I believe today’s agreement between the Allegheny County Airport Authority (ACAA) and US Airways can best be described as an agreement that has options, and positions US Airways for the future, with or without Pittsburgh as a hub airport. US Airways has created an agreement that permits the airport to become the company’s fourth focus city or remain the carriers second largest hub, similar in scope to Cincinnati where Comair is to Delta, US Airways Express/MDA would be to US Airways.
When analyzing management actions I believe it’s important to focus on what is not said as much as what did the parties say. Let’s take a look at some key points:
Point #1 - US Airways signed a three-year lease agreement for its current on-airport support facilities, but the document has a one-year exit clause. Why does the agreement have an exit clause? Is the company simply trying to create negotiating leverage or does the airline have an ulterior motive with possible gates and facilities that may become available later this year?
Separately, why did the parties not agree to a three-year lease for the Pilot Training Center, the Carnot Flight Attendant Training Center, the Simulator Building, RIDC Park West Operations and Support Offices, and Greentree Reservations Facility?
Previously the City of Charlotte built an extension onto the Training Center, which is now under utilized and has four open simulator bays.
US Airways currently conducts pilot B767/757, some B737, and EMB-170 pilot training in Pittsburgh. The simulator building only houses two simulators for the B767/757 and B737. In addition, US Airways has reached an agreement with CAE to provide the company with a CRJ and EMB simulator. To provide economies of scale, could US Airways reject the simulator building and move the B767/B757 and B737 to Charlotte, as well as install the new CRJ and EMB simulators Charlotte, to lower unit costs?
In regard to the Pittsburgh Pilot Training Center, the Carnot Flight Attendant Training Center, RIDC Park West Operations and Support Offices, I believe these facilities could also be moved to vacant office space in Charlotte. Moreover, with the Pittsburgh Post-Gazette reporting in early December that US Airways was in negotiations with the Greentree Reservation Facility landlord, I suspect the company could move this facility to Winston-Salem, to provide one mega-reservations sales center.
Meanwhile, I believe the 3-year on-airport agreement regarding the maintenance facility could be significant as well. Next Monday the company’s appeal to the A320 heavy maintenance facility will be heard in Philadelphia. If US Airways is successful in its appeal, could the company then turn to Embraer to provide the EMB-190/195 aircraft as a B737 replacement and outsource the Embraer overhaul as well? The EMB-190 will be available for delivery in 2006, thus the 3-year hangar agreement could be a loaded gun to the IAM, which may want to negotiate an agreement to keep heavy maintenance in house, versus run the risk of a negative court decision.
Point #2 – US Airways now has in place an agreement that could make Pittsburgh a focus city and if other aircraft or other key airport gates become available, the airline could move about 30 mainline aircraft, as well as the rumored additional 60 A320 aircraft that could arrive in 2004 and 2005, westward to other major cities. Thus, I believe it is in the Commonwealth and County’s best interest to cut a deal as soon as possible to keep US Airways in Pittsburgh. It’s clear that US Airways is very important to Western Pennsylvania’s economic well being and today the Reuters said, “Elected officials and US Airways, whose success is deemed vital for Pittsburgh's vitality, have been trying for months to renegotiate the lease before it expired on Jan. 4. Without a thriving airport, the fate of Pittsburgh, now grappling with a long-term downturn, would be even bleaker.â€
Point #3 –US Airway s signed a lease agreement through 2018 for 10 gates and will lease another 40 gates on a month-to-month non-signatory basis, which will increase the company’s monthly operating expense by about $200,000 per month or cost the airline about $2 million through September. If US Airways truly wanted to keep Pittsburgh as a hub, why would the airline pay the additional rent, unless the airline had another opportunity, which is believed to be a westward option? To support this point Allegheny County Chief Executive Dan Onorato said at a press conference, "Today, there is no deal on the table. Today is really, and I want to stress this point, to get beyond the termination date and find out what exactly US Airways is going to commit to over the next eight months as we continue to negotiate."
Mr. Onorato added that "anything can happen after the eight months."
Thus as I have said before, if the Commonwealth of Pennsylvania and the ACAA truly want a deal, I strongly believe the government should immediately find ways to raise revenue, presumably from riverboat gambling, to pay down the huge airport debt burden, and to build a new arena for the Pittsburgh Penguins, who could leave Pittsburgh as well.
To emphasis this point, US Airways senior vice president of corporate affairs Chris Chiames said in a statement, “We understand that public officials have some difficult choices to make, and in turn, they understand that we must begin making business decisions very soon and that these decisions must be concluded quickly.â€
From this observer’s perch, these decisions could involve an airline currently operating in a formal reorganization, the ability to move assets, the potential to obtain Swiss International A330/A320 assets, and the upcoming “Transformation Planâ€, now scheduled to be released in early February.
In conclusion, I believe its imperative the ACAA find a way to immediately reach an acceptable long-term accord with US Airways on the Pittsburgh airport, or Western Pennsylvania will see its hub airport become a focus city, the County could see about $50 of $70 million in airport revenue evaporate this fall, and the airline could fly
Meanwhile, it has come to my attention US Airways may announce in the not-so-distant future the merger of Piedmont and Allegheny Airlines and that the Arlington-based carrier has reached a definitive plan to place 25 CRJ-700s at PSA Airlines.
Respectfully,
Chip
When analyzing management actions I believe it’s important to focus on what is not said as much as what did the parties say. Let’s take a look at some key points:
Point #1 - US Airways signed a three-year lease agreement for its current on-airport support facilities, but the document has a one-year exit clause. Why does the agreement have an exit clause? Is the company simply trying to create negotiating leverage or does the airline have an ulterior motive with possible gates and facilities that may become available later this year?
Separately, why did the parties not agree to a three-year lease for the Pilot Training Center, the Carnot Flight Attendant Training Center, the Simulator Building, RIDC Park West Operations and Support Offices, and Greentree Reservations Facility?
Previously the City of Charlotte built an extension onto the Training Center, which is now under utilized and has four open simulator bays.
US Airways currently conducts pilot B767/757, some B737, and EMB-170 pilot training in Pittsburgh. The simulator building only houses two simulators for the B767/757 and B737. In addition, US Airways has reached an agreement with CAE to provide the company with a CRJ and EMB simulator. To provide economies of scale, could US Airways reject the simulator building and move the B767/B757 and B737 to Charlotte, as well as install the new CRJ and EMB simulators Charlotte, to lower unit costs?
In regard to the Pittsburgh Pilot Training Center, the Carnot Flight Attendant Training Center, RIDC Park West Operations and Support Offices, I believe these facilities could also be moved to vacant office space in Charlotte. Moreover, with the Pittsburgh Post-Gazette reporting in early December that US Airways was in negotiations with the Greentree Reservation Facility landlord, I suspect the company could move this facility to Winston-Salem, to provide one mega-reservations sales center.
Meanwhile, I believe the 3-year on-airport agreement regarding the maintenance facility could be significant as well. Next Monday the company’s appeal to the A320 heavy maintenance facility will be heard in Philadelphia. If US Airways is successful in its appeal, could the company then turn to Embraer to provide the EMB-190/195 aircraft as a B737 replacement and outsource the Embraer overhaul as well? The EMB-190 will be available for delivery in 2006, thus the 3-year hangar agreement could be a loaded gun to the IAM, which may want to negotiate an agreement to keep heavy maintenance in house, versus run the risk of a negative court decision.
Point #2 – US Airways now has in place an agreement that could make Pittsburgh a focus city and if other aircraft or other key airport gates become available, the airline could move about 30 mainline aircraft, as well as the rumored additional 60 A320 aircraft that could arrive in 2004 and 2005, westward to other major cities. Thus, I believe it is in the Commonwealth and County’s best interest to cut a deal as soon as possible to keep US Airways in Pittsburgh. It’s clear that US Airways is very important to Western Pennsylvania’s economic well being and today the Reuters said, “Elected officials and US Airways, whose success is deemed vital for Pittsburgh's vitality, have been trying for months to renegotiate the lease before it expired on Jan. 4. Without a thriving airport, the fate of Pittsburgh, now grappling with a long-term downturn, would be even bleaker.â€
Point #3 –US Airway s signed a lease agreement through 2018 for 10 gates and will lease another 40 gates on a month-to-month non-signatory basis, which will increase the company’s monthly operating expense by about $200,000 per month or cost the airline about $2 million through September. If US Airways truly wanted to keep Pittsburgh as a hub, why would the airline pay the additional rent, unless the airline had another opportunity, which is believed to be a westward option? To support this point Allegheny County Chief Executive Dan Onorato said at a press conference, "Today, there is no deal on the table. Today is really, and I want to stress this point, to get beyond the termination date and find out what exactly US Airways is going to commit to over the next eight months as we continue to negotiate."
Mr. Onorato added that "anything can happen after the eight months."
Thus as I have said before, if the Commonwealth of Pennsylvania and the ACAA truly want a deal, I strongly believe the government should immediately find ways to raise revenue, presumably from riverboat gambling, to pay down the huge airport debt burden, and to build a new arena for the Pittsburgh Penguins, who could leave Pittsburgh as well.
To emphasis this point, US Airways senior vice president of corporate affairs Chris Chiames said in a statement, “We understand that public officials have some difficult choices to make, and in turn, they understand that we must begin making business decisions very soon and that these decisions must be concluded quickly.â€
From this observer’s perch, these decisions could involve an airline currently operating in a formal reorganization, the ability to move assets, the potential to obtain Swiss International A330/A320 assets, and the upcoming “Transformation Planâ€, now scheduled to be released in early February.
In conclusion, I believe its imperative the ACAA find a way to immediately reach an acceptable long-term accord with US Airways on the Pittsburgh airport, or Western Pennsylvania will see its hub airport become a focus city, the County could see about $50 of $70 million in airport revenue evaporate this fall, and the airline could fly
Meanwhile, it has come to my attention US Airways may announce in the not-so-distant future the merger of Piedmont and Allegheny Airlines and that the Arlington-based carrier has reached a definitive plan to place 25 CRJ-700s at PSA Airlines.
Respectfully,
Chip
