The Communications Workers of America have filed with the NMB (National Mediation Board) to have an election to represent American Airlines passenger service agents. The NMB will decide who should represent the passenger service agents and then set an election.
American Airlines says it respects the rights of its workers to organize and points out that it has excellent communications with this work staff.
I rather suspect that what American Airlines would like to say is “Give us a break.”
No doubt the CWA senses it has an opportunity here in that American can hardly afford to fight this battle very well during bankruptcy and I’m sure the CWA becomes a much more attractive choice for passenger service agents who probably feel pretty strongly that they would like to have a seat at the table when it comes to AA’s bankruptcy reorganization.
I’ve already pointed out that AA’s major unions all won a seat on the unsecured creditors committee and when you have such a seat, you have a major voice in who and how the airline is run during reorganization.
One of the things to come out of American Airlines’ bankruptcy filing is that they intend to ask permission to get out of 24 aircraft leases. That would be 20 very old MD-80 series aircraft and 4 Fokker 100 aircraft.
All are currently parked in Roswell, NM.
American has had those Fokker aircraft parked for a very long time and never found buyers or lessors for them. The MD-80 aircraft are just plain worn out and too costly to fly.
It’s not a stupid move on the part of AA with respect to its costs. It will, however, no doubt anger lessors who were earning quite a nice revenue stream on parked aircraft. It isn’t always wise to anger the leasing world when you have big plans for fleet renewal. If it remains only these aircraft, the damage to reputation will be miminal at worst.
I think, however, this is just the tip of the iceberg. I suspect we’ll see many, many more MD-80 series added to that list for no other reason than they have little or no value to AA when they can get shiney new, efficient airplanes from Boeing and Airbus.
Update: For those sending me private emails, no, this will not change a thing with respect to travel on American Airlines today or even next year. If you have a ticket, it will be usable. This is not a liquidation but, rather, a reorganization. AMR (American Airlines) has enough short term cash holdings to exist in its present state for at least 3 years barring a dramatic change in the airline economy. Even if there was a dramatic change that ate up cash faster, AMR could survive in its present state for at least 2 years. Its current situation will be fundamentally different in 2 years with respect to costs as a function of labor and fleet.
Original Post:
It’s not entirely a surprise but it isn’t entirely expected either, is it?
American Airlines has filed for Chapter 11 Bankruptcy protection and Chairman and CEO Gerard Arpey is “resigning”.
Digest that for a minute.
We’ll be seeing some people say “they knew all along it would happen now” and we’ll be seeing others expressing deep shock. If you followed American Airlines, you knew this was a possibility. I think few of us expected this to happen this month, this year or in the next 6 months. Not really.
But it isn’t the *wrong* thing to do. By doing this now, American gets its house in order and they do it while there is ample cash holdings to accomplish it. This isn’t being done because American is out of money or can’t meet some obligation.
It’s being done, primarily, to break labor contracts and gets its costs aligned with that of the other SuperLegacy airlines.
By doing it now, American gets to be in control of its destiny much more than by waiting to until cash holdings become somewhat critical and creditos get antsy. Want proof of that?
Look who just got named Chairman and CEO of American Airlines: Tom Horton.
My first reaction is that Tom Horton is *not* the person to be put in charge of reorganizing American Airlines (and AMR). My second reaction is that maintaining the executive corps and the status quo is *not* what you want to be doing at this point.
American isn’t having a tougher and tougher time of things simply because of what pilots earn. That’s part of it and labor costs in general are a big part of their troubles.
The biggest problem? American Airlines increasing irrelevancy to the consumer and its exceptionally decreased value to that consumer when compared to both SuperLegacy and LCC carriers.
Evolution in AA leadership is going to be very unsatisfying. A little more Revolution is what is called for. Tom Horton & Company aren’t that, I believe, but they are free to prove me violently wrong.
Airline enthusiasts who are also fans of Iron Maiden will recognize the name Astraeus because Iron Maiden member Bruce Dickinson works for Aestraeus as a pilot when he’s not dressed up as a rock star. In fact, Aestraeus 757s have been chartered by the band and flown by Dickinson for concert tours.
Sadly, Astraeus has had a rough time since 2008 and its efforts in the charter business have been less than perfectly successful. Now the airline is in the hands of administrators for bankruptcy in the UK. Will the airline be re-launched? As much as I hate to see airlines fold, I think this one will likely be liquidated given the competitive environment that Europe enjoys.
American Airlines isn’t getting any traction on deals with any of its unions. In the pilot negotiations, there was a push for a deal but leadership in those negotiations just kind of faded away and each party went to the press to plead their case instead.
Tentative deals are being denounced by membership in the TWU and the flight attendants are eerily quiet but some of the most militant at American Airlines.
Suddenly, not only analysts are using the “B” word but even employees seems to becoming familiar with the idea. It’s a word that should never be used lightly.
The AMR board met last week and a few new directors were brought on board but anything else that was discussed has so far been kept quiet. In fact, almost too quiet.
Will the board willingly go into bankruptcy? No, I do not think so. Their job is to manage in the interests of shareholders. If bankruptcy comes along, the biggest losers of all will be shareholders as their ownership will evaporate. Creditors will get something. Employees will get nothing additional and likely face years more of negotiations for anything.
Several current generation CEOs of airlines like to talk about how it’s a business and it should be managed as a business. Return on investments and profits should be the focus. We couldn’t agree more but . . .
Airlines require very strong leadership. Leadership isn’t just providing a return on investment or earning profits. In fact, neither of those are possible if you don’t have the interests of your large workforce aligned with those goals.
And if the workforce is unhappy and resentful, it isn’t interested in the company goals.
American Airlines is lacking in leadership. It has all the management an airline could ask for but nono of the leadership it needs. It means getting everyone on the same page working towards common goals and doing so in the best interests of everyone. Does that sound like AA leadership?
Everyone is way too comfortable with the idea of bankruptcy. I think the employees look upon it as almost welcome in that it almost certainly means the end of the Arpey regime. When it’s gotten that far, it may well be time for the board to act and install a leader before that shareholder value goes poof.
AirlineFinancials.Com founder Robert Herbst made a point in a story line here about American Airlines that I think is, perhaps, the most salient yet made.
Among the SuperLegacy Airlines, there is now as much as a $2Billion gap in profitability between them and American Airlines. That’s a big gap.
Controlling costs alone don’t close that gap and waiting for United and Delta to move upwards on their labor costs isn’t exactly a good, near term strategy.
Herbst thinks they’ll have to declare bankruptcy in 2 to 4 more quarters. That might be the smart thing to do in the sense of preserving enough cash to exit bankruptcy and continue on as a viable airline.
American Airlines has some of the most saavy financial people in the airline industry and there is a lot of ego in that group when it comes to managing money. They do it better than virtually any other airline. I don’t see them admitting defeat and entering bankruptcy that quickly, myself.
That said, ego and $3.98 will buy you a fine cappucino at Starbucks.
Over the past several days, we have seen quite a ride for American Airlines’ share price. There has been rampant speculation that the decline in share prices were due to the higher than average number of retirements at the end of September. Some think the pilots “know something” and are sure there is going to be a bankruptcy.
I am by no means high on American Airlines. To the contrary, I think they continue to act as if their problems are being fixed or are not that severe and I think the executive leadership is approaching irresponsible in certain areas.
That said, we’re also talking about a company that has enough unrestricted cash to live unconstrained for another 4 years. That doesn’t spell bankruptcy. The pilots don’t know anything special and, frankly, they probably know less than many.
But I do think this reflects the frustration and negative emotion that many feel about this company. I think there is a sense that there are growing missed opportunities to come out alive and healthy. I think many people have looked for a reason to dump their shareholdings and they finally found one that works for them.
But I also think that I’m tempted to buy up AA stock right now because not only do I think they survive in the near term and not only do I think they won’t enter into bankruptcy, I think their share price will climb considerably over the next year from where it is today. Because everyone likes a deal and right now AA stock is a pretty good deal.
There has been lots of speculation about American Airlines filing for bankruptcy over the past 2 weeks. Partially because of Moody’s downgrading their outlook on AA and partially because AA’s own labor is opening asking the question.
Are they looking at bankruptcy in the next 12 months? No, absolutely not.
In 18 months? Probably not.
But the speculation highlights my favorite pet peeves about American Airlines. They aren’t realizing the Wonderful Synergies they projected from relationships with BA/IB over the Atlantic nor with JAL over the Pacific. And they’re acknowledging that at this point. Those immunity agreements didn’t enable a torrent of new cash.
They continue to have severe labor issues and they are severely hamstrung with labor agreements that do not provide for any increased productivity. On the current path, labor will eventually win the right to strike and I have no doubt that they will. If and when that happens, it’s the end of AA as we know it.
Despite their aircraft orders, there doesn’t appear to be much impetus to rationalize their capacity and match aircraft to demand. Notice that all the aircraft ordered essentially upscale their routes and provide lower seat costs as a function of having more seats. The problem with that strategy is that YOU HAVE TO FILL THE SEATS.
And American isn’t filling seats nearly as much as it should and this surprises me not at all given that they aren’t a very nice airline to fly. Who wants to pay a premium to fly on airline that provides less of a service experience? Their competition offers a better aircraft, competitive routes and more flight attendants that smile.
Those new aircraft don’t really being to change the fuel equation for several more years either. They are late into this fleet by at least 5 years at this point and other airlines have got a fair advantage over AA in comparable aircraft.
American won’t be going bankrupt any time soon but that doesn’t mean people shouldn’t question American. There is no coherent plan to bootstrap this company back to realistic profitability. Right now, the plan hinges on failing joint operating agreements across two oceans and a new(er) fleet arriving . . . someday. AA hasn’t communicated any more intentions than that and they have no shown no aggression towards solving their fundamental cost problems. That should alarm quite a few people at this point. It’s not bankruptcy but it’s an alarmingly familiar pathway to it that we’ve seen in a number of other legacy airlines.
Japan Air Lines, JAL, entered into bankruptcy in January 2010 as one of the worst bankruptcies in Japanese history with debts totaling over $28 Billion. While in bankruptcy, they got a new Chairman Kazuo Inamori, an innovative founder of tech companies in Japan, and they also suffered massive route cuts and labor cuts (totalling over 16,000 people.)
Their bankruptcy was financed by 11 creditors including the Development Bank of Japan and they’ve now exited bankruptcy into a disaster.
I’m always struck by how the airline industry so often finds itself in a poorly timed event for airlines that just got over a previous disaster. Japan, affected by its recent earthquake and resulting tsunami, is no longer a remotely attractive place to visit and even the highly downsized entity JAL is today can hardly be expected to survive what is by all accounts a massive downturn in demand.
It’s not just international flying. Many places that are normally high demand domestic destinations are in disarray. So, one wonders just how viable the latest version of this airline is?
JAL likely will only be able survive with more government support and this is a country that will be finding it difficult to pay for the recovery in front of them as it is. But just as the terrorist attacks of September 11, 2001 were a massive, unpredicted event with both domestic and global implications, so is Japan’s recovery from the earthquake and tsunami. It’s best to find a way to let this airline recover a bit more before passing judgement on whether it should even exist at all. In the long run, let the markets decide. In the short run, help this company out.
The Dallas Morning News Airline Biz Blog had THIS blog entry last week about analysts taking issue with American Airlines’ plans for 2011. In short, American has already said they would trim their capacity growth by about 1 percent but Wall Street doesn’t think that is nearly enough. Actually, I think Wall Street Analysts would prefer an aircraft not even take off unless every seat is filled.
I’ve been following the airline industry for a long while now. I’ve been writing this blog for nearly 3 years and I cannot recall American really responding with liveliness to any economic change or crisis. Delta, an airline that is bigger and less “integrated” so far, responds quickly and adjusts its system with great fidelity. There are no half measures and the same is pretty true for most other US based airlines.
American plods along not earning money, not dealing with its labor problems and not really making any great adjustment to any of their plans. When they do something, even rather small, we all tend to act surprised. Recall that everyone was surprised and commenting about their announcement that they’ll add the 777-300ER to their fleet. Even I was surprised and a bit excited. Then about a week later, I realized we all got excited over a purchase of 2 aircraft. Yes, a third order was added but so what? This was a nothing move and a nothing announcement.
Analysts are tired of half measures coming from AA and they’re tired of the rather large losses coming from AA when behemoths such as Delta and United (also Super Legacy airlines) are earning profits. Big profits. Defenders of AA (usually from within AA itself) love to point out that they didn’t declare bankruptcy and “screw” their investors. No, perhaps not but they aren’t doing their investors any good right now either.
The truth is, AA resembles that person we all know who continues to live with a toothache instead of going to the dentist and doing something about it. Those people are tiresome and they’re often unproductive because they live with their pain instead of moving it out of the way to make progress.
Why? I can’t say for certain. The motives of the executive leadership of that airline are not visible to anyone. We can’t see inside their heads but I can speculate. First, the board of directors is virtually handpicked by CEO Gerard Arpey. They are, for all intent and purpose, Arpey supporters much more than AA supporters.
Second, being an executive at AA is a powerful position and maintaining the status quo is a far more successful strategy for maintaining that power. Revolutionaries and evangelists are not tolerated at AA. Success is defined by increments rather than wholesale directional changes even if those increments merely mean you lost less money than in the previous financial quarter.
Third, momentum is keeping AA going. AA has done a great job of managing its finances. How else could it loose hundreds of millions of dollars for years and keep on going. The well can’t keep on going forever though and it would seem that the best time for a change in leadership would be now rather than 2 years from now with AA contemplating bankruptcy then. You can only mortgage so much equipment to keep on going. You can only issue so much debt to keep on going.
At some point, you need to earn a profit. Most airlines did that in 2010. Most will in 2011. AA did not in 2010 and will not in 2011. Frankly, I’m surprised that analysts are roughing up AA even more at this point.
Mexicana says it has made significant progress with its creditors allowing it to go forward with its debt restructuring and it now planes to start operations in the near future with seven aircraft and eleven routes. Agreements with labor unions have been reached and Mexicana says it has 39 pilots, 80 flight attendants and 846 maintenance techs ready to go when they re-start.
If that 846 maintenance techs number is correct, I think I know who “won” among the labor unions.
Current plans call for Mexicana to start international routes to Los Angeles, Chicago, San Antonio, and Havana, Cuba and domestic routes to Guadalajara, Monterrey, Cancun, Oaxaca, Tuxtla Gutierrez and Veracruz. Although Mexico City isn’t named, I presume that these routes will be centered upon Mexico city itself.
Damned if you don’t. American’s labor woes are getting in the way of both the company and labor moving forward. It’s a Mexican stand-off at this point. Management has the argument that any higher labor costs would result in the company losing money again and potentially failing. If it runs close to the line of failing, it’s either a liquidation (unlikely) or a bankruptcy reorgnization (very likely) or a purchase (somewhat likely). In any of those situations, labor stands to lose and lose big.
Labor, on the other hand, has a knife to the throat(s) of current management. If they win big gains, it’s the end of the current regime. If any of the unions (particularly cabin crew or pilots) win the right to “self help” aka a strike, it’s the end of the current regime. And the the end of the current regime may mean a reorgnization ultimately as well.
Neither side can necessarily afford to stick with their current leadership. AA’s management has allowed this to fester for a very long time and, I think, has gone past the time that would be regarded as “reasonable” to come to some agreement that would allow the company to move forward. At least in the eyes of many shareholders. Likewise, the unions don’t have a deal and don’t have a prospect of a deal and with the stance of “all or nothing”, stand to harm their memberships far more than help them.
We’ve already seen the pilot’s leadership change to a more reasonable president but I see no evidence of that potentially happening among the other groups. Not right now.
If the brinksmanship continues, look for a regime change at AA. If there is a regime change at AA that does not result in movement in the agreements, look for regime change of the leadership of flight attendants. Then sit back and wait for the bankruptcy filing for reorgnization.
What seems even more dismal is this question: Who wants to buy AA or American Eagle?
JAL is considering setting up a budget airline with some of the money it was given by the Japanese government to compete against the budget offerings of other airlines in Japan. For the past 20 years, a number of airlines have conceived of this idea that an airline within an airline designed as an LCC is a great idea. Continental has Continental Lite. Delta had Song. United had Ted and the list goes on.
If it is such a great idea, how come none of those offerings are around?
They can have some value. They can show an airline a model for operating differently and more cost effectively and that may be worth something. However, I don’t think the cost of setting up an entire new brand is worth learning those lessons.
Indeed, those budget airlines inevitably end up being a compromise to ensure that labor unions for the Mother Ship don’t spurt blood from their eyes and try to doom the airline. As a compromise, they’re unsatisfying because they don’t yield the same results a real LCC aka budget airline enjoys.
The best thing a JAL can go is get on with the slashing. Slash costs, labor and anything else that stand in the way of profitability including vanity routes and vanity aircraft. Reduce your fleet to as few types as possible and get new labor contracts that ensure productivity that is on par with those you are competing with.
In other words, rip the band-aid off, don’t tug at it slowly. Get it done and the quicker you get it done, the quicker you start to show the rewards of your work and, hopefully, some of those rewards should be profits. It’s very tough to do it and you definitely have to have the right leadership to get it done.
I question the leadership at JAL if this is truly what’s being considered. It’s delaying the inevitable and simply burning more cash than necessary. Cash that came from the Japanese taxpayers.
Often in the US, a hatchet man is hired to make the hard cuts and slash costs and once he’s done, he’s replaced with a different leader who is tasked with maintaining those savings and leading its staff to a happier place. Indeed, Glenn Tilton was supposed to be one of those guys but he’s continued to hang on long after he was done.
What JAL needs is an unconventional businessman who knows how to wield a hatchet. Someone who is at least familiar with businesses that burn a lot of cash each day and which depend on reliable revenues to survive. What they don’t need is someone interested in serving political masters who want jobs saved rather than businesses fixed.
Mexicana Airlines ceased all operations after spending a few weeks trying to restructure and begin to figure a way out of bankruptcy. It doesn’t really come as a giant surprise that one of the world’s oldest airlines stopped operating. Unexplicably, Mexicana had stopped selling seats on their flights but kept operating them which left quite a few of us baffled.
Mexicana’s management blames high oil prices, labor and the swine flu outbreak and certainly all three contributed to the problems the airline had. However, oil isn’t so high and swine flu really stopped being an issue on most people’s minds by late last year. Labor is the real problem.
I often wonder why it is so hard for labor unions, particularly the kind that Mexicana has had to endure, really don’t seem to be able to grasp that even though an airline made your paycheck for several years, labor costs like that are unsustainable by anyone at the end. Airlines can often wheeze through such things for years but there is always a reckoning and it always seems to shock unions when it results in a shutdown. In fact, they always appear to refuse to believe it in some respects.
The maneuverings we saw around Mexicana for the last few weeks were somewhat pathetic to me. New investors thought they saw an opportunity and moved in but, like many who do so, I think they suddenly learned just how cash intensive an airline is and wisely decided to put a stop to the burn quickly.
Will we see this airline rise again? I sincerely doubt that Mexicana or its subsidiary companies will raise their wings again in their current form. It’s possible someone will buy the brand and start an airline under the Mexicana name but it won’t be the Mexicana that just crashed and burned.
It won’t be a foreign carrier coming to save them. Mexico’s ownership laws forbid foreign ownership of their carriers above 25% and I think that’s a shame. Someone like LAN or Avianca-TACA might have been willing to come in and invest, restructure and operate a viable entity. Sadly, Mexico is more archaic than many Latin American countries these days when it comes to aviation and I sincerely doubt that Mexico’s government is going to move quickly to liberalize their ownership laws.
So, I think this is goodbye to Mexicana. At least to this Mexicana. To me, it’s a shame. I’ve always liked their image and aircraft and kind of thought of them as the Braniff of Mexico. Their colorful 727’s of the 70’s and 80’s were second only to Braniff’s and I simply also feel fond towards an airline that has a history dating back to the 1920’s and which was once connected to Juan Trippe and Pan Am.
I’ve been on vacation for the last week and a half but now I’m back and there are many things I want to comment on. Instead of one subject, here are a few quick observations on recent airline news.
Mexicana: Blaming labor is probably appropriate in some respects but this is an airline with other problems as well. And let’s not forget that management allowed those salaries to climb as high as they did. If the numbers being cited in media are anywhere near correct, salaries are outrageous and would have been ultimately untenable 8 years ago or more. Is there a solution? Only if labor unions are willing to negotiate new contracts that are probably 40 to 50 percent less than existing ones and only if another company is willing to come in and buy the airline. Dubious on both points.
Frontier: I see that Frontier Airlines is moving their Houston operations to Hobby Airport and this is probably smart. They’ve already seen that they can compete with Southwest and it makes them more convenient for the HOU/DEN business traveler who is primarily concerned with oil. It also makes me think of the current Love Field plan and just how restrictive it is for another airline to enter that market. Dallas has hurt itself on that one but the hurt will only be realized in another 4 years.
JAL and American Airlines: The Dallas Morning News Airline Biz Blog is reporting that JAL has sent 100 of its managers to American to learn, well, management. AA is encouraging JAL to use the financial analysis systems that it uses and which were instrumental in weathering the financial storm. While I agree that AA was more agile than many when it came to weathering that storm, they’re also somewhat boxed into a corner now too. Delta would have taught them to suck it up, take the hit and get on with life instead of prolonging the status quo.
American Eagle: There is now more talk of “spinning off” American Eagle from AMR and while that would put some money into AMR’s pockets (quite a bit, I suspect), it leaves both airlines with not a lot going for it. American Eagle goes independent and has to fight for its contracts in a world of regional airlines that are becoming increasingly competitive with equipment that is largely dated and inefficient and a labor force that is pretty well paid compared to most. American Airlines then has to find new partners (potentially) with lower costs but also with equipment to match existing scope clauses and the ability to work the American Way. Keep American Eagle, it fits, it works and you don’t need that trouble right now.
Delays: Here we are in August and, still, no real problems with tarmac delays. Airlines seem to be able to restrain themselves and keep their ops going just fine. Remember, the real problem occurs when customers start complaining about cancellations and that makes it news. Right now, all seems to be going OK. Let’s see how the Q3 financial numbers turn out too.
That’s a less than thrilling announcement. To be fair, American Airlines has lost a great deal less money for Q2 this year than the previous year’s Q2. This year’s Q2 loss is a bit over $10 million while last year’s was $390 million.
The problem is that while this is an improvement, it also highlights just how far behind the curve AA is compared to its brother legacy airlines in the United States. With Delta and United reporting huge profits for Q2 and Continental sure to follow with impressive numbers, American Airlines’ disadvantage is only highlighted.
American blamed much of its Q2 losses on higher fuel prices. The problem with that is that the fuel price to AA is essentially the same price it is to every airline in the United States. The only mitigation for that is hedging and AA does engage in hedging. So, higher fuel prices over this time last year isn’t really a very satisfying answer for what remains a result that is staggeringly far behind other US legacy airlines.
AA has attempted to mitigate that stark contrast by saying that, over time, other airlines’ costs will begin to approach AA’s again and the gap will narrow considerably. Well, that sounds good but . . . that’s going to take years and years for that to happen. What about investors today? In addition, whether or not that gap narrows is contingent upon how each airline manages itself. Is the airline doing mortal combat with its labor groups or is it finding common ground and securing productive contracts? In other words, AA has good PR for that gap but it doesn’t have a substantive answer.
Or does it? AA also just got DoT and EU anti-trust immunity to form closer partnerships with its Oneworld brothers, British Airways and Iberia Airlines. In addition, it is on track to receive the same in a partnership with Japan Air Lines across the Pacific Ocean. AA says that these partnerships could as much as $500 million in revenue by 2012. That sounds like a lot until you realize that that is a 2+% revenue gain. And that’s revenue, not profit.
At the end of the day, we hear a lot about strategies AA has involving new partnerships and re-focusing on core cities. We hear a lot of mitigation of cost gaps between AA and the rest of our legacy airlines. We sometimes hear analysts praise AA for avoiding bankruptcy . . . usually right before the analyst highlights just how much that put AA at a disadvantage today.
What we don’t hear about is substantive and real progress made towards reducing costs. We hear noise and we see somewhat halfhearted attempts to paint a picture that something is being done but we haven’t heard about the real progress made towards not just containing costs but reducing them.
At what point do analysts and investors require AA’s executive team to show them the money?
During American Airlines earnings call yesterday, one financial analyst got a little rough with AA and, more specifically, Gerard Arpey and Tom Horton. By rough, I mean the question posed was “Is that all you got?” The Dallas Morning News Aviation Blog has a good description of the exchange HERE.
They make a good point. American Airlines has really been a disappointment for a decade and the leadership has frequently leaned on multi-year plans and talks of how well things are going and what can be expected from new deals and new alliances. Sometimes it is talk of how one time expenses got in the way of a profit, etc. At the end of the day, you really should deliver something now and then. I would point you to Continental as an excellent example of this.
American Airlines didn’t file bankruptcy. Everyone talks about how they did the right thing and didn’t file bankruptcy. The employees gave back 30% or more of their salary instead. Problem is, when your competition (United, US Airways, Northwest, Delta) does file bankruptcy and does lower its costs and does streamline its operations and does reinvigorate its workforce, they’ve got you boxed in. All the airlines in that list gained a permanent advantage over AA and regardless of the talk of “doing the right thing”, AA has a big disadvantage.
What’s really frustrating isn’t that disadvantage. What really irritates people is the leadership’s habit of deferring and delaying to another day many of the problems that do, at some point, need to be solved. It’s the risk created by ignoring, deferring or delaying the resolutions of these problems that makes one so irritated and, dare I say, now a bit unconfident about AA’s long term future?
They have an old, fuel inefficient, passenger inefficient fleet. Much of that renewal has been deferred resulting in a fleet of aircraft that is more maintenance intensive, which carries fewer passengers per segment and which burns more fuel doing it.
There isn’t a labor group at AA that isn’t spoiling for a fight at this point. The risk of one or another getting their way and having a strike is increasing month by month. For 4 years, we’ve seen AA labor groups have their contracts become amendable, negotiations begin and then . . . nothing. There is no sense of urgency on AA management’s part to have this settled.
These issues and more make it appear as if no one is really solving problems. They’re deferring them, delaying their resolution or, in some cases, just ignoring them but no one is showing up, raising their hand and saying “We solved this problem. It won’t be on our plate anymore going forward.”
The thing is, bankruptcy would have done that for them. There would have been final solutions and the airline would be coping with immediate problems instead of being bogged down with what is really nearly 20 years of baggage. My point is, I’m not sure bankruptcy *was* doing the right thing.
It’s OK to describe problem resolutions as ongoing for a year or two or maybe even three. It’s been going on a lot longer than that at AA and JP Morgan analyst Jamie Baker has noticed. And I think this is just the beginning.
And that isn’t exactly breaking news, is it? Everyone knew it was coming and now it has happened. Japan Air Lines must now face the music, reorganize and find a way to survive.
It isn’t as if they were a shining example of profitability over the years. Indeed, it was yet another airline formed as a national flag carrier that was ultimately privatized and which ultimately went into deeper and deeper debt. Its cousins are airlines like Alitalia and Olympic, not British Airways and American Airlines.
The blame lies in the company culture and by that I mean it went too long in a regulated and semi-regulated environment and then got set free into the competitive winds of the world with a crew of executives that never knew any real competition. Its one positive attribute was its service level which by most accounts was impeccable.
There has been a lot of criticism for the CEO, Haruka Nishimatsu, over the past few weeks. Particularly when it was announced that he was ultimately going to be replaced by Kazuo Inamori, founder of the Kyocera Group. I wrote about that announcement HERE. Tonight I remembered a video that was passed around among many airline enthusiasts as a kind of great example of what an airline CEO should be. Mr. Nishimatsu is shown riding a bus, eating in the general cafeteria of the company and generally being one of the people. I remember many people posting on other blogs about him earning just $90,000 in salary after cutting all his perks when he had to slash budgets and staff at JAL. (See below)
Let’s remember that this guy at least tried to do the right thing which is quite unlike many in this business at times.
So, what’s next? Well, JAL has to layoff thousands of employees, reduce costs at every level, probably purchase some new aircraft and find a way to claw itself back into profitability. That’s a tough thing to do even in good times.
I’ve some doubt about their choice of CEO to do it with. This is a man who plans to work for no salary and put in “3 or 4 days” a week as well as choose a second-in-command from the current airline ranks. Huh? Really?
What JAL needs is a seasoned airline executive who has extensive experience in competitive environments and who understands what it means to run both a national and international airline. There are plenty of those around in this world but, yes, it does potentially mean hiring someone who isn’t Japanese to run the airline. Or at least to lead the airline out of its current problems.
There is some precedent for this. Nissan’s CEO is Carlos Ghosn, a Lebanese-Brazilian man who came to Nissan from, of all places, Renault. He made enemies until he surprised everyone by bringing Nissan back to profitability. If they can’t stand to hire outside of Japan, then they would do well to find someone at ANA to take over.
If the Japanese government and JAL’s board want to be serious about recovery, they need someone who is the best, not someone who is politically safe.
JAL will likely rid itself of its 747 fleet in favor of a 777 / 787 fleet for its international operations. It is time for those Airbus A300 aircraft to go too. It will have to eliminate stupid routes like flying from New York City to Rio de Janeiro. Their focus on First Class and Business Class will have to be realigned. (An amazing portion of some of their international aircraft is dedicated to these two classes leaving only a small portion for Economy Class.)
But I have to say that I think this is going to turn much uglier before it gets better. I think JAL will flounder and I think the Japanese government will continue to pump money into it (and, in a way, they kind of have to since they provide the only competition to speak of for ANA.)
“We believe it is important to secure customer convenience by the injection of public funding. However, we are also highly concerned that the fair and competitive environment would not be secured under the financial support and injection of public funding.”
That kind of criticism is rare in Japan but ANA has had to fight for its success since its inception. They have a point but strangely even I find such a statement a bit tacky on this day.
Everyone says it is Delta and SkyTeam who will lure JAL away from the Oneworld alliance. I must say, given all the talk, I’m beginning to be swayed. However, I remain skeptical that they can enter into the SkyTeam alliance, particularly with Delta, without their being some anti-trust issues on the part of both governments. If they are leaning that way, I believe it is because someone in the Japanese government is leading them to believe there will be no issues. I do not think that that will be the case in the United States, however. One look at the criticisms of the AA/BA/Iberia anti-trust case and you’ll see what I mean.
USA Today’s Today in the Sky blog is reporting that Mesa Airlines has filed (voluntarily) for bankruptcy reorganization today. Read the story HERE.
I can’t say that I find this surprising in any big way. Their financial situation has been somewhat dire for a while and their stock prices positively abysmal. In many respects, Mesa is the perfect example of a company that is rough on its employees, rough on its customers and abrasive in its own PR. That really isn’t a recipe for success in *any* industry.
Mesa operates flights for Delta, United, US Airways and under their own grand in Hawaii as go! airlines in partnership with Mokulele. They fly the CRJ100/200 (47 aircraft), the CRJ700/900 (58 aircraft) and the Dash 8-200 (12 aircraft). With a desire to shed aircraft from their fleet, my guess is that they’re wanting to rid themselves primarily of the CRJ100/200 aircraft primarily and mostly by breaking leases.
It’s also notable that both United and Delta have worked to end their relationship(s) with Mesa and Mesa is currently in litigation with Delta over the attempt to break the Delta contract. The Delta contract was operated by Mesa subsidiary using ERJ-145 aircraft (numbering 34) and Delta sought to terminate the contract on the basis of poor performance by Mesa. Mesa contends the real motivation behind breaking the contract was to cut capacity rather than performance.
With this new development, I do wonder if Mesa hasn’t just become a candidate for being purchased by another airline.
The Dallas Morning News Aviation Blog reported that Sun Country Airlines has filed chapter 11 bankruptcy citing recent financial trouble caused, in part, by its parent company, Petters Group Worldwide and the just resigned CEO of that firm (who is also being investigated for criminal fraud.)
I wonder if anyone truly believes this company is going to survive in the present aviation climate as a leisure airline flying from a Minneapolis / St. Paul hub? They would appear to be an unattractive acquisition for anyone who might have the financial muscle and now they get to face the start of competition with Southwest Airlines next March. Obviously I would feel a great deal of sympathy for workers who are displaced by Sun Country folding but I also have to wonder if Chapter 11 is in the best interests of the shareholder(s) or the creditors. It might be time for this one to throw in the towel.
