AlaskaBound

This belongs on the Tool of the Day thread.
Honestly, who says that? haha.

ASAnotASAP

Feel free to start a TOTY thread. It might just catch on!

Captain Tony

I have many leather-bound books and my apartment smells of rich mahogany.

I am. So I'd hate to see the place dismantled by some wannabe Carl Ichan Frank Lorenzo corporate raider guy.

You guys have no sense of humor.

Captain Tony

I mean really? Some goofball is on an anonymous message board claiming he's some big shot corporate raider who wants to do a hostile takeover of the ExpressJet division, strip it of its assets, then fly the remnants as an at risk carrier, and you're calling ME a tool?????

Bucking Bar

Does Delta have an option to reacquire ASA?

It would be smart to look past Skywest / Expressjet's fishbowl into the ocean of Delta's financial performance. The last time I saw the numbers broken out was 2011 (I guess I could look at 2013 if I wasn't so lazy) but in 2011 Delta reported on it's DCI arrangements accounted for 21% of the company's 2011 revenues ($6.39b) but 47% ($929m) of Delta's 2011 operating profit.

How much more profitable would DCI be without a parasitic shareholder group, management structure, duplicative flight operations and exclusive Certificates which result in DCI being operated as about 8 distinct fleet types instead of 3 ? Isn't 40% of Delta's domestic flying a "core business" for Delta?

John Carr

Well, guess it depends on how it would pan out. How much of those numbers came/are coming from the backs of the PNCL BK?

You preach adamantly how the Pinndeavor deal was so bad for the career. Would you really want DAL to acquire ASA (XJT), drive their costs down or extract them via a BK? In the process raping one of the best (relative term of course) CBA's of the regional side? And in exchange, what? Offer the SSP?

CRJ100

I didn't claim I am a big shot anything. You did. I do have the capability to complete this transaction. Anyone who can structure a deal according to their guidelines can make some money. That is the way real life works and while there are lots of moving parts, an ExpressJet acquisition can make sense.

You know there is nothing to strip at ExpressJet. Nothing. Whatever isn't owned by the majors is owned by Skywest Holdings. Some of the aircraft taken out of service may never fly again. It is an excuse that you are using to justify your pre-determined decision to paint me as a goofball. I get that you may have some concerns about not being under a CPA, but the reality is that ExpressJet will never be offered meaningful long term CPA flying ever again. That reality was made crystal clear by your management. There are seats at other airlines waiting for you, but United will be hurt by irregular feed. They cannot afford to lose their feed AND provide you with a seat. It must be an orderly process. You don't burn anything down while you are still a passenger.

Now, since I am a goofball and you are not, provide us with a plan that the majors accept that will get you the following rates on a 50 seat platform:

First Officer - CRJ/ERJ
(Year) 1 - $50
2 - $55
3 - $60
4 - $65
5 - $70
6 - $75

Captain - CRJ/ERJ
(Year) 1 - $79
2 - $82
3 - $85
4 - $88
5 - $91
6 - $94
7 - $97
8 - $100
9 - $103
10 - $106
11 - $109
12 - $112
13 - $115
14 - $118
15 - $121
16 - $124
17 - $127
18 - $130

My plan gets you that at an ERJ operating cost of $3,280/bh and a CRJ operating cost of $3,420/bh. These rates will not fly in a CPA environment. For reference, a B6 E190 is around $3,600/bh. However, if you are flying less than 50 people, the 50 seat platform is still cheaper.

Now that I've just posted that, the good folks at Skywest Holdings will realize that an independent ExpressJet won't be competitive against them for new CPA flying. All of a sudden, this deal looks better to them.

United does not want to pay more money, but they need the feed. So, the existing CPA flying gets converted to pro-rate flying with a minimum revenue guarantee (which can be structured as a "connecting passenger incentive") in second and third tier markets. It used to be done at Pinnacle and Colgan, so this is not a new concept. Meanwhile, Skywest could negotiate to put an additional 60 E-175s at United for first tier markets in place of the ExpressJet aircraft.

The new ExpressJet would buy all of the former CoEx planes and United would agree to reinvest a large chunk of this cash in mainline aircraft additions to the network.

Delta will certainly approve of the movement of the existing CR7s and CR9s to Skywest as long as it doesn't cost them a dime. In theory, CR2s could be swapped back to ExpressJet (depending on geographic locations).

It was mentioned that the majors do not allow two class aircraft to be
flown at risk. Not every CR9 has to be dual class. It could be acceptable for EV to fly its own CR9s with economy and premium economy seats only. It is technically one class. The 50 seat planes won't last forever. The goal is to replace the entire EV fleet over six years and go all CR9. I do think the majors would agree to this as long as it helps them get where they need to be, which is less 50 seat flying and more 76 seat flying.

Is such a task EASY? No. Is it straightforward? More or less. By retaining the ExpressJet management team (on an interim basis at the very minimum), there is a management team in place that the majors would accept. Converting the CPAs to a minimum revenue guarantee makes the financing available to do the whole thing. Bombardier will be happy to build another 200-300 CR9s and they may even want the life extension work on the CR2s.

My point is that this is not an academic exercise. There are a few tough spots, like trying to figure out the number of ERJs assigned to each base so I can determine how to backfill them with the schedules I am proposing. However, the general concept is sound...at least, according to Skywest itself.

Can Pro-Rate Be Profitable?

Bucking Bar

CRJ100,

Have to say, yours' are interesting posts. But, I have to ask, how would you attract capital to this venture and exit? IPO?

I would estimate, just for the chunk you seem interested in, around $500,000,000 would be needed for adequate capitalization. With the sort of risk premium investors like myself are used to getting (and admittedly I do not play on this level, you're talking a cost of capital around 25% ... that's some pretty frothy numbers for a business model which is getting pressed by economics on the bottom end, a looming pilot shortage and mainline partners who are squeezing their contractors harder than ever). Even Alaska airlines is probably getting out on thin ice with their model as they find themselves squeezed between Delta and American.

Maybe you can elaborate on where the $25 billion or so in capex Delta (let alone United) has put into their express structures. While Delta's been willing to write off $7.5 billion or so in bankruptcy and consolidation, any future write downs would hit the reported bottom line. I'm not sure how that magic act is going to be pulled off.

Also, just as with the major's 10-K reports, I do not know how you break down pass through costs in your evaluation. Last year Delta reported $0.8b profit on $6.43b revenue on express for a roughly 12.5% ROR ... not bad, but who knows what lines fuel, landing fees, rents and some labor fall on.*

Whoever ends up managing the express operations is going to be in a challenging environment until the likes of Atkin, Bedford and co begin acting like their business is the oligopoly it can be. Of course, the majors will react by insourcing if that happens.

Branded operations are a non starter unless the airline refleets to something like the CSeries or 737NG. Either way, those are some expensive payments to make without any loyalty program to juice revenues.

Like you, I think the Continental and Delta operations should be split and restructured. Atkin probably would have been well advised to consolidate ASA into Skywest, thus diluting the labor issues and keep the separate type specific UCAL operation. In either case, having an alter ego to whipsaw against and to firewall assets makes management sense (even if it is horrible for labor).

I maintain that DCI is a core business for Delta. Last year Delta reported that DCI was .8b of it's 2.7b operating profit (roughly 30%). As we saw with Pinnacle, Delta runs out with a fire hose whenever a part of their network is threatened unexpectedly.

* =

DL31082

Forget it... Never mind.

Hugh Jorgan

ASA contract says that whenever Skywest transfers an rj to Skywest from ASA, 5 crews must go with them after the first transfer. Hey Jerry, go ahead and transfer all of them...... I will gladly jump west and play nice out there. This merger doesn't sound really promising. What are SAPA dues?