Vol. 9  No. 78                                                     WE COVER THE WORLD                                         Friday June 25, 2010

CO Summer Sizzle

     Just as Summer 2010 gets underway, the proposed merger between UAL & CO is heating up like the warmth of the sun.
     At hearings in Washington, D.C. last week, the U.S. Congress and airline executives heard at least one influential lawmaker say that he is not at all thrilled at the prospect of one less USA flag carrier or one more mega-airline.
     Rep. James Oberstar, D-MN., Chairman of the House Transportation and Infrastructure Committee, opposes the merger (and is from the state that once housed the world headquarters of Northwest Airlines, before NWA was swallowed by Delta last year) and was not afraid to let it rip:
     "You guys hate competition.
     “You want to be the competitor that dominates the market."
     The merger, he said, would leave "little choice for passengers, little choice for cities and little choice for competition."
     "Hardly a day passes where I don't walk out on the (House) floor that someone asks me, 'When are we going to re-regulate the airlines?'" Oberstar told reporters after the hearing.
     Continental CEO, Jeff Smisek, countered: "This is a brutally competitive industry. It is today and will be after this merger."
     Oberstar is adamant in saying if the merger is approved, he will seek to re-regulate the U.S. airline industry to protect consumers.
     Legislation toward federal regulation of airline pricing would re-establish an atmosphere similar to the Civil Aeronautics Board, which was shut down by Alfred Kahn who chaired CAB during the Jimmy Carter Administration in 1978.
     Until that point, CAB set standards for companies trying to enter the airline market and decided on a case-by-case basis which companies should be granted permission to fly passengers
     While a rebirth of pre-1978 era airline business, when carriers existed in a ‘print your own money’ type atmosphere, may seem a bit far-fetched, never say never—the prospect is out there.
     USA Today quoted well-respected aviation expert Aaron Gellman, who has spent 40 years in and around the airline industry:
     "Concentration in any industry leads to higher prices," says Gellman, an economist who teaches at Northwestern University in Chicago.
     USA Today also quoted an economist at Northeastern University in Boston who said:
     "It's fair to say that the short-term effect on routes where merging carriers already compete ... is that fares increase.
     "But that's only in the short run.”
     By the numbers, United is currently the third-largest USA flag, with Continental as fourth.
     The two together are forming a carrier that will be bigger than Delta Air Lines.
     ‘United,’ the merged über airline, was proposed May 3 by United CEO Glenn Tilton and Continental CEO Jeff Smisek, and would be a $30 billion a year dynamo with 70,000 workers and a fleet of about 1,600 bigger and smaller aircraft serving 370 destinations in 59 nations.
     Most significantly, according to the airlines the new combine could “generate an extra $800 million to $900 million a year in revenue by 2013 by offering the broadest global travel network in the world.”
     The USA Justice Department needs to decide if a new United would reduce competition, allowing the big carriers here network freedom to drastically raise fares.
     As to whether UAL & CO will eventually merge, bets are that the union will be approved with well-respected politician, Sen. Kay Bailey Hutchison, D-Texas, saying last week that she thinks the combination will move forward.
     Meantime, the high stakes game of attempting to influence the final outcome continues while also in the wings are Southwest, JetBlue, Spirit, AirTran, Virgin America, Alaska and some others, which brings forward a quick last point.
     Anyone who thinks that there will never be another airline is simply not paying attention.

Fraud Touches Many Businesses

     A new survey says that global business fraud is up, despite a decline in fraud among U.S. businesses. Enforcement remains a priority worldwide.
     “The majority of executives believe their boards are not sufficiently prepared to deal with the new risks related to fraud and corruption as companies return to growth,” reveals Ernst & Young in their 11th Global Fraud Survey, ‘Driving Ethical Growth – New Markets, New Challenges.’
     Issued last month by E & Y’s Fraud Investigation & Dispute Services, the report notes:
     “In addition, more than three-quarters of executives believe their boards are increasingly concerned about their personal liability from fraud, bribery and corruption.”
     Ernst & Young’s biennial survey, which includes responses from more than 1,400 CFOs and heads of internal audit, legal and compliance in major corporations in 36 countries, states that from a global perspective, corporate boards in Latin America (95%), the Middle East and Africa (87%), Central and Eastern Europe (84%) and Australia (81%) are particularly concerned about their personal liability for the companies’ fraud, bribery or corruption.
     While 72% of directors in North America are concerned about these risks, the survey reveals that U.S. boards are asking more questions about bribery and fraud than their global counterparts.
     “We found that U.S. companies are asking the CFO for reviews of anti-fraud, bribery and corruption at a much higher rate than in other regions,” said Jeff Taylor, America’s Leader of Ernst & Young’s Fraud Investigation & Dispute Services.
     “At the same time, we also saw that, even as incidents of fraud have risen globally in the past year, they have dropped in the United States.
     “These requests are being taken seriously as personal liability, not just the potential financial impact to the company, has become a great concern among senior level executives when it comes to instances of fraud.”
     Ernst & Young says that globally, 16% of companies report experiencing an instance of fraud over the past two years.
     “In the U.S., however, only 9% of companies report experiencing an instance of fraud—a decline from 15% in the U.S. two years ago.
     Western Europe is one region where a growing number of companies have experienced an instance of fraud– rising to 21% from 10%.
     This difference may be attributed to the fact that U.S. companies are more diligent about assessing risk than their global counterparts—82% of U.S. corporations say they have carried out a fraud risk assessment in the last 12 months, compared to only two-thirds of companies globally.
     “As companies emerge from the downturn, many are looking for new ways to grow, focusing on emerging markets around the world.
     “These efforts, however, can expose companies to numerous new risks, particularly corruption issues resulting from overseas acquisitions.”
     Ernst & Young advises:
     “To minimize such risks during expansion, businesses should conduct thorough, focused pre-acquisition due diligence activities.”
     According to the survey, U.S. companies were among the most thorough, while 30% of respondents globally say they rarely or never conduct such procedures. The figures for post-acquisition due diligence raise even greater concerns, with 42% of respondents admitting that they rarely or never conducted such procedures.
     “Our survey shows that U.S. companies are among the most rigorous when it comes to conducting due diligence, an essential step in reducing the risk of successor liability.
     “This most likely stems from the strong enforcement activities and messages being delivered by U.S. regulators and enforcement agencies,” adds Taylor. “However, as U.S. companies expand into new markets, to improve performance and remain strong in the new economy they must remain vigilant in their due diligence and reporting efforts during all merger, acquisition and expansion opportunities.”
     Looking forward, Ernst & Young reports that “more than half of the North American compliance officers see data security as the most significant compliance concern in the next 18 months, followed by concerns over unethical business conduct and health and safety.
     “In addition, nearly half of the legal departments in North America are concerned about the high price of e-mail review.
     “In response, 61% have implemented a records management program or plans designed to reduce the cost of future e-mail reviews—almost twice that of any other region.”

Charlotte Gallogly

Lisa Wilczek

Batool Hussain Ali

Budoor Al Mazmi

Air Asia X Talks Cargo

     For Malaysian low-cost airline Air Asia, every avenue that brings in revenue has to be explored. So it is with cargo.
     Well aware that cargo can be a major revenue-generating channel, Air Asia is optimizing the potential of its otherwise empty belly space to bring in cash by offering cargo services at rates considerably lower than its competitors and by tapping into its own extensive network and flight frequencies to reach more destinations and achieve faster delivery time. The carrier expects its cargo revenue to grow by more than 40 percent from last year.
     During his visit to Delhi to announce the launch of direct flights from Delhi to KL beginning in August this year, Azran Osman-Rani, Chief Executive Officer, Air Asia X, the low-cost, long-haul associate of Air Asia, told Air Cargo News FlyingTypers that he was optimistic about the cargo business.
     “Cargo may not be part of our business,” said Osman-Rani, but “we will stay there.” Conversant with the business from India, the CEO pointed out that “we have been utilizing our belly space.” He gave the example of Tiruchirappalli (or Trichy, as it is popularly known), one of the southern Indian destinations that Air Asia touches twice a day.
     “In Trichy,” said Osman- Rani, “the number of consignments of onions and vegetables, etc. going to Malaysia is huge.” When questioned about the quick turnaround that is the lifeblood of all low-cost carriers, Osman-Rani said, with emphasis, “It can be done. We have figured out how to complete our turnaround even in the short turnaround time that we have. Ours is efficient management. We get everything ready and we do it.”
     The CEO also mentioned that Air Asia has been changing all the accepted rules in the aviation business. “The problem with the aviation industry is that just because someone initially said you cannot do cargo turnaround or you cannot do long-haul, it does not mean that we have to follow suit. We have figured out how to do a quick turnaround and we are doing it. In fact, we are earning good money,” said Osman-Rani.
     ACNFT learned that Air Asia has been strengthening its cargo operations as one of the means to protect its bottom-line against fluctuations in fuel prices. It has been tying up with cargo agents and large export-import firms in the markets that it reaches to ensure a steady supply of goods. The carrier has also been touching markets well beyond its current route network through other airlines with which it has Special Pro Rate agreements.
     These airlines extend Air Asia’s reach to more cities in East Asia, the Middle East, India and Africa. The carrier has short-haul and long-haul flights on 132 routes to ASEAN (Malaysia, Indonesia, Thailand, Cambodia, Myanmar, Laos, Vietnam, Singapore, Brunei and the Philippines), mainland China, Hong Kong, Macau, Taipei, India, Bangladesh, Sri Lanka, UAE, Australia and the UK.
     Air Asia has been touching more destinations, but its focus is on South Asia. Last year, the carrier started touching three more Indian cities—Kolkata, Thiruvananthapuram and Kochi—in addition to Tiruchirappalli, Dhaka and Colombo.
Tirthankar Ghosh

Ask The Man Who Flies One

     If you have a hankering to own a genuine World War II war bird and a few bucks to spend, then Saturday, July 31, 2010 could be a red-letter day for you! The Spirit of Aviation EAA AirVenture 2010 in Oshkosh, Wisconsin USA will be auctioning an N49JC Grumman FM-2 Wildcat built in 1943.
     In terms of historical significance, the Wildcat was the airplane that carried the day at The Battle of Midway when less than a half hour sealed the fate of the Pacific War.
     Opening bid is $690,000 and the aircraft can be inspected starting July 26.
     Built by the Eastern Aircraft Division of General Motors and one of 7,885 Wildcats of all variants built in the world, N49JC was sold in 1946 to Hardwick Aircraft.
      The aircraft was totally rebuilt in 1973 and flown civilian until 1978, when it was placed on display at the U.S. Navy Museum in Pensacola, FL. It was preserved in the museum until August 1994.
     It was then removed from display and after an extensive inspection returned to service. We are not sure if that descriptive word “service” means that N49JC has been off strafing the landscape somewhere in the meantime, but you might want to check that out.
     This slightly used Wildcat moves at a maximum speed of 322 mph and has a service ceiling of 35,600 ft.
     Imagine all the J2 jockeys you can scare the hell out of!
     Happy Bidding!

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