RAA Convention Report: Industry leaders warn against threats to post-9/11 gains

 - October 9, 2007, 5:28 AM

Faced with widespread uncertainty about an industry threatened by growing regulatory burdens, the specter of increased security fees and scope-clause restrictions, the Regional Airline Association did its best to lend some perspective and a sense of harmony during its annual convention, held May 12 to 15 in Nashville, Tenn. So despite the gloomy picture the lull in the economy and a modest drop in convention attendance appeared to paint, RAA president Debby McElroy continued to stress the resilience regional airlines have shown during the past nine months, blending guarded optimism with calls for vigilance in the days and months ahead.

While RAA tried to buoy spirits with reminders of the regionals’ strong traffic performance compared with their major airline counterparts, it left little doubt about the hard work it hopes all its members will lend to its efforts toward maintaining the industry’s relatively strong position. On the top of the agenda stand scope-clause concerns and security mandates, a pair of persistent challenges on which RAA has expended most of its lobbying energy lately.

Some positive news on security came out of Congress just three days before the start of the convention, when a House committee killed a proposal to double the airline ticket tax from $2.50 to $5 per segment to help pay for the new Transportation Security Administration. That proposal could have raised the maximum fee per round trip to $10 and total taxes on a $100 ticket to some $50, according to RAA chairman and Atlantic Coast Airlines president Tom Moore. However, to compensate for the $150 million the increase in ticket taxes might have generated this year, the committee voted to trim the same amount from the $4 billion slated for TSA funding. Half of the cut will come from funding set aside for cockpit door reinforcements, originally slated to provide up to $13,000 per airplane.

That cockpit door issue represents a touchy subject for regionals, whose varied fleet of airplanes includes many types that require expensive remote-control locking devices and structural reinforcements. Although the association remains loath to show any perceived apathy toward security and supported the regulation to require reinforcements on transport-category airplanes (those carrying more than 19 passenger seats), it remains concerned about regionals having to shoulder a disproportionate share of the cost burden.

Even if the government disbursed the originally allocated $97 million, the maximum grant of $13,000 per airplane would not cover the full cost in many regional aircraft types. The rule mandates that, in the event one of the pilots becomes incapacitated, the other pilot must be able to open the door without leaving his or her seat to allow a replacement crewmember (flight attendant) into the cockpit. If the aircraft design prevents the pilot from reaching the door from a cockpit seat, the operator must equip the door with a remote unlocking device. Such a device could raise the cost of a single door to $40,000, according to RAA technical affairs specialist Dave Lotterer. At the convention, Saab Aircraft Leasing president Michael Magnusson estimated the cost for a Saab 340 cockpit door reinforcement at roughly $20,000. ATR Marketing president John Moore said the cost for the same retrofit on an ATR 42 or 72 would run about $23,000.

Of course, the door will represent a larger portion of the total value and revenue-generating potential of a regional airplane than a Boeing 747, for example, in a mainline fleet. Already burdened by equipment rules designed originally for mainline airplanes, turboprop operations will likely feel the cost effects even more than regional jets, further threatening service to small communities. Speaking at a convention press briefing, Magnusson said such requirements as enhanced GPWS, upgraded FDRs and reinforced doors have raised the cost of a single Saab 340A by $200,000, representing some 8 percent of the aircraft’s total value. 

‘Hollow’ Safety Arguments
As a result, said the Saab Leasing president, ticket prices rise and travelers choose to drive instead. “Safety is the argument [for the new regulations],” said Magnusson. “But when the cost of flying sends people into a mode of transportation that is demonstrably less safe, the safety argument rings hollow.” He went on to lament the “dramatic” increases in insurance costs, reaching 300 percent in some cases. “Two of our customers have seen their margins wiped out completely as a result of the nervous insurance markets,” he said.

Meanwhile, legislators voted to rescind the final tranche of grants scheduled as part of the Airline Stabilization Act, and will consider ending the program for loan guarantees. Of course, RAA sharply opposes any cuts to government financial support, particularly as airlines enact business plans for this year based on economic assumptions formulated with those subsidies in mind. In all, the committee slashed $550 million from the proposed TSA funds, which now stand at $3.85 billion. However,  RAA continues to lobby hard for a restoration of those funds when the full House votes on the homeland security bill.

Although only one RAA member–National Airlines–has applied for the loan guarantees, McElroy reminded attendees that regionals stand to lose indirectly through the lack of capital availability to their major partners. For example, if America West had failed to secure a loan guarantee earlier this year, Mesa Air Group and Chautauqua Airlines would likely have lost a significant source of code-share revenue. Similarly, some 10 regional airlines–including three wholly owned subsidiaries–depend heavily on the business provided by US Airways, which last month said it planned to apply for the government guarantees.

On the increasingly contentious issue of security, TSA Under Secretary John Magaw appeared at the association’s May 13 presidents council meeting to update regional airline CEOs on the progress of the transition to a fully “federalized” security force at 429 airports. Although McElroy characterized the meeting as productive, ACA’s Moore expressed continued concerns over the costs associated with adding some 58,000 federal employees to the nation’s airport security force. “We’ve tried to impress upon Magaw that the burden for the TSA should not necessarily be borne by the member airlines or solely on the backs of our passengers,” he said. “We feel it’s the responsibility of the federal government to protect this industry. There are a lot more people, communities and services that are at risk, not just people who generally fly.”

A Dirty Little Secret
Moore also reiterated the industry’s concerns over scope clauses, not only for their potential effects on regional jet services and the ability of regional airlines to provide a backup for abandoned mainline routes, but for their potential to sever small communities from the rest of the air transport system. “We as small airlines can muddle through this issue,” said Moore. “But the dirty little secret is that turboprops will have to be removed, so small communities will be denied access to the nation’s air service.”

Examples already include American Eagle’s withdrawal from seven markets, including Dallas-Beaumont, Texas, and Dallas-Lafayette, La., since mainline furloughs triggered a freeze on ASM growth at the regional subsidiary. Eagle has also taken a row of seats out of each of its Saab 340s and ATR turboprops to comply with the cap, as well as removed the AA code from flights out of St. Louis performed by American Connection partners Trans States, Chautauqua and Corporate Airlines.

RAA Seeks La Guardia Consensus The issue of small community air service has assumed extra significance recently as the FAA reviews comments on its five proposals to solve the congestion problem at New York La Guardia Airport, led by a congestion pricing scheme that RAA warns could spell disaster for regional airlines and the small communities they serve. Aside from congestion pricing, the alternatives include an auction for a predetermined number of slots, an FAA-imposed restriction on aircraft size, the establishment of a pool of slots under the framework of the current high-density rule and the reallocation of slots under a new replacement rule.

During the convention RAA reached a consensus on the preferred options from the president’s council, but McElroy declined to publicize the outcome until the association formulates an official position. “I’m going to draft comments, and those are going to be provided to all of our members that operate out of La Guardia,” she said. “Once those members] sign off on it we’ll issue some sort of official position on the matter. I will say that we don’t like congestion pricing.”

While RAA and senior member representatives discussed such weighty issues as demand management and security costs, the associate members that pay for the convention tried to yield some return on their investment inside the exhibit hall. Of course, the most conspicuous absentee was Fairchild Dornier, which continued its quest for a financial savior during meetings with Bombardier officials in Oberpfaffenhofen, Germany. Last month Bombardier finally acknowledged its interest in its ailing competitor’s 728 program, after the Canadian company sent a team of engineers to ILA 2002 in Berlin to begin analyzing the technical aspects of the airplane, scheduled for first flight in September.

During the convention Bombardier representatives refused to comment on the negotiations, citing nothing new to report since the story first broke early last month. Arriving in Nashville just a week after the company settled a machinists strike that closed its plants in Mirabel, St. Laurent and Dorval from April 15 to May 5, Bombardier v-p of marketing and airline analysis Barry McKinnon also declined to estimate the delivery delays likely to result from the three-week CRJ production freeze. However, during the RAA’s first-ever formal question-and-answer session with airline CEOs on the second day of the convention, executives from CRJ customers American Eagle, Atlantic Coast and Atlantic Southeast estimated their respective delays at one week, one month and three weeks.

ACA’s Moore also acknowledged that his airline has not taken delivery of another Fairchild Dornier 328JET since the manufacturer failed to deliver ACA’s 34th airplane in late March. ACA has frozen deliveries of the airplanes despite assurances from Fairchild Dornier’s insolvency administrator that the company can fulfill its delivery obligations. Moore cited uncertainties over the company’s ownership structure and support capabilities for his reticence. Meanwhile, Bombardier missed a scheduled CRJ delivery to ACA in late April, presaging a month-long lag in deliveries for the next “three or four” months.

Embraer 170’s Surprise Visit

Bombardier’s only other competitor in the regional jet market, Brazil’s Embraer, once again created the biggest promotional splash at the convention, when it removed the first 70-seat Embraer 170 prototype from its flight-test regimen for a surprise appearance at the company’s new heavy maintenance facility at Nashville International Airport. Arriving on May 14 at Embraer Aircraft Maintenance Services–formerly known as Celsius Aerotech before Embraer bought the company from Reliance Aerotech in February–the Embraer 170 remained on static display through the convention before embarking on a short North American sales tour.

Plagued with minor delays related to subassembly installations in the first prototype, the airplane will not reach the original program certification target of this year’s fourth quarter. For the first time Embraer acknowledged that the 170 would not gain certification until the end of next year’s first quarter, shifting first delivery to launch customer Swiss to next spring. Serial number 001 has flown more than 100 flight test hours, while S/N 002 has completed 38 hr during 33 cycles. Embraer expected the third prototype to join the program during the week of the convention, followed by three more by late fall.

Although this year’s convention experienced a slight decline in attendance, to 1,235 from 1,385 during last year’s confab in Tampa, Fla., RAA added a total of seven new airline members, bringing its total to 57. The new members include Delta Connection, United Express, Lookout Mountain Airlines, Pace Airlines, Rocky Mountain Airlines, Salmon Air and Seaborne Airlines. However, company consolidations and the economic lull dropped associate membership from 345 vendors to 289. The association also witnessed a drop in exhibitor numbers from 188 to 173. RAA noted that its member carriers accounted for 94 percent of the 83 million passengers transported by regional airlines last year.