Bad Math

“Lots of folks have bought into the myth that raising $1 in taxes brings in $1 in revenue and that raising taxes on the rich will allow the government to pay down the deficit.  People buy into this flawed [static analysis] naiveté because politicians that believe in big government, and benefit from it, make campaign speeches about it.”  So writes Vaughn Cordle of AirlineForecasts, LLC.  Vaughn is an airline analyst who frequently appears on CNBC and other TV business media, including in The Wall Street Journal.  (Full disclosure, Vaughn is a member of The Aviation Group.)  His recent newsletter to his clients, How Big Government Spending Impacts The Economy and Airlines explains why the current Administration is using bad math and gives an example explaining how the Administration’s tax policy will affect Delta Airlines – their bottom line and their ability to create jobs.

Vaughn occasionally strays from airline analysis but sticks with aviation.  A few years ago he predicted the failures of the very light jet charter companies like Day Jet, and even the Eclipse, the aircraft upon which these failed companies’ business models were built.  He went toe to toe with Bob Crandall, the celebrated retired CEO of American Airlines, debating the dubious outcome of his proposed very light jet air taxi startup Pogo.  Bob had teamed up for this venture with Don Burr.  Remember People Express?

In his newsletter he points out that. “As a group, progressives and liberals are great when it comes to helping the poor and working to improve the public safety net, but they don't do math very well and apparently don't consider [or understand] dynamic analysis, which takes into account how the economy is likely to respond to changes in tax policy.”  He says the current White House's budget proposals would:
•     Reduce the rate of economic growth
•     Result in lower employment
•     Reduce personal savings
•     Reduce disposable income
•     Reduce consumer spending
•     Result in higher interest rates

He points out that “Bush came into office in 2001, the year of 9/11.  Federal receipts, outlays and surpluses or deficits are a function of the economy.  So, it's best to view these variables as a percentage of GDP.”  

Average federal receipts / average outlays / deficits as a % of GDP:
Bush years [2001-2008]: 17.6% / 19.6% / -2%   
Obama years [2009-2012]: 16.1% / 24.6% / -8.5%

As for Delta Airlines, Vaughn says, “If Obama's tax policies are allowed, it would reduce Delta's top line revenue around 1%, operating earnings 12%, but bottom line "net" earnings around 20%. This would result in a lower market value of equity, a higher cost of capital and a big hit to shareholder returns for all of those retirees, shareholder employees and other average Americans that hold stock in airlines.  Effectively, Delta would have less capital to spend and hire new employees because it will be less profitable. This is the same for all other businesses, small and large, that will be negatively impacted by a foolish tax policy designed to support a size of government that the economy simply cannot afford.”

Before he buried his head in numbers, Vaughn could be found in the left pilot seat of a major airline flying international routes.

The Three Year Tsunami

It was in the fall of 2007 when the worst case of prosecutorial excess struck the general aviation industry.  But it was the week of June 7, 2010 that the final nail may have been driven into the coffin of one of the most bizarre and saddest stories in general aviation history.

In 2007 TAG Aviation, USA/AMIJC had become the largest, safest, and probably the most highly respected aircraft management/charter company in the United States if not the world. Aviation Methods, Inc. was founded by Roger McMullin, Duncan Higgins and Jim Markel some thirty plus years ago.  Jake Cartwright, who later would become CEO of TAG Aviation, USA was an early partner of McMullin and company.  In 1998 the company was sold to TAG Aviation, a Swiss company controlled by the Ojjeh brothers, who had been early clients of AMI. Therein lay the rub.  The Ojjeh’s were Swiss citizens.  An archaic U.S. law forbids foreign nationals from owning a controlling interest in a U.S. air carrier.

TAG Aviation USA was a division of TAG Aviation, a global company that today operates the London Farnborough Airport and is actively engaged in aircraft management in Europe and Asia.  For almost ten years TAG Aviation, USA operated under an arrangement whereby AMI, which was majority owned and controlled by U.S. citizens, was the air carrier/charter operator for US-based TAG-managed clients seeking Part 135 charter.  The FAA was fully aware of this arrangement and frequently audited the company’s operations, as did the DOT, which conducted their own audit in 2004. In 2007 an aggressive lawyer at the FAA, decided the arrangement was not legal, and despite TAG’s perfect safety and operations record, revoked their air carrier certificate, and assessed the company a $10 million fine, the largest FAA fine in history.

What was left of TAG Aviation, USA’s assets were sold in early 2008 to JetDirect Aviation, a charter/management roll-up which operated under the Sentient Jet card banner and was directed by Sentient executives. This new amalgamation could not handle the influx of more than 100 business jets to their operations, and sold the Sentient charter division in an attempt to salvage the management business under the JetDirect brand. But it was to no avail, as JetDirect declared bankruptcy in early 2009, stiffing employees, customers, and vendors.  A third resurrection, under the name of Wayfarer Aviation, was attempted by Robert Pinkas of Brantley Partners.  Wayfarer was the name of another highly regarded aircraft management company started by the Rockefeller family.  (The original White Plains-based Wayfarer Aviation had been acquired by TAG in 1999.)  This effort, too, failed, and Brantley investors removed Pinkas from any management of Wayfarer.  

Most recently Arcadia Aviation, a relatively new company, has signed a binding letter of intent to acquire “certain assets”, which can only mean the “10 or more” Part 135 air carrier certificate of Wayfarer.  Arcadia acquired two very small FBOs at, Martinsburg, VA, and Monticello, NY.  Monticello is in the Catskill Mountains near the site of the infamous Woodstock Festival held during the summer of love.  Neither of these are centers of business jet activity.  But Wayfarer’s customers could use some love.  We will have to wait and see if this deal closes.  Is this the end of the story?  Stay tuned.

For more on this disaster see General Aviation Tsunami and The Debacle Story Continues.

The Need for Speed

We now live in the fast lane.  Snail mail is now e-mail.  Fast-lanes for commuters are becoming ubiquitous.  High speed rail, if not yet a reality in the US, is on the tip of our tongues.  But with advent of enhanced security and the scrapping of the Concorde, the speed of air travel has declined.

Bill Garvey in his, as usual excellent, editorial in the June issue of Business & Commercial Aviation, Studebaker Time, reminds us that it has been 63 years since Chuck Yeager pushed the Bell X-1 faster than the speed of sound and became celebrated as the first human to do so.  Except for the Concorde, a technological triumph and an economic disaster, as Bill correctly describes this British and French bird, civilian air travel has been restricted to subsonic speed.  He suggests that a business jet may be the first to make supersonic travel possible in the next ten years.

Behind Yeager’s well-known tale of his famous flight in the X-1, there is a little known story about a man who may have reached the other side of the “sound barrier” before Yeager.  There is substantial evidence that George Welch, a civilian North American Aviation test pilot, exceeded the speed of sound in an XP-86 the week before Yeager did.  My good friend Al Blackburn’s book, Aces Wild, the Race for Mach 1, tells the story of pilots who explored this unknown region of flight in the Mojave Desert in the fall of 1947.

George Welch was an Army Air Corps fighter pilot who shot down at least four Japanese aircraft as they attacked Pearl Harbor.  Some records say that Welch should have gotten credit for six kills that awful morning, but there were no gun site cameras to record the action.  George would have needed only one camera as one gun jammed.  He decimated the enemy aircraft with only half of his weapons!

After the World War II, Welch joined North American Aviation, the company that designed and built 17,000 T-6 Texans.  Almost all military pilots in the 40’s and early 50’s received basic training in the T-6.  The two most successful combat aircraft developed by North America were the P-51 Mustang and the F-86 Sabre.   The latter was the first swept wing jet fighter and dominated the sky during the Korean War.

While test flying the XP-86, Welch would routinely create a ba-boom over the famous, or infamous, desert watering hole, Pancho’s.  All the while Bell engineers and Yeager were furiously trying to get the X-1 in flying condition.  The X-1 was a single-purpose rocket ship that could not take off by itself, but was carried aloft by an Air Force B-29 bomber.  The government had spent millions on the X-1 trying to prove supersonic flight was possible despite the fact that Nazi V-2 rockets exceeded Mach 5 thousands of times years before.  Stuart Symington, Secretary of the Air Force, determined that the V-1 should be the first over the Mach 1 line, directed North American Aviation to keep the gear down on XP-86 test flights.  Welch ignored the orders, proving there was no such thing as the Sound Barrier.

There’s a Trail for That

The Department of Transportation’s mission is to "Serve the United States by ensuring a fast, safe, efficient, accessible and convenient transportation system that meets our vital national interests and enhances the quality of life of the American people, today and into the future."  Under the DOT is the FAA, the Federal Highway Administration (FHWA), the Federal Railroad Administration (FRA), The Federal Transit Administration (FTA), and the Federal Maritime Administration (FMA).  So now maybe we will have under the DOT: FAA, FHWA, FRA, FTA, FMA and be adding FBA, the Federal Bicycle Administration, to that alphabet soup.

Recently Transportation Secretary Ray LaHood, who likes to ride his bike in Washington’s Rock Creek Park on the weekends, has decided that the government is going to give bicycling the same importance as automobiles in transportation planning and the selection of projects for federal money.  A manufacturers' blog called the policy "nonsensical."  One congressman suggested LaHood was on drugs.

Shall we have runways or bike trails?  You decide.  You can vote now at Hangar Talk or next November when it really counts.

Go Girls

I watched Angela Braly’s testimony before Congress and could not help drawing the contrast to the testimony two years ago by the automobile CEO’s trying to explain their corporate jets in a similar setting.  Braly, CEO of WellPoint, a large health insurance company, was there to explain their recently announced rate increases.  She was polite but took a firm position defending her company.  When asked what her compensation was, she answered in detail explaining her salary, and all benefits, never looking at a note.  Her inquisitors, the congressional members, as usual looked foolish trying to be tough and get sound bites for the home town media.

I grew up in an age when the sexes were separated almost from birth.  After third grade and through college, I never had a class with a girl in it.  Now it is hard to find a single sex school or college.  My youngest daughter graduated two years ago from Washington & Lee University, which was all male until the 1980s.  Now I am told there are so many bright girls (sorry, I guess I should be saying women) that apply that the boys/men feel disadvantaged.

So when I see a bright attractive woman, there I got it right, dishing it back to some cranky old men, I say “Go Girls!”

Golfers, Gentlemen, and Pilots

I first met Russ Meyer 30 years ago when I was selling Cessna airplanes. Russ often gave me a ride to Wichita in a Citation when I was picking up a small Cessna to ferry back to Virginia. At one point he told me about his friend Arnold Palmer and how Arnold always bought the first of every new Citation model.

Russ met Arnold Palmer when he was a young lawyer at IMG, the powerhouse sports management firm. You can read more about this long Palmer/Meyer relationship in the February edition of Business Jet Traveler by clicking this link.

This is a great story, but what it doesn’t tell you is that Russ Meyer is a scratch golfer. Both of these men have been my heroes for years and I have dreamed of being on the golf course with them. That will never happen, but being in the cockpit with half the team has and is something I will never forget.

Note: I wrote about Russ Meyer in my Summer 2009 Newsletter when he was inducted into inducted into the National Aviation Hall of Fame along with Jimmy Stewart, and astronauts Ed White and Eileen Collins. Every living astronaut was there to honor Russ and the other inductees.

The Debacle Story Continues

In November of 2007 I posted an article, The General Aviation Tsunami.  That story was only the beginning of the disaster to come.  Hundreds of jobs were lost and over $100 million of invested capital became worthless.  Two highly regarded companies, TAG Aviation USA and AMI Jet Charter, were decimated by one of the best examples of over regulation and malicious prosecution by the Federal Government.  Supposedly the revocation of the operating certificate of AMIJC, a company with a perfect safety record for 10 years, was done in the name of safety.

Recently, Bill Garvey, editor of Business & Commercial Aviation magazine, tells the story in an excellent article, Lessons From a Debacle.  Bill says, “Now that emotions have calmed slightly, it’s time to consider what it all meant.”

I was reminded again this week about the injustice of the FAA when I read a story in the Wall Street Journal about the FAA’s plan to fine American Eagle, a unit of American Airlines, $2.9 million for a safety violation involving over 1,100 flights.  The FAA fined AMIJC $10 million, the largest fine ever, for ceding operational control of their charter flights to a foreign corporation who was an AMIJC minority investor. That investor was TAG Aviation USA, a highly experienced aircraft management company owned by a Swiss organization.  This fine was paid in full.  It is highly unlikely American Eagle will pay anything close to $2.9 million as fines like this are always appealed and substantially reduced.  AMIJC never had that chance – when they tried, the FAA simply revoked their certificate, laying waste to the company’s future.

My emotions haven’t calmed, even slightly.

Is NextGen Dead?

Maybe Not

Those who know me well and those who follow this blog know that I have been a long-time advocate of moving the Air Traffic Control away from the operational control of the FAA and making it an independent self-sustaining organization.  Today our large complicated and antiquated ATC system is dependent on the whims of Congress and the Administration.  Four of more times Congress has failed to approve a budget for the FAA.  In the State of the Union address the President proposed a budget freeze, which I initially thought NextGen, the long overdue remaking of ATC, would be pushed even further into eternity.  However, just two weeks later the White House asked Congress for a $1.14 billion budget in Fiscal Year 2011 for NextGen, a 31-percent increase from the FY 2010 figure.  There will be a lot of debate on the budget so stay tuned.

My friend Bob Poole recently asked me to review and comment on an article he has written on NextGen that will be published in the March issue of Professional Pilot magazine.  Bob is the founder of the Reason Foundation, a public policy think tank, and has for many years advised Administration officials of both parties on transpiration issues, especially ATC and airport security

Bob makes the case for the many advantages of NextGen.  But he also lays out the complications of making it happen.  The technology is here today and in a perfect world every airplane could fly the best route and takeoff on and land on time.  Fuel burns and carbon emission would be reduced.  No one disagrees on these points, but on funding NextGen there is little agreement.  Understandably the airlines and business aviation is not willing to pay for the expensive new equipment that is necessary to fly in a NextGen system until they are assured that NextGen will be in place on a date certain.  Too often the aviation community has made the investment and seen some new FAA driven technology fail to be developed or pushed far into the future.

Over ten years ago Canada “depoliticized” their ATC system, which was a part of Transport Canada, the equivalent of our Department of Transportation. Unshackled from their government except for safety regulation, the independent and not-for-profit NavCanada jumped far ahead of the United States in ATC service and technology – not quite NextGen, but they are moving rapidly in that direction.

Is it possible that the debate over the budget freeze could finally push the unshackling of the U.S. ATC system forward and create for our country what every other non-third world nation has?  An ATC system that pays for itself and operates as any high tech business should.