Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Dissecting Boeing CEO’s statement next new airplane will cost $50bn April 15, 2024
- Bjorn’s Corner: New engine development. Part 3. Propulsive efficiency April 12, 2024
- A350-1000 or 777-9? Part 2 April 11, 2024
- Pontifications: Boeing “transparency”–not so much. April 9, 2024
- Airbus charges and write-offs since 1999: more than €33bn April 8, 2024
American to decide on merger Jan. 9, Bloomberg says
American Airlines’ Board of Directors will meet on Jan. 9 to decide whether to merge with US Airways, according to this report by Bloomberg News.
The outcome, of course, has ramifications beyond those employees of both airlines. These include, in no particular order:
- A shift in the oneworld and Star Alliances. US Airways is part of the Star Alliance, though its route system is hardly a key part. Since US says it will adopt the AA name, look for US to move into the oneworld alliance. An AA-US merger strengthens AA’s East Coast reach, but other than this we’ve not seen a great deal of routes that US brings to AA. On the other hand, AA brings a lot more to US.
- Airports will see revisions to facilities as both airlines consolidate.
- Some cities will see reductions in service as duplications are eliminated.
- If the US management is the one that emerges in charge (as we hope), then this will be a major plus for the future of the new American Airlines. If AA’s management is the survivor, we’re much less sanguine about AA’s future.
- Airbus and Boeing should both benefit. Before bankruptcy, American placed orders for hundreds of current generation A320s and 737NGs as well as the re-engined models. US has a large order for A320ceos and A330s, but no A320neos. American’s fleet replacement need is so large that it probably needs both single-aisle OEMs. We could see some adjustment in the orders, which never were firmed up, and taking into account the US outstanding orders. But we’d be surprised if the new AA were to cancel entirely American’s Airbus or Boeing orders.
- Nor do we see US canceling its A350 orders in favor of AA’s outstanding 777 order. US is one of the remaining A350-800 customers and this might be upgraded to the A350-900. But we think there was a fair chance of this happening anyway.
Airbus, Boeing battle for US MAX-NEO market share
With the announcement by Alaska Airlines for 20 737 MAX 8s, 17 737 MAX 9s (and 13 Next-Generation 737-900ERs), Airbus and Boeing continue their battle for the US market.
There are still a number of customers who have not ordered either aircraft. US Airways has been exclusively an Airbus customer. Airbus lost a hard-fought battle to Boeing in the competition for the A321-737-900ER order. ILFC orders seem to be on hold pending its Initial Public Stock offering.
| 737 MAX | A320neo | No Order Yet |
| American* | Spirit Airlines | US Airways |
| Aviation Capital Group** | Frontier Airlines | Delta Air Lines |
| Southwest Airlines | jetBlue | |
| United Airlines | American* | |
| Air Lease Corp | Aviation Capital Group | |
| GECAS | CIT Aerospace | |
| Alaska | Virgin America | |
| *To be affirmed in bankruptcy court**Commitment, not yet converted to firm order | ILFC |
Bob Crandall assesses the situation at American
Following our post yesterday about American Airlines, Terry Maxon, the aviation reporter for The Dallas Morning News and one of our oldest friends in this business, sent us this link to a long letter Robert Crandall wrote to an American pilot.
Crandall, of course was the hard-charging CEO of American for many years. Ever the straight shooting, Crandall has some forthright opinions.
One we disagree with, however, is his defense of Tom Horton. Crandall notes that Horton had been CEO (at the time of Crandall’s letter) for only 10 months and should be given a chance. We note, though, that Horton was CFO from March 2006 before his elevation to CEO 5 1/2 years later. He shares in the decisions made during this time and the responsibility for them.
Crandall absolutely right in his critique of the pilot actions involving sick-outs and frivolous maintenance write-ups, leading to massive delays and cancellations. This drives customers away. We’re a million-miler on American and right now any time we travel, it’s not on American. The pilots are acting like those at Eastern Airlines in their battle with Frank Lorenzo, the scourge of unions at the time. (The International Association of Machinists also engaged in open warfare with Eastern.)
Eastern’s pilots and mechanics destroyed that airline. They would rather have killed Eastern than work with Lorenzo, or in the case of the IAM local, even his predecessor, Frank Borman.
What the pilots at American are doing today is threatening the airline. Some Wall Street analysts are talking about American entering Chapter 7 liquidation, a view with which we so far disagree.
But it’s also clear that Horton and his team are giving short shrift to a possible merger with US Airways if they aren’t the surviving management. The future of American’s thousands of employees is at stake. Management ego shouldn’t be involved.
Aside from Crandall’s defense of Horton, we agree with his critiques.
The downward spiral of American Airlines
We’ve been watching with dismay the downward spiral of American Airlines.
This once-great carrier is hardly recognizable any more. It is perplexing to us how a management team that got its training under Robert Crandall and helped create such a great carrier could have gone so wrong.
Crandall retired in 1998 and was succeeded by Don Carty. We have to admit we preferred that Bob Baker, the EVP of Operations, succeed Crandall but Baker already had battled cancer and was viewed as probably on a shorter life span given the nature of his cancer. Unfortunately, this assessment was correct and Baker died a few years later.
Carty, on the other hand, was Crandall’s number two (to Baker’s number three) in the company. But Carty had also been CEO of Canadian Airlines and frankly, we were never too impressed with his leadership there. It was this that gave us trepidation when he succeeded Crandall.
The Crandall team also included Gerard Arpey, who subsequently succeeded Carty after Carty so screwed up labor relations that he had to go. Carty acquired Reno Air, a small MD-80 operator with a hub in Reno (NV) and in the course of doing so, created immense discord with the AA pilots union, having failed to lay the ground work with them for the acquisition. Reno Air brought zero to American and less than zero when the labor relations debacle is considered.
Odds and Ends: China’s Wings; B-17; Airbus Market Forecast
We just finished a book about China National Aviation Corp. (CNAC). It’s a long book, 498 pages. it’s meticulously footnoted. The Bibliography is 100 of the 498 pages. We found the book a bit tedious for all the detail, but 
others will find the vast, detailed history of CNAC and the politics of dealing with the pre-World War II Chinese government fascinating.
The book details the famed “Douglas 2 1/2,” the war-damaged DC-3 with the right wing replaced by one belonging to a DC-2. The airplane flew, as did another with a mis-matched, smaller engine and smaller propeller.
There are several instances of the DC-3 being flow overweight, one in which the airplane carried more than 70 passengers vs the then-standard 21. The airplane couldn’t get off the runway. But the runway was built ending against a sloped berm, and the DC-3 became airborne ski-jump style.
CNAC was run by an American, William Langhorne Bond, whose son Langhorne became US Transportation Secretary under President Carter (and who was responsible for grounding the McDonnell Douglas DC-10 after the crash of American Airlines flight 191 in Chicago-a crash we covered as a reporter).
The senior Bond was one of those rare individuals who successfully went up against the legendary Juan Trippe, whose Pan Am owned a minority stake in CNAC, and persuaded him to stick with CNAC when Trippe was ready to abandon the airline during the Sino-Japanese war preceding Pearl Harbor.
Bond’s disappointment of losing CNAC to the Communists after World War II after all he’d been through to keep the airline alive is palatable.
The book is easily available through Amazon.com.
Odds and Ends: Dire outlook for airlines; 787 Deliveries; American-USAirways
Dire Outlook: This article is nothing to cheer about. The author predicts a low growth in global GDP, and this is what Airbus and Boeing rely upon for their growth and production forecasts. It says airlines are emitting much more pollution than generally thought, and if true, this means more costs (especially in Europe) in fees. Also buried in the article is the revelation from Air New Zealand that it costs the airline $1.25m to operate a Boeing 777-300ER round trip from NZ to London, with more than 50% of the cost being in fuel. No wonder the prospect of the Boeing 787 and Airbus A350, with 20% lower fuel costs and 25%-30% lower trip costs, is so important.
787 Deliveries: They are still slow but they are picking up, and it will be about 1 1/2 years before the backlog of airplanes parked at Paine Field in Everett is cleaned out. But it’s progress.
American-US Airways: AirInsight has a podcast discussing the disruptive impact of a merger here.
Odds and Ends: 737 faces challenges; 737 MAX and China; American Air
737 Challenges: The Puget Sound Business Journal has this long piece about the challenges facing the 737 from Airbus and others.
737 MAX and China: Meantime, China is, at long last, looking at the MAX for its airlines.
American Airlines: A merger with US Airways makes the most sense, says Aspire Aviation (we agree as long as US management is in control)
Odds and Ends: Judge smacks down American; ailing Hong Kong Airlines
We were traveling Wednesday so we’re a little behind on this:
American Airlines: The judge overseeing American’s bankruptcy denied a request to void labor contracts, particularly the pilot contract. This is a huge blow to management–and would seem a boost for the US Airways merger effort.
Hong Kong Airlines: This financially ailing carrier, under growth restrictions by the authorities, may cancel its order for the Airbus A380. The airline was supposed to firm up an order for the Boeing 747-8I that was announced as an “Unidentified” commitment during the Paris Air Show last year, but it never did.