THE INTERVIEW: AVIATION ASSET MANAGEMENT CEO GLEN LANGDON! (PART 3 OF 3)

______

MM: That's a little too much physical risk for me, Glen. Let me ask you "The 64 Million Dollar Question" if I may. The commercial aviation industry in the U.S. is an absolute financial mess. Who will survive and who will fail? We have so much over-capacity, at least four airlines (Delta, Comair, Northwest and Mesaba) are operating under Chapter 11 Bankruptcy protection. What are your predictions?

_____

Langdon: Let's focus for a moment on some of the economic effects of the events of 2001. Obviously there was a disastrous decline in traffic and in airline profitability. Among the very obvious effects were the bankruptcies of 2 of the 7 largest airlines in the U.S. - United Airlines and US Airways (US Airways emerged from Chapter 11 in September 2005, and United emerged in February 2006). Not so obvious was the diversion of 30% of the passenger traffic from the large network carriers to Low-Cost/Low Fare carriers like Southwest and Jet Blue and the profitability of these carriers under very difficult economic circumstances. The low cost business model has caught the attention of the hub & spoke carriers (the "Legacy Carriers" such as American, Continental, Delta, United and Northwest) as they scramble to reduce their operating costs to match their reduced revenue potential before they run out of cash. The struggle to reduce labor costs has been foremost on the minds of the large network carriers, in addition to efforts to reduce fleet size and simplify fleet types. United and U.S. Airways both achieved this from within Chapter 11, using the threat of Chapter 7 (shut down and liquidation) as a weapon. American and Continental have chosen, for the moment, to avoid Chapter 11. In the wake of 9/11 it was reasonable to expect that as the economy stabilized and as fears of terrorism receded, the demand for travel would rise and used aircraft prices would recover over 2 to 3 years.

_____

MM: It went from bad to worse, didn't it Glen?

_____

Langdon: It did! As a result of the continuing threat of terrorism, combined with the war in Iraq and Afghanistan and the bankruptcies of major airlines--here in the United States and elsewhere including SAS (Scandinavian Air System), Hawaiian (emerged from Chapter 11 in 2005) Air Canada (emerged from Chapter 11) and Sabena (the Belgian airline was shockingly liquidated along with the equally legendary Swissair of Switzerland following years of bad management and a failed merger of Sabena and Swissair). The perception of "normal" airline traffic is also changing fundamentally in US-related markets. The business traveler has become tired of paying through the nose for an insufficiently differentiated product that can be purchased at substantially reduced costs by traveling on Low-Cost/ Low-Fare like Southwest, AirTran and JetBlue. So what if they have to change planes half way to the destination? The leisure traveler typically only wants low fares and some rational choice concerning travel dates and might conceivably consider riding a duck to his or her destination if the fare was low enough and some assurance of safety could be given! The press has been treated to daily announcements of labor's concessions to the reality of the bankruptcy process and the desperate need of the airlines to reduce labor costs. As a result of fleet rationalization by United Airlines and U.S. Airways alone, the availability of jet aircraft for sale or lease will probably notch up another 2% to 9% - to roughly 1,350 aircraft - which is where it was just prior to 9/11. The other large US legacy airlines including American, Delta, Northwest and Continental to a lesser degree...

_____

MM: Yes, a well run company! (Continental).

_____

Langdon: ....will probably be forced to restructure their operating costs and downsize their fleets in order to remain competitive with the reorganized, leaner, and smaller versions of United and US Airways (merged with America West as the 5th Largest carrier in the United States and is profitable). Between them, these four airlines currently operate 2,280 aircraft; they have 267 new aircraft on firm order with Boeing and Airbus; and they have 868 options to purchase additional aircraft. Conservatively, these airlines will probably have to retire 15% to 20% of their current fleets to stay in the game. Both business models are expected to survive.

_____

MM: I hate to sound skeptical, Glen. But can't we right-size to three "Legacy Carriers" (that would fly international) ---whoever that will be---and three Low-Cost/Low-Fare domestic carriers? As I say to everyone on "THE INTERVIEW", the floor is yours.

_____

Langdon: Sure. The continuing evolution of the Low Cost/Low-Fare Carrier model will keep the pressure on the network carriers to significantly reduce their costs and to differentiate their product to match the market demand. In the short term, the network carriers will focus on liquidity as the key to survival - in or outside of bankruptcy. The Low Cost/Low-Fare Carriers will focus on expansion at the expense of the network carriers.

_____

MM: Glen, thank you for your time and your consideration. You may not be a celebrity in the creative or performing arts, but there really is an art to what you do and how you skillfully balance the emotional and financial needs of all of the many parties who become heavily involved when an airline dies and people's lives are changed by crisis. Thanks for coming by.

_____

Langdon: My pleasure, Michael. I enjoyed our visit.

_______________

Brief Note from Michael: Well, as I stated at the outset, this was an unusual subject, but Glen Langdon has one of the most thankless jobs that is really not all about crunching numbers and managing by Memos and computers. There is a real human equation to what he does. Picking up the pieces left over from the tragedy of an airline failure and attempting to return funds to the people who loaned it in good faith to these companies--many of them International institutions--- such as Eastern Airlines, Braniff and Pan Am requires a special seasoning of business acumen and an uncommon patience to work through the complexity of issues for years until settlements are reached. Glen has that special seasoning and I felt that this visit would provide a refreshing new direction for us. I hope you agreed! See you soon right here on "THE INTERVIEW"!

_____

"Friday Movie Suggestion Night" resumes at 12:01 a.m. Thursday!

####