Thursday, March 02, 2006

Pan Am Poised to Grow Again

If you want the long story, you can find most of it here, here, here, and here. The short story is that Pan Am, aka Boston–Maine Airways, aka BMAC has been neck deep in a war with ALPA for quite some time. It is no secret that the reason management changed their name from Pan Am to Boston-Maine was to shed Pan Am of its unionized pilot base. Though it turned out to be a legal move, that’s a big no-no and it has cost them. ALPA has been waging a smart war against Boston-Maine ever since. They dug up some serious allegations of financial fraud by BMAC and clearly have Dave Fink and friends on the run. All this has led to a Federal investigation by the Inspector General to determine exactly who in Boston-Maine did what. The investigation was ordered last year and is still ongoing.

Management’s pleas that BMAC's former General Counsel was the only one who knew about the fraud do not come across as convincing to us. We certainly hope it goes no further than the former General Counsel…we will have to wait and see.

Until the Inspector General comes back with its findings, the DOT will not issue an order regarding BMAC’s request to add 4 more aircraft to its current fleet of 3 727 aircraft. As a result, all they have is weekend 727 service between ATL and SFB (Orlando-Sanford) and a few daily J31 runs that start at Portsmouth, go down to Bedford, and continue to Trenton and back. BMAC picked up the TTN-BED service after Shuttle America backed out of it two years ago and it continues to perform well. They also plan to add infrequent Sanford - San Juan & Aquadilla service next month.

BMAC filed an “Emergency Motion” with the DOT late last year asking them to rule on the proposed additional 727 aircraft in the absence of a ruling from the IG because of the financial hardship that the delay was causing them. As mentioned above, the DOT would not rule until the investigation is complete and that stance was affirmed soon after the motion was filed. Of course that “Emergency Motion” raised the antenna of the DOT. The claim of financial hardship caused the department to question their financial fitness (again) and as a result BMAC had to show that they were financially fit and had access to additional capital through the company’s Guilford rail affiliation.

Now, without a ruling on the additional 727 service, Boston-Maine wants to grow its J31 service. Word has it that they are poking around the Northeast looking at some under-the-radar-screen airports in New England and initiating service to DC. Unfortunately for Boston-Maine, the word is out on the problems internally. We hear that because of the swirling allegations, some past broken promises made to others, and because of some of the financial incentives that they are demanding, they are running into problems convincing some airports to agree to their terms that would lead to the initiation of service. We expect them to find someone who will take them. Of course there are regulations that explicitly state that airports cannot keep them out if they have the room for the service. So wherever the growth is installed, we would guess that they either do not go to their first choice airports or they do not get the incentives they are asking for.

All of this points to an airline that is in very poor condition and the company's financials back up that assertion. They lost $25 million in 2001, $32 million in 2002, $32 million in 2003, $33 million in 2004, and $9 million through the end of 3Q 2005 (they were on pace to lose less because they were flying less). But like many others that we have seen before, it appears that poor financial performance will not necessarily mean the death of BMAC. They have access to capital via the rail operations and they are tightly connected to the Mellon family. The only way we see them going away in the next 12 months is if the Inspector General comes down hard on the company or if those on the inside who are cross-subsidizing the operation finally decide to pull the plug.

So Pan Am may indeed be poised to grow again...we just can't figure out why.


At 11:18 PM, Blogger Ytown Fan said...

After what Fink and Co. did here in Youngstown I'd like to see them just fold up and call it quits. It had a good idea but blew it with this FAA investigation..

Some things are meant to be shut down and this is one of them things..



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