Alaska Flyer
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From the company rag:
Alaska sells MD-80 fleet
Move will lower costs, position airline for more aggressive growth
June 28, 2007
After 22 years of faithful service, the venerable MD-80 is about to fade into Alaska Airlines’ history. This week, the carrier agreed to sell 20 of its 24 remaining MD-80s to North Shore Aircraft LLC, an affiliate of Chicago-based Aviation Asset Holdings LLC.
Alaska is currently exploring options for its four remaining MD-80s, which could include subleasing to another airline or parking them at a long-term storage facility in California until their leases expire in October 2012.
Title to all 20 of the sold MD-80s will pass to AAH before the end of the year, but 16 of the aircraft have been leased back through the pre-set retirement schedule, which concludes in December 2008. Alaska Airlines will have completed the transition to single fleet type five years earlier than originally planned.
By retiring its MD-80s early, the airline expects to save about $131.1 million per year in maintenance, fuel, pilot training and other costs. This will lower non-fuel unit costs (CASM) by about 0.3 cents.
The airline took an impairment charge of $131.1 million during the first quarter of 2006 to reflect the reduced market value of MD-80 aircraft. Since the sale price of the aircraft is near current book value, the airline does not anticipate another writedown against earnings.
“The 737-800 is a much more fuel-efficient aircraft,” said Brad Tilden, executive vice president of finance and real estate. “If you think in terms of the family car, a 737-800 gets 80 seat miles per gallon of jet fuel, compared to 55 seat miles per gallon for an MD-80.”
Irv Bertram, assistant chief legal counsel, noted: “Selling the MD-80 fleet was the most intricate legal transaction of my career. I’ve handled more complex transactions, but never one with as many elements.”
Bertram, who has handled the acquisition and retirement of every Alaska Airlines jet for the past 27 years, added: “The hardest part was finding a buyer for all 20 aircraft since we didn’t want to sell them one or two at a time. We also had to swap legal title to engines around so we could legally sell them with the aircraft. You could say we’ve been playing musical chairs with engines, except that we had to end up with no man out.”
With 15 transactions to complete in just 60 days, Bertram retained an outside law firm to help with the paperwork. A folder on his computer contains 946 e-mails related to the transaction.
AAH has not divulged its plans for the MD-80s.
“These aircraft will not have much time left before major maintenance is due when they come out of service,” Bertram said. “A buyer will need to spend a lot of money before they could be flown in revenue service.”
When the last MD-80 leaves the airline late next year, Alaska Airlines will have an all-737 fleet that is one of the youngest in the industry.
“We’re excited about the operational improvements that a single fleet type provides as well as the improved economics and significantly reduced emissions of modern 737 aircraft,” Tilden said.
With the delivery of its 22nd -800 in May, 82 percent of Alaska’s fleet now consists of 737-series aircraft.
The airline announced a major fleet order in June 2005 for up to 100 aircraft, including 35 firm orders for 737-800s. In March 2006, Alaska decided to retire its 26 MD-80s by the end of 2008. Since 2005, the airline has upped its number of 737-800 firm orders and is now committed to 54 aircraft. It also holds options for another 49 aircraft.
Alaska sells MD-80 fleet
Move will lower costs, position airline for more aggressive growth
June 28, 2007
After 22 years of faithful service, the venerable MD-80 is about to fade into Alaska Airlines’ history. This week, the carrier agreed to sell 20 of its 24 remaining MD-80s to North Shore Aircraft LLC, an affiliate of Chicago-based Aviation Asset Holdings LLC.
Alaska is currently exploring options for its four remaining MD-80s, which could include subleasing to another airline or parking them at a long-term storage facility in California until their leases expire in October 2012.
Title to all 20 of the sold MD-80s will pass to AAH before the end of the year, but 16 of the aircraft have been leased back through the pre-set retirement schedule, which concludes in December 2008. Alaska Airlines will have completed the transition to single fleet type five years earlier than originally planned.
By retiring its MD-80s early, the airline expects to save about $131.1 million per year in maintenance, fuel, pilot training and other costs. This will lower non-fuel unit costs (CASM) by about 0.3 cents.
The airline took an impairment charge of $131.1 million during the first quarter of 2006 to reflect the reduced market value of MD-80 aircraft. Since the sale price of the aircraft is near current book value, the airline does not anticipate another writedown against earnings.
“The 737-800 is a much more fuel-efficient aircraft,” said Brad Tilden, executive vice president of finance and real estate. “If you think in terms of the family car, a 737-800 gets 80 seat miles per gallon of jet fuel, compared to 55 seat miles per gallon for an MD-80.”
Irv Bertram, assistant chief legal counsel, noted: “Selling the MD-80 fleet was the most intricate legal transaction of my career. I’ve handled more complex transactions, but never one with as many elements.”
Bertram, who has handled the acquisition and retirement of every Alaska Airlines jet for the past 27 years, added: “The hardest part was finding a buyer for all 20 aircraft since we didn’t want to sell them one or two at a time. We also had to swap legal title to engines around so we could legally sell them with the aircraft. You could say we’ve been playing musical chairs with engines, except that we had to end up with no man out.”
With 15 transactions to complete in just 60 days, Bertram retained an outside law firm to help with the paperwork. A folder on his computer contains 946 e-mails related to the transaction.
AAH has not divulged its plans for the MD-80s.
“These aircraft will not have much time left before major maintenance is due when they come out of service,” Bertram said. “A buyer will need to spend a lot of money before they could be flown in revenue service.”
When the last MD-80 leaves the airline late next year, Alaska Airlines will have an all-737 fleet that is one of the youngest in the industry.
“We’re excited about the operational improvements that a single fleet type provides as well as the improved economics and significantly reduced emissions of modern 737 aircraft,” Tilden said.
With the delivery of its 22nd -800 in May, 82 percent of Alaska’s fleet now consists of 737-series aircraft.
The airline announced a major fleet order in June 2005 for up to 100 aircraft, including 35 firm orders for 737-800s. In March 2006, Alaska decided to retire its 26 MD-80s by the end of 2008. Since 2005, the airline has upped its number of 737-800 firm orders and is now committed to 54 aircraft. It also holds options for another 49 aircraft.
TC
