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When Low Cost Infrastructure Becomes a Problem

February 27, 2007

Analysis of:JetBlue Continues Flight Cancellations, Hoping to Return to Normal Tuesday | online.wsj.com

• The good will build up by JetBlue, which offers superior service when times are good, has been lost by incompetent management during a weather crisis
• A follow-up storm with minor snowfall also created massive cancellations and delays
• JetBlue initiated a Passenger Bill of Rights that is more fluff than substance, in a PR effort to head off federal legislation that would have more stringent requirements
• JetBlue needs a significant investment into its Operations Control function, including communications bandwitdh, software, and new processes for decision-making.

Free market will lead to demand-based costs and pricing

February 27, 2007

Analysis of:Airlines at La Guardia Fight Bush Administration Proposal to Auction Off Landing Rights | www.nytimes.com

• Higher prices at Peak Times at LaGuardia
• Those who really want to serve the New York market from LaGuardia will pay a premium price

Leapfrogging the A320 could force Airbus restructuring

February 27, 2007

Analysis of:Boeing may offer two 737 replacement solution | www.atwonline.com

Boeing can play leapfrog and place Airbus in an untenable situation by attacking its major cash generator, the A320 family.

Aircraft manufacturing has four to five year lead times for product development, and Boeing currently has an advantage on the chessboard.

An annoucement from Boeing will likely occur in 2007.

It is time for the annual rumor joining BA with AA

February 16, 2007

Analysis of:Premarket Movers - American Takeout? | www.forbes.com

• Rumors indicate a buyout group led by Goldman Sachs and British Airways will go after American Airlines
• These types of rumors have surfaced before - to no avail.  The carriers already benefit from oneworld alliance partnership - a takeover or additional equity investment would not provide significant benefits.
• Foreign ownership restrictions exist, and intense scrutiny would be likely, especially given Virgin America's start-up regulatory hurdles regarding Richard Branson's foreign ownership and prominent brand.

A Design Center with Factory Options

February 15, 2007

Analysis of:High Design:Boeing Lets Airlines Browse | online.wsj.com

• Boeing's New Showroom is Changing Airline Interior Purchasing Process
• The Key: Boeing is Limiting Options and Reducing Costs
• Airbus and Boeing Continue to Leapfrog Each Other in their Marketing Sophistication

Airbus' Failure and Boeing's Success with Project Life Cycle Management Software

February 14, 2007

Analysis of:The Promise and Peril of PLM | www.baselinemag.com

• The use of Project Life Cycle Management Software has high risk and high reward
• Airbus experienced the high risk and lost more than $3 billion due to software incompatabilities on the A380 program
• Boeing's highly regimented approach, including strict software version control, is likely to reduce development costs by 20% and result in the 787 being delivered on time
• Management of the process is the critical factor for success

This article provides an interesting trip behind the scenes on how Airbus failed and Boeing is succeding in using PLM software for aircraft development

Big Brother Will be Watching You!

February 12, 2007

Analysis of:The tiny airline spy that spots bombers in the blink of an eye | www.thisislondon.co.uk

• Where does technology to find terrorists and invasion of privacy begin?
• Will this technology also uncover drug smugglers, and people trying to bring in a bit more cash or merchandise than declared on their customs forms?
• The good news is that it is too expensive to retrofit, and given the financial condition of airlines, something that they will not likely install unless absolutely required.

New Competition for Legacy Carriers

February 9, 2007

Analysis of:World's first low-cost airline alliance | www.smh.com.au

• The alliance of JetBlue and Aer Lingus provides low cost connections and interline ticketing and baggage service to expand markets for each carriers customers
• Rather than mask relationships with code-sharing flight numbers, this alliance refreshingly identifies each carrier, who maintain their own identity.
• The implications competitively for Delta and other legacy carriers is significant, as yields will fall in many markets for transatlantic service.
• This alliance will likely create others in the future

Consolidation on Hold - For Now

February 9, 2007

Analysis of:US Airways CEO: Won't Pursue Northwest | www.nytimes.com

USAirways was rebuffed in its hostile takeover of Delta, and does not plan to pursue Northwest.

While Continental and United have been in discussions, the pressure for consolidation and "critical mass" has diminished

While Doug Parker's comments were qualified if some other carrier were to pursue Northwest, USAirways has no plans for an attempt to swallow Northwest, as value and synergies are not perceived as strong as with Delta.

Airbus Needs A380 Sales

February 7, 2007

Analysis of:Airbus Expects to Sell 20 More A380s | www.chron.com

• The beleagured A380 program order book has been stagnant for the last two years
• With the first aircraft scheduled to enter service late this year, orders would normally pick-up
• Airbus now needs to sell 450 A380s to break even, rather than 250
• 20 orders from India would help build confidence in the aircraft

Labor may Limit Airbus Financial Recovery in Power 8 Program

February 6, 2007

Analysis of:Airbus Germany Workers Warn Against Cutbacks | online.wsj.com

• Airbus has targeted 5 billion euro savings over the next 5 years in its Power 8 restructuring program
• This will likely require job cuts, and consolidation of assembly and component manufacturing facilities
• Labor Unions could throw a wrench in the works with work stoppages and protests of plant closures
• If Airbus cannot achieve its cost cutting targets, it will need to borrow cash to develop the A-350XWB and next generation of A320 narrowbodies.

Another shift from Airbus to Boeing

January 26, 2007

Analysis of:A380 delays cost Airbus more business | seattlepi.nwsource.com

Emriates, Airbus largest A380 customer, has ordered 12 Boeing 777s since Airbus can't deliver the A380 on time

Given that an aircraft will last 20-25 years in service, Airbus is unlikely to displace these new aircraft

Another shift from Airbus to Boeing -- Will it result in cancellation of some A380 orders by Emirates?

What will be the impact as Emirates considers fleet expansion, looking at the 787 and A350XWB?  Boeing has already considered launching the larger -10 for Emriates, and may now be in the lead for further orders.

The A380 doesn't fit the world's largest airline market

January 22, 2007

Analysis of:American Airlines Unlikely to Buy A380 | news.airwise.com

• American, nor any other US carrier, is likely to purchase the A380, which is too large for US market
• This is not good news for Airbus, which will not likely have a North American customer for the A380.
• American will consider the A350 and 787, but given recent history, is more likely to lean towards the Boeing product, given that it already operates the 777
• With the A350 not available until 2013 and the 787 sold out through 2011, wide-body additions to American's fleet will take some time to arrive

The A380 Freighter - RIP

January 22, 2007

Analysis of:Final Airbus A380F customer UPS on verge of cancellation: French newspaper report | www.flightglobal.com

• All three customers for the freighter version of the A380 have cancelled orders
• With no customers, Airbus is unlikely to build this version of its "Albatross" superjumbo
• A "soft cancellation" will likely occur - since much of the design work has been completed, Airbus can continue to offer the aircraft, even though it is unlikely to sell, and defer additional write-offs from a firm cancellation
Bottom Line: The A380F is dead

American Airlines' Pilots Cost Airline $250 Million Opportunity

January 12, 2007

Analysis of:United Wins Bid for First Non-Stop Washington-China Route | online.wsj.com

United gained a new route that has the potential to be highly profitable, in a business market with limited capacity.

American entered the competition with a strategic advantage, as it was the only airline proposing a southern US gateway to China

American's pilot union, in failing to agree to work rule changes appropriate to this new, longer route, cost American millions

A Year to Forget for Airbus has Changed the Competitive Balance

January 12, 2007

Analysis of:Airbus Wide-Body Slump Portends New Headaches | online.wsj.com

Airbus' disasterous 2006, in which the A380 was twice delayed, the A350 rejected by the market and sent back to the drawing board, and in which it was outsold by Boeing dramatically, will have lasting effects:

• Airbus is facing its first looming cash flow crisis
• Timing for government support is inappropriate, given WTO dispute
• Airbus must restructure, for the first time in its history
• The implications of the problems go well beyond cash flows in 2010, as Boeing will have a strategic advantage and the capital to attack Airbus' cash cow, their narrow-body programs

Searching for a White Knight?

January 12, 2007

Analysis of:NWA-Delta Speculation Heats Up | www.twincities.com

• Delta's management realizes it is unlikely to survive alone, and will have a difficult time fending off USAirways, which has raised its offer
• It will need a "white knight" to bid higher than USAirways or provide better synergies in a revised business plan
• NWA, with the fewest overlapping routes, represents a potential partner that would provide fewer regulatory hurdles than USAirways
• Boeing, interestingly, holds a trump card on the creditor's committee, and could influence the decision based on future fleet plans.

Bottom Line:  USAirways is in for a fight, or at least a last minute challenge to further raise its offer.

The Battle for Midwest has Begin

January 12, 2007

Analysis of:AirTran Sweetens Midwest Bid, Pressures Board | online.wsj.com

• AirTran has taken its hostile offer for Midwest to shareholders, and could win more than 50%, which could win it control.

• Midwest wants to stand alone and has "poison pills" to thwart an unfriendly takeover

• AirTran has raised the stakes by sweetening its offer to a 61% premium over the share price prior to the offer

• It is now up to shareholders to determine whether they want to cash out at a significant premium, or remain with managment, with a short term deadline in early February

Delta Unlikely to Rebuff US Airways Offer

January 11, 2007

Analysis of:US Airways Increases Offer to Buy Delta Airlines | online.wsj.com

• This transaction will likely set off a wave of consolidation among legacy carriers
• Delta's creditors will fare better under this proposal, and control Delta's situation
• In a short period of time, America West will have swallowed larger US Airways and Delta airlines to create a low cost operation with the critical mass to survive
• Now comes the hard part - making an airline merger work

Tilton's Only Consolidation Option?

December 14, 2006

Analysis of:United, Continental Reportedly in Talks | www.forbes.com

• If CO-UA were to merge, AA would likely acquire NW, and the legacy carriers would shrink to 3 major players
• If CO-NW were to merge, AA and UA would likely stand alone, and face a more difficult competitive environment against a larger US-DL and CO-NW
• United is actively looking for a dance partner, as it understands that even after Chapter 11, its economic prospects are weak vis-a-vis restructured competitors.
• United feels it needs to eliminate capacity in order to raise fares - otherwise it is likely to remain unprofitable.
• UA can't merge with NW or AA due to competitive overlaps, and is unlikely to become a white knight with DL.  That leaves CO as the only potential partner.

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