. One solution to this problem is encouraging pilots of the national union airlines to grow balls, detach, and look for real investors to hear their newly formed independent unions at their own airlines.

The day pilots will wake up and realize that they cannot control the price of fuel, cannot control stupid stuff like 9-11 happening, but they can control one variable in this equation, their pay and working hours---so far, their shackles to this Goliath Union means, pilots are in so little control of anything,,,,. It's only made worse because airwaiters, mechanics, trolley pushers, shoe shiners blah blah blah...at these airlines all have unions, ...Because of Frank Lorenzo and how he busted their a@@es, the unions thought becoming a megaladon would ensure no lorenzo ever screwed them again, and they were right!!:E , Mr. Lorenzo where ever he is, is sitting in his cabin laughing himself to sleep. :}

[Capt.KAOS]

Airline industry is poised for shakeout
The bankruptcies of Delta and Northwest are the latest signs of the steep challenges facing major carriers.
By Alexandra Marks | Staff writer of The Christian Science Monitor
NEW YORK – With Northwest and Delta airlines both in bankruptcy court this week, four of the nation's "Big 7" airlines are now in Chapter 11, which raises the question: Why don't they just raise their prices more, as other industries struggling with high fuel prices have done?

The answer is a complex mix of tight competition, not only with low-cost carriers, but with buses, trains, and automobiles as well.

There's also the already-battered state of the traditional carriers' balance sheets. They didn't have the cash to hedge cheap fuel, the way flush low-cost carriers like Southwest did. So the majors will just keep racking up losses, which could mean a very different aviation industry in years to come.

"In order to fund those losses, the industry has taken on a huge load of debt," says aviation economist Dave Swierenga of AeroEcon Consulting in Vienna, Va. "When you talk about taking the longer view, that debt load will have detrimental consequences for many years to come."

Indeed, with jet-fuel prices still astronomical compared to historical norms and competition from efficient low-cost carriers fiercer than ever, the future, in the words of James May, the airlines' top lobbyist, "is not bright."

Since 2001, the US aviation industry has lost $32 billion. If fuel prices stay about the same, as expected, it's on track to lose another $10 billion by the end of this year. The chief culprit is the rising cost of jet fuel, according to the airlines. It's jumped more than 240 percent in the past four years, from 56 cents a gallon in 2001 to $1.92 today.

"It is clear that if not for the prices we must pay, the airline industry would be profitable," Mr. May, president of the Air Transport Association, told Congress Wednesday as he pleaded for them to suspend the jet-fuel tax. "Indeed, we remain at the mercy of oil markets and the federal government."

But that's a much too simplistic reading of the problem, other analysts contend, and one that in the end could hurt consumers. They note that while most of the traditional carriers are struggling, low-cost carriers like Southwest and JetBlue are thriving - so the future isn't so grim for all the airlines after all.

They blame the majors' current woes on a history of poor management, overly generous labor contracts, and a sometimes irrational reluctance to change in the face of a clearly transformed marketplace. They do credit the big airlines for working the past few years to increase their efficiency and bring down labor costs, but for some it may be too little too late.

"It's not that airline travel is something whose time has come and gone, but rather that these are difficult competitive times with a lot of change," says Clint Oster, a transportation economist at Indiana University at Bloomington. "Some folks have positioned themselves better than others. So while we may see some weeding out, I think we'll see other folks coming in saying, 'We can do better on a different kind of business model.' "

When the airlines were deregulated back in 1978, an economic shakeout like the one currently under way was expected, but it never materialized. The major carriers quickly developed a powerful hub-and-spoke network system that left each one with effective monopoly control over certain airports and regions of the country. When small, discount carriers like People Express and Freddie Laker Airlines started up, the majors managed to drive them out of business. They did it by lowering their prices to match or even undercut the discount fares on competing routes - even if they lost money doing it - at the same they increased their capacity, a tactic called "dumping." Once the discount carriers were gone, the majors would simply raise the prices back up.

So despite deregulation's goal of spurring more competition, the major carriers continued to effectively control the nation's skies and the prices consumers paid. Then in the late 1990s, trouble appeared on the horizon in the form of Southwest Airlines' success. The low-cost carrier had managed to survive the majors' competitive wrath by, in the words of one analyst, "running between the legs of the giants." Instead of competing head-to-head on routes, which had already proved to be a losing proposition, Southwest had built a highly efficient and successful operation flying point to point - using second-tier airports near, as opposed to in, the nation's biggest cities.

Then the recession of 2001 set in, and the majors began having trouble competing with Southwest and its imitators' low prices and high efficiencies.

In the end, it took Southwest's creativity to make deregulation work as promised back in 1978, and only now is the economic shakeout under way.

Many analysts say the problem in this highly competitive market is that there are too many airline seats and not enough passengers to make flying profitable.

"We're about to hear the mantra of overcapacity over the winter, and the premise will be too much capacity. There's nothing to do but get the capacity out through consolidation," says Kevin Mitchell, president of the Business Travel Coalition in Radnor, Pa. "That will be the tune by analysts and consultants and airline managements, all of whom stand to make a lot of money from consolidation."

He adds, "But personally, I don't think that's the solution." Mr. Mitchell says the problem isn't too much capacity, but too much high-cost capacity. That's a legacy of the major carriers' gambit to maintain dominance and limit competition with their hub-and-spoke networks. As a result, some may end up going the way of other great but now defunct airlines like Pan Am and TWA.

And so the next six months could be crucial in determining just what the US aviation industry will end up looking like.

It will be interesting to watch, says Mr. Oster of Indiana University. "The only thing that gets tricky now is when you're planning to travel, you have to figure out which one to book on and how far out to plan the trip - and make sure you pay with a credit card."

[Airbubba]

>>moral of the story for all future illlegal immigrants in america do not buy any dvd as to how to act as a airline pilot

This guy may just be an "enthusiast" but things like false documents and pilot uniforms are taken a lot more seriously after the 911 attacks. The UK has seen recently how sleeper cells can carry out an attack after months or years of planning.

Being in the country illegally is viewed almost as an entitlement by some groups.

For example, banks are changing rules to make it easier for "undocumented migrants" to own a home in America:

http://money.cnn.com/2005/08/08/news/economy/illegal_immigrants/

The 911 terrorists used this lax attitude toward documentation to their advantage. Given this recent and painful history, security has been increased in areas including training and even pilot supplies and uniforms.

I hope, if otherwise innocent, this young man is able to resolve his legal difficulties and repay his debts to Sporty's.


>>I think that, with the present climate of fear in the States, it would not be likely that someone from the Middle East would be accepted at any of the many flight schools operating in the U.S.

Well, you do need TSA authorization for flight training but it is a good thing in my opinion. I have a Greek friend who was able to fly the line here in the U.S. for months without problem but was unable to do annual simulator training due to a TSA paperwork snag. Similarly though, if I travel to a country with an expired visa, I have a paperwork problem even though my purpose is completely legitimate.

Here's the DVD mentioned above, it features a captain from bankrupt Delta Air Lines giving career advice:

http://www.sportys.com/acb/showdetl.cfm?&Product_ID=7301&DID=19

[Airbubba]

More analysis in the media:

United bankruptcy a model for rivals

Delta, NWA may use its blueprint

September 17, 2005

BY DAVE CARPENTER
ASSOCIATED PRESS

CHICAGO -- Costly, contentious and twice as long as expected, United Airlines' bankruptcy restructuring seems an unlikely role model for Delta Air Lines Inc. and Northwest Airlines Corp. as they begin their overhauls in Chapter 11.

United has run up $7.5 billion in losses in a 33-month bankruptcy process bloated by legal and consulting fees, for a staggering total of $12.5 billion lost since 2000. Its forecast for a profit in 2006 is dismissed by some as too rosy since it anticipates a sharp drop in oil prices to $50 a barrel, from around $63 a barrel now.

Nonetheless, the makeover of the nation's second-largest carrier serves as a likely blueprint for its two ailing rivals, which are expected to try to copy much of what United has done.

Analysts say they have little choice but to follow the bankruptcy leader to keep up -- and stay in business.

"I think they looked at United and saw how United was able to shed pension liabilities. . .and shed a lot of contracts that were burdening them and prohibiting them from making a profit," said George Novak, an airline consultant for the Metis Group in Washington, D.C. "United is showing that you can use bankruptcy in an intelligent manner to restructure."...

http://www.freep.com/money/business/bankrupt17e_20050917.htm

________________________________________

For perspective, here is one contemporary analysis with dire predictions on the eve of UAL bankruptcy:

Bush administration drives United Airlines into bankruptcy
Government panel demands all-out attack on airline workers

By Kate Randall

7 December 2002

The decision of the Air Transportation Stabilization Board (ATSB) to reject United Airlines’ request for $1.8 billion in loan guarantees is the signal from the Bush administration for an unprecedented attack on the jobs, wages and working conditions of United Airlines employees and workers throughout the industry.

The three-member ATSB—with representatives appointed by the White House from the Federal Reserve, the Treasury Department and the Department of Transportation—rejected as inadequate United’s plan to impose $5.2 billion in concessions on its workforce. The board reportedly demanded that $9 billion be wrenched from United employees for the loan guarantees even to be considered.

The rejection of the loan package is expected to force United to file for protection from its creditors under Chapter 11 bankruptcy by the end of the weekend. This would be the eleventh airline bankruptcy since the industry was deregulated in 1978. It follows last August’s Chapter 11 filing by US Airways. That carrier had previously carried out massive cuts in wages, benefits and jobs and had obtained ATSB approval for $900 million in loan guarantees.

A United bankruptcy would be the largest in airline history. United is the second largest air carrier both in the US and globally, with 85,000 employees worldwide and service in more than 120 cities. The company lost close to $4 billion in the past two years and is now losing more than $7 million a day. It faces nearly $1 billion in deferred debt obligations in the next two weeks.

A Chapter 11 filing will allow United to petition bankruptcy judges to rip up existing labor agreements and impose sweeping concessions on its workforce, including changes in wages, scheduling and benefits for current employees, and cuts in health coverage and other benefits for retirees.

Competing airlines such as American, Continental and Delta lobbied the ATSB to deny the loan guarantees. They hope to capitalize on United’s bankruptcy by snatching up market share and taking over some of the airline’s choice routes, particularly its lucrative trans-Pacific flights. “At the end of the day, it’s good for our industry, and it’s good for the American people,” commented Gordon Bethune, chief executive of Continental Airlines.

The rival airlines will utilize the draconian concessions imposed on United workers via the bankruptcy court to push through similar attacks on their own workforces. Commentators are openly declaring that the new round of wage and benefits cuts and speedup measures at United will set the benchmark for the rest of the industry, and for the labor movement as a whole. The stage has been set for an assault on the working class similar to that inaugurated by the destruction in 1981 of the air traffic controllers’ union, PATCO, by the Reagan administration.

The airline industry is also expected to seize on the crisis at United to push for changes in federal law that would strengthen their hand in bargaining with their unionized workers...

http://www.wsws.org/articles/2002/dec2002/ua-d07.shtml

[African Tech Rep]

Careful Airbubba – think you’ll find Delta are NOT bankrupt and probably have a team of lawyers ready to sue anyone who says they are for every penny (cent) they can get – after all they need the money to help with their solvency problems.

[West Coast]

"moral of the story for all future illlegal immigrants in america do not buy any dvd as to how to act as a airline pilot"

The moral of the story is to pay your bills when due.

[Airbubba]

>>Careful Airbubba – think you’ll find Delta are NOT bankrupt

Must take a little time for the news to get over there <g>.

See: http://www.pprune.org/forums/showthread.php?s=&threadid=189811

"GIULIANI FIRM TO GET $400K CONTRACT FROM BANKRUPT DELTA"

http://www.nypost.com/business/52759.htm

"Bankrupt Delta Air Lines CEO Gerald Grinstein is reassuring customers their travel plans and frequent flyer miles are safe..."

http://www.gwinnettdailypost.com/index.php?s=&url_channel_id=35&url_article_id=6355&url_subchannel_id=&change_well_id=2

"Employees at newly bankrupt Delta Air Lines and Northwest Airlines have every reason to fear that any leverage they once had in contract negotiations has evaporated, analysts said on Thursday..."

http://today.reuters.com/investing/financeArticle.aspx?type=bondsNews&storyID=2005-09-15T180208Z_01_N15476867_RTRIDST_0_AIRLINES-JOBS.XML

Shhh... don't tell anybody <g>.

[Ignition Override]

Bushpilot: you expanded very well upon some points made in my remarks. They never claimed that Southwest belongs, or needs to belong to ALPA-it was not my intent. But Southwest has been nevertheless heavily unionized for many years, and this glaring (intentional) bit of forgetfulness by the press is so consistent that one wonders if the only information available to the press is first filtered by either Wall Street writers (who often have an anti-labor prejudice), or others who want to keep this prominent fact hidden from public view.

And another airline analyst quoted somewhere above, highlighted the dramatic operational efficiencies with Southwest's business model, in contrast to the normal hub-and-spoke structures. The hub-and-spoke model, although inherited as various CEOs go through the revolving upper mgmt. door (few, if any, having any genuine interest in aviation: very, very few ever worked "down there" on the operational side: I can think of only two-at American Trans Air and Continental, who were pilots), was not designed by labor-even though labor is always the scapegoat (Peitschjunge?). It was designed and perpetuated by decades of fortress-building mgmts. But why are upper managements never considered responsible, by media writers and others, for this antiquated, highly inefficient 'business model'?

Also, despite the many inherent contradictions and flaws within ALPA, it is quite different than the IAM or Teamsters (dropped by UPS pilots years ago, and recently dropped by NWA's Flight Attendants, after decades of having their heads up their *****).

[RRAAMJET]

Bushpilot: major points you overlooked...

1. American's pilots are not ALPA represented.
Many of AA's pilots are up against the legal FAA maximum hours per year. How can they be more productive in the cockpit? (I know, like the McPapers of the world, you believe that the rules are outdated and pilots are overpaid busdrivers, and the sun shines out of Jet Blue's a$$....)
2. JetBlue's contract is anything but a goldmine. Many of the pilots that are friends of mine are extremely concerned about their long-term career package. A quick command is the only hope for decent NY living wages.
Many analysts are starting to be bearish about JBLU, by the way.
3. The entire US airline industry, including SWA, is fundamentally unprofitable. The 2nd Q results showed that, excluding fuel hedging, CAL and AA made better yields/asm than SWA.
The basic situation has been boiled down by Boyd Group as the airlines aren't so much competing against each other as against SWA's fuel hedging. And time is ticking on that....

It is just too simple-minded, and too Republican, to throw a blanket blame at labour.
The long term consequences of hammering labour incessantly are far more unpleasant for future residents of the US than you might realize. We're going to end up with a massive inequality in the distribution of wealth at this rate, and an enourmous retiree problem.

:uhoh:

[African Tech Rep]

Interesting – I always thought C11 protected you from Bankruptcy and you didn’t become actually bankrupt until you were under C7.

Will try and understand the difference one day – but guess that’s why lawyers get the big bucks

Maybe I should start a thread to find out the difference

Ah Ah

Seems C11 is a bit like “Administration” and C7 is “Liquidation”

Does seem to be a bit of a “get out of jail free card” – but not as much of a card as I thought – but am working from memory from some projects getting planes out of airlines under Administration (not C11) for the owners outside the US.

Always something new to learn :sad:

If interested I found Title 11 which contains C7 & C11 on http://www.law.cornell.edu/topics/bankruptcy.html.

PS
Most of us do now have electric and water – but news isn’t quick here - Delta and NWA made a 5sec slot on the news, at least the one I saw, (doubt if it even got mentioned on the Zulu or Xhosa ones) and MIGHT warrant a mention in the non tabloids on Sunday.

[African Tech Rep]

Having just had a “chat” with Airbubba re are Delta and NWA actually bankrupt or not on another thread I found this link on http://www.law.cornell.edu/topics/bankruptcy.html. which is the US Bankruptcy law (Title 11) – there’s probably other links this is just the one I found.

OK – I probably should have read this thread before “chatting” to Airbubba – cause he was right and I was wrong – but I’ve been wrong before and will again – hopefully not about the same topic though.

Happy reading to anyone else sad enough to actually read through the link.

[Ignition Override]

RRAAMJET: you, sir, have the BIG picture of the US airline scene. Can you mail me a color copy? And RRAAMJET: don't forget, but many former military pilots (US citizens...), even after they work for years in an airline c0ckp1t, still can't accept the fact that they are only a labor commodity, and considered just a cost liability.

Even "Aviation Week, a while back, explained the competition between Valuejet...woops, I mean AirTran, JetBlue and Southwest. One of the top AirTran execs, confidentially (no names here), was forced out of another US major by a classified item in their ALPA contract, in the 90s. Something to do with a background as Lorenzo's waterboy. As for the low cost mantra, just why did Lorenzo's low cost airlines not succeed? All you need are low costs....the theory must be valid :O .

According to the theory, they should have been highly successful, and modern Southwest, even without much fuel hedging, should not have been nearly so successful, based on staff/employee salaries.
Again, SW 737 pilots are probably the world's best-paid.

[mary_hinge]

From yesterdays on line edition:

http://www.timesonline.co.uk/article/0,,2095-1785191,00.html

Starts to put a slightly different slant on things IMO.

[Airbubba]

>>Having just had a “chat” with Airbubba re are Delta and NWA actually bankrupt or not

Believe me, I wish I knew a lot less about airline bankruptcy in the U.S. <g>. Unfortunately, most of what I know has been learned from personal experience as an "unsecured creditor".

[MarkD]

Perhaps the airline pilot unions should run national ads ask passengers to write to DL/NW offering to donate their FF points to offset the savings from cutting loose the pensioners - it wouldn't solve the problem but it would give it a lot of prominence. Maybe get John Travolta or another pilot friendly celeb to be the first to do it?

[idl1975]

While it is mis-used the intent is good but the price is high. For a start the management loses control of the company to a creditors committee who oversee and approve everything-they are usually the nastier sort of bankers -the financial worlds equivalent of an organsied crime 'enforcer'.

As briefly as possible and in the broadest of strokes:

It's a very rare event when a Committee runs a Chapter 11 case. Management doesn't 'lose control of the company', unless it's because management were all fired 30 minutes before the bankruptcy petitions were filed.

While a number of "official" committees may be appointed, the unsecured creditors committee is present in nearly every case. The Committee represents the interests of unsecured creditors, who are typically trade creditors, and not bankers. They are bankers only if someone has screwed up almightily (or been defrauded) and the banks have a large unsecured claim at the start of the case.

The Committee ensures that someone (theoretically) is looking out for the large body of unsecured creditors, who might otherwise lack effective representation because their claims are too small individually and of too low a priority (meaning, the order in which claims are paid) to make it worthwhile for them to actively participate in the case.

However, the Committee, like the federally-appointed "US Trustee", has a watchdog role rather than an administrative one: it is there to make sure that the bankruptcy petition gets scrutinized for good faith and, in theory, that troubled businesses can't cook up collusive deals with insiders or secured lenders that are unfair to other creditors.

Theoretically, chapter 11 provides for a debtor corporation to be administered by a "trustee". This is a trustee in bankruptcy and not the US Trustee. Although the code speaks of a "trustee", the debtor is permitted in a chapter 11 context to excercise the powers of a trustee, in which capacity it is known as a "debtor-in-possession", as in, in possession of its own estate. If the debtor truly lacks management (or honest management), a "true" chapter 11 trustee may be appointed who acts in a fashion broadly analogous to an administrator or receiver, although with responsiblities distinct from those of a chapter 7 (liquidating) trustee.

Note that businesses can and do liquidate within chapter 11. Chapter 7 is typically reserved for no-asset cases or where a debtor becomes administratively insolvent (basically, can't pay its debts as they come due after the petition date) during a chapter 11 proceeding. Companies can and do conduct an orderly liquidation via a chapter 11 plan.

Executory contracts: the prevailing definition of an executory contract subject to assumption or rejection is one where unperformed material obligations remain on both sides. When Acme industries ships NWA 2,000 patented bird-strike preventing widgets (with accessory spit-roaster) and sends them an invoice, a contractual obgliation exists, but not an executory contract. Acme owes NWA no further performance, and NWA simply owes Acme a monetary debt. NWA can't "reject" its debt, although it may well confirm a plan of reorganization in which Acme will receive little or nothing. In comparison, Delta's gate agreements with Fictional Airports Authority involve ongoing non-monetary obligations on both sides, and may be assumed or rejected. Ongoing leases, like executory contracts, are subject to assumption or rejection.

[African Tech Rep]

I think idl has noted why C11 is sometimes “looked down upon” by us foreigners – in the non US ones I’ve been involved in there hasn’t been “debtor in possession” – once the airline has gone into Administration an Administrator is appointed, even if the management staid on they would be toothless as the Administrator is GOD, nothing happens without his permission and his job is to get as much money as possible be that by “restructuring”, selling as a going concern or selling as scrap.

That is at least the way I remember it from Australia and Belgium where the Administrators made our lives HELL – even though I represented “secured creditors” – got to admit one I did in Turkey was different, in that one the airline simply closed down one night, no one turned up for work the next day, no administrator, no one willing to even discuss the situation and it was upto the creditors to get what they could – after “persuading” airport security to let them in.

You may of course correct me – as long as no one ever tells me the Administrator is really looking after the interests of the creditors – the ones I’ve dealt with became VERY rich by making the creditors (at least the ones with planes) pay through the nose to get their property back.
Then again I’ll also admit that if I’d been one of the guys laid off I’d have wanted them to screw every penny they could get out of anyone, so that I could get my redundancy, holiday etc payouts – but I seem to remember the Administrators were on a percentage which was paid first and that I think is wrong – it should be a fixed fee payable based on performance.

[stagn8]

I wonder if the problems DL, NW etc face are more subtle. They are hub carriers with hugely complex networks. Fact is that I don't think they have a clue how much money (if any) they make from any part of their operation. So how can they run it ?

Yield management is a very complicated subject. What is a passenger worth on a sector when they are holding a multiple segment ticket ? How do you allocate costs vs revenue ? Probably on a set of very dodgy assumptions.

So I would submit these carriers problems are fundamental. They don't have a clue about their business on a per sector basis (other than costs) so how can they run them.. Revenue/Yield management experts please chip in and explain.....

Also aren't the real winners in the airline game people like GE Capital Finance (see radarvector's link to http://www.startribune.com/stories/535/5619768.html ) and companies like American Express, as long as they keep airlines afloat, they make money....

[Huck]

Unfortunately I am personally very close to this pension debacle.

My uncle retired from UAL. And my father retired from NWA.

Both joined the military in the 1960's. One went to Vietnam, the other stayed stateside and trained pilots. They both ended up in the airlines. They both flew ~30+ years, as professional as they come, both great role models for a young buck like me who wanted to make a career in this business.

Now they are in financial turmoil, at the end of their lives. My father is 66, and has lived modestly his whole life. Yes, he can live off SS and his B fund. But here's the thing: I believe he EARNED his pension, it was part of his compensation, it was like a savings account that he built up with his sweat and toil.

Now it is just going to the ether like some sort of ponzi scheme gone bad.

This strikes to the heart of everything - our free market system, our government, the courts, the current administration..... The moral of this train wreck is: "Contracts really don't matter much. Not if you are weak and vulnerable when you want to enforce them."

[barit1]

Now it is just going to the ether like some sort of ponzi scheme gone bad.

Of course ANY pension scheme is a Ponzi scheme. They all rely on future earnings to fund past pensioners.

The smart pension plans are the ones with an independent board who insist on highly diversified investments, and not relying on the employer's earnings for the bulk of their cash flow.

When the employees buy out a company (as they did with UAL) they are increasing their risk in this area.

My guess is that the legacy carriers' pension plans made some sort of sense pre-deregulation, but they failed to adapt to the new travel marketplace. But hindsight always seems to have the upper hand.

[Ignition Override]

Huck.

You sir, have explained our US system very well. Better than anyone else on Pprune. We live in a very unhonouroble land. Integrity can not be quantified and measured.

In the US, unless you retire from a minimum of years with the civil service or military, not to mention upper management, your retirement does not need to be honored. My father retired from TWA ("class of '66"). He might be more fortunate than most of us airline "grunts".

Only upper management people are considered "Special People". :cool:

[Huck]

I had a professional (non-seniority) instructor this summer on the MD11. This guy was 75 and had retired from NWA in 1990(!), and was sharp as a tack.

He was with Hughes Airwest when it got bought by Republic. Management at Hughes was evidently from another breed, and stipulated as part of the purchase that the employee's pension fund would NOT be part of the transaction. The fund was handed to Merrill Lynch for management.

This guy was still receiving pension checks from Hughes, ~20 years after the company was gone.

The irony is - his NWA pension will (possibly) evaporate, and the company will still be in business (soon to be as profitable as UAL....)

[barit1]

Haven't you just made my point, Huck?

[Huck]

Yes I did.

But the problem, I think, was not deregulation of the airline industry. It was a failure of the federal government in the 80's and 90's to adequately oversee pensions.

[SR71]

What I can figure out is why anyone wants to be a creditor to a US major these days?

Just who are the the major creditors these days of big US airlines?

If I lend you some money and you don't repay me, I get nervous about lending you more.

Call me a conspiracy theorist, but I can't help thinking that once in Ch 11 there is more going on behind the scenes than meets the eye. The political influence on the process seems to me, incontrovertible. But to what end? The critics are right his time. History appears condemned to repeat itself.

The underlying economics of the American aviation industry are no different from that the world over. Last time I looked, it was signed up the to the Western Worlds capitalist hegemony.

Re-regulation isn't the solution. How ironic to hear that from such quarters.

It ought to be able to make it work like other airlines do.

The notion that it isn't ultimately the tax-payers, though, that pick up the bill is laughable...that is, until you retire.

:yuk:

[aviator]

The US aviation picture is a little more complex than some posters think.

Here is a piece written by a well known aviation analyst, Mike Boyd.

http://www.aviationplanning.com/asrc20.htm


Airline Industry Bankruptcies
Facts V Myths

Cutting Through The Lore

It's understandable how many folks get the wrong idea when they hear the term "airline bankruptcy" - especially in light of the number we've seen over the past five years. But some of the immediate conclusions coming from various media sectors have done nothing to really inform the public about the real nature of this situation, particularly the Delta and Northwest filings.

Somehow, several "unquestioned truths" have been promulgated in the wake of the DL and NW bankruptcy filings, many of which have no basis in fact, only in accepted lore. The accepted "facts" often are nothing more than "everybody knows" opinion. Yet they seem to be stated over and over, with nobody daring to question them, lest the questioner be burned at the stake as a heretic.

Let's note a couple of them:

WN's Profitable. That Means Other Airlines Should Be Just Like Them

Fact: The current Southwest model is really not profitable. It's living on very cheap fuel. It's a tribute to its management that it made a bet - a hedge - that fuel would go up, and it's now enjoying fuel at well below market rates. But its fundamental model, on an all-up cost basis is losing money. (More below on this)

Chapter 11 Is Just keeping Sick Carriers Alive

No, it's buying time for Delta and Northwest. Neither have a sick route system, although Delta needs to address its over-reliance on RJs. As noted below, Northwest has a route system that is geared for the future.

There's only so many people who can be convinced to chuck their plans for a new refrigerator and use the dough to take a low-fare LCC airline to Florida instead. But the current and future revenue streams between the fast-growing US centers of Asian investment on one hand - most of which are too small to support LCCs - and points in China on the other, are huge. Chapter 11 is allowing these carriers to adjust to what are immediate crises in fuel costs. (And, by the way, LCCs are suffering this too.)

If We Let'em Die, LCCs Will Take Their Place

Get real. Ask the folks in places like ROA, LYH, and BPT about the flood of LCCs that rushed in to replace service lost when a mega-carrier pulled down a hub.

The LCC model, not to mention investment capital, chases big markets, not small and medium size ones. Southwest and AirTran have made that quite clear - they're not interested in expanding at small or medium markets any longer. Flint is a great place for AirTran, but economics point to future expansion in Southeast Michigan being at Detroit.

The same windbag politicians who call for letting airlines fail will be the very ones who will rant and rave when East Upchuck loses all scheduled air service, and Southwest declines the opportunity to operate there.

LCC's Are The Future

Fact: It's here where the next shake-out is coming. First, they are not by and large really profitable, and the picture looks worse going forward. Second, there is an ultimately finite number of places where 100-seat to 150-seat airliners can be placed to make money with the LCC model. Third, take a look at the airplanes coming on line just at AirTran, jetBlue, and Southwest. Hundreds and hundreds. From a marketing point of view, they're already beginning to bump into each other. And for the folks ascribing to the "over-capacity" theory, these new aircraft offer no hope for getting a good night's rest.

The Reasons For C-11 Filings Are Essentially All The Same

Again, wrong. The causes for Continental to file in the 1990s, for TWA to file more than once, and United's filing, are very different than the reasons for DL and NW going the C-11 route. Again, look at the specifics of each incident, and there are few common threads beyond them all being airlines.

Letting A Couple Go Down Will Reduce "Over-Capacity"

Fact: we've already lost essentially the equivalent of one airline on the East Coast. US Airways dumped over 100 airplanes in the last three years. And, indeed, we have seen capacity reductions. In places like Roanoke. But where the huge passenger numbers are, airlines are still fighting for share.

It's lunacy to believe that in these "over-served" markets the failure of say, a United, would permanently reduce capacity allowing fares to go up. Just for starters, again, take a gander at the fleet plans for jetBlue, Southwest, Spirit, and AirTran. It's going to be a capacity free-for-all, and a major airline failure will only zap mid-size communities. Ask the ones who got the short end of the US PIT pull-down, or the DL DFW pull-down.

The Regionals Are Profitable, So Let Them Take Over

This is a statement often heard, but one that can only come from somebody who literally is on another planet from airline industry reality.

Fact: "regional airlines" are vendors, not airlines. They get their revenues based on selling services to mega carriers, not from passenger tickets. For example, Delta pays Comair on a cost-plus basis to provide it with feed traffic. Without that cost-plus deal, Comair would instantly be transformed into Independence Air, Phase II.

Consolidation Will Fix Everything

Sounds good. Gee! Look at the great synergies that would come from a combination of say, Northwest and Delta!

Unfortunately, there are some very expensive things that would have to come about to merge the two airlines and get operating synergies. Like, fleet commonalities. Taking a Boeing-operator and putting it together with a predominantly Airbus operator would require enormous amounts of expensive pilot training, maintenance training and the like. Just bridging maintenance programs between two fleets of 757s can be hugely expensive, even assuming they have the same engines, systems, and cockpit configurations. The bid-and-bump routine for pilots and other staff (which would be necessary if there were to be a combination of disparate fleets) would entail possibly hundreds of millions in costs to train and shift crews around.

Sorry, it looks good, but the results would not be as grandly positive as some seem to think.

Other Common Myths

Myth: The Legacies Are Dead, The LCCs Are The Future: Lots of the alleged "experts" are telling the world that legacy carriers simply cannot compete anymore with the likes of Southwest and jetBlue, which, they point out, are consistently profitable.

Fact: This is a sure sign that whoever makes the statement doesn't know any more about the fundamentals of today's airline industry beyond what they just read someplace else.

Note: Last quarter, American and Continental reported profits, and they were essentially paying "retail" for their jet fuel.

Note: Last quarter, if Southwest had been paying retail for their fuel, they'd have reported a big loss. True, they have hedged fuel, but that was a bet they made long ago - a bet that, fortunately, they won big-time. But it does not change the fact that on an apples-to-apples basis, AA's cost restructuring over the past three years gave it an all-up quarterly profit, and on an all-up basis, Southwest's system isn't making money.

It's great that whoever lost the hedge bet is bearing much of the cost of WN's fuel, but without that, the basic model Southwest operates today isn't a money-making one with high fuel prices.

Myth: NW & DL Are In Bankruptcy Because They're "Legacy" Carriers. Wrong. It's not the "system." It's not the "legacy" problems from the 1970s that pundits try to point out through the haze of over 25 years since deregulation.

Their problems were that they got caught in the headlights by fuel prices that went up a lot faster than they could adjust to quickly. True, both were in the process of getting their labor costs down - something that American, Continental, and United have already done. When jet-A went to over $2 a gallon, the immediate need was to conserve cash while labor and other cost reductions were achieved.

Lots of "experts" go into diatribes about how these legacy carriers have unsupportable cost structures and route systems, dating from the days of regulation in the 1970s. Sounds great, but it is more nonsense. It's missed by these grand prognosticators - most of whom have never worked within the airline industry - that if oil had stayed right where it was at the beginning of last year, as most of us expected, these filings would not have taken place.

The fact is that many of these alleged dead-man-walking legacies have addressed most of those structural problems. The fact is that most of these legacies - Northwest being at the top of the list - have revenue systems that will make them in the long run (and even in the short-run) the carriers to bet on.

But when fuel cost doubles in a period of only a few months, and a hurricane flummoxes both the price and the distribution of the stuff, the cash positions of airlines can get zapped quick. It's just that NW and DL had not gotten their labor costs down fast enough. In the case of DL, you could make an argument that the pre-Grinstein regime sat on its hands. In the case of NW, you could argue that the strategy taken didn't address labor soon enough.

But what you cannot argue is that the basics of these two airlines - particularly Northwest - are fundamentally flawed. They are not.

If fuel had stayed where it was projected to in early 2004, we would not be now bombarded by the dogmatic idiocy being spit out by a whole circus of sudden experts on the airline industry.


But these are hindsight calls by the usual suspects of the school of veneer reporting. If oil had stayed in the mid-$30s, as expected, they'd all be singing a very different tune.

There's A Revenue Side, Too. Then let's talk revenue streams. To hear the "let'em die" analysts tell it, Northwest and Delta simply don't have route systems that work.

Wrong.

Northwest in particular has one of the strongest route systems and revenue flows in the industry. The mantra-chanters have no knowledge about things like where current and future revenue growth will be. Hint: the future is not in trying to get more families to take trips from the Northeast to Florida, which is a mainstay of LCC operations. It's not relying on the potential for stimulating new demand with low fares between Boston and Lincoln. It's not just cherry-picking heavy markets like transcons.

Sorry to disappoint them, but as we'll note below, the new, growth revenue flows are between places like Montgomery and Seoul. Tokyo and Grand Rapids. Charleston to Osaka. Shreveport to Lansing. Greenville-Spartanburg to Milwaukee.

These, and dozens of other destination pairs, are where the future is. And where the LCC model mostly can't go.

Myth: The Hub-And-Spoke System Is Inefficient. There are the usual parrots that are spouting the "fact" that it's the "point to point" airlines that are making money, therefore the legacy carriers' hub systems are obsolete.

Depending on the source, the story is sometimes accessorized by babble about fleet utilization, assuming that just flying an airplane makes money. In another twist, they sometimes point to the number of airplane types legacy systems operate, and note that Southwest only has "one" type of aircraft in its system.

Fact: This is another badge of ignorance from people who get their airline knowledge from the cocktail party circuit.


Note: Southwest doesn't operate just one type of aircraft. There are fundamental differences in their fleets of 737-300/500s and their fleet of 737-700s. Until the end of last year, they actually operated a third type, the 737-200. It is a fact, however, that Southwest does focus on fleets of airliners between 124 and 140 seats, which is the general template for the LCCs that some of these "analysts" predict can and will replace Northwest and Delta, both of which have sinned greatly, according to some "experts," and must go out of business.



More of the article in the link...

[Ignition Override]

Aviator: fascinating, assuming that Mr. Boyd has his facts in context, and he is persuasive, although his frequent off-the-cuff remarks can appear sloppy and vague. He is often quoted by US business and general media.

Maybe my understanding of this industry is based on wrong interpretations.

A friend I just flew with lives in Florida, next door to a Delta pilot. C. was told by his neighbor that due to their next pay cut, the guy might just quit Delta, because his pay could be surpassed in another line of work. I suggested that the guy go on leave, despite his emotions, instead of burning a major "bridge", so to speak.

Our CEO has spoken to a few classes of pilots in recurrent training. Some of his comments were not well received, to put it mildly. I was told that when he stated that thousands of pilots are lined up to work for JetBlue (assuming that nobody connects this with the thousands of laid-off pilots), several pilots were ready to punch their CEO. A pilot in one class responded by telling him, to his face, that the airline could hire a brand-new Harvard (Business School) MBA to replace him for much less money. The guy who was there, said that the CEO....a, ..eh...a natural leader of men... :rolleyes: became quite angry, and used the f*** word four times, despite the fact that a lady pilot was there. This was exactly what he observed in class. Many of our pilots have the backbone to openly contradict blatant "poisoned Kool-aid", and refuse to "drink it" without question.

It is amazing how so-called corporate leaders, typical US airline CEOs, continue to view us as mere mushrooms who only need a dark room and bulls**t to thrive.

[SR71]

I can smell some el toro doo-doo as well.

How many business analysts do NW, AA, UAL and DL have?

What are management for if not to apply a business strategy that fits the times?

If you want me sympathetic as a creditor taking a hit on my investment, don't just talk to me about projected revenue streams, talk to me about projected costs as well.

Reminds me of a Top Gun quote:

Maverick. That was some of the best goddamn flying I've ever seen. Right up to the time you got killed.

[d246]

Southwest is profitable and heavily unionised, therefore unions must be good. A classic example of inductive logic, the permitted influence of the union is surely more relevant. Ignition O, of course CEO's, managers and corporate leaders hate pilots. They see them as overpaid, arrogant know it alls who rarely put thier money where their mouth is.

[Otterman]

I have tried to read all the posts related to this topic, but one thing that I missed so far is the chicken and egg thing behind the Chapter 11 filling of both NW and DL. To me they are indelibly related to the filling of both US airways, and United. UA and US airways were able to downsize their operations, and their Terms and Conditions in a way that would be impossible during the normal running of their operations. This has brought their costs down in such a way that is has harmed all the other carriers operating under the “normal laws” of business.

United has been in Chapter 11 protection for 33 months and is aiming for a flexible exit date of February, 2006. US airways is aiming for its second exit out of Chapter 11 in a period of one year. I sympathize, their troubles are huge and I would hope that my airline would also do all that is possible to keep my airline going. But what has happened here is that their presence in Chapter 11 has harmed all airlines. If United would have been allowed to fail (Chapter 7, as an example) it would have taken out most of the excess capacity that was present in the industry at that time. It would have allowed other carriers to straighten out some of their problems. Now the gangrene has been allowed to develop further and has harmed more than just the limb initially affected.

What we see now it that DL and NW are cutting back on their domestic operations and put in more capacity into their international network. This is being subsidized by their Chapter 11 filling. In this way the harm will be exported across the world. Their cost structure will be downsized, as especially their pension funds will be raped and pillaged and handed over to the government. This is a multi-billion dollar subsidy for both carriers. But United and US airways got the same deal. Continental was able to do all this back in the early nineties. This leaves only American Airlines as a top six carrier who has not resorted to this method of downsizing its cost structure. This means that 5 out of the top 6 domestic/international carriers in the USA are using this method to gain a cost advantage. By the way only a part of this subsidy is paid for by the government, most of it is paid for by the employees current and past in lost pension benefits.

Living in the Netherlands I am always amazed at the way the USA allows the little guy to pay the bills for the rich. Upper management is able to put together the most beautiful golden parachutes (even American Airlines had an issue with this when Mr. Carty put together a beautiful one for himself and his top team) while the normal employees are left holding the stinky little bag when things go south.

In my country our pension funds are a total separate entity from the employee’s company. My company is not allowed access to any funds. My pension is guaranteed up to this moment, meaning what I have built up to this point is something that I can rely on. Even if my company were to shut its doors tomorrow I would still get this pension payment when my retirement age comes around. Why can this be done in my country and not in the richest country in the world? To me it is a great shame that even people who have paid into the pension scheme their whole career are left with a greatly reduced pension or even loose it all. How on earth can you make a reliable financial planning?

In short Chapter 11 is harmful to all; it screws employees, damages competitors, and screws the taxpayer. I can’t think of any airline that has survived long term once it has used chapter 11 besides Continental (nine years and counting). The list of airlines that have eventually folded or been bought out is much larger.

[Ignition Override]

d246: Come on now-why such silliness? Despite the handicap of living abroad, are you aware that at most US airlines, pilots have already put chunks of their "money where their mouth is", in order to help their employers survive? One must be quite familiar with the industry over here, not 'hearsay' on Pprune, in order to comprehend the issues.

1) If a pilot (or other labor/staff) group volunteers to give up 15% las December and is about to give up another 10-20% of one's salary (which is a legal contract), with OR without a bankruptcy judge's order, why does this huge amount of cash not count? Read up on it ('Aviation Week& ST' or 'Wall Street J.'), this is no exaggeration. Some pilot groups volunteered to give up exactly 15% back in 1991, for three years (they gave their ALPA union MEC extra money in order to provide normal health and dental ins. for the furloughed families), in order to help their companies reduce cash flow and survive highly-leveraged corporate buy-outs. Why does that money not count in the quantifiable cash equation?

Already US pilot salary cuts often are 30%, or for others, will be so in the immediate future (not including benefits which also will help many upper mgmt airline executives to compensate for their slightly smaller, but still grotesquely over-bloated 'golden parachutes').

2) The US Airline Pilots' Association supported management by helping advocate a Bill in the US Senate which could relieve airlines of most of the immediate, huge pension burden: pension liabilities are amortized. The money (if it ever is available...) would be paid out over at least 15 years. The bill needs to be passed before the Senate leaves on October 6th.
Is this not "putting their money where their mouth is"? If these steps do not provide airlines with significant financial relief, then let's see the proof.

Either: a) the British press does not publish this information or
b) many readers choose to ignore it.


The JetBlue CEO's income is many times smaller than what it is at several US majors. Leadership by example. It should begin with management-well...if they have leaders at the top.

For those Ppruners who stay in the dark about the history of the US industry, pilots are almost always the first group to voluntarily take a significant pay cut and work more hours per month, despite having hundreds laid-off at a given company. And in many, if not most recent cases, the other (ramp, gate, flight att.) unions tend to be very resistant to any voluntary pay cut. We pilots don't need or expect a golden trophy, but these basic facts need to be acknowledged by our "leaders". If people choose to ignore these facts, that is a personal decision.
On a different note, maybe the politicized, radical environmentalists are partly to blame for the price of fuel right now- research and drilling.

But many of us still look forward to going to work :D . It sure beats flying a desk or a computer (even 'Ubisoft IL-2' or 'Pac.'), wearing an expensive suit. Lots of mgmt. people resent the fact that we both mostly enjoy our work and get paid pretty well, in some cases-but choose to ignore how critical our performance is, both to the safety of passengers/cargo (literally in the palms of our hands) and the expensive "limos" which we all fly. The combination of good pay for many (about half of our regional jet pilots [FOs] receive about US minimum wage) and enjoyment really drives many mgmt. types up the wall. This is a basic bone of contention (Zankapfel).

[cactusbusdrvr]

Mr Boyd has been right more often than he has been wrong. He called the demise of the 30 to 50 seat RJ several years ago.

The NWA and Delta CH 11 filings now are a direct result of the new Bankruptcy laws that take effect in October. The new laws make it tougher to file and limit the amount of time a company can spend in CH 11.

NWA used to be the model of fiscal responsibility until the Wall Street turds took over and leveraged every asset they had to go private. Look at Eastern, TWA and United, leveraged out to fatten short term shareholders and the used carcass left to rot on the side of the road. UAL used to known as the 800 pound gorilla of the industry, now it is little more than a neutered poodle.

[d246]

So some pilots have generously agreed to give back, in extremis, some of the exhorbitant sums they have screwed from the industry. Why don't they show these corporate leeches how to run an airline and do it themselves? Surely such expertise amongst them and their union would have the airlines profitably up and running in no time at all? Surely a bit of financial risk and hard work is no problem. Or is it easier to let others take the strian while the pilots sit and winge, demand more and of course expect the airline to be run for their benefit. Wake up boys, de- regulation has meant that the legacy carriers can no longer stitch up the market, your industry will have to compete to survive and you will get paid your market value.

[Re-Heat]

I have never read such unmitigated tosh as that written by Mike Boyd above.

For example:

Chapter 11 Is Just keeping Sick Carriers Alive:
No, it's buying time for Delta and Northwest.
How can buying time if you cannot make it without protection be anything other than keeping a company alive that would not normally be under the normal rules of the market?

His diatrabe seems to focus upon him knowing the industry better than the market itself; yet if the market votes against you by making you unprofitable, how can that business model ever have been right for the period in which you are operating.

I note also that JetBlue does not have the same hedging as SouthWest, yet is profitable as well - his examples are selective and twisted to prove his biased point of view.

Fact: we've already lost essentially the equivalent of one airline on the East Coast. US Airways dumped over 100 airplanes in the last three years. And, indeed, we have seen capacity reductions. In places like Roanoke. But where the huge passenger numbers are, airlines are still fighting for share.
Just another example of his tosh; there may well be passengers, but if you can't make a profit at the prices that attract all those passengers then you have overcapacity and should exit that market regardless.

[SR71]

His diatrabe seems to focus upon him knowing the industry better than the market itself; yet if the market votes against you by making you unprofitable, how can that business model ever have been right for the period in which you are operating.

That was kind of my point Re-Heat.

"Oooo, hang on, we're tweaking the business model guys. Moving capacity to the International routes. Yields are up. Load factors are up. Labour concessions are forthcoming. Things are looking good. Ummm....revenue streams are down??? Oh bollocks. Forgot about fuel prices, pensions and hedging."

:yuk:

[cactusbusdrvr]

d246 - the airline industry was started and run by pilots for the first 30 years. Look at the lions of industry back then - Rickenbacker (Eastern), Patterson (UAL), Hughes and Fry (TWA), Smith (AA)., pilots with vision who were leaders first and then managers..

Today we have managers with no leadership. The exceptions are the success stories that we read about, Branson, Kelleher, Bethune. Look at BA, an airline with a great reputation, a fortress hub closed to effective competion by way of slot restrictions, and what happens? The airline is allowed to deteriorate by managers who can't manage. It is good to see BA has recovered but that airline has succeeded in spite of management, not because of it. That story has been repeated over the last 20 years by managers who are looking for short term results and not the long term viability of their companies.

Pilots are generally very good at what they do. We are scrutinized far more than any other profession I can think of (save a football referee). 3 sim rides per year, 2 medicals, company line checks, FAA line checks, recurrent tests and all the Flight Data parameters that are monitored by the company via the FOQUA program (Flight Oriented Quality Assurance, aka the Snitch). All these are neccessary because we have to get it right, every time.

Since pilots are good at what they do they have a tendency to think they are good at everything they do, which, of course, is not the case. But since we are on the front lines we have a lot better picture of the operation than someone sitting in a cubicle back at company HQ. Since pilots are married closer to their jobs than their spouses and that manager sitting on his butt in his office can float away on his golden parachute to his next job with little change in status or pay, then pilots tend to get more than a little irritated at incompetence in other areas.

Should pilots run the airline - no, we need to be focused on what we do, which is fly the airplane. But should managers listen to the pilots and take heed of their warnings - yes, because we are the tip of the spear and we see things first.

[Huck]

...[S]ome of the exhorbitant sums they have screwed from the industry.

Let's see... when pilots take pay cuts, it's the invisible hand of the market.

When pilots make "exhorbitant sums", it's... well, what? Organized crime? The government? Surely not the market - the companies' officers must have had guns to their collective heads when they signed all those fat contracts.

It's all business, buddy-boy. Pilots get good money when they can, and they don't when they can't. It's called the free market. Works both ways, don't it?

[Ignition Override]

Well-spoken Cactus and Huck.
Our companies often "vigorously deny" the patter-bargaining strategies which they refer to in other arenas. As one of you stated, few airline CEOs even had an interest in aviation. They originally came from other industries. At least Continental's Bethune has a 757 type-rating and worked at Boeing (he has delivered a few aircraft from Boeing).

:D

[SR71]

It's all business, buddy-boy. Pilots get good money when they can, and they don't when they can't. It's called the free market. Works both ways, don't it?

Yeah but in a industry where your operating leverage is sky-high, this industry dynamic only makes for increased volatility of profits. You already have a cylical industry where because manufacturing lead times extend beyond the demand forecast horizon, you are almost condemned to poor performance/capacity mis-match across the cycle and then you add short term wage bargaining...

Nuts.

The blame lies firmly with our neanderthal unions and incompetent management (I feel qualified to comment being a Pilot Union Representative) and their failure to appreciate the constructive long-term relationship they need to encourage.

ESOP's/Profit share mitigates against that to some extent.

Free-market dynamics that give me £100K over three years then ask me for it back 5 years later isn't my idea of smart management.

The job has been eroded. Generally our T&C's are on the way down. The trend is irreversible in the long term and the perceived value will only temporarily increase with a supply-side reduction.

Thats why, inspite of the fact I fly 890+ hrs/year, I have another job.

Because I don't trust my management. Based on the evidence, neither should you.

:yuk: