Air Canada Goes Boeing

[unmanned transport]

As well, AC have made a wise choice, going with the GENX powerplant instead of the foreign (RR) one.

In service life so far on the pre-production Trent 900s pulled from the A380 has proven that they have premature heat and wear problems.

For reliability and fuel consumption, the GENX technology in the core machinery of the LPC, HPC, LPT and HPT is based on the more advanced GE-90/115 series.

The core machinery of the RR Trent is based on much older technology.

GENX, the best of 'both worlds', GE and Pratt.

[Cpt. Underpants]

Someone please explain:

How does a "bones-of-it's-ass" airline that loses BILLIONS of $$$ over the last decade afford to pay for this huge order? Are the naive Canadians banks betting again on a nobbled old mare and will the long-suffering Canadian taxpayer eventually pay the bill?

Please, someone, enlighten me!

[MarkD]

unmanned transport

are parts of GENX made by P&WC? If not, that makes it as "foreign" as an RR Trent. Seen any Brits stealing softwood lumber money recently?

Add to that that if GE Capital are involved in the 777/787 order in any way, GENX might have been suggested as powerplant as GECap are thought to be used by GE to push their powerplant. Nothing wrong with cross-selling per se since but thought that was worth pointing out.

It's also worth pointing out that while Trent has pedigree going back to the RB211, and is considered the most economical engine for the 380 by Airbus (stated on airbus.com) not GP7000, GEnx is listed on the GE website as being for three aircraft - 787/350/747A, for which metal has not been cut (or in the case of 787, plastic not baked). In addition, AC already has Trent experience with their 330 fleet (as Transat do also), and perhaps some AC person reading here might enlighten us as to their experience with them.

I think GEnx will be a very good engine - when it flies. So will the Trent 1000, RR's answer to GEnx for the A350/B787 platforms which Airbus had offered AC for their order, not A380 or the Trent 900.

Oh and by the way, when you were naming Pratt in your best of both worlds, were you counting the PW6000?

[brucelee]

Underpants(aka Superhero).
Air Canada has been doing quite well since the restructure. They just handed out $300 mill to their shareholders. There's $$$ in the bank and all indications at this point look to a very promissing future, outdoing any other airline in N. America. I could go on but I think you get the message. As for taxpayers picking the tab, they haven't had to do so since privatization in the late 80s. You must be thinking of that other airline that whent bankrupt and was bought by AC. The billions required to purchase the new aircraft are coming mainly from outside Canada. Very reputable financial institutions who are NOT in the business of losing money. Your knowledge and opinions of the Air Canada current and past hold no water. Another waste of our time on this forum.

[Slapshot]

"Air Canada has been doing quite well since the restructure. They just handed out $300 mill to their shareholders."

Doing quite well at everything with the exception of flying airplanes. The actual Airplane operation lost money and it was profits from Aeroplan and the ACTS Mtce. arm that provided the $3oo Million... Money that, against Milton's best advice, is being given to shareholders.

"There's $$$ in the bank and all indications at this point look to a very promising future, outdoing any other airline in N. America."

I think you forgot one Airline. WestJet posted better results and made more money per share than Air Canada or any other Airline in North America during the last quarter.

[brucelee]

Slapshot.
Just when I thought Underpants was a rare case.
Sorry, I was refering to N. American majors. WJ has a long way to go before you can compare it to AC. The corner store down the street outperformed the Walmart store around the corner on a per unit basis. This doesn't mean a comparison can be made. When WJ has over 20,000 employees and over 300 airplanes, come and talk to me. No matter how you want to spin it, AC has $$$ and is doing quite well thanx.

[Cpt. Underpants]

So RM and his band of spin doctors have you believing too, do they? AC COULD NOT POSSIBLY have gone from $10 BILLION in the red to a net profit in three years.

AC will falter again and again. Borrowing from Peter to pay Paul is no way to run a business - eventually it's going catch up.

Just remind me again what salary cuts you've taken in the past three years and what the stock price is..? I'll trust Bay Street any day over RM's deluded ramblings.

[brucelee]

Underpants.

Salary cut was 15% (20 % for A320) and are due for renegotiation in 2006. Still average if not better than most N.American majors. Latest stock price today was somewhere around $34.55, down a few cents. The 10 billion in debt is down to about 3-4 bill ( about equal to the amount Canadian brought over when we merged). This year, there will be a (operating) profit. This info is public, no need to hear it from RM. AC has been around for about 75 years, it certainly doesn't need your opinion. Why don't you make like a real superhero and fly away.

[sony]

I agree with Bruce Lee. Air Canada has done one heck of a job. They are, by far, in the best position of any of the North American Legacy carriers. (If that term still exists in its prior form) They are the only North American carrier that when I fly on as a paying pax, that when I deplane, I am not in a foul mood due to the "service" or extreme lack of it.

[brucelee]

Sony.
Thanks for the vote of confidence, common sense.
Lots of Americans use AC to get to Europe. I sat beside one who came up from MIA to YYZ to go across the Atlantic because of our service. Lots more like her. Barring any more perfect storms, AC will be the proverbial RED wine, getting better with time. Underpants and Slapshot aside, common sense will prevail amongst the professionals in this industry. Things will get real quiet around here in a couple of years.

[unmanned transport]

Let's get back to the original topic, fellas.

AC going with GENEX, a North American built machine and not with a (foreign RR) one.

The GE/Pratt architecture in a twin spool design which allows for less expense, less parts, lower weight and less maintenance.

The (foreign RR) one uses three spools.
With this design, the LP (low pressure) and HP spools have to be coupled together during engine start. The coupling is accomplished thru engagement of a pair of conical plates by a hydraulic piston actuation system while the engine is stopped. As the engine start process increases, at a predetermined speed the EEC (electronic engine control) signals for the coupling to disengage and the HP spool rotates independently from the LP spool.

So take your pick, I\'ll go for the GE/Pratt twin spooler.

[Leffy Gold]

I think it was a smart move for AC for 2 reasons:

- 30% more fuel efficient then other comparible equipment

- they negotiated a sweet deal with Boeing


Seems pretty wise to me.

Besides, the paying customer apparently likes to fly with AC.

"Air Canada was voted the #1 airline in North America in a recent Skytrax survey of more than 12 million air travellers worldwide."


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www.myaltitude.********.com

[Cpt. Underpants]

Bruce Lee

Be defensive by all means, but is it entirely necessary to be insulting? Mind, par for the course at AC - ticket agents, check-in counters...

I am not surprised that I know No-One who would list AC as their preferred carrier.

[brucelee]

Underpants.

Your comments re AC are not only insulting but also full of BS. What response did you think you were going to receive? As for knowing no-one who would make AC their prefferd carrier, you might want to check with one or two of the many thousands we fly every day. You obviously have some kind of anger towards this company and it's getting in the way of any truth or logic. Cheer up.

[Skipness One Echo]

The above comments obout "foreign" engines are ignorant and do you no credit. Perhaps you're not suitable to live in the 21st Century with the rest of us.

On a less poisonous note - did Air Canada have a falling out with Airbus over the A340-600 / 500 defferment. Ther've gone from Airbus launch customer to "cheerio" A340 rather quickly.... Good luck to Air Canada - shame they dropped Glasgow from their scheds, (why?) I may have to use Heathrow again(!!).

[MarkD]

unmanned

do you live in Alberta? Your profile doesn't say. If so, you might think the US isn't foreign since they are gobbling up "your" oil and helping Ralph print your refund cheques.

Tell me again how much of the GEnx is built IN CANADA. If there isn't any (or at least any more than the RR) then it's foreign. You'll realise that when you start showing your passport at the border real soon.

I think the points about the technical spec of the nx are interesting but your "political" points are complete cr@p. By the way, out of interest, does a GEnx fit in a 747F?

While the 777 is a proven airframe and will be a goer in AC service, the 787 has had to row back on a few claims like how long engine changes will take. I hope for AC's sake all the rest come true.

[Tree]

JUST THE FACTS

In 1999 Air Canada's materials cost share was the highest of all major North American carriers.

In terms of labour productivity, Air Canada and US Airways have consistently been the lower performers throughout the 1990s.
Air Canada’s labour productivity level was the lowest of our sample carriers for the 1993-98 period.
AC’s labour productivity was about 14% lower than that of CAI for 1998.

US Airways and Air Canada had the lowest capital input productivity throughout the 1990s.

Air Canada and US Airways had the lowest TFP (Total Factor Productivity) levels for the entire period. Air Canada’s TFP level in 1998 and 1999, became 14% lower than that of US Airways, the worst TFP performer among the US carriers. During the entire 1990-99 period, CAI’s TFP levels were consistently higher than those of AC. From 1994 to 1999, the CAI’s TFP level was at least 20% higher than that of Air Canada. Air Canada’s TFP level in 1999 was back to about the same level as that of 1990.

Northwest appears to be the most efficient carrier among the group, whereas Air Canada is the least efficient carrier among this sample in North America. AC’s residual TFP levels are consistently lower than those of US Airways, the worst performer among all U.S. carriers in our sample.

Air Canada performed poorly, and was among the lowest
performers in almost all the performance measures used in this section. The only aspect Air Canada achieved an above-average performance was fuel productivity. On the other hand,
Canadian Airlines made significant improvement in its productivity, and achieved above-average performance among our sample carriers during the second half of the period.

CAI’s efficiency levels were consistently higher than those of AC throughout the period.

From 1994, CAI’s unit cost came down dramatically, and from 1996, became the lowest among all of our sample carriers. From 1994, the average unit cost of CAI was at least 10% lower than that of AC. From 1998, the difference became
nearly 20%. The high inefficiency (low residual TFP) is at least partly to blame for AC’s high unit costs.

Air Canada appears to deviate from the general trend with a higher unit cost even when its input price level is low.

AC’s unit cost disadvantages due to its lower productive efficiency than all U.S. carriers became magnified in 1998: for example, 23.7% unit cost advantage for American and 32% for Northwest. In sum, while the unit cost advantages of AC and CAI over the U.S. carriers due to lower input prices have increased substantially between 1990 and 1999, the unit cost disadvantages of AC because of the relatively reduced productive efficiency of AC relative to the U.S. carriers and CAI have become alarmingly expanded during the same time period.

CAI had an average cost competitive position at the beginning of the period, and became the most cost competitive carrier towards the end of the period.

Air Canada remained one of the poorest performers in terms of ROA (Return on Assets) for the rest of the decade.

It is possible to make the following summary statements concerning cost competitiveness of Canadian carriers and individual carriers:
- In 1990, most of the major U.S. carriers were more cost competitive than Air Canada, mainly because AC’s productive efficiency was much lower than its U.S. counterparts.

- In 1990, CAI had about 16% unit cost competitiveness relative to Air Canada mainly due to the fact than CAI had much higher productive efficiency than AC. CAI’s cost competitiveness level was similar to the average major U.S. carriers.

- By 1998, CAI became the most cost competitive airline in North America, and its unit cost advantage over AC was about 21% because of CAI’s productive efficiency which was fairly high even relative to some of the major U.S. carriers.
- Despite the fact that CAI had 15.8% higher cost competitiveness than AC in 1990, CAI faces near bankruptcy in 1992. Similarly, America West was the most cost competitive
carrier in the U.S. in 1990, it still had to face Chapter 11 bankruptcy reorganization during the early 1990 economic recession. Also, in 1998 CAI became the most cost competitive
carrier among all North American carriers, but still it folded financially and had to sell itself to Air Canada. In addition, although Air Canada has been among the most inefficient carrier from 1990, and in fact, became the most inefficient carrier in 1998, AC was able to survive
financially, and was able to acquire CAI at the end of 1999. This implies that productive efficiency and cost competitiveness alone does not decide success or failure of an airline.

References:
Caves, D.W., L.R. Christensen, and W.E. Diewert (1982), Multilateral Comparisons of Output, Input, and Productivity Using Superlative Index Numbers, Economic Journal, 92, 73-86.
Caves, D.W., L. R. Christensen, M.W. Tretheway (1981), U.S. Trunk Air Airlines, 1972-1977: A Multilateral Comparison of Total Factor Productivity, In Productivity Measurement in Regulated Industries (T. G. Cowing and R.E. Stevenson, ed.), 47-77, Academic Press, New York
Caves, D.W., L.R. Christensen, M.W. Tretheway, and R.J Windle (1987), "As Assessment of the Efficiency Effects of U.S. Airline Deregulation via an International Comparison" in E.E. Bailey ed. Public Regulation: New Perspectives on Institutions and Policies, Cambridge, Mass: MIT Press, 285-320.
Christensen, L.R. and D.W. Jorgenson (1969), "The Measurement of U.S. Real Capital Input, 1929-1967", The Review of Income and Wealth, Series 15, No. 1, 293-320
Ehrlich, I., G. Gallais-Hamonno, Z. Liu, and R. Lutter (1994), Productivity Growth and Firm Ownership: An Analytical and Empirical Investigation, Journal of Political Economy, Vol. 102, No. 5, 1006-1038
Gillen, D.W., T.H. Oum and M.W. Tretheway (1985) Airline Cost and Performance: Implications for Public and Industry Policies (Centre for Transportation Studies, U.B.C.).
Gillen, D.W., T.H. Oum and M.W. Tretheway (1989), "Privatization of Air Canada: Why it is Necessary
in a Deregulated Environment," Canadian Public Policy, vol. XV, no.3 (September 1989), pp.285-299.
Gillen, D.W., T.H. Oum and M.W. Tretheway (1990), "Airline Cost Structure and Policy Implications", Journal of Transport Economics and Policy, Vol. 24, No.2, May, 9-34.
OECD, 2000, “Purchasing power parities for OECD countries, 1970-1999”, National Accounts, www.oecd.org/std/ppps.htm
Oum, T.H. and C. Yu (1998a), "Cost Competitiveness of Major Airlines: An International Comparison," Transportation Research: A (Policy and Practices), Vol. 32, no.6 Oum, T.H., and C.Yu (1998b). Winning Airlines: Productivity and Cost Competitiveness of the World’s Major Airlines (Kluwer Academic Press, New York, London)
Oum, T.H., and Y. Zhang (1995), "Competition and Allocative Efficiency: The Case of Competition in the U.S. Telephone Industry," Review of Economics and Statistics, vol. 77, no.1, 82-96.
Oum, T.H, C. Yu and E. Fowler (2001). "Assessment of Recent Performance of Canadian Carriers: Focus on Quantitative Evidence for Evaluating Canada’s Air Transport Policy Options," submission to Canadian Transport Act Review Panel, February.

-----------------------------------------------------------------------------------Debt Comparison (in millions):
(excluding aircraft leases)

Air Canada 1990 - $2,194.0
Air Canada 1998 - $2,997.0

Canadi>n 1990 - $1,552.4
Canadi>n 1998 - $1,239.6

[meaw]

Underpants,


How do you explain that AC won the award for Best North American carrier this year?

Explain that!

Fact of the matter is in this great country of ours that it's hip to hate the big guy, the successful guy, the rich guy, the powerful guy etc etc....
Ther will always be underpant-types out there to hate AC no matter what AC does....it's Canadian culture to bash AC instead of being proud of it (wich you should be)

[KingAir]

Tree,
You might want to get some up-to-date numbers. You can't compare the AC of the 90's to today's ACE family. That argument doesn't hold anymore. Many of the American "legacy" carriers are still in bankruptcy protection and AC has emerged from the ashes a lot sooner than expected and like meaw has said, voted the best North American carrier.

Fly red.

[brucelee]

I also have to question the integrity of that info. Canadi<n employees use to get their birthdays off, fly one leg a day etc. as I was so emphatically told one day by one of them. That doesn't sound too productive to me. Anyhow, the end result proved that productivity has to combined with good management, lower cost and good load factor. I guess in the end, AC won on all accounts.