Island Air’s planes of the future are gathering dust at an aircraft storage field outside Tucson, Ariz., and nearly a third of the company’s pilots are earning their full salary while "sitting on the beach."
The state’s second-largest airline, which a year ago announced it was purchasing two Bombardier Q400 NextGen turboprop aircraft for about $60.9 million, is having second thoughts about putting those planes into service.
The delay is part of a "comprehensive review" Island Air has undertaken to figure out how to stem the flow of red ink after six consecutive quarterly losses, totaling $18.1 million.
Island Air, the top alternative to Hawaiian Airlines for interisland travel, hasn’t earned a profit in any full quarter since billionaire Larry Ellison bought it in February 2013. Ellison hired Dave Pflieger, the former head of Florida-based regional carrier Silver Airways, in October to replace Paul Casey as chief executive officer and come up with a new business plan.
"Following the company’s sixth successive quarter of losses with a new owner, Island Air’s new management team is undertaking a comprehensive strategic review of the company’s fleet — the ATR (which it uses now) versus the Q400 — our network, and other key aspects of the airline’s business model to design a business plan that will ensure our future success and ensure we can provide Hawaii with a reliable and a superior alternative airline that can grow and serve the islands profitably," Island Air said in an email.
Leaving its new planes sitting in a storage field in Arizona since taking delivery in December is a sign of how cautious Island Air is about making any new moves before putting in place a plan to address the losses. With the planes idled, 18 of the 60 Island Air pilots, who have been trained to operate the Q400, are drawing a paycheck and not working, a situation that pilots refer to as "sitting on the beach."
"They’re a small player, but they’re an important player because they do influence pricing," local aviation historian Peter Forman said of Island Air. "They help balance the competitive environment. The market depends on having a second carrier participating."
Island Air had just 7.5 percent of the interisland market share as of July, a distant second to Hawaiian at 88.4 percent, according to the latest available data from the state Department of Transportation’s Airports Division.
"They haven’t really found their niche yet," Forman said of Island Air. "They’re going to have to have the right airplane in order to find their niche."
If Island Air ends up not using the Q400s, it will prove costly for the airline.
Not only is there the price it paid for the two idle planes, but also the cost of training the 18 pilots to fly the Q400s and paying those pilots while they wait for the planes to be put in service.
The pilots were trained last summer and fall at an estimated cost of $40,000 to $50,000 a person, according to John Dean, national senior labor relations counsel for the Air Line Pilots Association, a union. That price includes the expense of flying a pilot to Seattle for simulator training, putting up the pilot in a hotel and additional ground school. Then there is the cost of paying the idle pilots.
Complicating the situation for Island Air is the fact that the 18 pilots can’t be reassigned to fly the airline’s current fleet of five ATR 72s without additional training.
Once trained on the Q400 aircraft, Island Air’s pilots "are not considered ‘qualified’ to operate the ATRs in the eyes of the FAA (per Federal Aviation Administration regulations)," Dean said. "These pilots must now undergo an ATR training cycle before they are authorized/qualified to operate the ATR 72s in the current fleet."
That applies even to those pilots — about half of the 18 — who used to fly ATR 72s before being trained for the new planes.
Some of the pilots could be ATR-qualified in about two months, but the full complement of 18 pilots isn’t expected to be back at the controls until Aug. 1, according to the pilots union.
The decision to delay putting the Q400s into service is contrary to what Island Air owner Ellison said in a statement last March when he proclaimed that the new planes will offer passengers a premium product coupled with unbeatable performance that will help the carrier in its effort to "redefine" regional travel in Hawaii.
"We are pleased to partner with Bombardier," Ellison said at the time.
"My experience with Bombardier over the years has been nothing but positive, which has further led to our selection of the Q400 NextGen aircraft for the next chapter of Island Air," said Ellison, the fifth-richest person in the world with a net worth of $54.3 billion, according to Forbes magazine. Ellison also owns 98 percent of the island of Lanai, one of only four destinations for Island Air.
The carrier’s decision to postpone putting the Q400 into service could stem from the company trying to decide if it wants to purchase additional Q400s. Island Air has an option with Bombardier to purchase four more of the aircraft, which if exercised would increase the value of the deal for the six Q400s to $188 million, according to Toronto-based Bombardier.
Using only one type of plane is more economical for a small airline.
"Basically, it’s expensive to operate two types of aircraft in terms of pilots on reserve and replacement parts," Forman said. "They could be in the process of deciding to go with the Q400 in a larger quantity or not going with the Q400. Two is a problematic number."
Island Air has been promising a decision on the aircraft issue for months, according to the pilots union.
"The company indicated in October 2014 that they were ‘delaying’ their deliveries of the Q400s pending a new fleet and route study," Dean said. "Initially, they announced it would be completed in early November, then late November, then mid-December, etc. They have recently announced that the study should be completed by the end of March, with a decision on a new aircraft following thereafter."
Last week, an Island Air spokeswoman said, "While that strategic review is still underway, there is nothing new to report."
Island Air, which offers more than 250 weekly flights between Oahu, Maui, Kauai and Lanai, could resell or lease its two Q400s to recoup some of the purchase price if it goes in a different direction with its fleet.
"Management has informed us they are re-evaluating whether the Q400 is ‘appropriate’ and also is looking at routing," Dean said. "They are reportedly looking at a number of options for replacement aircraft — the Q400 and others."