Sunday, April 23, 2017

Boeing issues new layoff notices to 429 workers in Washington state

As Boeing continues to downsize, management on Friday issued 429 new layoff notices to union members in Washington state.

A total of 494 such notices went out, though some went to employees who had already received earlier layoff notices in March, so that the latest notice simply adjusted their layoff date.

Altogether 217 members of the International Association of Machinists (IAM) got layoff notices Friday and 277 were issued to members of the white-collar Society of Professional Engineering Employees in Aerospace (SPEEA), the two unions confirmed.

The IAM layoff notices are the second batch for that union’s members this year — 111 people received notices in March.

Adjusting for those who had already received notices last month, the number of new layoff notices issued to the IAM was 152, which makes a total of 263 so far this year.

Also Friday, about 1,000 Machinists who took an earlier buyout offer left the company for the last time. Another 500 who took the buyouts will leave in the months ahead.

Boeing vice president of engineering John Hamilton warned on Monday that “hundreds of engineering employees” would get notices of layoff on Friday.

Friday’s SPEEA total breaks down to 194 engineers and 83 technical staff, said union spokesman Bill Dugovich.

Of those, he said 246 are in the Commercial Airplanes unit, 30 work on the company’s defense side and one works on a corporate unit.

Geographically, 191 of the engineering layoffs were in Everett, 35 in Renton and 26 in Tukwila, with smaller numbers at other Puget Sound area locations, Dugovich said.

It’s likely more layoff notices also went out to non-union employees, but the company will not disclose any figures.

The 60-day notices specify that the layoffs will happen in late June.

Jon Holden, president of IAM District 751, said the union’s main concern is that the looming production rate cut on the 777 assembly line, set for August, will mean significantly more layoffs later in the year.

“Boeing hasn’t told us what’s coming,” said Holden. “But we certainly have concerns with regard to lower production rates.”

Boeing announced in December that it would cut the Everett assembly plant’s 777 production rate from seven planes per month to five per month beginning in August.

Shortly afterward, Boeing’s local leadership warned employees that it would need “to continue to reduce the size of our workforce” in 2017.

Boeing spokesman Doug Alder reiterated an earlier company statement that “we are reducing costs and matching employment levels to business and market requirements.”

(Dominic Gates - The Seattle Times)

Lockheed Martin Green-Lighted to Produce New Helicopter for the Marines

Lockheed Martin's new heavy-lift CH-53K could lift Lockheed's bottom line as well.
(Image: Lockheed Martin)

Two years ago, Lockheed Martin agreed to lay out $9 billion to buy Sikorsky Aircraft from its then-owner United Technologies. The deal's price tag may have sounded steep at the time -- but it's continuing to pay off for Lockheed Martin.

Case in point? For years prior to its sale to Lockheed, Sikorsky had been developing a new heavy-lift helicopter to serve in the U.S. Marine Corps and replace the Corps' aging fleet of CH-53E Super Stallions. Now all that work has resulted in new owner Lockheed inheriting a production contract for the new "King Stallion."

Milestone achieved

Earlier this month, Lockheed Martin confirmed that its first two CH-53K King Stallion helicopter prototypes have passed "Milestone C" in testing by the Pentagon's Defense Acquisition Board. This means the CH-53K program is now eligible for low-rate initial production (LRIP) funding.

That's great news for the Marine Corps, which will get a new heavy-lift helicopter capable of carrying three times the weight that the helo it is replacing could. Indeed, Lockheed Martin calls the King Stallion "the most powerful helicopter our nation has ever designed," capable of carrying an armored personnel carrier in its capacious hold.

Six King Stallions are already under contract and due for delivery next year. Two additional aircraft are part of the first "LRIP." Ultimately, the Corps expects to order 200 of these helicopters through 2029, which will be enough to form 10 active-duty, training, or reserve squadrons. Additionally, Lockheed hopes to sell the CH-53K internationally -- Germany, for example, has expressed an interest in buying as many as two full squadrons of King Stallions for its military.
What it means for taxpayers

Per aircraft, the CH-53K helicopter is looking like it will cost more than Lockheed's even more famous aircraft, the F-35 stealth fighter jet. When the Pentagon ordered its first two prototypes for testing last year, it anted up more than $116 million per aircraft. That's already more than Lockheed's most recent published price of $94.6 million for the F-35A conventional takeoff and landing variant.

Now, the Pentagon has budgeted closer to a $96 million flyaway cost for future CH-53K purchases, anticipating more affordable prices as production ramps up and efficiencies of scale kick in. Still, if you add in research and development costs incurred in developing the helicopter ($34.5 million in R&D costs per aircraft, amortized across the fleet), the CH-53K's all-in cost quickly approaches $130.5 million -- which surpasses Lockheed's quoted prices on its most expensive F-35 variant, the F-35B (which, coincidentally, is also headed for the Marines).

What it means for investors

Investors might prefer to look at things a bit differently. Here, we want to keep our eye on the program cost as a whole and not just the unit cost of the aircraft. According to, outfitting the USMC with a fleet of 200 fully functional CH-53K King Stallion helicopters will cost $26.1 billion -- $6.9 billion in R&D costs to develop the aircraft, plus $19.2 billion in procurement costs (plus, potentially, even more procurement dollars from foreign buyers).

At the 5.9% operating profit margin that S&P Global Market Intelligence quotes for Lockheed Martin's Rotary and Mission Systems division, this implies that LockMart investors can anticipate their company earning $1.5 billion in profit for production of the Marines' new whirlybird -- plus maintenance and servicing profits, plus profits from selling and servicing additional King Stallions abroad.

All of which makes this kind of a big deal.

(Rich Smith - The Motley Fool)

Saturday, April 22, 2017

Gulfstream G550 (c/n 5062) N159JA

This lovely aircraft is operated by EBAY Inc., and is captured rolling for takeoff on Rwy 30 at Long Beach Airport (LGB/KLGB) on April 21, 2017 following a visit to the Gulfstream Service Center.

(Photo by Michael Carter)

Gulfstream G550 (c/n 5545) N550GU

Arrives at Long Beach Airport (LGB/KLGB) on Friday April 21, 2017.

(Photo by Michael Carter)

Do Emirates Cuts Threaten Orders at Boeing, a Company That Lately Can Do No Wrong?

It seems lately that Boeing can do no wrong.

Once a target of criticism by presidential candidate Donald Trump, Boeing has transformed itself into a presidential favorite. It contributed $1 million to the January inauguration. Weeks later, Trump visited Charleston, S.C., for the first 787-10 flight.

This month, he reversed himself to back the Export-Import Bank, which helps Boeing compete with Airbus.

Also in February, Boeing easily defeated a bid to unionize its Charleston plant, boosting its ability to play off South Carolina against Washington, where its plants are heavily unionized and where it has built airplanes for a century.

Boeing will report first-quarter earnings on Wednesday.

Of its $95 billion in 2016 revenue, Boeing Commercial Aircraft accounted for $65 billion while Boeing Defense Space & Security accounted for $29.5 billion. Demand for air travel is growing, while Trump has said he wants to spend more on defense.

No wonder Boeing shares closed Thursday at $179.30 or $6 below the all-time high. Among the 30 Dow stocks, Boeing is the third best 2017 performer, up 15% year to date. On Friday, the stock rose 0.5%.

Nevertheless, it cannot be viewed positively that on Wednesday, Emirates -- a key customer -- slashed its U.S. flying by 20%.

Let's acknowledge upfront that Boeing's commercial aircraft order backlog is 5,744 orders worth -- at list price, around $500 billion.

Emirates is the largest of the Middle East carriers that together account for 546 outstanding aircraft orders, about 10% of Boeing's total. The value percentage is higher because the Middle East order books tilt to wide-bodies, including 275 Boeing 777s and 134 Boeing 787s.

Emirates blamed the flying cutback on falling demand due to new security measures that ban laptops -- very peculiarly, only on flights from Middle East airports -- and on the Trump administration's continuing efforts to ban travelers from some Muslim-majority nations.

In truth, it has never been clear how much the growth of Emirates, Etihad and Qatar depends on demand, and how much it depends on government subsidies intended to grow the economies of the United Arab Emirates and Qatar.

"Their business model is based on growing their networks without regard to profitability in order to serve their governments' goals to dominate global aviation," said Jill Zuckman, spokeswoman for the Partnership for Open & Fair Skies, a coalition of U.S. airlines and labor unions who oppose the Gulf carrier's rapid U.S. expansion.

Still, "the growth needs to take a breather and allow the market to catch up," said aerospace consulting firm Air Insight in a recent report. "The concern should be how long this breather will be. For Airbus and Boeing, missing big orders from the ME3 will be a reality check -- the rest of the market is mature and buys much more carefully."

Similarly, a recent report by aerospace consultant Leeham Co. was titled, "Middle Eastern airline turmoil hits Boeing." It said Etihad, Emirates and Qatar "face over-capacity now compounded by electronic carry-on restrictions by the U.S. and U.K."

Leeham also sees a potential threat to Boeing and Airbus in Asia, which has not had the sort of airline shakeout the U.S. has experienced.

The two manufacturers could face challenges from the 2016 creation of the Value Alliance of eight Asian low-fare carriers, including Singapore Airlines' Scoot and Tiger Airways; ANA's Vanilla Air; Tiger Airways Australia; Thailand's Nok Air and NokScoot, the Philippines' Cebu Pacific Air and Korea's Jeju Air, Leeham said.

"The ramifications of the coalescing of Value Alliance and its threats to AirAsia and even full-service carriers means that Airbus and Boeing-each with huge backlogs in the region, with the low-cost carriers and the full-service carriers -- may have to up their game on monitoring the health of the airlines once the Value Alliance is in full swing," the firm said.

For the near term, Wall Street analysts remain confident.

"We like Boeing's set-up into Q1 with low expectations," Cowen & Co. analyst Cai von Rumohr said in a recent report. "Light Q1 deliveries don't jeopardize full year 2017 EPS, while commercial & {defense} bookings were encouraging," he said.

"Combined with rising airline load factors, declining {Boeing Commercial Aircraft} headcount, and share award tax benefits, they bolster the 2017-19 outlook," he said. He rates the stock outperform.

CFRA Research analyst Jim Corridore has a buy rating and a price target of $191, 20 times his 2017 estimate. Boeing's five-year average P/E was about 20X.

"We see price appreciation over the next several years," Corridore wrote.

"Commercial aircraft demand remains strong," he said, and "while we remain concerned about a drag from defense, the operation's size relative to the commercial business and the recent election of Donald Trump argue for increases in defense in coming years."

(Tim Reed - TheStreet)

Friday, April 21, 2017

Thursday, April 20, 2017

Norwegian Air Takes on Asian Rivals With $230 Fares to Singapore

Norwegian Air Shuttle ASA will fly from London to Singapore beginning this fall, taking on British Airways and Singapore Airlines Ltd. as it expands its long-haul budget services in Asia.

Tickets on the new route will start at 179 pounds ($230) one-way, with “premium” seats priced from 699 pounds, Norwegian said in a statement Thursday. The service will commence Sept. 28 with four weekly flights from London’s Gatwick airport and will be operated with Boeing Co. 787 Dreamliner aircraft seating as many as 344 passengers.

“Our transatlantic flights have shown the huge demand for affordable long-haul travel, so we are delighted to expand into new markets,” Chief Executive Officer Bjorn Kos said in the statement. “Travel should be affordable for all.”

Norwegian is betting denser seating and the lower operating costs of the 787 will allow it to steal passengers from costlier rivals and stimulate demand among price-sensitive travelers. The carrier has one of the industry’s most ambitious growth plans with more than 200 aircraft on order as it seeks to transfer the successful low-cost airline model to long-haul services. Norwegian will also fly Boeing’s latest narrow-body jet, the 737 Max, on routes across the North Atlantic starting this summer.


The new service between London and Singapore, a popular business route, puts Norwegian in head-to-head competition with IAG SA’s British Airways and Singapore Air -- the only two airlines currently offering non-stop flights between the cities. BA flies the route twice a day, and Singapore Air serves it four times daily. The carriers use larger Boeing 777 and Airbus A380 aircraft.

Norwegian has so far connected London with destinations in the U.S. and the Caribbean, targeting mainly leisure travelers. Its only Asian destination so far is Bangkok, which it serves from Oslo, Stockholm and Copenhagen. The latest Singapore flight could be part of a broader expansion as the company canvases locations for potential bases around the world, including plans for an arm in Argentina.

To serve Singapore, Norwegian will use its U.K. subsidiary, with planes and crews based at Gatwick airport. The unit can make use of traffic rights to destinations in Asia, Africa and South America, the company said.

(Richard Weiss - Bloomberg News)

Boeing elaborates on 777-9 design details


Boeing has published further preliminary details of the 777-9’s configuration, three years ahead of entry into service, revealing a slightly lower aircraft with an interior re-sculpted to carve out a precious 10.2cm (4in) of internal diameter.

A 79-page document posted on Boeing’s website offers the first detailed update on the larger 777X variant's dimensions since a brochure version appeared in 2015.

Boeing released both documents to help airport managers prepare for the arrival of the stretched wide-body with its extended wingspan.

Compared with the previous iteration, the update shows the 777-9’s designers have made a few minor tweaks. For example, the height of the vertical tail above the runway is about 17cm shorter, although remains nearly 1m taller than the height of the 777-300ER.

The most critical dimensions for the 777-9 remain unchanged, with a 2.9m-longer fuselage and 7m-wider unfolded wingspan compared with the 777-300ER.

The folded wingspan of the 777-9 measures 64.82m, about 2.54cm wider than the 777-300ER.

Boeing also has worked to make the 777-9 more comfortable with a standard 10-abreast layout in economy class. The 777-300ER originally entered service with a nine-abreast economy cabin, but some airlines now offer 10-abreast layouts. The 777-9 shares an external fuselage cross-section with the 777-300ER, but the internal sidewalls have been carved out by about 10.2cm.

Asset Image
(Boeing (777 airplane characteristics for airport planning document)

Boeing now lists the 777-9’s standard two-class cabin as accommodating 414 passengers, with a three-class cabin holding 349 seats.

The 777-9 is designed to fly with 7% greater useable fuel capacity than the 777-300ER, the document shows.

(Stephen Trimble - FlightGlobal News)

Pilot error blamed for fatal California U2 spy plane crash

A mistake by a pilot on his first flight in a U2 spy plane forced him and an instructor to eject from the plane while on a training mission from a California base in September, killing the instructor after his seat hit the plane's right wing, the Air Force said Wednesday.

Investigators determined that the pilot who was training to fly U2 spy planes either pulled back too fast or too quickly on his stick while learning to recover from a stall shortly after the plane left from Beale Air Force Base about 50 miles (80 kilometers) north of Sacramento, Air Force Major A.J. Schrag said.

"He probably got a little overenthusiastic," Schrag said.

That caused the plane to go into a secondary stall that forced the student pilot and his instructor, Lt. Col. Ira S. Eadie, to eject before the plane turned upside down. The $32 million plane crashed near Sutter, California.

Eadie suffered fatal injuries when his seat struck the plane's right wing, investigators found. The student pilot also suffered injuries, though he has since recovered and completed his training to fly U2 spy planes, Schrag said.

Schrag said privacy laws did not allow the Air Force to disclose the student pilot's name.

He was on the first of three "acceptance flights" that are part of the process of interviewing to be a U2 pilot, the Air Force said.

The U-2 "Dragon Lady" is a surveillance and reconnaissance plane capable of flying above 70,000 feet (21,336 meters). Developed during the Cold War to spy on the Soviet Union, the single-engine aircraft now carries high-resolution cameras and sensors to gather radio signals and other information useful to intelligence agencies and battlefield commanders.

The fleet is based at Beale, though U2 planes fly missions from other locations.

Before the crash, the Air Force said it had 33 U-2s. The U-2 is slated for retirement in 2019 as the military relies increasingly on unmanned aircraft for surveillance.

(Sudhin Thanawala - Associated Press)

Thursday, April 13, 2017

Here's a look at Boeing and Sikorsky's new gunship helicopter concept

(Lockheed Martin)

Since 1939, aerospace manufacturers Boeing and Sikorsky Aircraft have remained synonymous with dependable fixed-wing aircraft and helicopters, respectively, responsible for supplying the US armed forces with illustrious vehicles from the venerable F/A-18 Super Hornet and Air Force One to the combat-ready Black Hawk and Chinook helos.

Now, the two firms are teaming up to develop a brand new gunship for the US military: The SB-1 assault helicopter.

On April 10, Sikorsky owner Lockheed Martin posted a brief concept video detailing the company’s design for an attack craft with "long range, high speed, superior hover performance and unmatched maneuverability" to supplement the military’s helicopter fleet for decades to come.

Developed as part of the Future Vertical Lift (FVL) program under the Office of the Under Secretary of Defense for Acquisition, Technology and Logistics, The War Zone reports that the Army is currently exploring replacement craft for both the AH-64 Apache gunship and UH-60 Black Hawk.

Here’s the backstory on the project, courtesy of The War Zone:

In 2015, Sikorsky and Boeing first announced they were teaming up to build a rotorcraft for the Joint Multi-Role Technology Demonstration (JMR-TD). This project is supposed to serve as a lead in effort for the larger, long-term FVL plan. This partnership led to the SB-1 Defiant, the unusual nomenclature standing for “Sikorsky and Boeing are greater than one.” A compound helicopter with a push-propeller and co-axial, rigid rotors, the firms boasted this new aircraft would be significantly faster than traditional helicopters, more maneuverable, more stable while hovering, and quieter.

Sure, you can’t really get a sense of those improvements in action from Lockheed Martin’s concept art, but the animation is enough to heighten any mechanophile’s anticipation.

The promotional video states that the copter will boast a cruising speed of 280 miles per hour, far outstripping the attack helos currently utilized by both the Army and Marine Corps.

The craft is reportedly meant to maintain altitude and stability even under “hot-and-high” conditions, hovering more than a mile above the ground in temperatures up to 95 degrees Fahrenheit.

Oh, and let’s not forget the guns, per The War Zone:

The proposal has a chin-turret with an automatic cannon that looks very much like the three-barrel, 20mm M197 gun on the Marine Corps’ AH-1s. As with both the AH-1 and AH-64 series, there are two stubby wings with four external stores pylons for various ordnance and two launch rails on the tips for air-to-air missiles – in this case the artist appears to have mounted AIM-9X Sidewinders – are on either side of the fuselage. In one of the frames, it appears that two of those racks may actually attach directly the chopper’s main body.

While the Army hopes to conduct flight tests of the SB-1 attack prototype by the end of 2017, that’s contingent on whether the collaboration between the two aerospace giants actually makes it, er, off the ground.

The last joint project undertaken by the two was the RAH-66 Comanche five-bladed attack helicopter, commissioned in 1991, built in 1996, and aborted in 2004 … at a cost to the DoD of nearly $7 billion.

With other certain aircraft aggressively over-budget, it’s doubtful the Pentagon will have the patience to sink time and money into another dud.

(Business Insider U.K.)

Airplane maker ATR signs $536M, 20-aircraft deal with Iran

European airplane manufacturer ATR said Thursday it sealed a $536-million sale with Iran Air for at least 20 aircraft, the latest aviation firm to strike a deal following Iran's nuclear accord with world powers.

ATR spokesman David Vargas confirmed the finalized deal for the 20 ATR 72-600s, a twin-propeller aircraft, and said Iran Air had an option to purchase another 20.

"They will definitely help Iran Air to modernize and develop regional connectivity across the country," Vargas told The Associated Press.

Home to 80 million people, Iran represents one of the last untapped aviation markets in the world. However, Western analysts are skeptical that there is demand for so many jets or available financing for deals worth billions of dollars.

Vargas declined to offer a value for the deal with Iran Air. The confirmed portion of the deal is worth $536 million at list prices, though buyers typically negotiate discounts on bulk orders. Iranian state TV described the deal as being worth about $400 million.

The deal also already has the approval of the U.S. Treasury, Vargas said. The Treasury must sign off on aircraft deals when at least 10 percent of the airplanes' components are of American origin. The Treasury could not be immediately reached for comment.

Farhad Parvaresh, the CEO of Iran Air, told the state-run IRNA news agency that the French-Italian company will deliver nine ATR 72-600s in 2017 and the rest in 2018. He said four of the aircraft will arrive within a month after signing the contract.

In February 2016, ATR signed an initial agreement to explore selling the aircraft to Iran Air. ATR is the Toulouse, France-based partnership of Airbus and Italy's Leonardo S.p.A., which specializes in regional turboprop aircraft of 90 seats or less.

The ATR deal comes on the back of the nuclear agreement Iran struck with world powers, which saw Iran agree to limit its enrichment of uranium in exchange for the lifting of economic sanctions.

That deal allowed airplane manufacturers to rush into the Iranian market.

Boeing has already made a $16.6 billion sale already to Iran Air, while its European rival Airbus signed one estimated to be worth some 22.8 billion euros ($25 billion). The Treasury has signed off on both those deals.

Chicago-based Boeing also signed a $3 billion deal earlier this month to sell 30 737 MAX aircraft to Iran's Aseman Airlines, a firm owned by Iran's civil service pension foundation. The Boeing sales represent the first major deals for an American company in Iran since the 1979 Islamic Revolution and U.S. Embassy takeover.

U.S. politicians have expressed concern about the airplane sales to Iran. President Donald Trump remains skeptical of the atomic accord overall and has threatened to renegotiate it, without offering specifics.

(Nasser Karimi and Jon Gambrell - Associated Press)

AirBridgeCargo expands Asian network with call in fast growing Taipei


AirBridgeCargo Airlines (ABC) has continued the expansion of its operations in Asia with the addition of Taipei to its list of destinations.

ABC will fly to Taipei twice per week utilizing a Boeing 747F aircraft. The new service, which was launched on April 8, will operate from Moscow Sheremetyevo every Wednesday and Saturday, returning via Hanoi in Vietnam.

Sergey Lazarev, general director ABC, said: “Taipei is a mature and stable air cargo market generating volumes close to 500,000 tonnes per annum so it is a major origin, destination and transit point for freight.

"This includes exports of electronic components, machinery, textiles as well as a diverse range of import cargoes.

"We know from listening to customers in Taipei and those in other countries with traffic to and from Taiwan that there is demand for the quality of service and network opportunities AirBridgeCargo is able to offer.

"This is why we are supporting our customers once again with our services and additional capacity in a prime market where they want to work with us.”

ABC said the addition of Taipei means it has doubled its route network for customers in the region in the last two years.

ABC also offers 747F services to and from Tokyo, Seoul, Singapore, Hanoi, Phnom Penh, Hong Kong and the Chinese cities of Shanghai, Beijing, Chengdu, Chongqing and Zhengzhou.

The expansion of operations has helped the airline boost volumes from the Asia Pacific region by 25% year on year to more than 265,000 tonnes and said it is "confident of further growth this year".


IAG Cargo freighter flight caters for pharma demand

(Cygnus Air)

IAG Cargo has launched a new dedicated freighter service between its Madrid hub and Basel to cater for the pharma market.

The cargo group, which offers space on British Airways, Iberia and Aer Lingus flights, said that the weekly scheduled service will be operated by Spanish airline Cygnus Air using one of its two B757-200F aircraft.

The new service, which flies on Sundays, has been on trial since January and IAG Cargo said it had proved popular with the pharma sector as it offers connections into the group’s Latin America network.

The group added that the service will be “a crucial support to Switzerland’s booming pharmaceutical sector, which makes up more than a third of the country’s export volume”.

It said that 74% of the goods flown out of Switzerland were on its Constant Climate pharma product.

IAG Cargo commercial director David Shepherd said: “IAG Cargo has a flexible network investment strategy where we respond as quickly as possible to customer demand.

“Our latest freighter service underlines our commitment to giving our customers the capacity and routes they need, and further highlights the strength of our industry-leading pharmaceuticals proposition.”

IAG Cargo axed an agreement with Global Supply Systems under which it leased three B747-8Fs on long-haul routes in January 2014, citing overcapacity on the routes the aircraft operated.

Since then, it has been taking space on freighters operated by others. It has scheduled deals with DHL, one of which is also dedicated, Qatar Airways Cargo and Korean Air and also buys tactically – meaning as and when it needs to – from operators out of Latin America, feeding into places like Bridgetown, Barbados and Miami.

Buying tactically allows IAG Cargo to expand and contract capacity depending on requirements.

The B757-200F aircraft used on the new service offers a capacity of 29 tonnes per flight and expands capacity on IAG Cargo’s short-haul freighter network – offered through its partnerships – by 6%.

Last week, IAG Cargo announced a new chief executive, with Lynne Embleton replacing Drew Crawley who had been in the role for just over a year.


Let Richard Branson kill United Airlines

I found this to be a very interesting read and, I hope you enjoy it as much as I did since I do agree with each point the author brought up!

Michael Carter
Editor and Chief
Aero Pacific Flightlines

Most semi-frequent travelers have their own private no-fly list—that one airline whose aggressive incompetence and casual cruelty leads them to say “never again.” Even before introducing the term “re-accommodate” into the National Registry of Corporate Euphemisms, United has been that no-go airline for me, the result of a long series of outrages beginning with the near-ruination of George Gershwin’s “Rhapsody in Blue.”

And yet, after grim Expedia searches, I continue to sporadically fly those unfriendly skies, because unlike evil rental car companies (cough *AVIS* cough), air carriers have colluded with government to shield themselves from the consumer-friendly gales of competition. Protectionist legislators have basically made it impossible for us to quit United.

Perhaps you’ve seen that graphic making the rounds, showing how mergers over the last decade have consolidated the largest 11 domestic airlines into a profitable, customer-abusing Big Five? The accompanying BuzzFeed headline is a true enough conclusion: “Airlines Treat You Badly Because They Can.” But like a lot of the how-we-got-here coverage this week, it misses one elephant in the room.

Foreign companies and individuals—think Richard Branson and Virgin Atlantic Airways—are forbidden by U.S. law from owning more than 25% of a domestic airline. That’s why Virgin America could be sold last year to Alaska Airlines over the express wishes of Virgin’s famous founder: He just didn’t have enough votes.

The differently headquartered are banned outright from servicing routes between two American cities, a practice with the sinister-sounding name of cabotage. And carriers from Singapore to the Gulf States are not only barred from competition, but subject to sneering taunts by American legacies from behind the protectionist firewall, such as when United CEO Oscar Munoz this March said that companies including the well-regarded Emirates “aren’t real airlines.”

What on Earth justifies such pre-Trump xenophobic mercantilism in our increasingly globalized world? According to North America’s Air Line Pilots Assn.: “These regulations ensure the national security of our country and the integrity of our airline industry.” Or translated into honest-ese, “These regulations ensure the job security of unionized U.S. nationals and the continued existence of poorly run U.S. airlines.”

The nexus between neglected infrastructure and national security is one of the most reliably insane areas of public policy. Recall the coast-to-coast freakout in 2006 when Dubai Ports World attempted to buy management rights to a half-dozen major U.S. ports. Or, for those of us with longer memories, the shameful panic here in L.A. a quarter century ago when the county awarded a subway-car contract to a company from (shudder) Japan.

In fact, one of the biggest worries among free-market economists about President Trump’s gestating $1-trillion infrastructure bill is that it will contain “buy American, hire American” provisions that would discourage needed investments from foreign companies and financial institutions.

The irony of America’s lagging air travel quality—including the abject lousiness of its airports, which President Trump is absolutely correct about—is that we once led the world in airline innovation. When the domestic industry was deregulated in the mid-1970s, thanks to then-Sen. Ted Kennedy, future Supreme Court Justice Stephen Breyer, liberal economist Alfred Kahn, and President Carter (yes, you read all that right), our trading partners scrambled to become more like us. Then they surpassed us.

It took a couple of decades, but eventually the European Union dismantled subsidies for national carriers, privatized a number of airports (something unheard of here), and let literally hundreds of low-cost airlines run riot. It even allowed some foreign-airline cabotage, on a case-by-case basis. The result is those annoying Instagram pics from friends who live in London, showing off that people in Europe fly everywhere for dirt cheap.

Yes, airlines on the continent come and go faster than New York restaurants. But that’s precisely the point: With real competition comes real failure, hopefully followed by bankruptcy and even liquidation, instead of American-style too-big-to-fail bailouts. How many customers must United pummel before they can Gershwin us no more?

As Marc Scribner of the Competitive Enterprise Institute put it this week: “If American consumers wish to enjoy improved service quality in air travel, they should demand that Congress repeal 90 years of anti-competitive federal law. Less regulation of air travel, not more, is the solution.”

This will be a lonely sentiment in a week when headline-chasers from Republican New Jersey Gov. Chris Christie to Democratic Maryland Sen. Chris Van Hollen elbow each other out with interventionist solutions. But if we really want to punish United Airlines—and Lord, how I’ve dreamed of this day—then letting Richard Branson and his cohort come and compete on American soil will do more to extract justice than a hundred regulators ever could.

(Matt Welch - Los Angeles Times)

Wednesday, April 12, 2017

How FedEx Corporation Makes Most of Its Money

An analysis of operating income by segment reveals much about the underlying earnings trends at the company and what to expect in the future.

How does FedEx Corporation make most of its money? That's a question worth investigating since the company's chief moneymaking segment has changed hands a few times in the past decade. Moreover, a fuller understanding of how the company operates will help investors appreciate what's happening with the investment propositions at FedEx and its main rival, United Parcel Service, Inc. Let's take a closer look.
Express just barely takes the title

A breakout of FedEx's segment operating income shows that, for the first time since 2010, the express segment was the most profitable in 2016. However, ground revenue and profit continue to rise in seemingly inexorable fashion since the last recession. In a sense, you can think of this chart in two periods -- pre- and post-recession:

Chart showing express versus ground segment income since 2005. 
Data source: FedEx Corporation accounts. Chart by author. In millions of U.S. dollars.

In the pre-recession period, the express segment was clearly the key income generator, but since the 2008-2009 recession, three key underlying trends have changed trading significantly at FedEx.
Post-recession blues

First, post-recession, the market backdrop changed with global trade failing to outgrow GDP growth in the past as countries increasingly adopted mercantilist trade policies. Indeed, the World Trade Organization has warned of increasing protectionism in the global economy.

In addition, customers at UPS and FedEx started preferring cheaper and less time-sensitive deliveries. The result of this trend is slowing growth in the more expensive delivery options in express -- total composite package yield in express is currently around $20, compared with around $8 for ground.

The end result was a relative shift in profitability toward the ground segment and away from express.
E-commerce to the rescue

Second, strong e-commerce growth has led to a marked improvement in revenue and profit for the ground operations at FedEx and UPS:

US Change in E-Commerce Sales Chart
U.S. change in e-commerce sales data by YCharts

However, e-commerce doesn't come free. UPS and FedEx have both had issues servicing e-commerce deliveries during peak season. Consequently, capital expenditure plans have been increased and ground margin has come under pressure, particularly at UPS.

These factors show up in operating margin movements. FedEx's ground segment margin has declined in recent years:
FedEx segment margin movements 
Data source: FedEx Corporation accounts. Chart by author

In addition, return on assets, measured here by segment operating income divided by segment assets, has declined in recent years for the ground segment as the ground network has been expanded.
FedEx segment return on assets 
Data source: FedEx Corporation accounts. Chart by author

All told, ground income grew strongly post-recession, but it's started to slow in recent years because of margin pressure.
Express profit improvement plan

Third, the express segment's productivity has improved since 2013, largely a consequence of the company's profit improvement plan. In late 2012, management announced a three-year plan to cut express costs by some $1.7 billion. The plan involved actions such as modernizing the air fleet, making network efficiencies, and undertaking organizational rationalizations.

These actions have resulted in a margin recovery and a more productive express network in recent years. The end result has helped express take back its position as the leading money spinner for FedEx.

A FedEx express Boeing 777 in motion.  
The FedEx express fleet has been modernized. Image source: FedEx Corporation
Looking ahead

For the next few years, management's focus will be on integrating the TNT Express acquisition, but -- in common with UPS -- it also needs to stop the decline in ground margins so it can best take advantage of burgeoning e-commerce growth. Meanwhile, a recovery in overall growth will be good for FedEx freight, and a concomitant pickup in global trade will particularly benefit the express segment.

(Lee Samaha - The Motley Fool)

Hainan Airlines to induct 96 aircraft in 2017

Hainan Airlines is expecting to induct 96 aircraft into its fleet during 2017.

These comprise of 41 Boeing 737-800s, one 737-700, 21 Embraer 190s, 16 Airbus A320s, nine 787-9s, four A330-200s, three A330-300s and a single A350. The information was disclosed in a stock exchange statement.

Some of these aircraft are expected to go to subsidiaries under the HNA Group.

The carrier is forecasting a 66.3% jump in passenger numbers this year to 78.2 million, and for aircraft movements to double to 613,800.

Flight Fleets Analyzer shows that Hainan has a fleet of 175 aircraft in service.

(Mavis Toh - FlightGlobal News)

Cathay Pacific names new CEO in leadership shuffle

Cathay Pacific parent Swire Pacific has named senior executive Rupert Hogg to replace the Hong Kong flag carrier’s current CEO Ivan Chu as part of a major leadership reshuffle.

Hogg, who is Cathay’s COO, will become CEO May 1. Chu will become chairman of China’s John Swire & Sons, where he will “play a leading role in the Swire Group’s overall Mainland China investment and development strategy,” the company said. Chu will also remain on the Cathay board as a non-executive director.

Chu was appointed CEO of Cathay in 2014 following a three-year stint as COO. The carrier has been under increasing financial pressure for several months and, in response, Chu has overseen the creation of a corporate restructuring and turnaround plan.

John Slosar, chairman of Swire Pacific and Cathay Pacific, noted that Chu “played a key role in the airline’s management during some very good times and, more recently, some difficult and challenging times.”

Hogg was widely viewed as the most likely successor to Chu. Slosar stressed that Hogg will lead the three-year transformation program, using the platform developed by Chu. Hogg will also take over as chairman of subsidiary carrier Cathay Dragon. He has “an impressive level of aviation and business experience … and brings commercial focus and a spirit of innovation” to the Cathay leadership job, Slosar said.

Other significant changes have been made to the Cathay senior leadership structure. Paul Loo, currently the director of corporate development and information technology, will become chief customer and commercial officer from June 1. At the same time, Greg Hughes will become chief operations and service delivery officer. Hughes currently is group director of components and engine services for HAECO, another Swire company.

Cathay Dragon CEO Algernon Yau will take on the role of Cathay’s director of service delivery, reporting to Hughes. As well as retaining the Cathay Dragon CEO role, Yau will be responsible for “all service delivery aspects of the airlines,” and for most of the Cathay group’s subsidiaries.

(Adrian Schofield - Aviation Daily / ATWOnline News)

Gulfstream G450 landing Incident in Salzburg, Austria

Short Final to Rwy 30 at Long Beach Airport (LGB/KLGB) on October 23, 2008.
(Photo by Michael Carter)

(Photo by / G550 Yahoo Group)

The nose undercarriage of H & S Ventures LLC Gulfstream G450 (c/n 4131) N667HS built in 2008 collapsed on April 11, 2017 shortly after it returned to Salzburg (SZG/LOWS), Austria for a precautionary landing. There were no reported injuries to the two crew and two passengers on board. The aircraft had taken off from Salzburg at 1012L en route to Bangor, Maine but there was then a fault indication (undercarriage?) and the pilot elected to return. A safe landing was made and the aircraft cleared the runway but, shortly after stopping on a taxiway, the nose undercarriage collapsed.


Alaska Airlines is shutting down Virgin America's rewards program, but with a 'bit of a bonus'

Alaska Airlines will pull the plug on the Virgin America Elevate mileage rewards program.

SeaTac-based Alaska Air Group Inc. plans to fold its new subsidiary's popular loyalty program into the Alaska Mileage Plan on Jan. 1.

Virgin frequent flyers were recently informed of the move as Alaska announced it will probably drop the Virgin America brand in 2019.

Alaska is offering Virgin America fans a bonus for activating and switching early: 10,000 miles or a $100 flight discount credit.

What matters to frequent flyers in any airline takeover are point/mileage conversion rates. Virgin America flyers will be happily surprised, says Steve Danishek, a Seattle travel industry observer and owner of TMA Travel agency.

"The ratio of 1.3 Alaska Miles for every Elevate point seems to be happily higher than anticipated, even more so as coupled with Alaska's announcement that fewer miles will be needed to reach some destinations," Danishek said. "It's a bit of a bonus."

Alaska says its Mileage Plan is the only major airline loyalty program that continues to reward a mile flown with a reward mile on either Alaska or Virgin America flights.

(Andrew McIntosh - Puget Sound Business Journal) 

Tuesday, April 11, 2017

Hawaiian Airlines Airbus A330-243 (c/n 1422) N393HA "Lehuakona"

Arrives at Las Vegas McCarran International Airport (LAS/KLAS) operating the morning flight from Honolulu (HNL/KHNL) on December 14, 2016.

(Photos by Michael Carter)