Plane Conversations

In an article in The Street online magazine titled “Why US Airlines pay more to finance jets” an interesting issue is raised about how the US Export Import Bank might be giving unfair advantage to the strongest of competitors to the US major air carriers.

I am a proponent of the US Export Import Bank (Ex-Im) as it promotes US exports through the financing of major capital purchases manufactured in the US. The assumption, or at least my assumption, is that this financing would be offered to companies in other countries who might not be able to obtain financing in their own country and thus not be able to make the purchase.

Under this assumption US industry wins with more jobs and import dollars.  

ExIm has been used to facilitate sales for the US aircraft manufacturing industry and especially Boeing. What would happen if Ex-Im did not exist to serve this purpose? I am not sure anyone could answer that question and I would bet that Boeing does not want to test the theory of no Ex-Im bank help. 

What is surprising about this article, and the information is conveys, is that the US is offering favorable terms to airlines who would have access to capital from their own financial markets.

These same foreign airlines are also competing heavily with the US mainline carriers like Delta on international routes. Delta and the ATA are crying foul ball.  

With a lower capital cost structure we are indeed giving the carriers like Emirates Airline a competitive advantage.

I don’t think this was the original intent of Ex-Im, which seems to have twisted the original purpose to help out Boeing.

Boeing needs to sell aircraft in a world market and by doing so they create a lot of high paying jobs and import dollars to the US economy.

Delta and other large US carriers need to compete in the international airline market with as level a playing field as possible.

This issue pits Boeing against the major US air carriers, some of their best customers.

Quoting from the article:

“The airline beneficiaries from the financing include nine of the ten most profitable airlines based outside of the U.S., France, Germany and the United Kingdom, May said. Among them: Air Canada, Air New Zealand, Cathay Pacific, Emirates, Japan Airlines, Singapore Airlines and WestJet. They all “compete with U.S. airlines for U.S. passenger traffic,” May said. WestJet, founded in 1996, has received nearly $1.7 billion in Ex-Im Bank financing since fiscal 2002 — and has been able to take traffic from U.S. airlines as a result, he said. ”  

I wonder if Boeing’s major competitor EADS Airbus is able to offer similar government  backed financing terms as Boeing can offer through Ex-Im.

If so, then Boeing would be put to a disadvantage in selling its product to the world’s airlines without Ex-Im.

In a global economy working through these issues is complicated. Boeing and EADS Airbus are multinational companies with the makeup of their aircraft coming from worldwide suppliers, but at the end of the day Boeing is still made in America and Airbus is made in Europe.

The issue becomes political with the “Aircraft Sector Understanding” which codifies aircraft financing standards between the 33 countries that make up the Organization for Economic Cooperation and Development.

It will be interesting to see how this plays out.  What is your take on this?

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Based on reports in USA Today, The Wall Street Journal and Bloomberg, Delta plans to park a big majority of the 50 seat regional jet fleet, operated by its subsidiary Comair, for economic reasons.

Other regional airlines have already parked, or they are soon to park many of their 50 seat or less aircraft. Michael Boyd of Boyd Group International is quoted in an Arkansas Online article saying that by 2015 US airlines will only be operating 200 regional jets with 50 or fewer seats, down from about 1200 at an all time high.  The 50 seat regional jet does not work in a cost driven airline world, especially when fuel prices are high.

There are two outcomes of these decisions that are interesting to me.

1)      As the airlines park these aircraft, service will be cut to some number of smaller markets. They are not parking all of these aircraft to put larger aircraft on the routes. In an unregulated airline system the airlines are not going to fly where they can’t make money and that is bad news for smaller markets.

2)      There will be a big group of Canadair CRJ 100/200 and Embraer ERJ 135/145 regional jets sitting  stored in the Arizona desert, possibly numbering in the hundreds. Some percentage of these aircraft still have good time left on their airframes.

As I hear from people in the leasing industry, the market for regional airline turboprops  is strong worldwide because the used fleet can be leased or purchased very cheaply compared to new prices. The operating costs of turboprops are much lower than the regional jet, especially on short haul routes that are common in developing economies.

So what do you do with a few hundred regional jets that are parked? At what price point do they become economically viable? Where are the new missions that would bring value and a new life for these aircraft?

Back in the early part of the last decade this same problem existed with the regional airline turboprop fleet as they were parked in favor of the new regional jets. Airlines going to an all jet fleet parked their Saab 340’s, Jetstream32’s and 41’s, Embraer 120’s and Beech 1900’s and the desert was full of stored aircraft. Ten years later you don’t see many sitting around. Most are deployed outside the US meeting the mission requirements of small airlines and government special use operations.  

Eventually the market will figure out how to redeploy these regional jets. It is all about economics. The combination of capital costs (lease or financing) and operating costs have to meet a point where it makes sense in a new use. Lower capital costs allow for lower utilization operations such as air cargo and on demand charter.

It seems that a big opportunity exists for charter operators to use these aircraft for contract flying, corporate shuttles and on demand point to point charter. There is a service gap that continues to grow as airlines focus on high density domestic markets. Could these regional jets help fill the gap?  

What do you think?

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Starting the end of this year, if you are an aircraft owner you will have to apply for a new aircraft registration. The month your current aircraft registration was issued in will determine its expiration and when you have to apply for the new registration. 

For example if your aircraft registration certificate was issued in March of any year you will need to apply between November 2010 and January 2011 for the new registration.

 If you have no changes in your registration you can do the renewal online.

The new rule puts a three year expiration date on the new registration. I have seen this in many countries and it is usually a means for the government to collect more money from aircraft owners.

Prior to this rule change, an aircraft registration (the certificate that identifies the aircraft owners) was good indefinitely until such time as the aircraft owner(s) sold the aircraft. It also should have been canceled if the aircraft was scrapped, totaled in an accident of if the aircraft was registered with ownership in another country’s registry.

The new registration fee is $5.00 which is insignificant at this point. Hopefully this is not a means to eventually tax ownership though the registration process.

My concern is the FAA’s ability to handle mass registration submissions without creating a backlog of paperwork that would cause some owners registrations to become invalid even though they have complied with the new rules.

The FAA is saying if you don’t have a valid registration your aircraft can not fly. Basically lack of current registration causes the aircraft to be un-airworthy.  

The FAA’s concern seems to be that their data base in not accurate because aircraft owners don’t play by the rules. The FAA claims that possibly 35% of all aircraft registered are not flyable or have wrong information.  To some degree that is a valid concern, especially with scrapped aircraft that could be put back into service in an un-airworthy condition.  

So now we all have to submit new forms every three years and track the expiration. For fleet operators it is another item to track on their maintenance program. For individuals who own aircraft, I assume they will be responsible for tracking it and held accountable if they don’t? I don’t see where you get a reminder like we get in Tennessee when our car tags expire, but maybe that is coming.  

The FAA is understaffed today so how are they going to keep up with this, and especially how do they enforce action against those who don’t comply. Do inspectors have time to go around and check on all of the 357,000 plus aircraft registered in the US?

You can read the FAA rule and information here.

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There is a lot of buzz these days about “social”, evidenced by the fact that anytime a topic is brought up online with the words “social” or “social media” all of us who claim to be social tweet it out. 

So what is social and anti social about the experience of traveling by air? 

A good definition of social in this context of travel is “allowing people to meet and interact with others in a friendly way”.

Conversely, Encarta defines antisocial as “hostile or indifferent to the comfort or needs of other members of a community or society as a whole”

So here’s a question for those of you who travel routinely in the airline system: 

Would you rate the experience of airline travel social or antisocial based on the definitions presented above? Is the experience friendly or hostile?

Maybe hostile is too strong of a word to use to describe traveling by airline but “indifferent to the comfort or needs…” may accurately define the experience.

As I queue up in line to take off my shoes, unload my I-Pad bag, get searched, wanded and body scanned I don’t feel real social. The weary and worn out road warriors who spend valuable hours in the waiting areas of terminal buildings most likely don’t feel social either.

Compare the experience of airline travel against the experience of traveling in a business jet or even in a small private airplane.

Come hang out in the lobby of a fixed based operation, a terminal for private flights, and see the difference in the traveler’s demeanor over what you see at a busy hub airport.

We see it every day in our business. Smiling people passing through the lobby departing to go on vacation or a business trip, or getting ready to go home from a trip, knowing they will be back home soon. Knowing the experience they are about to have will be positive from beginning to end.

I grew up flying in small airplanes and some of my fondest memories of travel were the flights riding up front with a father who was a corporate pilot. The passengers in the back of the aircraft most always enjoyed the trip with my father smoothly flying them to the destination. Even when the weather did not cooperate he somehow still made it a good experience.

So what’s it worth to you to have a social versus antisocial travel experience?  

Is there a monetary value difference in the two experiences?

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Business aviation has taken a beating in the past two years.  While we are now seeing some signs of recovery, we must remember that those signs do not constitute prosperity. We can blame industry difficulties on the government or on the economy, but the reality is that we need to quit following the old business models. In many areas, we are doing things today just as we have for the past 30 years.

If we look to the technology sector of our economy as a possible success story to emulate, we see a constant flow of innovation in the market. Computing technology gets not only faster and more productive by the day, but it also gets cheaper. Social Technology has taken on a life of its own with changes happening faster than even the social media gurus can keep up with.

Those of us in aviation know that we cannot change or innovate as fast as the technology sector of this economy. Or can we?

When it comes to the aircraft design and regulation compliance that make our industry safer, admittedly we cannot go any faster than the government allows. New aircraft designs are also limited by the allocation of capital and have long cycles from initial investment to development to payoff. The tech sector can crank out new smart phones every six months, but we can’t just crank out new jets that fast.

Aircraft design and safety compliance timing may be out of our control, but that should not stop us from innovating.

Innovation starts with conversations. Doc Searls coined the term “the market is conversations” in his 1999 book The Cluetrain Manifesto.  With consumers self-aggregating and expressing intentions online, why can’t we engage in the conversations and meet those intentions?

We need to expand our market by engaging the larger audience of travelers in conversations about the value proposition of business aviation and even leisure travel by private aircraft. It starts online these days and ultimately moves to face-to-face contact.

We also need to challenge our market and our industry to start conversations on how to deliver business aviation at a reduced cost. The solutions must come from the entire supply chain, with everyone involved in business aviation as a part of the solution.

I have yet to hear anyone say they would like to go back to riding on the airlines after experiencing travel on a private aircraft.  What I have heard, hundreds of times, is that they can’t afford what we offer; so, they grudgingly go back for more of the misery of air travel by mass transit.

What are we going to do about it?

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Arranging travel isn’t rocket science, but there’s a lot more to it than throwing your suitcases into the trunk of your car.  Garden gnomes and Negotiators are on our televisions telling us how much we would have or could have saved if only we had consulted their websites before we actually spent money.    Some of their claims are likely true, others more along the lines of wishful thinking.  Regardless, their main point is valid – if you pay attention to just a few things, you can squeeze a little more out of your travel budget.

1.  Autoclub and similar memberships can save enough with just a few nights’ hotel stay to pay for themselves.  Beyond roadside assistance, maps, savings on prescriptions, at theme parks and at restaurants, a $64 AAA membership can save you money on airport parking (up to 15% in Nashville, Atlanta and Ft. Lauderdale) and on hotels ($9 per night at the Kansas City Marriott Downtown).  So, even with that relatively small discount, you’ve paid for the membership with all its benefits in just seven hotel nights.  Some credit card and frequent flier groups also offer discounts.  It’s worth your time to check your memberships to take advantage of all of the features.

2. International travel is cheaper Tuesday through Thursday.  As of today, if you depart on Tuesday, July 13, and return on Tuesday, the 20th, the lowest non-stop American Airlines ticket price with a two-week advance purchase is $1315.40, including taxes.  For the same trip on Saturdays with a departure on 17th and a return on the 24th, the lowest non-stop ticket price is 1560.40.  So, if you’re planning to go to the UK for a week, you’ll have more money for bangers and mash if you fly on Tuesdays.

3.  Depending on the size and weight of your luggage, you may be better off to ship your clothes to your destination than to check it, especially on your return.  A large flat rate box from the United States Postal Service ships domestically for $13.95.  Granted, the 12″ x 12″ x 5 1/2″ box isn’t all that roomy; but, if you pack it carefully, you can fit the contents of a small suitcase into two of them.  So for $27.90, you can ship the contents of your second suitcase directly from your hotel in Seattle to your home in Baton Rouge rather than paying the airline $35.00.

4.  Back-to-back ticketing can save huge amounts of money, but is forbidden by most airlines.  However, if you are traveling on different carriers along the same route, you are using each carrier’s ticket as the routing and dates are defined.  While the carriers may still get in a twist over this, you’ve abided by each carrier’s rules.

5.  A good travel agent can find better fares and better routings than online booking sites, particularly for international travel.   The computer reservations systems (CRS) that travel agencies use have access to more inventory than online resources – or at least any on-line resource I’ve ever found.  This allows a travel agent to get you the best ticket price for the set of rules you want.  If you want to purchase a fully non-refundable ticket from Omaha to Sacramento, an online service may work fine.   However, here’s a little trick I learned as a travel agent: when an agent is pricing an itinerary, she can ask the computer to price it like it is booked, to give the lowest possible fare on that itinerary or she can ask it to give the lowest non-penalty fare.   In my Fare Game post, I told you about inventory buckets.  There may be more than one coach class non-penalty fare code.  The fare code for that is often noted with the letter Y; however, sometimes it’s noted with other letters like B.  Neither fare is restricted, but the B fare may be $50 cheaper than the Y fare for the same seat with the same set of restrictions.  You will not see these differences on most online ticketing sites, but the travel agent can see them easily.  In addition to being able to see inventory, travel agents can see more schedules than the online sites offer.  When we were operating an aircraft in Western Africa, I called Jan, a former colleague when I was a travel agent.  Without exception, Jan was able to get us better fares and schedules on British Airways than we were able to get on even British Airways’ website.  She saved us more money than she charged in her fee and her efforts on our  behalf were worth it at twice the price. 

6.  Air charter can be more cost effective than airline travel.  Even now, there are many people who assume that a private plane is out of their budgets.  And, while a private plane isn’t always the most cost effective solution, it’s worth asking the question.  We’ve posted a couple of posts on this subject: my article, Eleven Hours to Texarkana and Allen Howell’s Real World Efficiency From Business Aviation, both articles give real world, actual examples of how people actually saved both time and money by using business aviation.  If you wonder how using a private aircraft compares to air mass-transit for your trip, call a charter operator.  They will be happy to look at the trip for you and it costs nothing to ask the question.

The economy is picking up and things are beginning to move again.  That doesn’t mean that we aren’t all still trying to get the biggest bang for our travel buck.  By remembering these keys, you can make your budget go a little further without turning every trip into a time and energy pit.

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Every time someone posts something online the context of their content reveals an intent. Intentions have become transparent and discernment of intent is becoming the wisdom of crowds.

The aggregation of consumer conversations enabled by technology has fueled awareness of market methods and intents. Consumers have found influence and have begun to “opt out” of the old methods created by old market methods of intent to capture and sell.

Social technology has created a transparency of intent. Intent is a relational attribute that reveals motive. The “markets of conversations” are no longer motivated by old methods used by the markets over the last 40 years. Doc Searls says “The Intention Economy is built around more than transactions. Conversations matter. So do relationships. So do reputation, authority and respect. Those virtues, however, are earned by sellers (as well as buyers) and not just “branded” by sellers on the minds of buyers like the symbols of ranchers burned on the hides of cattle.”

A Brands Letter of Intent

A letter of intent or LOI is a document outlining an agreement between two or more parties before the agreement is finalized. Such agreements may be for employment, acquisitions, mergers, purchases of services or products. Agreements which aim to specify the intents of parties engaged in a relationship for specific purposes.

The purposes of a LOI may be:

• to clarify the key points of a complex or simple transaction for the convenience of the parties
• to declare officially that the parties are now engaged with an intent implied or specifically spelled out
• to offer safeguards for when the relationship collapses during an engagement with intent

A LOI may also be referred to as a memorandum of understanding (MOU), term sheet or discussion sheet. The different terms show different styles, but do not show any difference under law. Social letters of intent exist when and where buyers and sellers engage on-line through the exchange of information and later a transaction which has certain expectations of delivery.

Social Agreements Represent LOI’s

When people engage with other people or entire organizations on-line there is an implied social agreement represented within the communications. The social agreement may be in response to an inquiry, a comment on posted content or an intent to investigate or take action from an ad or marketing message. The social agreement may also simply be a response to a need or an exchange of communications centric to topical discussions.

Given the reach of social technology and the engagement of markets, buyers and sellers, the underlying social agreement is similar to the traditional letter of intent. While social agreements are not legal instruments the expectations of fulfillment by both parties remain the same as if they were legally agreements.

The very nature of social technology and the emerging dynamics are raising people’s expectation to fulfill implied intents contained in context with the content (communications). It is clear that traditional marketing and advertising methods are being rejected because the intent of such methods are not what buyers expect. Today’s buyers expect honesty, integrity, responsiveness, performance and respect for their time, attention and intentions.

Cluttering buyers time, attention and relevant intentions with irrelevant ads and slick marketing messages does not show respect. Treating buyers like cattle waiting to be herded does not show respect. The currency of communications represents the value of ones intent to fulfill or fail to fulfill the intent of a social agreement. Failure to fulfill a social agreement means the buyers currency, both in the form of money and communications, will not follow you rather both will be spent and shared elsewhere.

Social letters of intent are not created by or from the supplier rather from the buyer. To ignore or not fulfill these intents means you lose the buyers currency and that of their “friends”. That represents a return, or lack thereof, from this thing called social media.

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