Aviation Week's AVIATION DAILY The business daily of the airline industry since 1939 October 29, 2004 Vol. 358 No. 21 Copyright 2004 The McGraw-Hill Companies Inc. 1. INTELLIGENCE Airbus Celebrates 1000th North American Delivery To Northwest 2. Scope Limits Force Trans States To Start A New Airline 3. Southwest Preparing To Boost Chicago Schedule, Kelly Says 4. Aviation Daily Global Jet Fuel Watch 5. Delta Deal With Pilots Would Save $1 Billion, Cut Wages 33% 6. Nice Baggage-Handler Strike Scraps 18 Air France Flights 7. JetBlue Profit Slips 70%; Fuel, Competition Take Toll 8. UAL Narrows Loss, Warns Of More Cuts 9. US Air Reports Loss, As Unit Revenue Falls And Costs Rise 10. Delta Seeks United Rights For New Brazil Service 11. Strong Defense Growth Causes Profits To Soar At Boeing 12. SN Brussels Airlines Gobbles Up Birdy Airlines 13. SIA Achieves Sharp Rise In Profit Despite Fuel Costs 14. Mexico's Cintra To Restructure, Sell Airline Assets Next Year 15. Nuevo Continente Woes Grow As Lima-Cusco Service Canceled 16. Chart: Airline Applications For 2005/2006 U.S. - China Opportunities 17. Chart: U.S. Carriers Network Advertising Expenses, Second Quarter 2004 18. Chart: Fuel Cost and Consumption, U.S. Majors, Nationals and Regionals, September 2003 - August 2004 19. Aviation Daily's INSIGHT B/E Aerospace Financially Turns The Corner 20. Aviation Daily's INSIGHT Air Canada Close To Deal For IFE, Lie-Flat Seats 21. Aviation Daily's INSIGHT BRIEF: Thales Shipping TopSeries IFE System To Airbus For A380 22. Aviation Daily's INSIGHT BRIEF: Rockwell Collins, Independence Air Cut Deal On Avionics Support 23. Aviation Daily's INSIGHT BRIEF: General Dynamics Wins FAA OK For 150 VA 'Fusion' AC In-Seat Power Supply 24. Aviation Daily's INSIGHT BRIEF: Wencor Finishes Acquiring APS 25. Aviation Daily's INSIGHT Tiger Airways In Deal With Arinc 26. Aviation Daily's INSIGHT Virgin Atlantic Buys New Headset Jack 27. Aviation Daily's INSIGHT FAA Certifies SkyWay Server 28. Aviation Daily's INSIGHT North American To Acquire APS Units 29. Aviation Daily Staff & Contact Information 1. INTELLIGENCE Airbus Celebrates 1000th North American Delivery To Northwest Northwest today celebrates the delivery of its sixth Airbus A330-200, and the plane also represents Airbus' 1000th delivery to a North American carrier. Northwest now has 162 Airbus planes and is the second-largest operator in the world behind Air France, according to Henri Coupron, CEO of Airbus North America. Depending on delivery schedules, Northwest may take the top spot in 2005. 2. Scope Limits Force Trans States To Start A New Airline Trans States Airlines plans to start another carrier to fly aircraft with more than 50 seats to capture future growth and preserve relationships with partners that limit Trans States' flying to smaller planes. As a result of a letter of agreement between American pilots and management resolving the pilots' squabble with Chautauqua, temporarily flying 70-seat Embraer 170s as United Express, American executives have to secure agreements from Chautauqua and Trans States that the regional carriers won't fly jets for other partners that violate the 50-seat cap in American's pilots contract (DAILY, Oct. 25). "As much as we value our current partners, we also realize that many of the opportunities in the future will come from growth with larger equipment," Trans States President Rick Leach told employees in a memo. "We have a strong desire to participate in that growth...As a result, the parent company of Trans States Airlines, which is Trans States Holdings Inc. has begun the process necessary to start another airline," Leach said. He told employees the new carrier, which has a working name of New Corp Air, would fly planes with more than 50 seats. Trans States has never hidden its interest in flying larger planes (DAILY, May 3), and its other mainline partners -- US Airways and United -- have won relief from their scope restriction in their respective restructurings. The Missouri-based regional started submitting the necessary paperwork to the U.S. Dept. of Transportation and FAA to add another operating certificate and hopes to complete the process by mid-2005. Although Trans States flies Embraer ERJ-145s, the carrier is evaluating both the 70-seat CRJ-700 and the Embraer 170. The DAILY has learned that currently the CRJ-700 seems to be the frontrunner. -LR 3. Southwest Preparing To Boost Chicago Schedule, Kelly Says Southwest plans to significantly boost its capacity at Chicago Midway early next year in the wake of ATA's planned exit from the airport, revealed CEO Gary Kelly, as the airline has its eye on some of the gates that ATA will drop. Kelly's comments about Chicago give the first hints about Southwest's expansion plans for next year. Previously, the airline said it expects to add 29 Boeing 737s in 2005, which would grow capacity 10%, but it has been vague about where the extra flying will be going. Kelly told reporters in Dallas that the Midway increase "does not preclude us adding flights to Philadelphia or opening a new city" next year. Southwest has still not decided how many flights it will add at Midway during the first quarter, but Kelly said it will be "a significant increase" over the more than 140 flights it already operates there. Up to 10 aircraft will be added to Midway, which could translate into dozens of flights due to Southwest's high utilization rate. The airline has enough capacity at its existing 19 Midway gates to add up to 45 flights a day, Kelly said. However, he admitted Southwest would like at least some of the 14 gates ATA is giving up. Kelly said the City of Chicago will decide which carrier will get the ATA gates, even though AirTran hopes it will get all the facilities as part of its agreement with ATA (DAILY, Oct. 28). While expansion at Chicago has always been high on Southwest's agenda, ATA's bankruptcy filing this week is "clearly an opportunity for us to step up" operations at Midway, said Kelly. Noting that Southwest has put a lot of money into Midway, he said, "The last thing we would do now after all that effort...is not grow along with market opportunities." There is still a chance Southwest may enter the bidding for other ATA assets, including aircraft, Kelly said. While there would be some advantages to buying some of ATA's larger Boeing 737-800s, adding a new 737 model would also complicate fleet planning. Even with the Chicago move, Southwest could still add one or two more cities next year, Kelly said, particularly if its efforts to gain more Philadelphia gates are blocked. He said some cities are "under serious consideration," although an announcement would be at least six months away. By the end of the month, Southwest will be using all of the capacity at its Philadelphia gates, Kelly said. He believes the airline will be able to get more gates in the long term, but in the interim "we haven't got an absolute no, and we don't have a clear yes" on new gates at Philadelphia. Kelly also distanced himself from speculation that Southwest might try to move into the gates Delta is giving up at Dallas/Fort Worth. The risk involved would probably be greater than any reward, Kelly said. -AS 4. Aviation Daily Global Jet Fuel Watch Global Jet Fuel Prices (midpoint) as of October 28 NY Jet Barge 153.05 cts per gallon Chicago Jet 152.50 cts per gallon West Coast (LA) Jet 159.00 cts per gallon European: Rotterdam Barges Jet 155.82 cts per gallon Asia/Pacific: Singapore Kero 144.58 cts per gallon 5. Delta Deal With Pilots Would Save $1 Billion, Cut Wages 33% While relieved that Delta's pilots approved a tentative agreement that promises to save the airline the $1 billion it was seeking, CEO Jerry Grinstein warned yesterday that the carrier is clearly not out of the woods and is keeping open the option to file for bankruptcy. Delta's board was ready to approve a Chapter 11 filing if negotiations with the Delta unit of the Air Line Pilots Association broke down, but the union late Wednesday reached a tentative agreement. While all the details have not been released, the agreement calls for a 32.5% cut in pilot wages from the May 2004 rates, effective Dec. 1. There will be no contractual increase for the duration of the five-year agreement. The tentative agreement also freezes the defined benefit plan and a new defined contribution plan with a target of 49% final average earnings. There will also be a "preferential bidding system" that is a significant change from current work rules. "I can say that the new rules, while clearly a concession from today's contract, are still far superior to any other restructured airline's scheduling rules," said John Malone, chairman of ALPA's Master Executive Council at Delta, in a message to members. The agreement also gives pilots the option to buy about 30 million shares of Delta common stock, representing a 15% equity stake of the airline. "While there are no guarantees that a bankruptcy filing will not occur at some point, this tentative agreement will hopefully buy Delta additional time to continue its out- of-court restructuring efforts," Malone said. "This tentative agreement is our best alternative." The MEC ratified the tentative agreement, which will now go to the membership for ratification. Voting will open on Nov. 1 and end on Nov. 11. Grinstein yesterday acknowledged the negotiators' "hard work and good faith efforts" but warned all staff that the pilot deal is just one piece of a "complex puzzle." Bankruptcy remains a possibility, he said, as the puzzle pieces "must come together in time" to reverse the cash burn. -SL 6. Nice Baggage-Handler Strike Scraps 18 Air France Flights A baggage handler strike at Nice Cote d'Azur Airport forced Air France to cancel 18 flights on Wednesday and Thursday, union sources report. The strikers were calling for "the hiring of additional staff to meet an increased work load," said the unions. They claim that the baggage handlers' activity increased between 8% and 10% when compared with last year's winter season due to increased flight operations. -MT 7. JetBlue Profit Slips 70%; Fuel, Competition Take Toll JetBlue, which has some of the lowest costs in U.S. airline industry, could not protect itself from aggressive competition and record fuel prices in the third quarter as it recorded a 71% drop in profits to $8.4 million. The profits may slip even further in the fourth quarter, with CEO David Neeleman warning in an analysts call that he expects to report only breakeven operating results if fuel prices remain high. The carrier posted a $23 million profit in the third quarter, resulting in a 7.1% operating margin, down sharply from the nearly 20% margin last year; however, staying in the black was still an impressive feat. The slim profit was due to the carrier's ability to keep a tight lid on expenses. On a fuel-neutral basis, unit costs were down 2.4%, and even including fuel, unit costs rose only 2.5% to 6.08 cents. During the quarter, fuel price was $1.08 per gallon, up 32.7%. JetBlue has 35% of its fuel needs hedged in the current quarter and 20% next year. While there is little anyone can do about high fuel prices, management was frustrated by the operational disruptions caused by the Florida hurricanes and the rough East Coast weather, which forced the cancellation of 464 flights and cost the airline $8 million-$10 million. The storms also drove down load factor 2.8 points to 84.9%. While the carrier battled fuel costs, it also tried to fight the competition to Florida and the West Coast. Yields were 7.43 cents, down 8.8%, compared with 2003, on a 2.7% increase in average length of haul. As a result, unit revenues sank 11.4% to 6.54 cents, with some of the worst results coming from transcontinental routes. Executives noted, however, that the pressure is expected to ease, as several carriers, including American and America West, pull capacity from coast-to-coast routes. JetBlue ended the quarter with a strong $516.7 million cash balance. -SL 8. UAL Narrows Loss, Warns Of More Cuts United parent UAL Corp. narrowed its third-quarter loss to $274 million from $367 million last year, but it remains deep in red ink and issued another grim warning that it has no choice but to make more labor cuts in addition to ending its pension plans. Excluding $97 million in special and reorganization charges, the airline's loss amounted to $177 million. "Excess capacity has led to the lowest fares in more than a decade," said CEO Glenn Tilton. "This new environment, coupled with record fuel costs, means we have more work to do if we are to be successful." Revenues were up 7% to $4.3 billion, but a 5% drop in yields led to 3% lower unit revenues. CFO Jake Brace noted that the carrier's RASM was "on par with our peers," but that doesn't make it any easier as the "the pricing environment prohibits us from recouping high fuel costs." Mainline unit costs rose 1% to 9.96 cents, but the good news is that CASM fell 7% if fuel is excluded. Average fuel price for the quarter was $1.30 per gallon, up 44% from the same time last year, and the airline has no hedges in place. United ended the quarter with $1.5 billion in unrestricted cash and an additional restricted cash balance of $857 million. It made several payments while tapping its expanded debtor-in-possession financing for $503 million. Brace said the airline burned through $1 million per day on an operating basis. Because of the high fuel costs, total fuel expenses will be $1.2 billion higher than planned. The airline is working on yet another update to its business plan "based on feedback from the capital markets, the creditor's committee and other stakeholders" as it continues to readjust for the high fuel costs and weak revenues. -SL 9. US Air Reports Loss, As Unit Revenue Falls And Costs Rise US Airways yesterday reported a deep $232 million third-quarter net loss, more than double than the $90 million last year partly due to multiple operational disruptions during the period in addition to weak yields and high fuel costs. Completion rate fell to 97.3%, and the on-time arrival rate was 80.7%. Some of the major disruptions stemmed from severe summer storms on the East Coast and four hurricanes that struck Florida. It also suffered a computer malfunction that led to delays and cancellations. In total, operational problems cost the carrier $20 million. Fuel expenses jumped 29% to $1.11 per gallon. "Despite the company's best efforts to mitigate the impact, the sustained high price of fuel and the lack of any relief from record prices continue to have a negative impact on cash flow," the airline said. CEO Bruce Lakefield recently asked management to review all aspects of operations "in order to further conserve cash and [to] take appropriate action as necessary in order to remain in compliance with financing agreements." Substantially all of the company's unrestricted cash constitutes cash collateral under the Air Transportation Stabilization Board loan agreement. As of Sept. 30, $757 million of cash collateral was available, and the collateral agreement was extended through Jan. 14. Unit revenues fell 3.4% to 10.12-cents as a 1.4-point increase in load factor could not offset the 5.3% drop in yields. At the same time, unit costs jumped 5.6% to 11.59 cents. Excluding fuel and unusual items, CASM still rose 2.3% to 9.74 cents. -SL 10. Delta Seeks United Rights For New Brazil Service Delta this week continued its aggressive pursuit of United's dormant U.S.- Brazil frequencies to support plans for a new daily nonstop Atlanta-Rio de Janeiro service next year. Delta asked the U.S. Transportation Dept. in September for seven frequencies -- two that are not assigned to any U.S. airline and five of United's 14 dormant U.S.-Brazil frequencies -- to begin using them June 1, 2005, for a third direct flight to Brazil. The carrier asked DOT to make a decision before the end of the year, saying it "requires a minimum of 180 days lead time to implement the new service." United's dormant frequencies are grandfathered and not subject to DOT's current standard 90-day dormancy condition. Citing previously stated department policy, Delta said United should not be allowed to hold on to frequencies when other carriers could put them to use. United opposed Delta's request, arguing that Delta is pushing DOT "to make decisions that will influence the long-term structure of competition in the U.S.- Brazil market nine months before Delta proposes to initiate service." United offered the frequencies to Delta on a temporary basis to operate its proposed service from June 2005 until the end of the 2005/2006 winter season, but Delta dismissed the offer, reiterating its position as a "relatively recent new entrant requiring frequencies to expand the service," while United is "an entrenched U.S.-Brazil incumbent with surplus frequencies." Adding service to Latin America is in line with Delta's strategy to boost international business to offset soft domestic results. The carrier announced new seasonal service between Salt Lake City and Cancun this week (DAILY, Oct. 27) and also confirmed plans to launch a second daily Atlanta-Sao Paulo flight Dec. 1. -AK 11. Strong Defense Growth Causes Profits To Soar At Boeing Robust revenue growth in Boeing's Integrated Defense Systems business led the aerospace company to post a huge profit during the third quarter, and to boost earnings estimates for this year. Net income soared to $456 million from $256 million during the third quarter of 2003. Earnings from operations in Boeing's defense business jumped 45% to $816 million from $561 million. Although deliveries of commercial aircraft grew slightly to 67 from 65 a year ago, segment revenues fell 8% from $5 billion to $4.6 billion due to a higher number of 737 deliveries. Operating margins in the commercial airplane business jumped from 0.7% to 3.6%, and Boeing expects them to reach about 5.5% for the full year. Company CEO Harry Stonecipher told analysts that with proposals from multiple carriers, he expects Boeing to hit its 200-order target for the 7E7 this year. But he hedged the statement a bit, saying, "It's really tough digging to get these things [proposals] concluded." Boeing's cash balance at the end of the quarter fell to $4.3 billion from $6.2 billion last year. The company said the change was a result of a $1.6 billion pension contribution and redemption of $1 billion in Boeing Capital debt. -LR 12. SN Brussels Airlines Gobbles Up Birdy Airlines SN Brussels Airlines reports it has fully integrated the activities of its long- haul subcontractor Birdy Airlines, including three Airbus A330-300 aircraft and 40 employees -- "mainly pilots." 13. SIA Achieves Sharp Rise In Profit Despite Fuel Costs Amidst escalating fuel prices, Singapore Airlines (SIA) posted a S$616 million net profit (US$370 million) for the first six months ended Sept. 30, a significant turnaround from the S$7 million recorded in the same period last year. Revenue jumped 38.5% to S$1.61 billion (US$967 million). Expenses swelled 21.4% to S$906 million (US$544 million), with fuel cost accounting for 23.3%, the largest cost component. Passenger load rose four points to 73.9%, while cargo load dipped 3.6 points to 63.9%. SIA CEO and Deputy Chairman Chew Choon Seng said higher fuel prices and foreign exchange fluctuations were significant factors that affected the airline's performance. The Singapore dollar remained strong against major revenue-generating currencies, such as the British pound, the Australian dollar, Japanese yen and the Euro. Coupled with the cost savings from a weaker U.S. dollar, currency fluctuations contributed S$127 million to the group's S$638 million operating profit. During the six months, SIA took delivery of two Airbus A340-500s and three Boeing 777s, and decommissioned two 747-400s, while SIA Cargo received its 14th 747-400F. By March, SIA will take delivery of two 777s and decommission two 747- 400s. In the 2005-2006 fiscal year, the carrier will accept one 777 in May, and SIA Cargo will get its 15th 747-400F. The airline on Tuesday signed a contract to send its IT infrastructure operations to IBM Global Services. Valued at S$300 million over seven years, the agreement will take effect Nov. 18 and is expected to result in an estimated one- off payment of S$10 million and annual cost savings of about S$15 million. SIA plans to boost frequencies on Asia/Pacific routes across its network, which by the end of March will cover 60 destinations in 32 countries. Chew said air travel remains encouraging and the air cargo industry is expected to expand on the back of healthy growth in Asia, driven by expansion in China. "However, escalating fuel prices and keener competition will pose significant challenges for airlines. Competition on regional routes will intensify with the presence of low-fare airlines, and yield will come under more pressure as a result," Chew noted. Strong global demand and concerns over disruptions to the crude oil supply from oil-producing countries are pushing up fuel prices, which Chew expects to stay volatile because of "speculative trading activities in the market...Higher fuel prices may slow down the global economy and dampen demand for air transport." Despite the uncertainties and increasing challenges, Chew said the SIA Group will continue to push for strengthening its market leadership while pursuing the streamlining of costs to remain competitive. -WD 14. Mexico's Cintra To Restructure, Sell Airline Assets Next Year Mexican holding company Cintra plans to sell its major airline assets -- Aeromexico and Mexicana -- next year, Chairman Rogelio Gasca Neri said this week. To make the offering more attractive to potential investors who may already compete with the carriers, Aeromexico and Mexicana would be restructured into one group, and subsidiaries Aerolitoral and Aerocaribe into another, he said. Previously, Mexican antitrust regulator CFC (the federal commission on competition) had given Cintra a favorable opinion on the sale but withheld final authorization pending a statement of Cintra's refined strategy and a CFC ruling on whether the sale infringes on free-market competition. CFC had opposed any merger of Aeromexico and Mexicana and called for separate sale of the carriers when conditions improved in the airline market worldwide. But with both carriers recovering and registering better financial results in recent months, Cintra decided to submit its latest proposal to CFC for implementation in 2005. A web survey from Mexico City's El Universal shows that an overwhelming majority of industry leaders, analysts, air travel and cargo users and consumers welcome Cintra's change in strategy. "Good for Cintra!" said one frequent flyer, "As long as this doesn't mean higher fares." -LZ 15. Nuevo Continente Woes Grow As Lima-Cusco Service Canceled Nuevo Continente this week canceled "for operational reasons and until further notice" all of its Lima-Cusco-Lima services, one of the two trunk routes the carrier was still operating on a scaled-down schedule (DAILY, Oct. 20), sources in Lima report. The flights were canceled for "operational reasons," such as a lack of fuel; the airline has no money or credit to pay suppliers, the sources say. The canceled services created a dilemma for travel agents, who heavily book the route for vacationers. Last week, the carrier hit a bit of luck: pilots announced plans to take over equity from Vuela Peru and said they had secured a $20 million loan to run the airline from the U.S.-based Dream Sport Foundation. But even with extensive research, no one has been able to locate or contact the foundation, and the U.S. Embassy in Lima said it had no record on file for such an institution. Some local radio stations and tabloids speculate that the Zevallos family, who once owned Nuevo Continente's previous incarnation, AeroContinente, are still pulling the strings behind the scenes. -LZ 16. Chart: Airline Applications For 2005/2006 U.S. - China Opportunities To view the chart entitled: Name of chart, that appears on Page X (in Adobe Acrobat .PDF format), please follow this link: 17. Chart: U.S. Carriers Network Advertising Expenses, Second Quarter 2004 U.S. Carriers Network Advertising Expenses Second Quarter 2004 2Q04 % of Advertising CASM Total ----------------------------------- American $ 38,138,000 0.09 0.8% Domestic 24,924,000 0.08 0.7% Atlantic 5,761,000 0.10 1.1% Latin 6,028,000 0.09 0.9% Pacific 1,425,000 0.10 1.1% Continental N/A Domestic Atlantic Latin Pacific Delta 45,392,000 0.14 1.1% Domestic 35,948,000 0.14 1.1% Atlantic 7,156,000 0.11 1.2% Latin 1,839,000 0.12 1.1% Pacific 449,000 0.13 1.4% Northwest 16,204,000 0.07 0.6% Domestic 9,722,000 0.07 0.5% Atlantic 1,519,000 0.05 0.6% Pacific 4,963,000 0.09 0.7% United 46,603,000 0.13 1.2% Domestic 14,383,000 0.06 0.5% Atlantic 13,093,000 0.28 2.8% Latin 0 0.00 0.0% Pacific 19,382,000 0.29 3.1% US Airways 6,615,000 0.05 0.4% Domestic 5,407,000 0.05 0.3% Atlantic 786,000 0.03 0.5% Latin 422,000 0.03 0.3% Network $ 152,952,000 0.09 0.8% % Of Total 2Q03 % Passenger CASM Change Revenues ----------------------------- American 0.09 -4.2% 0.98 Domestic 0.09 -7.0% 0.95 Atlantic 0.09 8.5% 1.02 Latin 0.10 -7.2% 1.04 Pacific 0.09 13.8% 1.17 Continental N/A Domestic Atlantic Latin Pacific Delta 0.12 15.4% 1.57 Domestic 0.13 14.7% 1.64 Atlantic 0.10 18.2% 1.34 Latin 0.09 27.0% 1.39 Pacific 0.07 85.7% 1.62 Northwest 0.07 6.2% 0.66 Domestic 0.07 -3.6% 0.56 Atlantic 0.04 37.2% 0.56 Pacific 0.07 20.9% 1.12 United 0.11 15.6% 1.49 Domestic 0.05 18.8% 0.69 Atlantic 0.30 -6.5% 3.12 Latin 0.00 -- 0.00 Pacific 0.24 19.1% 3.56 US Airways 0.02 149.2% 0.48 Domestic 0.02 161.2% 0.50 Atlantic 0.02 119.8% 0.45 Latin 0.01 112.6% 0.35 Network 0.08 12.5% 0.98 Based on Form 41 filings with DOT. Source: ECLAT Consulting 18. Chart: Fuel Cost and Consumption, U.S. Majors, Nationals and Regionals, September 2003 - August 2004 Fuel Cost and Consumption U.S. Majors, Nationals and Regionals September 2003 - August 2004 Total Total Cost Gallons (Dollars) 2003 September Domestic 1,029,291,358 821,816,636 International 393,073,833 318,969,029 System Total 1,422,365,191 1,140,785,665 October Domestic 1,102,964,013 899,197,485 International 391,130,620 335,605,069 System Total 1,494,094,633 1,234,802,554 November Domestic 1,052,207,023 886,424,556 International 370,810,120 327,337,023 System Total 1,423,017,143 1,213,761,579 December Domestic 1,131,921,914 995,826,710 International 377,566,528 347,799,065 System Total 1,509,488,442 1,343,625,775 2004 January Domestic 1,105,178,429 1,049,824,891 International 388,321,344 386,846,286 System Total 1,493,499,773 1,436,671,177 February Domestic 1,055,572,044 1,018,715,880 International 366,962,046 372,638,671 System Total 1,422,534,090 1,391,354,551 March Domestic 1,154,124,609 1,119,728,524 International 387,275,279 397,957,827 System Total 1,541,399,888 1,517,686,351 April Domestic 1,116,794,521 1,115,231,158 International 392,403,056 405,780,076 System Total 1,509,197,577 1,521,011,234 May Domestic 1,142,173,350 1,230,109,547 International 407,706,559 448,596,007 System Total 1,549,879,909 1,678,705,554 June Domestic 1,145,766,197 1,225,241,416 International 424,904,591 477,258,979 System Total 1,570,670,788 1,702,500,395 July Domestic 1,196,808,535 1,309,778,858 International 444,288,623 505,637,436 System Total 1,641,097,158 1,815,416,294 August Domestic 1,206,363,778 1,402,410,093 International 447,187,194 540,416,464 System Total 1,653,550,972 1,942,826,557 Cents Per % Change % Change Gallon Month Year 2003 September Domestic 79.843 -3.55 4.00 International 81.147 -3.35 2.66 System Total 80.203 -3.47 3.55 October Domestic 81.526 2.11 0.95 International 85.804 5.74 -1.05 System Total 82.646 3.04 0.18 November Domestic 84.244 3.33 9.55 International 88.276 2.88 6.87 System Total 85.295 3.21 8.58 December Domestic 87.977 4.43 15.47 International 92.116 4.35 14.29 System Total 89.012 4.36 15.01 2004 January Domestic 94.991 7.97 13.64 International 99.620 8.15 10.76 System Total 96.195 8.07 12.61 February Domestic 96.508 1.60 9.30 International 101.547 1.93 6.81 System Total 97.808 1.68 8.39 March Domestic 97.020 0.53 -7.96 International 102.758 1.19 5.76 System Total 98.462 0.67 -4.41 April Domestic 99.860 2.93 20.06 International 103.409 0.63 12.20 System Total 100.783 2.36 17.59 May Domestic 107.699 7.85 41.71 International 110.029 6.40 37.54 System Total 108.312 7.47 40.65 June Domestic 106.936 -0.71 42.34 International 112.321 2.08 38.83 System Total 108.393 0.07 41.31 July Domestic 109.439 2.34 39.62 International 113.808 1.32 38.27 System Total 110.622 2.06 39.18 August Domestic 116.251 6.22 40.43 International 120.848 6.19 43.93 System Total 117.494 6.21 41.41 Due to missing or inadequate data from some carriers, System Total Consumption is understated by no more than 1 percent. Data reflect domestic and international operations. Note: Total Cost is EXCLUSIVE of taxes. Source: ECLAT Consulting Aviation Week's INSIGHT Business Opportunities in Cabin Suppliers & IFE Systems OCTOBER 29, 2004 Copyright The McGraw-Hill Companies Inc. 19. Aviation Daily's INSIGHT B/E Aerospace Financially Turns The Corner B/E Aerospace this week narrowed its net loss to $2.7 million while doubling its operating profit to $17.5 million thanks to strong sales in all three of its divisions, especially the commercial sector. "Each of our business segments is performing substantially better than the prior year," said CEO Robert Khoury. "Our continued investments in new product development are expanding our market shares, as well as our bookings and backlog." He said the company is on track to post a profit in the fourth quarter and boost revenues and earn even higher profits next year. Foreign exchange changes hurt financial comparisons with last year's results by about $1.2 million. B/E is subject to fluctuations in foreign exchange rates due to significant sales from its European office, substantially all of which are transacted in U.S. dollars, while labor and overhead costs are denominated in British pounds or euros. Despite the weak U.S. dollar, the company's gross margin for the quarter of 32.8% was sharply higher. The substantial increase in operating profits was attributed to the turnaround at B/E's commercial aircraft segment, "a broad-based increase in sales and earnings at the distribution segment, a higher level of sales of business jet products and, importantly, significant cost reductions resulting from B/E's consolidation program, which was completed during late 2003." Management believes the consolidation program is generating annual cash savings of about $60 million. Results in the commercial aircraft division were driven by "solid increases" in sales of seating products, food and beverage preparation and refrigeration equipment, as well as lower costs from the consolidation program. Earnings for the commercial division grew 95% to $11.3 million on an 11% increase in revenues. The distribution division generated revenues of $36.6 million, an increase of 39% from last year. Revenue growth was driven by market share gains and an increase in demand for aftermarket fasteners. Looking ahead, management expects the company to return to profitability in the fourth quarter. For full-year 2005, the company predicted 5%-10% revenue growth, significant "additional margin expansion" and full-year earnings per share of about 50 cents. For 2006, B/E expects an "acceleration" of both revenue and earnings growth and earnings per share for the full year of about one dollar. Khoury said revenues should grow at double-digit rates in 2006, based on recent program awards and more than $1.5 billion in requests for quotation that the company is evaluating. -SL 20. Aviation Daily's INSIGHT Air Canada Close To Deal For IFE, Lie-Flat Seats Air Canada is firming up contracts to buy a new inflight entertainment system and lie-flat seats for its fleet as part of its post-bankruptcy strategy to boost brand and image. The carrier expects the inflight entertainment to offer video and audio on demand with a choice of up to 80 hours of programming on personal television screens at each seat. "Air Canada will thus become the first airline in the Americas to offer fully interactive, personalized entertainment choices to all customers on all of its aircraft," the airline said. Introduction of the new system is scheduled to start with the delivery of new Bombardier CRJ 705s in May, and installation on the airline's international fleet is set to begin in September. At the same time as Air Canada upgrades its IFE system, the carrier also decided to go ahead with the installation of lie-flat seating for its Executive First international class. Air Canada expects to introduce lie-flat seating across its international fleet as early as September. As with the IFE system, the selection of the manufacturer will be announced after the contract is signed. -SL 21. Aviation Daily's INSIGHT BRIEF: Thales Shipping TopSeries IFE System To Airbus For A380 Thales recently started to ship the first sets of its TopSeries inflight entertainment system to Airbus for installation on the manufacturer's A380 test aircraft. The milestone came after Thales built the world's largest A380 IFE test lab in its Irvine, Calif., Technical Center. In August, Airbus representatives visited the Irvine facility and the airframer issued its approval letter, which confirmed that the TopSeries i-5000 system passed the "Line Units Acceptance Review." Airbus will finish installing the TopSeries system -- the first IFE system to fly on the new aircraft -- by July 2005. 22. Aviation Daily's INSIGHT BRIEF: Rockwell Collins, Independence Air Cut Deal On Avionics Support Rockwell Collins recently signed a deal with Independence Air to service and support the avionics on the airline's 28 Airbus A319s. Under the 10-year agreement, Collins Aviation Services will provide Independence Air with maintenance support at a set price per flight hour, billed on a single monthly invoice. In March, Independence Air selected Rockwell Collins to provide the avionics for the new A319s. The carrier had been expected to place the aircraft in service Nov. 3 but likely will delay the launch as it is still conducting proving runs for certification 23. Aviation Daily's INSIGHT BRIEF: General Dynamics Wins FAA OK For 150 VA 'Fusion' AC In-Seat Power Supply General Dynamics recently won FAA approval to deliver 150 VA in its new EmPower AC "Fusion" in-seat power supply (ISPS) on Airbus and Boeing aircraft. Two major Asian airlines -- Asiana Airlines and Air China -- began taking delivery of the system in May. General Dynamics has more than 170,000 seats installed with in-seat power. The Fusion ISPS weighs about one-half pound less than competing models yet provides 50% more power, the company says. The new power supply, which meets Airbus, Boeing and industry specifications, including "variable frequency" of 360 to 800 hertz (cycles per second), is being adopted by Airbus for the A380 and Boeing for the 7E7. 24. Aviation Daily's INSIGHT BRIEF: Wencor Finishes Acquiring APS Wencor this week finished acquiring APS, a top supplier of portable video-on- demand (VOD) personal entertainment systems. Tacoma, Wash.-based APS will become a wholly owned subsidiary of Wencor. Wencor will market APS's DigEplayer and give APS more engineering resources "to accelerate the development of additional models built around the VOD entertainment market," said Wencor CEO Brent Wood. Wencor claims to sell products to 48 of the 50 largest airlines in the world. APS has a 90% market share of the portable VOD market, and four more unidentified airlines will provide DigEplayers to their customers, starting Nov. 1. APS video products also will fit into Wencor's further penetration into the regional and business jet marketplace, the company said. 25. Aviation Daily's INSIGHT Tiger Airways In Deal With Arinc Singapore-based Tiger Airways will install Arinc's new GlobaLink data service on the airline's Airbus A320s under a five-year contract with Arinc. Under the deal, Arinc will provide the airline with ACARS (Aircraft Communications Addressing and Reporting System) service on the GlobaLink/VHF data link network. Some Tiger Airways aircraft will also use the HF service for data link communication over ocean routes and geographically remote areas. Tiger Airways launched service to Bangkok, Phuket and Hatyai in September and plans to fly to as many as 10 destinations in its first year and 15 in its second year. The airline's business plan targets destinations within a four-hour radius of Singapore, and the company anticipates 25%-35% passenger growth in each of the next five years. -SL 26. Aviation Daily's INSIGHT Virgin Atlantic Buys New Headset Jack Virgin Atlantic signed a deal with Inflight Peripherals to buy the company's "Rapid Fit" headset jack module to save maintenance costs. The "Rapid Fit" system allows a broken headset jack to be repaired in a few seconds -- rather than minutes -- by replacing a slide-in cartridge. "Apart from the obvious cost savings that Virgin will derive from the ability to fix these units quickly and cheaply, this product will improve the overall IFE seat availability to Virgin passengers," said Geoff Underwood, managing director of Inflight Peripherals. The initial order will be for five aircraft with installation beginning in December. -SL 27. Aviation Daily's INSIGHT FAA Certifies SkyWay Server SkyWay Communications recently won an FAA Supplemental Type Certificate for its media and entertainment server, which gives the company exclusive rights to manufacture, install, upgrade and repair the company's servers. "The certification of SkyWay's servers is a significant step as we begin the process of installing and supporting our first customers," said President Brent Kovar. The media server can play infomercials and advertising that aims to bring in additional revenue for its airline clients. The media server also stores and plays the "moving map," which visually shows the passengers the location of the aircraft at any given time. "This certification is one of the final pieces of our airborne equipment system," said CEO Jim Kent. He added that the company is on track for certification of its other equipment. -SL 28. Aviation Daily's INSIGHT North American To Acquire APS Units North American Airlines inked a deal to buy the APS digEplayer 5500 units for its new flights from Oakland to Hawaii. The flights will start in November and the digEplayer will be available for rent to passengers for $10 per flight. The self-contained, portable units will offer movies, music and customized programming. "We believe that because the digEplayer is portable and not embedded into the planes, the fuel savings for North American will be immeasurable," said APS Chairman Bill Boyer. -SL AVIATION DAILY'S INSIGHT, an AVIATION DAILY Extra Editorial Staff: Adrian Schofield, ATM; Alfhild Winder Managing Editor; Jim Mathews Editorial Director 29. Aviation Daily Staff & Contact Information Editorial and Circulation Offices 1200 G Street N.W. - Suite 900 Washington, D.C. 20005 http://www.aviationnow.com/bis Editorial: Tel 202-383-2374 - Fax 202-383-2438 mailto:AviationDaily@AviationNow.com Circulation: Tel Tel 866-857-0148/609-426-7070 - Fax 202-383-7956 mailto:awgnews@mcgraw-hill.com U.S. Editorial Staff: Jim Mathews Editor-in-Chief Alfhild Winder Managing Editor Steven Lott Assistant Managing Editor Kimberly Johnson Airports Editor Angela Kim Agencies Editor Denise Marois National Political Correspondent Lori Ranson Aircraft & Equipment Editor Adrian Schofield FAA/Labor Editor Annette R. 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