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Airline Fleet/Management in a crisis #5400880 04/12/20 07:58 AM
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Astro14 Offline OP
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The 737 Max thread has quite a few posts that have been more about how airlines are responding to this crisis, and how airlines manage fleets and employees. While the 737 MAX is an element of that topic, many posts, including many of my own, have nothing to do with the 737 MAX per se.

So, I'm starting this thread to focus on that topic, and copying the relevant discussion over.

I hope this helps. If I missed a relevant point or quote, please forgive me and feel free to post it again in this thread.

Last edited by Astro14; 04/12/20 08:32 AM.

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Re: Airline Fleet/Management [Re: Astro14] #5400884 04/12/20 08:02 AM
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Originally Posted by PimTac
One of the Dreamliners advantages are the “long and thin routes “. This opened up nonstop international flights to and from cities that couldn’t support a flight before. Those customers previously flew to a hub and then on to their destination. Travelers will mostly prefer nonstop direct flights rather than transfers.

I think one issue is airport capacity. Many airports are at or near full capacity. I know Seattle-Tacoma just opened up some bus gates which travelers will love when the weather is rainy.


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Re: Airline Fleet/Management [Re: Astro14] #5400885 04/12/20 08:02 AM
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Originally Posted by PimTac
One of the Dreamliners advantages are the “long and thin routes “. This opened up nonstop international flights to and from cities that couldn’t support a flight before. Those customers previously flew to a hub and then on to their destination. Travelers will mostly prefer nonstop direct flights rather than transfers.

I think one issue is airport capacity. Many airports are at or near full capacity. I know Seattle-Tacoma just opened up some bus gates which travelers will love when the weather is rainy.

Originally Posted by edyvw
Originally Posted by PimTac
One of the Dreamliners advantages are the “long and thin routes “. This opened up nonstop international flights to and from cities that couldn’t support a flight before. Those customers previously flew to a hub and then on to their destination. Travelers will mostly prefer nonstop direct flights rather than transfers.

I think one issue is airport capacity. Many airports are at or near full capacity. I know Seattle-Tacoma just opened up some bus gates which travelers will love when the weather is rainy.

Boeing was betting on point to point routes. Airbus was going for hub to hub. Boeing obviously had better vision here.
Airports are at max. Denver will add 36 gates soon, and 16 will be snatched by Southwest. Also, companies are beefing up Colorado Springs routes as alternative since 5% of Denver daily traffic are people who drive from Colorado Springs. It will be interesting to see ATL, ORD etc. I know when ATL added 5th runway that FAA said it is end of an expansion.


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Re: Airline Fleet/Management [Re: Astro14] #5400887 04/12/20 08:04 AM
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Originally Posted by fdcg27
Can't agree.
Most companies that fail go through a long, steady decline, kinda like how you'd boil a frog. By the time BOD and senior management figure things out, it's just too late. We can both think of a couple examples of this.
Others fail because they're little more than Ponzi schemes that are sooner or later revealed for what they are, often after taking huge amounts of investor money into the toilet.
Many examples of this.
Still others decline because they refuse to embark on bold new departures but merely develop the status quo while competitors reach for the next level.
MD is a good example of this and yet there are more of their latest sixties design development flying than there are of Boeing's.
In Boeing's case, it embarked upon a brilliant new program with the 787 that gained a thousand orders before it even flew.
Sounds like a sure thing, right?
We know how that went.
In the second case, Boeing developed an existing aircraft which it knew better than you know the back of your hand.
Through lapses in program management, they ended up with an aircraft that easily equaled the operating efficiency of the single aisle Airbus but that had an inbuilt software problem that had many people crossing their fingers but nobody asking any hard questions before EIS.
We also know how that went.
This is how Boeing management has reached an epiphany.
If they haven't, then these folks are not nearly as bright as I give them credit for being.
I suspect that the days of penny wise and pound foolish program and corporate management at Boeing have ended. It's just too costly to try to be cheap.
You should hope as much that you're wrong as I do that I'm right.


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Re: Airline Fleet/Management [Re: Astro14] #5400889 04/12/20 08:04 AM
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Originally Posted by JustN89
Half a fleet going to storage? What fleet are you talking about?


Don't conflate consumer fear versus what would be in the best interest of the airline. Those are two separate issues. The fact of the matter is that the MAX is still much more efficient and cost effective right now for an airline. No airline that owns and operates them is thinking that the MAX "may not be needed".


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Re: Airline Fleet/Management [Re: Astro14] #5400891 04/12/20 08:05 AM
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Originally Posted by JustN89
Originally Posted by edyvw
Originally Posted by JustN89
Half a fleet going to storage? What fleet are you talking about?


Don't conflate consumer fear versus what would be in the best interest of the airline. Those are two separate issues. The fact of the matter is that the MAX is still much more efficient and cost effective right now for an airline. No airline that owns and operates them is thinking that the MAX "may not be needed".

I highly doubt MAX is top of the concern for AA leadership.
On other hand, great opportunity for government to rain in stupid behavior of leadership like AA.

That's really neither here nor there, and not even remotely close to what was being discussed. Not once did I make the suggestion that the MAX was even close to priority one right now. Thanks for the input, as always.


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Re: Airline Fleet/Management [Re: Astro14] #5400893 04/12/20 08:07 AM
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Originally Posted by JustN89
Originally Posted by edyvw
Originally Posted by JustN89
Half a fleet going to storage? What fleet are you talking about?


Don't conflate consumer fear versus what would be in the best interest of the airline. Those are two separate issues. The fact of the matter is that the MAX is still much more efficient and cost effective right now for an airline. No airline that owns and operates them is thinking that the MAX "may not be needed".

I highly doubt MAX is top of the concern for AA leadership.
On other hand, great opportunity for government to rain in stupid behavior of leadership like AA.

That's really neither here nor there, and not even remotely close to what was being discussed. Not once did I make the suggestion that the MAX was even close to priority one right now. Thanks for the input, as always.

Originally Posted by edyvw
Originally Posted by Astro14
Originally Posted by ZeeOSix
Originally Posted by JustN89
The fact of the matter is that the MAX is still much more efficient and cost effective right now for an airline. No airline that owns and operates them is thinking that the MAX "may not be needed".


I could turn out that once the Max gets back to service the airlines will start using them heavily if they are more efficient and cost effective ... could save the airlines some money.


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?


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Re: Airline Fleet/Management [Re: Astro14] #5400895 04/12/20 08:08 AM
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Originally Posted by Astro14
Originally Posted by edyvw

They will have to go bailout route. There is no doubt about that. I just hope they tie well being of pilots, crews, mechanics into bailout.
This will not be sustainable for more than a two months, if even that. I was telling my wife, this is flattening the curve, but what people do not realize is that virus is going to stay, at least until vaccine is at hands. So, we will experience a lot of deaths, the thing is just not to overwhelm the healthcare system at once. I think any industry related to mobility will suffer greatly for next two years. It will be interesting to see what happens now in South Korea as they dropped number of cases dramatically.
Would you retire now? I think part of bailout should be retirement at levels of 01/01/20. Government should pick up tab there and let airlines pay that overtime.


So, let me be clear: there is no defined benefit plan for me. If I were to retire now, I would get by on what I have in my 401(k) and savings.

The pensions at most major airlines were liquidated during the bankruptcies - turned over to the PBGC. PBGC is like the FDIC - a Federal Corporation that takes over and administers failed assets. Companies pay insurance premiums to the corporation and if the bank (or pension) fails, that insurance, along with the assets, are used to pay the depositors/pensions. There is no more defined benefit retirement, nor defined benefit retirement accrual, at any major airline.

My PBGC retirement benefit on 01/01/20 is $800/month, but I can't get that until I'm 62. If I work for nine more years (I'm 56, mandatory retirement age is 65), I will get $800/month.

So, my airline retirement, along with nearly everyone in the industry, is 95% based on my 401(k) balance, which, has taken a hit. The PBGC benefit is a tiny percentage of what my pension would've been. I think people forget that many major airlines went through bankruptcy, and in that process, pay was cut*, benefits were slashed, contracts abrogated, and liabilities shed through the court.

My 30 years of active and reserve service in the USN is my defined benefit plan. 19 years of working two careers/two jobs, simultaneously has provided my defined benefit plan.

Very few airline employees have that.

The employees took the brunt of the bankruptcies 15 years ago. Pay slashed, benefits cut, pensions liquidated.



*In my case, my pay was cut by 65%. You read that right, by 2003, I was left with a paycheck that was about 1/3 of what I had in 2001.

In addition, my company stock, which I couldn't sell under the ESOP, was liquidated for $750. It had been over $100,000.



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Re: Airline Fleet/Management [Re: Astro14] #5400896 04/12/20 08:08 AM
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Originally Posted by edyvw
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.


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Re: Airline Fleet/Management [Re: Astro14] #5400898 04/12/20 08:10 AM
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Originally Posted by ArrestMeRedZ
Astro, you nailed it. One of the big divides between Millennials and Boomers is the lamented loss of retirement plans between generations. What is lost in the discussion is with the exception of military and government plans (which remain essentially the same between generations), private companies rarely paid out those generous retirements.
You mentioned bankruptcies as a reason the airlines voided their pensions. Probably as common were buyouts and mergers where the pirate swooping in raided the "overfunded" pension fund, stripped it of value, then ended up passing it on to the PBGC when things did not go as well as imagined. More common was the method defense contractors and aircraft manufacturers used to avoid paying out pensions by using a manufactured excuse to fire or lay off workers (especially engineers) after years of dedicated service just before they became vested in a retirement plan.

Even with the recent market downturn I believe 401k plans instead of defined benefit plans (with the exception of military/government) puts the power into the hands of employees. Engineers and others can move from company to company every few years to capture real salary increases rather than staying in place and being offered raises that don't match industry standards. No longer do the golden handcuffs that turn out to be brass force employees to stay in a bad position.


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Re: Airline Fleet/Management [Re: Astro14] #5400901 04/12/20 08:11 AM
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Originally Posted by fdcg27
Originally Posted by Astro14
Originally Posted by edyvw

They will have to go bailout route. There is no doubt about that. I just hope they tie well being of pilots, crews, mechanics into bailout.
This will not be sustainable for more than a two months, if even that. I was telling my wife, this is flattening the curve, but what people do not realize is that virus is going to stay, at least until vaccine is at hands. So, we will experience a lot of deaths, the thing is just not to overwhelm the healthcare system at once. I think any industry related to mobility will suffer greatly for next two years. It will be interesting to see what happens now in South Korea as they dropped number of cases dramatically.
Would you retire now? I think part of bailout should be retirement at levels of 01/01/20. Government should pick up tab there and let airlines pay that overtime.


So, let me be clear: there is no defined benefit plan for me. If I were to retire now, I would get by on what I have in my 401(k) and savings.

The pensions at most major airlines were liquidated during the bankruptcies - turned over to the PBGC. PBGC is like the FDIC - a Federal Corporation that takes over and administers failed assets. Companies pay insurance premiums to the corporation and if the bank (or pension) fails, that insurance, along with the assets, are used to pay the depositors/pensions. There is no more defined benefit retirement, nor defined benefit retirement accrual, at any major airline.
My PBGC retirement benefit on 01/01/20 is $800/month, but I can't get that until I'm 62. If I work for nine more years (I'm 56, mandatory retirement age is 65), I will get $800/month.

So, my airline retirement, along with nearly everyone in the industry, is 95% based on my 401(k) balance, which, has taken a hit. The PBGC benefit is a tiny percentage of what my pension would've been. I think people forget that many major airlines went through bankruptcy, and in that process, pay was cut*, benefits were slashed, contracts abrogated, and liabilities shed through the court.

My 30 years of active and reserve service in the USN is my defined benefit plan. 19 years of working two careers/two jobs, simultaneously has provided my defined benefit plan.

Very few airline employees have that.

The employees took the brunt of the bankruptcies 15 years ago. Pay slashed, benefits cut, pensions liquidated.



*In my case, my pay was cut by 65%. You read that right, by 2003, I was left with a paycheck that was about 1/3 of what I had in 2001.

In addition, my company stock, which I couldn't sell under the ESOP, was liquidated for $750. It had been over $100,000.



We have to remember that every large US carrier except for Southwest went through a Ch 11 reorganization, in the case of US/AA a total of three times between both carriers prior to their merger. US gained control of AA during AA's reorganization proceedings.
Employees took it on the chin and lost their old defined benefit plans along with having to endure years of low wages and poor working conditions.
If we want to have a viable air transport system when things begin to return to normal, then we're going to have to pony up some support in some form for the carriers, to include their employees, their subs and their suppliers.
Classical economics tells us that in the long run, this situation would resolve itself, with new entrants picking up the foreclosed capital assets and returning them to service in response to demand.
OTOH, as Lord Keynes once said in response to this view, in the long run we shall all be dead.


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Re: Airline Fleet/Management [Re: Astro14] #5400904 04/12/20 08:12 AM
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Originally Posted by edyvw

Geez, I mean I was expecting that your retirement took a hit from Ch.11 and of course this downturn hit 40x plans a lot (I opened mine 7 days ago and did not want to look at it anymore).
Let just hope they bailout with condition to keep workers in and then hope this will rebound.
I just cannot see this being long term option considering Southeast keeps living like nothing happened.


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Re: Airline Fleet/Management [Re: Astro14] #5400912 04/12/20 08:25 AM
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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.


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Re: Airline Fleet/Management [Re: Astro14] #5400913 04/12/20 08:25 AM
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Originally Posted by edyvw
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.


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Re: Airline Fleet/Management [Re: Astro14] #5400915 04/12/20 08:26 AM
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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.


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