Virgin America expects US to DENY right to fly

[Captzaahlie]

I think Independence Air started out with 3 times the start up capital as JetBlue. VA's biggest problem is their route structure will be mainly transcons to start. With fuel prices where they are at, this is nothing but a money loser.

I'm probably wrong again but I think one of JB's claims to fame was that it had the largest sum of start up capital ever put together for a new airline...... I always seem to remember the obscure tidbits of info from what I read ....... it's usually never the important stuff however!

The experts say the quickest way to make a million dollars in the airline industry is to start out with 2 million dollars.....

 

[Captzaahlie]

Happy holidays to you too.

I wouldn't call the sale of those aircraft to be a profit; they were sold for more than their depreciated value. Here's from the last 10-Q:

"Through September 2006, we refinanced $123 million of debt associated with five owned Airbus A320 aircraft, which eliminated all financial covenants associated with our debt instruments. In September 2006, we sold two Airbus A320 aircraft for $62 million and repaid $32 million in associated debt, which resulted in a gain of $7 million that is reflected as a reduction to depreciation and amortization expense. We have an agreement to sell three additional Airbus A320 aircraft during the fourth quarter of 2006. "

That's $31 mil per aircraft; JBLU paid more than $50 mil per copy back in 2001 before adding livetv and any other modifications done after delivery.

I thought that the 140,000 sq ft maintenance facility at JFK and the 100,000 sq ft maintenance facility at MCO were so that they could do heavy checks in house. Are the facilities currently operating at capacity? They only opened last year. That's a lot of inhouse maintenance capacity.bbb

As for slowing down options & orders, yes it makes sense if the environment is not profitable. However, ticket prices have firmed/climbed significantly and the environment is getting healthy.

My source was a JB chief pilot, but I guess we need to keep 2 things in mind .... Chief pilots are not always right...... AND we need to consider what is the "blue book value" (no pun intended) on a "used" a/c , worn engines etc....?
I agree things do look a little better now than they did just a few weeks ago..... I think just being aggressive and at least having some kind of a plan keeps the share holders happy...... Ignoring the facts and doing nothing about it makes everyone crazy.

 

[Andy]

I'm probably wrong again but I think one of JB's claims to fame was that it had the largest sum of start up capital ever put together for a new airline...... I always seem to remember the obscure tidbits of info from what I read ....... it's usually never the important stuff however!

The experts say the quickest way to make a million dollars in the airline industry is to start out with 2 million dollars.....

At the time, JBLU had the largest sum of startup capital; somewhere in the $150mil range IIRC; don't quote me on that figure, I'm getting old and forgetful.

When FLYI (Independence Air) started up, they had more than $300 mil in capital, including a fresh $125 mil from a bond issuance. FLYI definitely surpassed JBLU in startup capital. However, FLYI's daily cash burn rates ran anywhere from 500K to 1.5 mil during it's entire existance. That's the problem when you are using RJs with a CASM north of 25 cents per ASM.

The presentations given by FLYI management to the investment community painted a best of all possible worlds scenario with no room for error. JBLU's investment presentations were much more conservative and left room for error.
Since VA plans on following JBLU's business model of starting up with new aircraft and adding to the fleet to grow incrementally, I give VA a much better chance of lasting a while than FLYI. However, operating out of SFO is going to create havoc for VA's operational reliability.

 

[Andy]

My source was a JB chief pilot, but I guess we need to keep 2 things in mind .... Chief pilots are not always right...... AND we need to consider what is the "blue book value" (no pun intended) on a "used" a/c , worn engines etc....?
I agree things do look a little better now than they did just a few weeks ago..... I think just being aggressive and at least having some kind of a plan keeps the share holders happy...... Ignoring the facts and doing nothing about it makes everyone crazy.

I've learned to verify just about everything; many times, an individual (myself included) will paint a picture different than reality.

The RTP plan may work, but JBLU is entering the mature phase of being an airline. And with that comes a large incremental increase in CASM. JBLU's year over year CASM increase ex-fuel was 6%.

From the 10-Q:
"Operating expenses per available seat mile increased 12% to 7.79 cents for the three months ended September 30, 2006. Had fuel prices remained at the 2005 levels, our cost per available seat mile, or CASM, would have increased by 6% to 7.32 cents."

I noticed a 8.6% decrease in aircraft depreciation and amortization due to the sales of those 2 A320s. Without those sales, the YOY ex-fuel increase would have been 6.5%.

The three largest percentage increases ex-fuel were:
landing fees and other rents +29.2%,
aircraft rent +25.6%, and
salaries, wages and benefits +8.6%

The increase in landing fees & other rents indicates to me that the incentives that JBLU has had are nearing the end and they will now have to start paying the same rates as the legacies.
The increase in aircraft rent indicates back loaded leases.
The increase in salaries, wages, and benefits is due to a maturing work force; a 7th year pilot/FA/mechanic/CSR is more expensive than a first year pilot/FA/mechanic/CSR. Once the hiring slows down, wages increase disproportionately. This is a huge reason why mature companies are at such a disadvantage to startups.

 

[skykid]

No, I didn't make it as a joke. Actually, I failed to do my homework. Both groups flying 85 hours would make about the same W2.

AA717, you miss the whole point! I couldn't care less if JB Captains make a little more than United and the other airline bus Captains you mentioned. The point is, they are all getting paid POORLY! That's on the low side of what a First Officer ought to make. Look at FedEx's engineer pay compared to whatever "groups" you are talking about at 85 hours a month. Hopefully there are enough pilots out there that recognize this and will work to get compensation back up there. My argument is that we certainly don't need a bunch of new Virgin Captains setting the bar even lower and saying things like "You can't compare our compensation, we're brand new!" Enough already - don't fly for peanut wages. It puts downward pressure on everybody. Thank goodness you can't cherrypick cargo routes (yet) and get pilots to fly them for peanuts or I would be out of this game completely.

So, back to page 1 and my assertion that when it started, JB was looked down upon. Now they have pay parity with the Legacies. VA may well do the same. TC

Oh my. I would guess the average legacy pilot took about a 30% pay cut sometime in the last few years. Part of getting the pay back up there is not a bunch of Virgin pilots thinking they're getting over by making 100K/year.

 

[Captzaahlie]

The increase in landing fees & other rents indicates to me that the incentives that JBLU has had are nearing the end and they will now have to start paying the same rates as the legacies.

Andy you are much better at the financials than I, I read the stuff and start to nod off.......... Could the increase in landing fees & other rents just be the cost of new cities as well?

 

[J32driver]

The three largest percentage increases ex-fuel were:
landing fees and other rents +29.2%,
aircraft rent +25.6%, and
salaries, wages and benefits +8.6%

Andy, you seem to be a pretty educated numbers type guy... I appreciate the clarity you present. I do have a question regarding the increase in the above 3 items. How much of that increase can be attributed to a growing company? Such as more landing fees because we operated more flights, more aircraft rent because we added ALOT of aircraft to the fleet, more wages and benefits because the employee numbers grew with the fleet?

I'm just curious if you are reading too much doom and gloom into the numbers? Or maybe I'm not reading enough?

 

[Andy]

bbbAndy you are much better at the financials than I, I read the stuff and start to nod off.......... Could the increase in landing fees & other rents just be the cost of new cities as well?

That's a mighty big jump for it to only be attributed to cities with higher landing fees.

Andy, you seem to be a pretty educated numbers type guy... I appreciate the clarity you present. I do have a question regarding the increase in the above 3 items. How much of that increase can be attributed to a growing company? Such as more landing fees because we operated more flights, more aircraft rent because we added ALOT of aircraft to the fleet, more wages and benefits because the employee numbers grew with the fleet?

I'm just curious if you are reading too much doom and gloom into the numbers? Or maybe I'm not reading enough?

Those numbers were percentage increases in cost per available seat mile. To give you a comparison of raw numbers, it's:

landing fees and other rents 3Q06= $42M; 3Q05=$27M
aircraft rent 3Q06=$27M; 3Q05=$18M
salaries, wages and benefits 3Q06=$140M; 3Q05=$108M


As for doom & gloom, keep an eye on CASM and RASM. If you see CASM continuing to increase faster than RASM, then there are some real problems.
The removal of 6 seats off of the A320s was probably so that you won't have to worry about westbound fuel stops in the winter. But that will increase CASM while RASM remains neutral. The extra 6 seats generated more than enough revenue to pay for the extra flight attendant.
It's not all gloom and doom; due to ticket prices increasing and much better yield management by JBLU, RASM increased by 16.5% while CASM only increased 12.3%. So why was 3Q06 worse than 3Q05? Interest expenses more than doubled; they're not counted in RASM and CASM.

Again, one item that did impress me with JBLU this year is that they've finally seemed to do a better job at yield management.

 

[J32driver]

Thanks Andy.

 

[xcrjdriver]

bizjournals.com
Virgin America gets grounded by DOT
Wednesday December 27, 5:38 pm ET
Startup airline Virgin America Inc. got an expected rejection from the government Wednesday, when the Department of Transportation ruled that the company must change its corporate structure before it can get an operating certificate.
The Burlingame-based branchild of Sir Richard Branson -- head of England's Virgin Atlantic Airways Ltd. -- had planned to begin low-cost flights in 2007. Branson raised $177 million in startup capital for the airline in December 2005 from U.S. private equity firms and from himself.
However, the DOT said Virgin America doesn't meet a requirement that the president and two-thirds of the board of directors are Americans, and Virgin America's relationship with the British Virgin Group in the U.K. "indicates that the carrier is not under the actual control of U.S. citizens."
The airline had taken delivery of planes and launched a massive hiring effort. Virgin America had plans to offer low-cost domestic air service like JetBlue Airways Corp. and Southwest Airlines Co., with one of its first routes running between San Francisco and New York City.
Rival airlines had objected to Virgin America's application to fly, questioning whether Virgin America is under control of U.S. citizens or Branson. Virgin America has said it complies with U.S. law and that Branson does not control the enterprise.
The company said it is preparing a response. Published December 27, 2006 by the Silicon Valley/San Jose Business Journal</I>

 

[AA717driver]

AA717, you miss the whole point! I couldn't care less if JB Captains make a little more than United and the other airline bus Captains you mentioned. The point is, they are all getting paid POORLY! That's on the low side of what a First Officer ought to make. Look at FedEx's engineer pay compared to whatever "groups" you are talking about at 85 hours a month. Hopefully there are enough pilots out there that recognize this and will work to get compensation back up there. My argument is that we certainly don't need a bunch of new Virgin Captains setting the bar even lower and saying things like "You can't compare our compensation, we're brand new!" Enough already - don't fly for peanut wages. It puts downward pressure on everybody. Thank goodness you can't cherrypick cargo routes (yet) and get pilots to fly them for peanuts or I would be out of this game completely.



Oh my. I would guess the average legacy pilot took about a 30% pay cut sometime in the last few years. Part of getting the pay back up there is not a bunch of Virgin pilots thinking they're getting over by making 100K/year.

Great, then let's all go get jobs at FEX and UPS or maybe get in the time machine and go back to 1999 and we can all make UAL or Delta pay! No kidding we're underpaid.

I was trying to make the point that I believe VA's pay will go up because JB's did. I got involved in a pissing contest because of some split hairs--NO ONE OUTSIDE OF FEDEX OR UPS MAKES ENOUGH MONEY!!!! Ok?

Now, if I suggest how to change it, I'll get a "rah-rah go ALPA-PAC" lecture from Rez. The pay at the Legacies won't go up because some guys refuse to go to work for VA (or JB or AirTran or Spirit or...). The pay at the Legacies will ONLY go up if ALL the Legacy and LCC pilots are willing to stand together--violating the RLA if necessary, and tell management and the travelling public that we will no longer subsidize their cheap fares. REAL union LEADERS are not afraid to go to jail--none of us should be afraid to park the brakes and walk off when that happens.

Only through true mutual support can airline pilots regain their lost place in the pay structure in this country. Without mutual support, it's just more of the same--the other pilot groups standing by, benefiting personally as their fellow pilots get tossed under the bus. TC

 

[skykid]

NO ONE OUTSIDE OF FEDEX OR UPS MAKES ENOUGH MONEY!!!! Ok?

I disagree. Look at the Southwest guys. Airtran's B fund as well as United's B/C fund are bright spots.

 

[Andy]

I'd be glad to go to work for VA (if I wasn't making more currently).

Only through true mutual support can airline pilots regain their lost place in the pay structure in this country. Without mutual support, it's just more of the same--the other pilot groups standing by, benefiting personally as their fellow pilots get tossed under the bus. TC

Mutual support is a two way street.

 

[Coool Hand Luke]

I've learned to verify just about everything; many times, an individual (myself included) will paint a picture different than reality.

The RTP plan may work, but JBLU is entering the mature phase of being an airline. And with that comes a large incremental increase in CASM. JBLU's year over year CASM increase ex-fuel was 6%.

From the 10-Q:
"Operating expenses per available seat mile increased 12% to 7.79 cents for the three months ended September 30, 2006. Had fuel prices remained at the 2005 levels, our cost per available seat mile, or CASM, would have increased by 6% to 7.32 cents."

I noticed a 8.6% decrease in aircraft depreciation and amortization due to the sales of those 2 A320s. Without those sales, the YOY ex-fuel increase would have been 6.5%.

The three largest percentage increases ex-fuel were:
landing fees and other rents +29.2%,
aircraft rent +25.6%, and
salaries, wages and benefits +8.6%

The increase in landing fees & other rents indicates to me that the incentives that JBLU has had are nearing the end and they will now have to start paying the same rates as the legacies.
The increase in aircraft rent indicates back loaded leases.
The increase in salaries, wages, and benefits is due to a maturing work force; a 7th year pilot/FA/mechanic/CSR is more expensive than a first year pilot/FA/mechanic/CSR. Once the hiring slows down, wages increase disproportionately. This is a huge reason why mature companies are at such a disadvantage to startups.

Let's not forget Management. I would imagine that they are getting their salary increases too.

 

[Ty Webb]

Accordingly, we plan to respond to the Department as requested on January 10 so that we may move forward with DOT certification, launch our airline, and bring new high-quality service and much-needed competition to the marketplace. We remain committed to getting our wings.''

Who's handling their PR? They need help . . . "much-needed competition"? Negro, please.

And "we remain committed to getting our wings" sounds like something a fat MBA student would say, standing in line at Hooters. . . . . .


.

 

[CaptJax]

Rule Change Could Have Helped Airline Get Off Ground



Rule change could have helped airline get off ground
Proposal easing limits on foreign ownership withdrawn before Virgin America denial issued

David Armstrong, Chronicle Staff Writer
Friday, December 29, 2006

A government rule keeping Burlingame startup airline Virgin America in a holding pattern due to the carrier's alleged domination by foreign interests was forged decades ago in an era of government-owned carriers and Cold War worries about the role of aviation in national security. These days it's held in place by similar security worries and concerns about sending jobs overseas and the perceived threat of globalization.
To keep U.S. airlines American, aviation law requires that at least 75 percent of airlines based in this country be owned by U.S. citizens and that they exercise "actual control'' of such airlines.
Wednesday's tentative decision by the Department of Transportation to deny Virgin America permission to begin flying was rooted in the department's belief that the airline is in fact controlled by British billionaire Richard Branson and his London company, Virgin Group. Virgin America -- in which Branson has a 25 percent stake -- denies it is foreign-controlled and said it will respond Jan. 10 to the ruling.
Ironically, the Transportation Department tried to relax rules governing foreign participation in U.S. aviation only three weeks before invoking those rules to deny Virgin America permission to fly. While holding foreign ownership at 25 percent, the proposed rules change would have allowed foreign investors more day-to-day say over operations: drawing up schedules, opening or closing routes, and so on.
However, in the face of determined opposition by organized labor and what regulators believe will be a more protectionist Congress under Democratic leadership next year, the Transportation Department -- which is to say the generally pro-globalization and pro-free-trade Bush administration -- withdrew the proposed changes.
Bush's retreat was praised by the AFL-CIO. In a Dec. 5 statement, the labor group said, "We are pleased that Transportation Secretary Mary Peters has withdrawn a controversial federal rule change that would have permitted for the first time in U.S. aviation history a foreign interest to control a U.S. air carrier. ... It is our intention now to work with members of Congress and Secretary Peters to promote a strong aviation industry while protecting the jobs and long-term economic interests of U.S. aviation employees.''
The Air Line Pilots Association, which represents 60,000 airline pilots in the United States and Canada, also praised the decision to withdraw the new rules, saying that it "will continue to remain vigilant in protecting the safety and security of the U.S. airline industry, as well as in safeguarding U.S. jobs.''
In another irony, Virgin America, in establishing its headquarters in the Bay Area, brought with it the prospect of creating 3,000 U.S. jobs, from flight attendants to mechanics.
The Transportation Department's ruling has frustrated Virgin America, at least for now. In the longer term, government regulators in the United States and elsewhere are similarly frustrating international airline executives, who argue that economies of scale and the fluidity of capital and talent in a globalized economy make such rules anachronistic.
United Airlines Chief Executive Officer Glenn Tilton, for example, argues that airlines should be able to invest in each other or merge outright, regardless of what countries they are in.
Moreover, most of the nation's airline executives favor a long-hoped-for "open-skies'' agreement between the United States and the European Union that would open each other's restricted markets to more airline competition.
Giovanni Bisignani, head of the International Air Transport Association, condemned the protectionist regulatory mind-set that could ground Virgin America and scuttle an open-skies pact.
"Once again, a business decision has been taken hostage by short-sighted politics,'' he said. "And we are stuck with a 60-year-old bilateral system designed for another age.''
E-mail David Armstrong at [email protected].
Page D - 1

 

[Fly4hire]

This is an enormous victory for U.S. pilots and companies. Thank ALPA, and your ALPA PAC money or this would not have been possible. If Shrub had his way this industry would look like the merchant marine fleet. The war is not over, but we won this engagement for now.

Imagine the following at LAX.......

http://www.pbase.com/bmcmorrow/image/45698703

Give to ALPA PAC!

 

[jbucpt]

This is an enormous victory for U.S. pilots and companies. Thank ALPA, and your ALPA PAC money or this would not have been possible. If Shrub had his way this industry would look like the merchant marine fleet. The war is not over, but we won this engagement for now.

Imagine the following at LAX.......

http://www.pbase.com/bmcmorrow/image/45698703

Give to ALPA PAC!

i could be wrong, but wasnt it AA and CO management that lead the fight to stop virgin. if i am wrong, than show me specifically how ALPA were the true leaders of this fight.

 

[Fly4hire]

i could be wrong, but wasnt it AA and CO management that lead the fight to stop virgin. if i am wrong, than show me specifically how ALPA were the true leaders of this fight.

I stand corrected. They were right up there with ALPA. You are correct that they share credit for this. ALPA had been fighting the NPRM with legislative efforts from the very git-go. Not sure if it would have been shot down without the effort of everyone.

 

[AA717driver]

Hey, Rez, have a good Christmas? TC