Indy Air Restructures Airbus Deal

[JetClipper]

http://www.marketwatch.com/news/yhoo/story...127EC75B29DA%7D

What the article doesn't say (and the analysts evidently aren't smart enough to figure-out themselves) is that adding Airbii to the fleet is the only way Indy can reduce their CASM. As a result, while looking like a good thing in the short term, this could actually hurt Indy down the road.

 

[whlinder]

Sure it would reduce their CASM, but it would do nothing to reduce their CASM for flying RJs. They screwed up big time on their estimations of CASMs for the RJ (err, iJet) and for the RASM that they would generate with those planes. Sure some of that was dependent on having the A319s to connect passengers and push RASM on those routes up, and fuel is higher than expected, but last year (Oct03) they projected a 15.6 cent CASM for their ops Aug-Dec 2004. I think that included some Airbus flying, but it couldn't have account for a lot of ASMs. They projected in 2006 that their RJ-only flying would be 16.3 cents/mile. Instead in the 3rd quarter they had a 21.8 CASM, which was 19.9 cents without an early retirement charge on some aircraft and 15.7 excluding fuel. I know fuel is more than expected but the difference between the price today and what they expected is not enough to explain a projected CASM that was 4.3 cents/mile lower than it actually was. They were off by 4.3 cents/mile, and their current CASM for fuel is 4.2 cents/mile. Taking a projected CASM of 16.3 incase that 15.6 projection included Airbus flying, they are still off by 3.6 cents/mile, and I doubt they had figured fuel being .6 cents/mile as part of a 16.3 CASM.

Not a good situation when you have higher costs than expected and lower revenue. The revenue is easier to fix than the costs. I don't know where the fat is or if they just estimated wrong, but they've known for months that their revenue projects weren't being met, and haven't really done anything about it until last week when they announced that Galileo could ticket their fares. Living and working by IAD, I hope they pull through, but they've screwed up pretty bad and it does not look good. I'm starting to wonder if "The official airline of the Washington Redskins" will still be around at the end of the NFL season.

*3rd quarter CASM from their 3rd quarter press release, including UA/DL flying. If anyone wants to see the document they circulated in Oct03 with their projections, I saved a copy and will email it to anyone who wants it. PM me.

 

[eolesen]

This affects the 16 A319s on order from Airbus, which were supposed to be delivered in 2005 and 2006, and effectively pushes those deliveries back up to a year.

But Indy also has 12 A319s on lease, two of which should already be delivered, and all 12 scheduled to be online by May 2005.

Given their current cash crunch, I think 12 aircraft should keep them busy enough for the next year...

 

[CaptianBoomer]

The problem with IAir is the "high" cost of so many RJ's.

Fuel, and low yields are also a mitigating factor.

If IAir had 90 RJ's and 30 - 150 seat Airbii, they would have a like number of seats for sale on each aircraft type (in theory). Assuming a 15 cent CASM on the RJ and a 5 cent CASM on the Bus, you would add and divide by two. This would result in a CASM of 10 cents per ASM. Well above LUV, JBLU and well above their RASM.

Barring a complete reversal of their revenue numbers and a restructuring of their RJ debt, BK is all but a certainty.

Boomer

 

[eolesen]

Barring a complete reversal of their revenue numbers and a restructuring of their RJ debt, BK is all but a certainty.

[post="201161"][/post]​

Totally agree. There's a hefy set of lease payments due during 1Q05, most of the analysts I've spoken with believe that it is just a matter of when they file.

If they are able to file and unload 40 or 50 of their RJ's, they might have a pretty good chance of recovering. Likewise, if they can manage to unload some of their existing RJ fleet to whever gets the AirWisc routes up for bid, they have an even better chance of recovering in the short term.

 

[funguy2]

I agree also that BK is a foregone conclusion for IAir. The problem now is that they have delayed many of their A319 deliveries, when clearly, their BK strategy should be to rid themselves of as many RJ's/props as possible and focus on faster A319 deliveries, not slower A319 deliveries... I think that they are trying to protect their shareholders, which is the right thing to do, but the result is that the company fails, instead of reorganizes. I think this is clearly a long-term mistake for FlyI.

 

[ITRADE]

A second article

Flyi Delays Buying Airbus Jets

 

[ZMAN777]

*3rd quarter CASM from their 3rd quarter press release, including UA/DL flying. If anyone wants to see the document they circulated in Oct03 with their projections, I saved a copy and will email it to anyone who wants it. PM me.

[post="201076"][/post]​

I also have a copy of that Oct'03 business plan. Their load factor assumption was placed at 72%! So they're only off approximately 20-25%. Yikes! Going forward it's doubtful they'll ever see those kind of LF for years to come except on a mere handful of routes. What this means is that they'll have to re-work their business plan to reflect something where they can make money by filling perhaps something more like 60-65% of their seats. Only by raising their fares will those kind of LF offset current costs. And that goes against the "low-fare" mantra of their business plan. Sort of a Catch-22 scenario.

Also, even if they do put in a bid for the UAL Express flying, does anyone really expect UAL to give them the flying even if they were the lowest bidder? YGBSM.
Plus, putting in a bid would be a complete loss of face for Skeen. I doubt it will happen.

What is more likely is Flyi will dump a LOT of RJ's in the short term (read hundreds of JOBS!) and shrink it's operations (all while in BK by the way) while trying to get the 319 operation up and profitable. As a side note, by dumping a bunch of RJ's, the RJ aircraft market will suffer from a glut of available aircraft, further eroding the value of those aircraft Flyi does own.

It'll be a struggle as UAL will only pile on in every market Flyi's 319's enter. With reduced competition in the express markets UAL will be able to leverage that strength to their advantage and help their mainline bottom line.

Mostly good news for UAL, less than a rosy outlook for Flyi. Them's the breaks!

Cheers,
Z

 

[whlinder]

I saw some news story about FlyI selling 4 RJs and closing DAY and LAN, but now I am too lazy to find a link.

They need to reduce their RJs, and if possible, reduce their frequencies to some markets.