Sky Talk

Marines bullish on F-35B

Yes, a real shocker. The Marine Corps brass is bullish, still and always on the F-35B, according to Reuters. No more probation soon, now that nasty old Robert Gates is no longer secretary of defense.

General Joseph Dunford, assistant commandant of the Marine Corps, told an investment conference that he was "pretty bullish" on the F-35B, the short takeoff, vertical landing variant of the F-35 Joint Strike Fighter.

He cited progress in fixing technical problems and said the fighter jet met 98 percent of its test points this year.

Gates put the F-35B on a two-year probation last January and threatened to cancel further work on it unless technical issues were resolved. But Dunford said he was optimistic about the plane's future after a year of solid progress.

"It's no longer ... in the cross hairs," Dunford told the conference hosted by Credit Suisse and Aviation Week, noting that an engineering solution had been identified for every challenge that had arisen.

With the F-35 program among the big ticket items most likely to be scaled back due to looming budget cuts word in Washington is the Marines are trying hard to persuade the other services, Congress and others that their version of the F-35 is the best and should be adopted by the other branches. (Air Force and Navy brass reportedly doing the same for their aircraft).

- Bob Cox

BAE Systems partners with AVX on umanned copter program

BAE Systems, the giant U.K.-based defense contractor, has joined with AVX Aircraft Co., a fledgling Fort Worth company, in an effort to win a Navy contract for an unmanned surveillance helicopter.

AVX officials announced Wednesday that they had teamed with BAE to submit a proposal to the Navy for its planned Medium Range Maritime Unmanned Aerial System.

“We think we’ve got a good proposal from the standpoint of meeting the (Navy) requirements,” said AVX spokesman Mike Cox.

The AVX-BAE proposal calls for design and development of an all-new helicopter using AVX's concept of combining a compound coaxial rotor system (two counter-rotating rotors) and ducted fans  to provide helicopter-like vertical flight and hover capabilities and obtain higher speeds.

Privately owned AVX recently received a $4 million Army contract to conduct design studies and test models to determine whether its ideas for a higher-speed helicopter could be successfully incorporated into a military aircraft.

- Bob Cox

 

 

 

Boeing chief: AMR bankruptcy good in long run

Boeing's commercial airplane division boss says that by filing for Chapter 11 reorganization American Airlines will emerge a stronger company and be in a better position to buy new, more fuel efficient airplanes.

“I’m really confident that American’s going to come through this restructuring a better company, a more competitive company, and if they’re more competitive and making more money, they’re going to buy more airplanes,” Jim Albaugh, president of Boeing Commercial Airplanes, said in an interview with Bloomberg. “Longer term, it’s going to be good for them and good for us.”

In order to be competitive and profitable going forward American will need the hundreds of new narrow-body airplanes it has plans to purchase from Boeing and Airbus, Albaugh said.

Rising fuel costs have hurt American; it says it will pay $2 billion more for fuel this year than in 2010. Its older fleet, including more than 200 MD-80s that are 16 years old on average, is less fuel-efficient than competitors'.

Boeing has experience dealing with airline companies in bankruptcy, Albaugh said. “It’s not like it’s the first time.”

- Bob Cox

American looking to shed 4 Fokker F-100s and 20 MD-80s

In one of its bankruptcy motions made on Tuesday, American Airlines is looking to get out from under aircraft that are parked in the desert.

American's parent company, AMR Corp., asked the bankruptcy judge to reject certain aircraft and engine leases for 4 Fokker F-100s and 20 MD-80s.

All of those aircraft currently reside in Roswell, N.M. at the Roswell International Air Center.

American spokesman Tim Smith said that at one time American had 75 Fokkers in its fleet during the 1990s. The aircraft had 97 seats with eight in first class. American stopped flying the aircraft early last decade.

-Andrea Ahles

What former AMR CEO Arpey received upon his exit

At a time when executives often exit Fortune 500 companies with severance packages worth millions, former AMR Corp. chief executive Gerard Arpey didn't walk away with much.

Arpey, who officially retired from AMR before the parent company of American Airlines' filed for bankruptcy on Tuesday, receives no cash severance and no long-term incentives, according to the company's most recent proxy filing.

On page 47 of the proxy, AMR has a chart that shows what its top executives will receive in the event of "retirement, voluntary separation, good reason, death, disability, termination other than for cause" and for Arpey, there is a zero in the retirement column, mainly because he had not reached the early retirement age of 55.

Then-president Tom Horton, who is now chief executive, and chief financial officer Bella Goren and American Eagle president Dan Garton, also had zeros in that column since they had not reached retirement age.

And many of the stock options and awards Arpey had received as part of his compensation packages in previous years but had not yet vested are forfeited since he retired.

Arpey does retain his lifetime travel and Admirals Club benefits, the footnotes say. And according to American spokesman Sean Collins, he will be able to receive his pension.

"Based on AMR’s 2011 proxy statement, Mr. Arpey is entitled to commence his pension upon turning 55 years old," Collins said.

The proxy says that Arpey's pension includes $832,173 in a retirement benefit plan and $3,879,477 in a non-qualified plan.

According to an Securities and Exchange Commission filing made in May, Arpey currently holds 2,455,718 shares which are worth $785,829.76 at the current price of 32 cents a share.

-Andrea Ahles

Boeing, IAM extend contract, keep 737 production in Seattle-area

Now for a bit of labor-management peace from the two partisans who have been going at it the hardest.

Boeing and the Machinists union today announced agreement on a four-year extension of their existing labor contract for manufacturing workers and Boeing said it plans to build the new 737MAX aircraft in its Renton facility where the current 737 models are assembled.

The Seattle Times has the inside story.

After secret talks that began in earnest in mid-October, Boeing and the Machinists union have reached a landmark tentative agreement that would ensure the 737MAX is built in Renton and lead to settlement of the National Labor Relations Board (NLRB) case against the company.

The deal may also bring more Air Force tanker work to the Puget Sound region.

A four-year contract extension is also part of the pact, the union said at a news conference Wednesday.

Members must approve the agreement, and union leaders who've endorsed the contract said it will be put to a swift vote next week.

"The 737 MAX has landed here in the state of Washington," said Tom Wroblewski, president of local district Lodge 751 of the International Association of Machinists (IAM). "This is a new day, the start of a new way of doing business."

Hmm, maybe there's an example here that other companies and unions could follow? In this case, with airplane orders stacked up well into this decade, Boeing needs labor peace and can apparently afford to maintain its pay and benefit packages. But the union is saying it can live with modest gains and, in some cases, even some modest concessions, in order to make sure its members keep building those planes.

And if the NLRB case goes away, why even President Obama can be happy because Republicans won't be able to beat him up with that stick.

By the way, there are already hints that the Machinists in Fort Worth are expecting contentious negotiations with Lockheed Martin next spring as the defense contractor seeks to rein in costs in the face of very tight defense spending. 

- Bob Cox

What Wall Street analysts are saying about AMR's bankruptcy filing

Wall Street analysts have hammered American Airlines for the past two years on its lack of revenue and cost improvements and labor issues.

Now that the airline's parent company, AMR Corp., has filed for Chapter 11 bankruptcy, here is what a few of them had to say. (Note: Shares of AMR stock are currently trading up 11 cents, around 37 cents a share in midday trading.)

Jamie Baker, J.P. Morgan analyst

"Airlines have consistently utilized Ch11 as a means of culling unproductive, unprofitable flying. As the only loss-producing airline of size, AMR should have little difficulty in identifying where to cut. We expect Chicago to emerge as one such candidate, given that no two airlines of similar breadth have ever profitably cohabitated in the same hub. Notwithstanding initial management commentary, we expect no less than a 10% ASM reduction."

Helane Becker, analyst at Dahlman Rose & Co.

"We believe the biggest catalyst for AMR Corp. filing for Chapter 11 is former CEO and Chairman of the Board Gerard Arpey announcing his retirement. Mr. Arpey was very proud of the fact that AMR never filed for Chapter 11, while the rest of the industry had filed. Unfortunately for AMR, not filing for bankruptcy put the company at a huge cost disadvantage."

Hunter Keay, Wolfe Trahan analyst

"Given the likelihood of continuing cash burn throughout the course of the Chapter 11 process (particularly considering AMR now plans on "accelerating its fleet renewal strategy"), the need for a DIP loan at some point down the road should still be considered as a potential outcome in our view. A DIP loan would bring with it a loss of control, as AMR leadership would cede some decision-making power to its DIP lender. Given AMR's initial suggestions of only modest capacity cuts, a re-commitment to its five cornerstone markets, and continuing negotiations with labor, we could easily see a DIP lender suggesting far more aggressive actions, up to and including a combination with another airline."

Ray Neidl, analyst at Maxim Group

"We estimate  labor will probably haveto give up more then they would have otherwise plus sacrifice jobs and management time will be absorbed by the reorganization process and if the process dragged on they could eventually even lose control of thecompany.  For any givebacks we believe that employees will receive some equity in the reorganized company.  Current equity holders in all likelihood will be wiped out as has happened in every other U.S. airline bankruptcy. NYSE is considering halting trading if it determines that the stock has no value."

Vicki Bryan, a senior high yield analyst at Gimme Credit, a research service on corporate bonds:

"Unfortunately, it's not even clear to us that AMR will ever reemerge from bankruptcy as a going concern. The industry is chronically oversupplied and AMR has no dominance or significant competitive edge in any particular market--we are not convinced that a reinvented, scaled down iteration will change that. That also dilutes AMR's appeal as a takeover candidate, and most logical prospects for a merger aren't big enough or healthy enough to solve its problems. This all is very bad news for AMR's investors as well as its long suffering employees, who stand to lose even more whether the company is restructured or liquidated."

-Andrea Ahles

Schnurman: All-American pension-buster

American Airlines isn’t the biggest bankruptcy ever, but it could set a record as a pension-buster.

The Pension Benefit Guaranty Corp. estimates that the four pensions at American promise $18.5 billion in benefits and have just $8.3 billion in assets. That’s a gap of $10.2 billion, and it would be the largest claim yet by the PBGC, if the agency must take over the pensions and pay the benefits.

The current record belongs to United Airlines, which terminated four pensions in 2005 that resulted in $7.4 billion in PBGC claims. Half of the 10 largest pension failures have come from airlines, so this is well-worn territory.

But there is some variety in the approach. Delta, for instance, terminated only the pilots’ pension in 2006. American could follow a similar course and continue to pay benefits on some pensions. Of course, the PBGC is likely to argue in court that American should continue to pay all the plans.

American management and creditors will probably have other ideas for American’s money.

The good news is that most American employees will get all the retirement they’ve earned. Only $1 billion of the promised benefits (about 5 percent) exceed the PBGC annual caps, which means that only the highest-paid will take a haircut.

That’s little comfort for 49-year-old pilots, the type of workers who will be squeezed most on this score. But pilots also have a pool of retirement money from company contributions, and that’s unaffected by Chapter 11.

Here’s the list of largest pension failures:

 -Mitchell Schnurman

Spirit adds four new destinations to its DFW service

Lost amid all of the hubbub surrounding American Airlines' bankruptcy filing, Spirit Airlines announced that it is adding four new cities to its Dallas/Fort Worth Airport service.

The low-cost carrier said it will add daily non-stop service from DFW to New York LaGuardia and Atlanta on February 9. Daily non-stop service to Orlando and Boston will begin on March 22, 2012.

Interestingly, the carrier is adding service to routes to Atlanta and Orlando that were vacated by AirTran Airways. AirTran ended its service to DFW on Nov. 21 following its merger with Southwest Airlines which said the pull-out was due to the Wright Amendment Compromise Agreement.

As part of Spirit's new service announcement, the carrier said it was offering $11 fares on certain flights on those routes for a limited time. Nice little dig at American Airlines' Ch. 11 bankruptcy filing on Tuesday.

-Andrea Ahles

Bankruptcy court approves several motions to allow American to continue operations

American Airlines said it has received permission from a New York bankruptcy judge to continue with normal operations following its bankruptcy filing.

At a court hearing on Tuesday afternoon, the Fort Worth-based carrier said the judge approved a series of motions, allowing American to pay its workers, honor tickets, maintain its frequent flyer program and pay its fuel suppliers.

"The court's immediate approval of key motions ensures that customers around the world can continue to rely on American and American Eagle for safe, reliable and convenient air travel," said American's new chief executive Tom Horton in a statement on Wednesday morning.

-Andrea Ahles