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Likely American Eagle Fleet Reduction - Article With Another Crazy Boyd Prediction

johnsonrod

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Not sure if people have seen this article yet... Another sobering article that will likely accelerate my search for a way out of the regionals... I am not an Eagle pilot, but I, like many of them, am vulnerable in the 50-seat category... Boyd's prediction below is ridiculous - let's hope it doesn't come true! Will be interesting to see IF the AA pilots allow a scope change that boosts the number of 70-90 seaters. Who knows what will happen in bankruptcy! Good luck to all involved.


AMR Bankruptcy Creates Opening to Speed Flight Cuts at American Eagle Unit

AMR Corp. (AMR)’s bankruptcy filing may open the door to reject leases on costly small jets and make deeper cuts in flying at American Airlines’ American Eagle regional unit.

“If you’re going to go into Chapter 11, you may as well fix what’s broke,” said Jeff Kauffman, a Sterne Agee & Leach Inc. analyst in New York. “And what’s broken is the Eagle product.”

Eagle ferries travelers to and from hub airports, providing more 90 percent of the passenger feed to AMR’s American, the third-largest U.S. carrier. Entering court protection ended plans for a spinoff while giving Fort Worth, Texas-based AMR latitude to reshape a business that was targeted for divestiture as far back as 2007.

Shedding jets with 50 or fewer seats is among AMR’s likely bankruptcy steps, Kauffman said in an interview. AMR also may rework labor contracts and aircraft leases, and add planes with 70 or more seats at Eagle, a step resisted by American pilots who want to keep those jobs at the higher-paying big airline.

“They know they have to get out from under Eagle and now a Chapter 11 filing allows them to do it faster,” said Michael Boyd, president of consultant Boyd Group International in Evergreen, Colorado. “They want the crazy aunt out of the attic.”

AMR’s next date in U.S. Bankruptcy Court in New York is tomorrow, when the company is scheduled to seek approval of procedures for resolving certain supplier claims. American declined to discuss any plans for Eagle.
Future Status

“The future status of the regional network is entirely a function of AMR’s and American’s strategic decisions,” said Tim Smith, an American spokesman. “Those outcomes won’t be known for some time.”
That hasn’t stopped Eagle’s Air Line Pilots Association chapter from warning members of shrinkage to come in a fleet that numbered 299 planes as of Sept. 30. Management is evaluating “all aircraft leases and financing arrangements,” Eagle ALPA Chairman Tony Gutierrez said in a message to the union last week.

AMR took Eagle off the block in 2008 after failing to find a buyer, revived a study of the division’s future in 2010, and decided this year on a spinoff. Until the bankruptcy, the plan was for American to own the planes and lease them to Eagle while keeping more than $2 billion of debt linked to the aircraft. American would be able to seek cheaper regional partners, and Eagle would be free to fly for other carriers.
Eagle’s Challenges

One of Eagle’s challenges is having 72 percent of its planes with 50 or fewer seats -- a category whose costs have soared after an almost-sixfold surge in jet-fuel prices in the past decade. Delta Air Lines Inc. (DAL) said in 2009 it would get rid of almost three-fourths of its Comair unit’s 50-seaters.

“American is in the exact wrong position on fleet composition,” said Tim Campbell, who ran regional operations at Northwest Airlines Corp. before its 2008 acquisition by Delta and is now president of Mountain Vista Consulting LLC in St. Paul, Minnesota. “Fifty seats and smaller is not the future.”

Delta and Northwest both restructured commuter operations in court protection. Atlanta-based Delta’s pullback included slashing departures at Cincinnati, a hub for regional flying, by 26 percent in 2005.
Northwest’s Chapter 11 filing the same year spurred one partner, Pinnacle Airlines Corp. (PNCL), to take 11 percent of its planes out of service and another, Mesaba Aviation, to enter court protection. Northwest also created the Compass unit with 76-seat jets flown by pilots paid at regional-airline rates.
Changing Industry

Even without a bankruptcy, AMR’s Eagle would be confronting a shifting regional-airline landscape marked by larger planes, consolidation and demands by big carriers for lower-cost service, Campbell said.
SkyWest Inc. (SKYW) bought ExpressJet Holdings Inc. last year, Republic Airways Holdings Inc. (RJET) is trying to figure out what to do with its money-losing Frontier Airlines, and Pinnacle hired advisers last week to negotiate concessions from lessors, creditors and unions.
“The world has changed, and AMR won’t be able to do anything with Eagle if they don’t fix it now,” Campbell said.

Boyd said he expects Eagle to shrink to just 56 aircraft by 2016, shedding its Embraer SA (EMBR3) jets as the 37-, 44- and 50- seaters amass more flight hours and expenses rise for repairs and upkeep.
‘Maintenance Pumpkins’

“At some point in time, they get rid of all the Embraers,” he said. “As they get into 40,000 hours, they turn into maintenance pumpkins. Economics are driving that airplane out of the marketplace.”

AMR also may seek to boost the number of 70-seat jets at Eagle and possibly add 90-seat planes by amending American’s Allied Pilots Association contract. Eagle flies 47 Bombardier Inc.’s 70-seat CRJ700s, the most allowed by the APA accord. The union wants to keep that flying and opposes changing the limit.

“American pretty much has to get that kind of relief,” said George Hamlin, president of Hamlin Transportation Consulting in Fairfax, Virginia. “Something flying in that category at Eagle would match what their competitors are doing. It’s almost a certainty Eagle won’t be the same size it is now, either.”

To contact the reporters on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net
To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net
 

pilotyip

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The reality of the airline business
 

Kaman

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The idea is to pass on the cost of hub and spoke to the regionals who provide the lift far cheaper than the trunk carrier, which only does long-haul or high-density domestic routes. It truly is the reality we are facing IMHO.
 

Flyer1015

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I feel bad for Eagle. Let alone the 50 seater RJs, which are already on the chopping block, Eagle has dozens and dozens of 37 and 44 seater ERJs. Those will be the first ones parked.
 

ex j-41

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So frontier with their larger airplanes are losing money but Chautauqua with their smaller ones are doing ok?
Yep. Another article Not worth reading.
 

pilotyip

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I hope the courts tell em to make it one airline and make it work.
That is a good idea as it was 15 years ago when the RJ's first showed. But why didn't AAL do that 15years ago?
 

ASACRJFlyer

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Something just hit me as I was reading this article. How is it fair that unions are prohibited from ANY job action to better their situation without jumping through years of RLA and NLRB hoops while at the same time, a company can declare bankruptcy and butcher contracts in relatively short order?

And while we're at it, why is it that if a person declares bankruptcy, he's a slacker/failure/(insert your derogatory adjective here) but if a company declares, it's good, smart business?
 

Amish RakeFight

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Something just hit me as I was reading this article. How is it fair that unions are prohibited from ANY job action to better their situation without jumping through years of RLA and NLRB hoops while at the same time, a company can declare bankruptcy and butcher contracts in relatively short order?

And while we're at it, why is it that if a person declares bankruptcy, he's a slacker/failure/(insert your derogatory adjective here) but if a company declares, it's good, smart business?

Because management has more power than labor and always will. Money buys power. Things are rigged.
 

rjacobs

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I said from day one of AMR's BK filing that the eagle guys were ********************ed. All the talk was about how the AA guys were going to lose the pension, lose pay, work rules, etc..., but at the end of the day, those guys(all of them IMO) will still have jobs, and good jobs at that. The AE guys however are going to get screwed because I can see AMR parking almost every airplane Eagle has except the -700's and then just farming out the flying to shed themselves of the $$$ liability that AE was costing them every year. AMR knew what they were going to do when they transferred the leases(or whatever they did) of those aircraft from Eagle to AMR earlier in the year.
 

Fubijaakr

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Enough
Good for AA. Time to cut the RJ losses.
 

ex j-41

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Perhaps what we need is legislation that requires all American flying to be done with American pilots with American airplanes. Same for US Airways/United/Delta.....
 

comrcap

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Looks like scope is on the chopping block. About time. No union can protect jobs ny dictating business decisions. Regionals will gravitate to larger guage aircraft and AMR is kicking off the parade. I see 100 seaters going to regional partners. Or APA and ALPA are going to have to treat regional pilots as equals. I'm tired of being pissed on by DALPA and being told It's raining. Treat us as equals or we'll run under your bar. Just like everyone did to the Comair pilots. Limbo this Moak!
 

On Your Six

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Looks like scope is on the chopping block. About time. No union can protect jobs ny dictating business decisions. Regionals will gravitate to larger guage aircraft and AMR is kicking off the parade. I see 100 seaters going to regional partners. Or APA and ALPA are going to have to treat regional pilots as equals. I'm tired of being pissed on by DALPA and being told It's raining. Treat us as equals or we'll run under your bar. Just like everyone did to the Comair pilots. Limbo this Moak!

Absolutely not. A judge will not give unilateral decisions to management, he will likely allow them to negotiate. The APA will probably give them more 70 or some 76 seaters, but nothing larger. It didn't happen in any of the other BKs. The smallest mainline plane ordered by AMR is the 124 seat A319, and even they stated it was for AA mainline, at a B-scale rate though. The APA won't give that up. The other large legacies are doing well financially, so no scope erosion there either. You need a drug test.



Godspeed!


OYS
 

altimaklr

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Creating an Eagle based compensation package for airplanes under 124 seats and combining the seniority lists would seem like an easy solution to all of this. AMR has the homogeneity to accomplish this where it would be impossible at DAL or UAL.
 
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