737 max... what now?

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Originally Posted by Astro14
Originally Posted by edyvw
Originally Posted by Astro14

It will be interesting to see their decisions - run the old gas hog with oil at $30/bbl? Or make the lease payments on a $100+ million machine to save fuel?

The economics may favor delaying delivery of the Max until the traffic returns. Most of the legacy airlines have already cut capacity by 50%. Within the 50% that remain in service are some very fuel efficient airplanes. So, why take delivery of the new airplane when you've got airplanes that are already paid for? It's like trading a good used 35MPG Corolla in on a Prius, when the Corolla is paid for and the Prius comes with lease payments...and gas is $.50/gallon (which is where Jet A just ended up today - $26.15/BBL).

Are you flying?


I go back to work on Tuesday, after a couple weeks off. I'm on reserve next week. No idea what to expect, but since I typically fly a mix of domestic, Europe, and South America, I would guess that it'll be mostly domestic with all of the travel bans imposed by various countries, if I go to work at all. Flying has been cut by 50%. Half the flights have been canceled, and those that are operating have few passengers.

I am deeply concerned about the industry.

The losses are huge. 70% drop in revenue, billions of losses in March alone, for each of the major carriers. This can't be sustained for more than a month or two without collapse of the companies and the industry. Naturally my personal situation is deeply tied to the situation of my company.



What's your take on the Max as far as do you think Boeing should have been made to submit this as a whole new model by the FAA due to the engines being more forward and higher? Could that have prevented this catastrophe, and pilots would have received proper training instead of a iPad tutorial?

Not a fan of the FAA, to many conflicts of interest.....as a majority of them magically end up in a high paying job for Boeing, or lobbying for them in Washington.
 
Originally Posted by domer10


...Not a fan of the FAA, to many conflicts of interest.....as a majority of them magically end up in a high paying job for Boeing, or lobbying for them in Washington.


What personnel from the FAA has become lobbyists or have become employees of Boeing?
 
Originally Posted by MolaKule
Originally Posted by domer10


...Not a fan of the FAA, to many conflicts of interest.....as a majority of them magically end up in a high paying job for Boeing, or lobbying for them in Washington.


What personnel from the FAA has become lobbyists or have become employees of Boeing?

FAA has problem attracting talent as industry pays much better. Of course there are those who look at public service as calling, but it is struggle. Constant political bickering over budget is not helping.
 
Originally Posted by edyvw
Originally Posted by MolaKule
Originally Posted by domer10


...Not a fan of the FAA, to many conflicts of interest.....as a majority of them magically end up in a high paying job for Boeing, or lobbying for them in Washington.


What personnel from the FAA has become lobbyists or have become employees of Boeing?

FAA has problem attracting talent as industry pays much better. Of course there are those who look at public service as calling, but it is struggle. Constant political bickering over budget is not helping.


Depends upon what level you're at.
At the exempt levels in industry, where most of these people would be, you're at the whims of the bosses while in government service you enjoy job tenure unless you do something egregiously and indefensibly wrong.
Most of those with talent are in the higher GS grades, which pay rather well.
They also feature real pensions, something no longer found in industry.
A little bickering over the administration budget would seem preferable to the current inventory of undelivered and not paid for airliners combined with the current tsunami of order cancellations for frames not yet built.
The FAA guys must be feeling a little schadenfreude looking at their classmates who went to work in the industry grasping for the brass ring. The FAA guys still have and will have paid employment.
 
Originally Posted by fdcg27
Originally Posted by edyvw
Originally Posted by MolaKule
Originally Posted by domer10


...Not a fan of the FAA, to many conflicts of interest.....as a majority of them magically end up in a high paying job for Boeing, or lobbying for them in Washington.


What personnel from the FAA has become lobbyists or have become employees of Boeing?

FAA has problem attracting talent as industry pays much better. Of course there are those who look at public service as calling, but it is struggle. Constant political bickering over budget is not helping.


Depends upon what level you're at.
At the exempt levels in industry, where most of these people would be, you're at the whims of the bosses while in government service you enjoy job tenure unless you do something egregiously and indefensibly wrong.
Most of those with talent are in the higher GS grades, which pay rather well.
They also feature real pensions, something no longer found in industry.
A little bickering over the administration budget would seem preferable to the current inventory of undelivered and not paid for airliners combined with the current tsunami of order cancellations for frames not yet built.
The FAA guys must be feeling a little schadenfreude looking at their classmates who went to work in the industry grasping for the brass ring. The FAA guys still have and will have paid employment.

I do not think current situation is good example. This is not something people would expect (though in my field it is always expected).
FAA at higher GS levels cannot pay what industry is paying. yes some people will go for retirement etc. same like in military. Industry was paying lately much more as there was shortage of pilots etc. Now, yes, those at FAA enjoy their tenure and some would like that they are at FAA, but I think in the end everyone at that level will be fine as airline industry is national security issue.
 
Don't know about that.
Airlines were as much a national security issue when Astro's airline went through Chapter 11 and he took a huge pay cut let alone his loss of his defined benefit pension and a forced sale of his company stock for pennies on his invested dollar. Lots of bleeding all around although the carrier survived and ultimately prospered.
The airframers are a different deal and I expect our one current airliner builder to be aided in some fashion, although it might be that current equity holders (like me) take a serious haircut.
For the next half decade or so, there will be plenty of low time low cycle parked planes available on cheap leases and there will be plenty of ATPs also available at lowered wage levels.
It does seriously suck, but that's where we appear to be headed.
 
Originally Posted by fdcg27
Don't know about that.
Airlines were as much a national security issue when Astro's airline went through Chapter 11 and he took a huge pay cut let alone his loss of his defined benefit pension and a forced sale of his company stock for pennies on his invested dollar. Lots of bleeding all around although the carrier survived and ultimately prospered.
The airframers are a different deal and I expect our one current airliner builder to be aided in some fashion, although it might be that current equity holders (like me) take a serious haircut.
For the next half decade or so, there will be plenty of low time low cycle parked planes available on cheap leases and there will be plenty of ATPs also available at lowered wage levels.
It does seriously suck, but that's where we appear to be headed.

This is different situation from Ch.11. This is not one airline that maybe need to be saved or maybe not, or maybe it will be swallowed by different airline. ALL airlines are in jeopardy to go down. That is national security issue. Will there be victims? Yes, but whatever happens after this we will still have United, AA and Delta, as well as Boeing.
 
Chapter 11 is a way of dealing with a debt load, including leases, that cannot be sustained. Everybody gets a haircut and the company emerges as a going if shrunken concern. Lenders will not want collateral back since they'd find it unmarketable, so even those with assets securing their lending will accept the haircut.
I suspect UL, DL and WN will survive. Not so sure about AA.
The industry will emerge smaller with less reach and far less frequency.
This combined with both a supply of cheaply available airframes as well as crews may allow some start-ups to come along and prosper.
Back-office yield management/booking/payments software is far cheaper today than was the case during the last large rise of start-up carriers and this will be a major factor in determining the viability of any new entrants. The required hardware is already cheap and will get cheaper.
The employees of those existing carriers that survive will find themselves at far lower pay levels for years to come.
This will not be a short-term economic decline.
OTOH, let's say that I'm Chicken Little and this crisis passes with dispatch and things are pretty much back to normal by mid-summer. In that case, I'd expect that the economy would recover pretty quickly and there'll be lots of pent-up demand for all kinds of things including travel. The brave will travel first and when they turn out to be okay the masses will follow.
 
Originally Posted by fdcg27
Chapter 11 is a way of dealing with a debt load, including leases, that cannot be sustained. Everybody gets a haircut and the company emerges as a going if shrunken concern. Lenders will not want collateral back since they'd find it unmarketable, so even those with assets securing their lending will accept the haircut.
I suspect UL, DL and WN will survive. Not so sure about AA.
The industry will emerge smaller with less reach and far less frequency.
This combined with both a supply of cheaply available airframes as well as crews may allow some start-ups to come along and prosper.
Back-office yield management/booking/payments software is far cheaper today than was the case during the last large rise of start-up carriers and this will be a major factor in determining the viability of any new entrants. The required hardware is already cheap and will get cheaper.
The employees of those existing carriers that survive will find themselves at far lower pay levels for years to come.
This will not be a short-term economic decline.
OTOH, let's say that I'm Chicken Little and this crisis passes with dispatch and things are pretty much back to normal by mid-summer. In that case, I'd expect that the economy would recover pretty quickly and there'll be lots of pent-up demand for all kinds of things including travel. The brave will travel first and when they turn out to be okay the masses will follow.

I know what CH11 is. However, I highly doubt government will let any airline to go that route including AA, regardless that personally, I could not care less about them. Almost all airlines proved they were living paycheck to paycheck, and AA was living large on a credit card. However, in election year, that is not happening.
Now, how industry will come out of this is different issue. Many businesses are going o figure out that they can change a lot of things. Some will get leaner, some will grow, and we will see completely new businesses.
Now when it comes to travel, it is not happening next 3-5 years. SARS-CoV in 2002-2004, which was contained, except outbreak in Toronto had big impact on travel. SARS-CoV2 today is in mitigation phase. Even if by mid summer hypothetically we open 100% of society (which is not going to happen), people will be afraid to just like that jump onto crowded plane and different countries will have different regulations. Airline industry will also take precaution considering that second wave is more likely than not.
Until vaccine is out, this all will be in state of close-open-close-open. Do not forget, Spanish flu had big come back in 1919. Actually Woodrow Wilson got flu while negotiating in Versailles. Some thought he would not survive it.
 
Originally Posted by edyvw
Originally Posted by fdcg27
Chapter 11 is a way of dealing with a debt load, including leases, that cannot be sustained. Everybody gets a haircut and the company emerges as a going if shrunken concern. Lenders will not want collateral back since they'd find it unmarketable, so even those with assets securing their lending will accept the haircut.
I suspect UL, DL and WN will survive. Not so sure about AA.
The industry will emerge smaller with less reach and far less frequency.
This combined with both a supply of cheaply available airframes as well as crews may allow some start-ups to come along and prosper.
Back-office yield management/booking/payments software is far cheaper today than was the case during the last large rise of start-up carriers and this will be a major factor in determining the viability of any new entrants. The required hardware is already cheap and will get cheaper.
The employees of those existing carriers that survive will find themselves at far lower pay levels for years to come.
This will not be a short-term economic decline.
OTOH, let's say that I'm Chicken Little and this crisis passes with dispatch and things are pretty much back to normal by mid-summer. In that case, I'd expect that the economy would recover pretty quickly and there'll be lots of pent-up demand for all kinds of things including travel. The brave will travel first and when they turn out to be okay the masses will follow.

I know what CH11 is. However, I highly doubt government will let any airline to go that route including AA, regardless that personally, I could not care less about them. Almost all airlines proved they were living paycheck to paycheck, and AA was living large on a credit card. However, in election year, that is not happening.
Now, how industry will come out of this is different issue. Many businesses are going o figure out that they can change a lot of things. Some will get leaner, some will grow, and we will see completely new businesses.
Now when it comes to travel, it is not happening next 3-5 years. SARS-CoV in 2002-2004, which was contained, except outbreak in Toronto had big impact on travel. SARS-CoV2 today is in mitigation phase. Even if by mid summer hypothetically we open 100% of society (which is not going to happen), people will be afraid to just like that jump onto crowded plane and different countries will have different regulations. Airline industry will also take precaution considering that second wave is more likely than not.
Until vaccine is out, this all will be in state of close-open-close-open. Do not forget, Spanish flu had big come back in 1919. Actually Woodrow Wilson got flu while negotiating in Versailles. Some thought he would not survive it.


Your third paragraph seems contradictory to your first.
If US carriers are not to be allowed Chapter 11, then how else will they shrink and restructure, which will be required if travel is actually not happening for the next 3-5 years?
Not a criticism just a serious question.
Chapter 11 would of course be deadly for the holders of common equity, but it would allow the companies themselves to survive while shedding lots of current debt, lease, firm order and CBA liabilities.
If it'll be years before travel demand recovers, then I can't see much alternative to a nice bath through the federal bankruptcy courts.
It's not as though they haven't been there before.
 
There may be lots of deals on planes in the next few years for start up airlines etc.
 
Originally Posted by fdcg27
Originally Posted by edyvw
Originally Posted by fdcg27
Chapter 11 is a way of dealing with a debt load, including leases, that cannot be sustained. Everybody gets a haircut and the company emerges as a going if shrunken concern. Lenders will not want collateral back since they'd find it unmarketable, so even those with assets securing their lending will accept the haircut.
I suspect UL, DL and WN will survive. Not so sure about AA.
The industry will emerge smaller with less reach and far less frequency.
This combined with both a supply of cheaply available airframes as well as crews may allow some start-ups to come along and prosper.
Back-office yield management/booking/payments software is far cheaper today than was the case during the last large rise of start-up carriers and this will be a major factor in determining the viability of any new entrants. The required hardware is already cheap and will get cheaper.
The employees of those existing carriers that survive will find themselves at far lower pay levels for years to come.
This will not be a short-term economic decline.
OTOH, let's say that I'm Chicken Little and this crisis passes with dispatch and things are pretty much back to normal by mid-summer. In that case, I'd expect that the economy would recover pretty quickly and there'll be lots of pent-up demand for all kinds of things including travel. The brave will travel first and when they turn out to be okay the masses will follow.

I know what CH11 is. However, I highly doubt government will let any airline to go that route including AA, regardless that personally, I could not care less about them. Almost all airlines proved they were living paycheck to paycheck, and AA was living large on a credit card. However, in election year, that is not happening.
Now, how industry will come out of this is different issue. Many businesses are going o figure out that they can change a lot of things. Some will get leaner, some will grow, and we will see completely new businesses.
Now when it comes to travel, it is not happening next 3-5 years. SARS-CoV in 2002-2004, which was contained, except outbreak in Toronto had big impact on travel. SARS-CoV2 today is in mitigation phase. Even if by mid summer hypothetically we open 100% of society (which is not going to happen), people will be afraid to just like that jump onto crowded plane and different countries will have different regulations. Airline industry will also take precaution considering that second wave is more likely than not.
Until vaccine is out, this all will be in state of close-open-close-open. Do not forget, Spanish flu had big come back in 1919. Actually Woodrow Wilson got flu while negotiating in Versailles. Some thought he would not survive it.


Your third paragraph seems contradictory to your first.
If US carriers are not to be allowed Chapter 11, then how else will they shrink and restructure, which will be required if travel is actually not happening for the next 3-5 years?
Not a criticism just a serious question.
Chapter 11 would of course be deadly for the holders of common equity, but it would allow the companies themselves to survive while shedding lots of current debt, lease, firm order and CBA liabilities.
If it'll be years before travel demand recovers, then I can't see much alternative to a nice bath through the federal bankruptcy courts.
It's not as though they haven't been there before.

OK, I see where you going.
Yes, but I think government will pump in enough money bcs. of debtors etc. Cycle needs to be maintained bcs. of larger issue; an economy as a whole. If debtors are victims who will save them? Money will be pumped in to maintain cycle.
They will shrink. AA is retiring 757, 767, some A330. UAL will probably fallow soon as well as DL. Lufthansa just announced that it is retiring, 6 A380, 5 744, 7 A346, several A343, 10 old A320's. They are scheduled to pull out A380 by 2022, but if this goes for some time, it would be surprising to see them flying again. Most companies will go into retirement of older planes. So, they will trim operations in that way.
3-5 years will take for travel to bounce back.
Now, IMO, Ch.11 is possible after this is behind us and some companies do not manage to bounce back. That yes, I agree, that is way to go, and that is possible considering that large pharmaceuticals are warning that best case scenario for vaccine is at minimum 3 years.
 
Time will tell.

In all this chaos is opportunity. Companies positioned to grow quickly will be able to seize opportunities for routes, markets, etc. when air travel returns.

Parking airplanes permanently ensures that those companies will not be able to respond to new conditions in say, this next year, when they're presented.

When you decide to park a fleet type, you're making a permanent size reduction. It requires reducing staffing. Furloughing flight attendants is easy, they're fungible. Take the bottom 20% and lay them off, and you can still fly every flight.

Furloughing pilots is a complex, long, expensive process because of training requirements. For each pilot furloughed, about 4 more need to be re-trained to balance out the distribution across aircraft types and right/left seat. Each training event takes a pilot out of production/flying for at least 6 weeks, and up to several months, depending on training loads and simulator availability. So, you're paying those guys to stay at home while they wait for training. So, furlough one pilot, and you're eating the cost of 24 weeks (1/2 man-year) of a pilot not working, but getting paid, as a minimum. During the post- 9-11 furloughs at major US airlines, the entire retraining process took years. Years... Parking an entire fleet is a big, expensive, permanent decision.

Liquidity and the ability to survive is the critical issue right now. As a data point the big airlines (AA, DL, UA, SW) are burning through about $100 million/day. That's the cost of labor, aircraft leases/payments, facilities leases, and all the other fixed costs that can't be reduced in the short term. Sure, fuel costs have gone down, but who cares when the revenue is off by 95%? You're still burning through cash at a furious rate.

The companies that are parking entire fleet types are ensuring that they can't bounce back. They're managing through this, by doing the predictable short-term thing, trying to slash costs any way they can. But that's not planning for the future, it's simply reacting in panic for today. And that set of fleet reduction decisions comes with big costs (pilot re-training) in the future, so I'm not convinced that it's even the best for their balance sheet in the medium term, and certainly not for the long term.

We will see.

In the meantime, I encourage you to read this: https://hbr.org/2020/03/are-you-leading-through-the-crisis-or-managing-the-response
 
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Astro,
You know better than I that the airline industry is a very low margin one that relies upon large capital investment as well as high paid labor to run, not to mention the capital intensive IT infrastructure required for everything from ticket sales to crew and aircraft scheduling to aircraft dispatch.
In short, a lot of money flows in and a few pence flow out as operating income.
Just how can any airline in the current cash bleed situation avoid reducing fleet and employee numbers?
Even if we know with certainty that traffic returns to 2019 numbers in 2021, what airline has the cash to hang on for that?
Planning for some unknown future is hard when you're just trying to avoid drowning now.
Other than fleet reductions along with a trip through Chapter 11 that would obviate all of the obligations to current crew based upon seniority, what's a carrier to do?
I did not like your dismissal of the FAs as though they're of no consequence as people, but in an industry catastrophe you're as vulnerable to being lopped off as they are.
 
Unfortunately those "ticketing" personnel were just busy sending tons of money the wrong way … Refunds …
 
Maybe bankruptcy and reorganization will have to be done to survive ?

Some employees permanently laid off and given severance package. Job retraining and career changes will have to be done for those not returning.

It sucks the industry will be hurting for a while even with help from government.
 
I dismissed no one. Sorry if I sound cold, but we're talking about the realities of airlines.

Mechanics, FAs, gate agents - all are fungible. All can be assigned to any position, and all can be furloughed on a moment's notice without impacting the operation, since they are universally trained.

That's precisely what happened as major carriers went through bankruptcy. Thousands of fungible employees furloughed at once while pilot furloughs took years. Entire employee groups were dismissed at airlines - the employee newspaper, for example, gone. City ticket offices - closed. My airline alone laid off a total of 50% of the workforce. Nearly 50,000 employees. Most of those were done quickly. Very few got any severance. Most pensions were liquidated along the way.

The pilots took longer. Much longer. That's just how it works when you have specialized, trained, certified employees.

That's why you can look at the fleet reductions, and pilot furloughs, to gauge the long-term intent of a company. It takes a long time to move them to furlough, and a long time to bring them back.

Finally, and this is important, flight attendants and pilots are not at all subject to the same risk. Both are airline employees, but that's where the comparison ends. A flight attendant can be hired with zero experience, and trained for the job in a week. A pilot, hired with zero experience, will take several years to train to the minimum hours and certifications (ATP, type rating). The labor markets are entirely different. The risk, therefore, is entirely different. Mechanics are much closer to pilots, they take a long time to train and certify, but again, they are fungible.

As far as fleet reductions, they don't save that much money, not in the short term. Staffing reductions do. But which airplanes are AA and DL parking? 757s and MD80/90. They have nearly zero value. They have no lease or finance payments, so where is the savings? The only significant savings with parking old jets is that you can reduce the commensurate staff. In the medium term, you save on heavy maintenance and in the medium-long term, you save a bit on fuel when your routes are flown by more efficient aircraft.

UA took deliveries of a couple of 787s this month. Why - wouldn't it make sense to cancel orders and keep the cash?

Well, perhaps, except that those airplanes were already paid for, and as new, efficient airplanes, have value on the market, so they don't detract from the balance sheet.

The cash flow is the C-suite's problem. Just like an engine fire on takeoff is mine. There are a lot of avenues open to a good management team that can be used to handle the cash crunch, even though the revenue is barely a trickle (perhaps 5% of normal). A lot depends on the the company's financial position/strength going into this, as well as the confidence that big banks, and others, have in the management team.
 
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I could see a scenario where retiring entire fleets soon would make pilot furloughs much cheaper/easier on an airline. If a one-fleet airline like Southwest furloughs, there's very little training that need to be done.

Places like Delta have 6(!) different narrowbody fleets. That's a training-department disaster once the domino-effect of furloughs and displacements start. Cut those 6 fleets down to maybe 3 and it simplifies things greatly.
 
I just read yesterday where Lufthansa is going to park several A380's along with some A340 planes. That included some 343's. I'm surprised they were still flying those hair dryers? A number of other aircraft will be parked as well.

Most or perhaps all of those planes will be retired. The A380 era is coming to a quick end it seems.
 
If you're going to reduce your fleet size, vertical cuts (single airplane type) make sense, because you shed the costs of a fleet type; spare parts inventory, training equipment, simulators and training space. Small fleets (low number of airplanes) are the natural choice.

The A-380 had been a break-even airplane for Lufthansa, I'm not certain that 747-8 ever made money and the A-340 is a gas guzzler and has high maintenance costs. Each of those fleets at Lufthansa is small. Those vertical cuts make perfect sense, because small fleets cost more to keep, as the overhead of parts, and training support, is amortized over smaller numbers.

To be honest, I think my beloved 757 and then 767, will be the first airplanes to go should United begin parking airplanes. The oldest, and least fuel efficient. Spare parts for the round dial cockpit have become harder to source. The 767 and 757 are the smallest fleet. Smaller retraining numbers. We had already begun selling some of oldest 757s last year and this year, as the 737 MAX was to take the domestic flying that the 757 was doing. Granted, I'm no MAX fan, but it's the same passenger capacity of the 757 at half (yes, half) the fuel burn.

Those two numbers (passengers and burn) are awfully compelling to the C-suite.
 
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