The FAA is hoping to give its NextGen air traffic system a boost by paying jetBlue over $4million to equip 35 jetBlue aircraft with new navigation systems.  It’s hoped that by giving this push, the rest of the industry will embrace adopting these systems quicker and in greater quantity.

So far, many airlines have argued that the FAA should pay them to install these systems.  I think the airline industry has had enough government support for the last decade and its time to get going on investing in their business.  (Not for nothing, this is what happens when you continually save airlines from liquidation via government loans and liberal bankruptcy laws.)

The FAA’s NextGen GPS based system will have a system of ground stations covering the country by 2013 and all airlines will be required to use the system by 2020.  But the FAA also recognizes that if it can get airlines to buy into the improvements sooner than later, it can pull its schedule forward and realize some real gains now rather than later.

Here’s the best reason to adopt these new systems:  they pay for themselves.  Southwest is already making use of this kind of system to better orchestrate its own operations and now expects annual savings of up to $60 million / year.  You can equip a lot of aircraft for $60 million in found money.

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Airbus is reaping big orders and a renewed interest in its A330 since Boeing has been unable to deliver the 787 even remotely on time and that is going to hurt Boeing in a few ways.

Delayed by 3 years now and with only some hope of commencing deliveries later this year, Boeing is paying penalty payments for its poor performance and those payments are being walked across the street to Airbus, not Boeing. 

Boeing is being hurt since it hasn’t been able to offer a substitute aircraft to the airlines that the airlines want.  It’s cheaper to build an airplane at cost than it is to pay big dollars in penalty payments that go to the competition. 

What’s worse, Airbus is attracting a long look from traditional Boeing customers who now have little hope of obtaining a 787 any time in the next 5 or 6 years.  That’s great for Airbus but it is a warning to Boeing as well.  A stubborn resistence to the idea that bringing even more control of the 787 supplier network under Boeing’s wings is creating problems that some customers will have to question if they’ll ever be resolved.

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Sen. James Inhofe of Oklahoma is about to introduce an amendment exempting certain nonscheduled air carriers from new FAA pilot fatigue rules.  This amendment would permit carriers to require pilots to fly longer hours, stay at the controls longer and return to work after a shorter rest period.

These nonsecheduled air carriers would be certain passenger charters and freight operators.  Specifically, it would benefit carriers such as Evergreen, Atlas Air and World Airways.  It’s no coincidence that carriers such as these carry more than 90% of military passenger traffic and much of their air cargo as well.

Exempting these carriers reduce the costs to the government and this seems to be a case of government making a better deal for itself.  This time, at the cost of pilots.  Pilot fatigue is a real worry and concern and shouldn’t be treated this way in order to get a better deal. 

Two thumbs down to the US Senate for making this move.

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Evidently Ryanair thinks it should be shutting down at least 10% of all routes it opens or it isn’t doing its job.  Its argument is that many of those routes have never been flown before and it is impossible to predict success for all of them. 

This makes considerable sense but it is also worth pointing out that Ryanair’s outsourcing model for ground support also allows them to contract away from unsuccessful routes without feeling pinned in by the costs to withdraw from a market.  In addition, its decisions on these routes are uninfluenced by other considerations such as regional flights feeding into these routes.

Other airlines could stand to be a bit more brutal over their routes as well.  All too often one set of routes is operated unprofitably to support the money it feeds into more successful routes.  The Ryanair model (and other LCC airlines as well) of insisting that route support itself is the better, more sustainble pathway to success.

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A video of the SADDE SIX approach into LAX.

Tip of the hat to Cap’n Doug from From The Flight Deck Blog.

And a video of synchronized flying.

And Virgin Atlantic’s Mustang Sally 747 gets repainted

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The merger between Chile’s LAN airlines and Brazil’s TAM airlines (to be called LATAM) is on hold while regulator examine what, to them, appears to be the formation of a continental monopoly.  Oddly enough, the objections come from Chile’s regulators right now with Brazil’s remaining reasonably quiet so far. 

The western half of South America doesn’t have much competition going on and success by LAN has been the result of operating an airline like a grown up rather than as a shiny bauble for governments to admire.  However, at the end of the day, it was still Chile’s airline and by extension, it was still western South America’s airline too. 

Brazil is the one marketplace that does have a tremendous amount of competition in the airline industry and it has done nothing but help fuel the economic growth that country has experienced.  To the outside observer, LAN was the strong airline in this union.  However, to those in South America, LAN almost appears to leaping off a cliff and becoming swallowed up by TAM (and by extension, Brazil.) 

There is, in many senses, an inferiority complex when it comes to how other nations in South America view Brazil.  It is viewed with jealousy and suspicion.  Jealousy because of their economic growth and success over the past 2 decades and suspicion because Brazil never had the same history as the rest of that continent including not sharing a common language (Spanish).  As such, this merger is viewed there as a potential loss of LAN and that worries many, particularly in LAN strongholds like Chile, Ecuador, Peru and now Colombia and Argentina.  Not one of those countries lacks jealousy and fear of Brazil and its power.

Is the merger needed?  No, not necessarily.  But allowing a SuperLegacy in South America to develop would be good for the whole continent, not just Brazil.  In fact, I would offer that Brazil wouldn’t see much impact but the remaining countries would only benefit.  It would put LATAM on par with other major world airlines and offer them negotiating power and financial strength to expand their route system in a way that wouldn’t necessarily require alliances.

Will it get approved?  Ultimately, I think so.  Politically, I think this has some hurdles before it happens.  Brazil will have some objections as well, I think, and I would expect this to take as much as 2 years to accomplish and several more before a harmonious brand is decided upon.

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The next round in the subsidy fight between Boeing and Airbus is heating up with each company’s interpretation of WTO findings with respect to Boeing while we await “official translations” of the WTO ruling.  Airbus, of course, says Boeing got tons of subsidides and hurt Airbus by as much as $45 Billion.  Boeing says the ruling is relatively benign and just $2 Billion in subisidies will be noted.

As is usually the case, I expect that neither is exactly right.

However, in my opinion, it will be very difficult for the WTO to find that Boeing has been as competitively advanced by subsidies as Airbus.  At the end of the day, Boeing is a commercial enterprise with real shareholders operating in a country that expects it to commercially succeed.  Airbus?  Well, they would be the opposite of that. 

Like it or not, the world at least accepts and tacitly endorses companies that are competing and being responsible to shareholders to return a profit on investment.  That effort might be helped by subsidies but it’s still a commercially competitive enterprise.  Airbus is competitive but at the cost of inefficiencies as a result of it being a jobs program and a military/aerospace program for France and Germany.  If you removed subisidies from both airlines’ schemes, Boeing still has more than adequate opportunities to succeed whereas Airbus doesn’t. 

Even the Boeing ruling hurts Airbus with its timing.  This expected ruling once again, highlights even more egregious behaviours on Airbus’ part and that is concentrated into arguments against its parent company, EADS, in the KC-X tanker competition.  It’s a right line that EADS has to walk because, politically, they can’t afford to be seen as a fully subsidized effort to win business from the US government that inherently does take away both jobs as well as economic development from these shores.  On the other hand, EADS need to be a player in this kind of competition at some point or its political masters will find less and less incentive to advance its causes. 

The DoD continually refuses to make allowances for subsidies.  In fact, it almost gleefully rubs its hands over the idea that EADS might “buy” its way into the program which does yield savings for the DoD but also comes at a huge political cost on both sides of the aisle.  At the same time, no politician can quite afford to be seen making Boeing a sole source for this either. 

It’s a mess with no great solution.  One solution promoted is a split buy.  Politically, this makes sense.  Operationally, the only good choice is the Boeing in that it allows the military to project force in the way only the US Air Force can manage to do. 

I think this latest round makes the KC-X tanker competition even more toxic and I fully expect further delays in its award while DoD masters wait for things to settle enough to determine the political winds.

Note:  This writer works for a major US aerospace company that is a full partner on both programs.

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V Australia and Delta Airlines have been fighting to enjoy anti-trust immunity with a mutual capacity agreement on routes between the United States and Australia.  So far, regulators are unconvinced that this would be a good thing for consumers and see it as an opportunity to gain market share only. 

To a degree, that’s true.  V Australia and Delta Airlines are the new boys on the block when it comes to US/Australia routes.   Their direct competitors are QANTAS and United Airlines who enjoyed near monopolies on those routes for years.  In addition, the lion’s share of the market belong to both of those airlines today as a result of their strong alliances (Oneworld and Star Alliance). 

I was glad that new competitors entered that market and I think we need more competition than just two airlines who want to behave as flag carriers.  On the other hand, I never thought that those routes could stand 4 competitors either.  Allowing an agreement between V Australia and Delta will help preserve the competition, I think, more than harm it. 

Both airlines promise not to reduce flights between the two countries and I believe that is true.  Instead, I think we would see the aircraft redeployed on other routes between the two countries to provide more coverage to both nations.  This would be a good thing.

In light of QANTAS’ move to switch its route to Dallas / Fort Worth from San Francisco to link up better with its Oneworld partner, it’s time for the regulators to calm down and get their assurances and allow Delta to make this partnership happen. 

If anything, a link up between these two airlines could result in better service for consumers.  V Australia can feed passengers over to its Virgin Blue domestic market whereas United Airlines has no such partner in Australia.  Since many of the objections come from Australian regulators, one must assume that there is some unequal treatment towards QANTAS going on here. 

I think reality will set in and we’ll see this agreement approved some time soon but not without certain guarantees and I think the two parties will have to make a move to show that they don’t want to harm QANTAS too much at the end of the day.

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Trans States Holdings,  a regional airline holding company operating the Compass Airlines (newly acquired), GoJet Airlines and Trans States Airlines, has firmed up its order for 50 Mitsubishi MRJ regional jet aircraft and has options for another 50 aircraft.  This is a huge order for Mitsubishi who has just one other order from ANA for just 10 aircraft (15 options).

In fact, one has to wonder about the viability of the MRJ if it doesn’t soon gain a few more orders.  The 70-90 seat aircraft promises everything else that other new regional jets are promising.  This aircraft is using the Pratt & Whitney GTF engine for meeting its performance goals as well.

This aircraft has risk in it.  This is the first Japanese developed airliner since the YS-11 in the 1960’s and while Japan does have a nice aerospace industry serving Boeing (and Airbus to a lesser degree), it has little experience in building whole aircraft on its own.  In addition, the Pratty & Whitney GTF engine is still an unproven engine in the eyes of most people.  It may well perform as promised.  Then again, it may prove to be a maintenance nightmare too.

Trans States order is a bit of a vote of confidence but I also wonder at their plans for these aircraft.  They’ll obviously be used for 70 seat flying on behalf of a variety of airlines but that only becomes possible if more airlines’ pilots unions permit more 70 seat regional jet flying.  Ask United how that is working out with the Continental pilots.  American is doing no better with American Eagle either. 

It’s a gamble for both parties and both need a win in this deal.  If this airliner doesn’t work out, Trans States may well be finished as a company.  If Trans States is unable to deploy these aircraft into flying for various airlines, Trans States may well be finished as a company.  If Mitsubishi doesn’t land more customers soon, there may not be a business case to continue developing this airliner. 

I’m not sure the MRJ is big enough.  It seems to me that the right size airliner might be more along the lines of the Embraer 190/195 and CRJ900/1000 as it would attract airlines who need a smaller aircraft for mainline flying.  There is a lot of uncertainty among regional airlines in the US at present because there are fewer customers to fly for and those customers are squeezing their partners even more today.

How many new regional jets do we need?  With Russia, Japan and China all working on similar aircraft to compete with two other companies who have a mature product (Bombardier andEmbraer), it would appear all of these new aircraft are, at the least, somewhat at risk.  Russia’s Sukhoi SuperJet actually looks more “right” for customers than the MRJ since it has more lift and range.  China’s effort is an exercise in learning how to build a plane more than a real commercial effort to succeed.

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American Airlines has sued Travelport to get a permanent injunction forcing Travelport to show its fares without bias in the Galileo reservations system.  No doubt the small amount of success in forcing a stalemate with Sabre has caused American to think that it can achieve similar results with other global distribution systems.

Maybe. Maybe not.  Achieving some relief in court only lasts a short time.  At one point or another, AA has to either walk away from the GDS companies or it has to do a deal.  A deal won’t get done in court.  Doing a deal requires both parties to work things out and the fact that AA is suing is a signal to the GDS companies that they are having some effect on AA’s bottom line.  Continuing to show solidarity among themselves can only result in putting more pressure on AA than the GDS companies.

And just because you sued doesn’t mean you’ll win.  If AA loses the latest battle, they’ll be on even worse footing than before.  All of this over something that will save just tens of millions for an operation that is generating more than $23 billion in revenue.

If I were  a shareholder in AA, I would be much more interested in the company resolving labor issues and raising productivity which could generate hundreds of millions for the company.  I would want to see the company heavily engaged in hedging its fuel costs and making them more predictable which could save hundreds of millions of dollars.  I would want to see growth into profitable long haul routes which can only be done by working things out with pilots. 

I would not want to see a public fight with GDS systems who can have a real and measurable effect on AA’s ability to sell tickets.

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In the latest financial results, most underperforming airlines attributed their lack of success to rising costs and specifically fuel costs.  Fuel costs did rise but let’s return to early fall when airlines were gleefully setting expectations for the winter season. 

Many airlines were so confident that they actually raised prices and talked confidently of record profits.  The problem is, the traffic didn’t materialize in many cases and I would attribute that to the fact that demand for the winter/holiday season is very dependent on price.  A few airlines did see that and held their prices or even had some sales.  Notably, Southwest Airlines kept a close eye on their demand and lowered prices were necessary. 

But the development that no one has talked about much but which is showing up is a rise in capacity.  That rise in capacity isn’t showing up in great numbers with new routes or increased frequency nearly as much.  Instead, it is coming from an increase in the size of aircraft on some routes.  Airlines are upsizing some routes and also increasing capacity through the aircraft they’re adding to the fleet to replace older aircraft.

Delta, for instance, has retired its smallest DC-9s in favor of Airbus A319 equipment.  American Airlines is replacing MD-80s with 737-800s.  Southwest is adding 737-800s to its fleet in about 1.5 years.  US Airways is adding A321s to replace 737-400s.  At first glance, these “replacements” are perceived to be a 1 to 1 exchange but in reality they’re often as much as a 10% increase in capacity per aircraft. 

The creeping rise in capacity shows that the industry isn’t necessarily in agreement on capacity restraint going forward and that could foretell a collapse in prices as these airlines chase customers to fill their aircraft.  I don’t think we’ll see huge losses in the next year but I do think we’ll see an erosion of profitability.   The airlines who possess fleet flexibility should fare better than those who are largely locked into large blocks of fleet types.  Think Delta vs American Airlines. 

Mergers didn’t solve an excess of capacity.  Not really.  They did bring some costs down but neither of the two big mergers had much overlap and capacity was therefore not really reduced much in that sense.  Since there are no merger candidates with much overlap in existence right now, I don’t think this problem is going to go away very soon.  The real solution is to actually let an airline go out of business.  The only candidate for that is American Airlines and they have lots of maneuvering room left presently. 

Look for capacity to be a bigger talking point among financial analysts over the next 3 months and particularly at the end of the next financial quarter.

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