Sky Talk

F-35, Lockheed targets of political flak in Asia

It's hard to tell from afar if it's real or just political rhetoric for the home folks, but officials in Japan and Korea are saying some strong things about the F-35 program and Lockheed Martin.

As was posted here last week, Japanese officials expressed concerns about the prospect of higher F-35 prices as a result of the U.S. government cutting back its planned purchases in 2013-2017.

Then on Wednesday the Japanese Defense Minister Naoki Tanaka seemed to take it a step further, saying the nation would consider cancelling plans to buy the F-35 if prices rise too much or the anticipated delivery schedule can't be met, according to Reuters.

"As for the first four planes, I expect an official contract to be concluded by this summer. If it turns out they cannot meet what they have proposed by that time, that would raise concerns about our defense capability," Tanaka told parliament.

"I believe we would need to consider as a potential option matters like cancelling our orders and starting a new selection process if that is the case."

Winning the Japanese commitment in December to purchase 42 F-35s, with first order coming early this year, was a major vote of confidence for the Department of Defense and Lockheed Martin, as it represented the first win in an open competition with other, lower cost -- and older technology -- war planes.

In addition to Japan, the government of South Korea is reportedly unhappy with something a Lockheed official MAY have said, according to Korea Times.

U.S. defense giant Lockheed Martin will face a penalty unless it formally offers an apology for misleading statements over Korea’s plan to purchase fighter jets for 8.29 trillion won ($7.3 billion), multiple sources said Tuesday.

Senior officials at the Defense Acquisition Program Administration (DAPA) said that Lockheed Martin has undermined the credibility of the government’s plan to purchase 60 advanced jets in a fair international competition. 

The company has been cornered over a report by Dusty Ricketts of the Northwest Florida Daily News that claimed Stephen O’Bryan, vice president of Lockheed Martin’s F-35 program integration, told reporters in early February that Korea had already agreed to purchase F-35 jets. 

Many media outlets here churned out articles suggesting that Rickett’s report confirmed the ruling Saenuri Party lawmaker Song Young-sun’s claim that that President Lee Myung-bak promised Barack Obama to purchase F-35s in a summit in Washington on Oct. 13 last year.

Rep. Song told The Korea Times that she still suspects a shady deal might have occurred during the summit, but does not have “hard facts,” nor any witness to back her claim. 

Now if politics in Japan and Korea is anything like it is in the U.S., this could all be a lot of smoke and heat for domestic political consumption. Time will tell.

- Bob Cox

 

AMR boosts cash as it loses $234 million in January

AMR Corp. lost $234 million during January but still managed to increase its cash on hand, the company disclosed Wednesday in a filing with the Securities and Exchange Commission.The Fort Worth-based parent of American Airlines files monthly updates on its financial condition as part of its Chapter 11 bankruptcy petition filed on Nov. 29.

According to Wednesday’s SEC filing, AMR and its subsidiaries just about broke even on operations during January, with expenses running a mere $5 million over its revenues of $2.03 billion. But most of its net loss came from bankruptcy-related charges, and now that it’s not making payments on its debt and other obligations during bankruptcy, AMR’s operations actually generated $331 million in cash during the month. After using some of that to meet lease obligations, AMR finished January with $4.14 billion in cash and equivalents — a measure of the assets a company has available for immediate needs. That included $347 million in outright cash and $3.8 billion in short-term investments.

That’s $139 million more than it had on Dec. 31 and just about what it had when it filed for bankruptcy.AMR likewise reported that it has just over $1 billion in restricted cash and short-term investments, also up from a month earlier. When it filed for bankruptcy, the company said its $4.1 billion in unrestricted cash and short-term investments, “as well as cash generated from operations,” would be enough to pay its ongoing bills to run the airline.

Also Wednesday, in a court hearing in Manhattan U.S. Bankruptcy Judge Sean Lane, who is overseeing the case, ruled that AMR does have to give two of its lenders more protection on collateral for almost $1.5 billion of the company’s debt. U.S. Bank Trust NA and Wilmington Trust Co, had sought assurance about the eroding value of the carrier’s aircraft and other assets, but Lane said the company has more than enough value to protect both banks’ collateral, and they could come back later if that changes.

Lane also gave AMR permission to hire a group of legal and financial advisers for its bankruptcy after some changes were made to answer concerns raised by unions and the U.S. government about whether they are all necessary.Advisers hired included Rothschild Inc., McKinsey & Co., Weil Gotshal & Manges LLP, the company’s main bankruptcy law firm, Boston Consulting Group, and Bain & Co., which will act as adviser to American Eagle, according to court papers.“I don’t do this lightly,” Lane said, noting concerns about the cost to the estate. “This is bankruptcy court and you need to make some changes.”

AMR last month said it will eliminate 13,000 jobs under a plan to cut annual operating costs by $2 billion and boost revenue by $1 billion.

-- Jim Fuquay

 

Today's court hearing for American

Today, the bankruptcy court has scheduled a hearing to determine whether AMR should be allowed to hire and retain several advisers and consultants to provide legal, labor and financial advice as it attempts to restructure in bankruptcy. The firms include Skyworks Capital, Boston Consulting Group and Bain & Co.

AMR has also asked to hire Rothschild Inc. as a financial adviser and would pay the firm a completion fee of $15 million in addition to $200,000 a month. Rothschild received more than $1 million in the three months before AMR's bankruptcy filing.

The bankruptcy trustee, who monitors the proceedings for the Justice Department, has objected to the carrier's plans, saying that AMR has not shown that it needs to hire multiple advisers who might offer similar services.

American's unions have also filed objections to the hiring of advisers. On Wednesday, the Transport Workers Union, which represents 13,000 mechanics and ground workers at American, said it plans to hold demonstrations at several airports across the country, including Dallas/Fort Worth Airport.

Also on the hearing docket:

-- Whether or not the court should form a separate committee of former TWA pilots to represent their interests in the bankruptcy case.

-- Several firms have objected to American's request for extensions on a few of its aircraft. American is asking the court for more time to decide if it is going to renegotiate leases for these aircraft or terminate those leases.

-Andrea Ahles

American's charitable gifts: 3 planes, $681,268.49 and lots of airplane tickets

As part of its statement of financial affairs, American Airlines disclosed the charitable gifts it made within the past year.

The Fort Worth-based carrier donated three airplanes: one to the Children's Museum in Puerto Rico, another to the Tulsa Air and Space Museum and one to the Tulsa Tech Center to be used for training. Each plane is worth $150,000.

American also gave $681,268.49 in cash donations to 91 different charitable organizations. According to the filing it made 7 donations in the $25,000 to $100,000 range for a total of $360,000. It made 13 donations in the $10,000 to $24,999 range for a total of $154,326.84. And 71 donations were made below $10,000 for a total of $681,268.49.

The carrier also said that it often donates tickets for nonprofit and civic events but did not assess a dollar value on it.

"Since the debtors usually receive advertising or marketing consideration in connection with these donations, it would be extremely difficult to try to attribute a gift dollar amount to these donations," the filing said. "Consequently, the list of gifts and charitable contributions is limited to cash donations and tangible assets of material."

-Andrea Ahles

APFA "disgusted" that AMR paid a "union busting" firm $392,000

The Association of Professional Flight Attendants is questioning AMR Corp.'s payment to a firm that offers "union-free solutions" in the months just prior to AMR's bankruptcy filing.

American Airlines' parent company revealed the $391,646.85 payment to American Labor Relations Services in its statement of financial affairs made on Monday evening. The union said that American clearly has made busting organized labor a priority.

"I'm disgusted, but I can't say I'm surprised. This is just the most recent in a long line of questionable expenditures made by management," said APFA president Laura Glading. "Our team is going to press Horton and the rest of [AMR] management on this issue. We'd like to know exactly what the assignment was, the project's duration, and why this management team thought it was essential. As creditors, we have the right to know exactly what this company was doing and may still be doing to break the collective bargaining units at American."

-Andrea Ahles

A little more insight into the APA's rationale on why American may not be able to strip them of their contract in bankruptcy

On Tuesday evening, Allied Pilots Association president Capt. David Bates gave members a little more insight into why the union asked the bankruptcy court to prevent American from rejecting their collective bargaining agreement.

The APA argued in a bankruptcy filing that since its contract expired in 2008, there is no contract to be rejected. In a note to members, Bates said the legal question on whether Section 1113(c) of the bankruptcy code is applicable when there is no current contract in place has not been decided by a bankruptcy court.

"Although management may use the lawsuit as an excuse to hasten their pursuit of 1113(c) relief, we are prepared to fight that battle as well. To date management has not complied with the basic requirements of 1113. By giving us a “take it or leave it” proposal that does not reflect industry standards and by failing to respond with any counter proposals, management has not negotiated in good faith. Additionally, they have yet to respond to a substantial number of requests from us for data necessary to evaluate their proposals," Bates said to members.

Earlier this month, American unveiled its restructuring plan which included proposals to layoff 13,000 workers, including 400 pilots, terminate pensions and change work rules for employees.

Keep reading for the full letter from Bates.

-Andrea Ahles

 

Fellow pilots,

Last week the APA National Officers and Board of Directors received daily updates from the Negotiating Committee Chairman regarding the status of negotiations. The Negotiating Committee in turn circulated a summary of the updates in a membership update on Feb. 24. Unfortunately, the news hasn’t been good. After APA presented our comprehensive proposals, management summarily discarded our terms.
 
Your APA leadership is disappointed with the position taken by management’s negotiating team—which is now being led by lawyers—as we were careful to craft counter proposals that align with industry standards. Nonetheless, in preparation for the possibility that management would respond as they have, your leadership spent the majority of last week’s special board meeting considering our various options and mapping the best course of action for our pilot group.
 
After AMR filed Chapter 11 bankruptcy, I requested that our legal team investigate aspects of the law relating to the “intersection” of the Railway Labor Act (RLA) and Section 1113 of the U.S. Bankruptcy Code, with the intention of protecting our pilots’ interests during restructuring. Authorized by a unanimous vote of the APA Board of Directors, today APA filed a lawsuit in the bankruptcy court challenging management’s legal authority to use Section 1113 to reject our contract.

A brief history would be helpful to understand the legal issues. Congress enacted Section 1113 of the bankruptcy code in 1984 after the U.S. Supreme Court decision NLRB v. Bildisco & Bildisco. In that case, a company used bankruptcy to terminate a collective bargaining agreement and that action was upheld by the U.S. Supreme Court. Congress responded to labor’s concerns by adding various provisions to the bankruptcy code, including Section 1113. While Section 1113 eventually became known as a tool for management to exert leverage, the original intent was to establish a buffer for labor by outlining specific criteria management had to satisfy before seeking to reject a CBA.  The interpretation of the law as it relates to the “intersection” of the Railway Labor Act, Section 1113 of the bankruptcy code, the National Labor Relations Act and the Norris-LaGuardia Act has been the subject of considerable litigation.

As we all know, numerous airlines have used Chapter 11 to force deep reductions in pay and benefits and to degrade the working conditions of unionized employees. The net effect of all these “pattern bankruptcies” has been to decimate decades’ worth of gains that airline employees achieved. APA is seeking to take a step in reversing this trend.

The lawsuit APA filed against AMR in the bankruptcy court attacks the applicability of 1113(c) and asks the court to rule that 1113(c) does not allow management to reject or change our pilots’ employment terms. APA’s lawsuit asserts that our pilots’ current compensation and work rules remain unchanged from the 2003 collective bargaining agreement because the RLA prohibits any change until the National Mediation Board proceedings have concluded. Our terms of employment in place today are the result of the status quo provisions provided by the RLA—not a contract. Consequently, there is no contract to reject and 1113(c) does not apply. Click here for a copy of APA’s lawsuit.
 
Management must file an answer to our lawsuit within 30 days, except when a different time is provided by the court. Thereafter, we expect to schedule a hearing date.
 
The legal question—whether 1113(c) is applicable when there is no current CBA and the terms of employment continue based upon the RLA—has never been squarely presented or decided by a bankruptcy court. Your APA leadership is fully committed to pursuing our lawsuit and obtaining a favorable resolution for our pilot group while continuing to seek a consensual agreement at the bargaining table. Yesterday, we gave senior management advance notice that we would be filing a lawsuit and also reiterated our commitment to seeking a consensual agreement.
 
Although management may use the lawsuit as an excuse to hasten their pursuit of 1113(c) relief, we are prepared to fight that battle as well. To date management has not complied with the basic requirements of 1113. By giving us a “take it or leave it” proposal that does not reflect industry standards and by failing to respond with any counter proposals, management has not negotiated in good faith. Additionally, they have yet to respond to a substantial number of requests from us for data necessary to evaluate their proposals.
 
As the APA leadership has emphasized on numerous occasions, we remain convinced that it is in the best interests of all of American Airlines' stakeholders for APA and management to reach a consensual agreement. To that end, your leadership is well equipped and ready to continue negotiations at the table while simultaneously pursuing the legal course of action I have outlined.
 
As always, your continued support and professionalism are appreciated.
 
In unity,
 
Captain Dave Bates
APA President

Air Force clears way for initial F-35 flights at training center

Air Force officials Tuesday cleared the way for local flight operations of the F-35 Joint Strike fighter at the training center at Eglin Air Force Base in florida, where both F-35A and F-35B aircraft have been preparing for initial steps that will lead to military pilot training.

“The Air Force, Joint Strike Fighter Program Office and other stakeholders have painstakingly followed established risk acceptance and mitigation processes to ensure the F-35A is ready,” Air Force Materiel Command Chief Gen. Donald Hoffman said in a press release. “This is an important step for the F-35A and we are confident the team has diligently balanced the scope of initial operations with system maturity.”

The MFR (military flight release) allows qualified F-35 test pilots to begin flying the stealthy fifth-generation fighter around the Florida base. Eglin currently has two test pilots who are qualified to fly the jet: Air Force Lt. Col. Eric Smith and Marine Maj. Joseph Bachmann.

-Bob Cox

The latest in VIP travel accommodations

Bound for the government of Qatar, sources tell us, Boeing released this photo today of a brand spanking new 747-8I -- the latest versoion of the venerable and original jumbo jet -- outfitted in VIP necessities. 

- Bob Cox

U.S. to dock Lockheed F-35 payments over cost management system

The Pentagon will withhold about $1 million per month in F-35 program payments to Lockheed Martin until it gets its in-house cost and schedule management system fixed. Full story.

Major defense contractors are required to have an approved "earned value management system" (EVMS) in place that enables management and the government to reasonably closely track production schedules, costs and accounting and purchasing. A new procurement rule allows temporary withholding of up to 5 percent of payments until corrective action is approved by DoD.

Pentagon officials have been unhappy for years with the system used by Lockheed Martin Aeronautics in Fort Worth for management of the F-35 Joint Strike Fighter program, which has been beset with years of delays and enormous cost increases.

Lockheed has submitted a corrective action plan, which is under review by the Pentagon.

Bell Helicopter for a number of years faced similar criticism until it put a much revised EVMS plan into place several years ago.

- Bob Cox

Air Force rescinds ground support plane contract award following Hawker Beechcraft lawsuit

The Air Force said Tuesday it will rescind a $354 million contract awarded last year for a turboprop light attack aircraft for close air support and open an investigation.

Wichita-based Hawker Beechcraft Corp., maker of the AT-6, had challenged the award to Nevada-based Sierra Nevada Corp. Sierra Nevada was the U.S. arm for the Embraer, which makes the Super Tucano airplane.

- Bob Cox