Monday, April 30, 2012

U.S. exports pilots to the world

An economic analysis by the Wall St. Journal reports that large U.S. companies are adding jobs abroad much faster than in the U.S. According to the report, the number of workers employed by U.S. companies worldwide was up 7.7 percent from two years earlier. The domestic employment for the same period was up only 3.1 percent. Employment abroad increased by more than double that of domestic hiring. The same trend is evident in pilot hiring as well.

The United States has long been the destination of flight students from around the world. Lower taxes, cheaper fuel, and no aviation user fees make it attractive for prospective pilots from other parts of the world to come to the U.S. for training. In many cases, they then return to their home countries to earn their domestic licenses on the basis of training completed in the U.S. or FAA pilot licenses earned here. In other cases, such as those who attend foreign airline training courses at schools in the United States, they can even be issued a foreign license while training in the U.S.

Now the United States is exporting many of its home-grown pilots as well. The recession and stagnant economy have hit domestic aviation hard. Many companies have eliminated their corporate airplanes and flight departments amid criticism by members of the Obama Administration. Nearly all major U.S. airlines have been in bankruptcy since 2001 and most still have pilots on furlough.

Other than Southwest and Spirit, the only U.S. airlines that are currently hiring are regional feeder companies such as Express Jet and Go Jet. These companies operate regional jets under code share for legacy airlines like Delta and United. Regional airline jobs are entry level positions that are typically considered to be the airline equivalent of “burger-flipper” jobs.

Private aviation in the U.S. is similarly depressed. No statistics are available for unemployment numbers for pilots, but Aviation International News reported last week that revised figures for 2011 business jet sales were down 7.9 percent from 2010. This statistic explains the meager number of new pilot jobs at domestic companies.

There are a small number of openings in corporate flight departments and charter companies, but a survey of aviation job search websites such as and shows that approximately half of the pilot jobs listed are in foreign countries. In addition to the total number of job postings, most jobs listed for American companies are single openings. In contrast, job listings abroad often call for a large number of new hires. This often reflects a continuing need for expatriate pilots to staff growing foreign airlines and flight departments.

Many of the posted jobs are in the emerging market of China, where the government is easing regulations on aircraft ownership and operation. According to the Chinese consulate in Chicago, there are currently only 132 registered private aircraft in the People’s Republic, but that number is projected to grow to between 500 and 1,000 planes in the next five years. Small wonder then that U.S. aircraft manufacturers such as Cessna, Hawker Beechcraft, and Gulfstream are establishing ties to China.

In addition to jobs flying corporate jets, there are also many openings for pilots who are trained to fly airliners. Often these jobs are in China as well, although many are also found in the Middle East, India, and occasionally in Africa and Europe. There are many openings for pilots qualified on heavy airliners like the Airbus A320, the A340, the MD-11, the Boeing 767 and the 737. Frequently, there are also jobs listed for pilots of regional airliners such as the Canadair Regional Jet and the Embraer Regional Jet, as well as turboprop airliners like the Dash 8 and the Beech 1900.

In addition to a shortage of jobs in the United States, a loss of prestige for the pilot profession and concessions granted by unions during bankruptcy may also factor into the decisions of many pilots to look for work abroad. Most airline workers have lost their pensions while taking pay cuts on their current salaries as well. At the same time, many are required to work more hours each month as companies downsize.

The trend may continue. According to USA Today, Boeing forecasts a need for almost 500,000 pilots by 2029, an average of more than 23,000 per year. Only about 20 percent of these new jobs are forecast to be in North America, however. As many as 40 percent will be found in Asia and the Pacific Rim, where many of the openings are today.

There is one bright spot for pilots who are looking for aviation jobs in the United States, however. In 2007, the FAA increased the retirement age for airline pilots from age 60 to 65. Many of the senior airline pilots who benefitted from the extra five years of work are now nearing their mandatory final flights. Beginning this year, pilot retirements at the U.S. legacy airlines are set to dramatically increase in a cycle that may last for decades. This means that as long as the airlines are not downsizing due to a shrinking economy, they should be looking for a lot of pilots.

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Saturday, April 28, 2012

GOP race now between Romney and Paul (and it might be closer than you think)

Newt Gingrich announced this week that he planned to end his campaign soon. According to the New York Times, Gingrich told supporters in North Carolina “The campaign will go bye-bye.” Gingrich still trails Rick Santorum and frontrunner Mitt Romney in delegates.

According to the New York Times tally, Gingrich has 137 delegates. With 1,144 delegates needed to win the nomination and only 962 delegates remaining, it would have been mathematically impossible for Gingrich to become the nominee.

As Gingrich leaves the race, the Republican presidential primary comes down to Mitt Romney, the presumptive nominee, and another mathematically eliminated candidate, Rep. Ron Paul. Paul has won an estimated 80 delegates so far. Even if he were to win all remaining delegates he would fall far short of the nomination. The question is why Paul is staying in the race with the numbers stacked against him.

Paul’s strategy appears to be two-fold. In February, Rachel Maddow reported that Paul supporters were mounting a grass roots effort to gain control of delegates in caucus states. Regardless of the straw poll, Paul supporters would simply show up at local precincts and outlast the supporters of the winning candidates. In turn, they would take control of county and state caucuses as well. The strategy is working well in states won by Santorum and Gingrich.

For example, according to the Associated Press, Rick Santorum won the Minnesota primary caucus with 44.9 percent of the vote. Paul placed second with 27.1 percent. However, The Hill reported this week that Paul won 20 of 24 possible delegates and “nearly all” alternate delegates from Minnesota’s district conventions. Thirteen more delegates are at stake in the state convention on May 4 and Paul is likely to win many of these as well.

The second part of Paul’s strategy is to take delegates from Santorum and Gingrich, who have withdrawn from the race. CBS Denver reports that some Santorum supporters are turning to Ron Paul as an anti-Romney protest. The Santorum-Paul alliance won 13 of 18 delegates at the Colorado Republican convention. Colorado is also a caucus state. The Independent Voter Network speculates that Paul might similarly win a majority of delegates in the caucus states of Iowa, Missouri, Washington, and Nevada as well.

Paul’s ultimate strategy seems to be to sway enough delegates to deny Mitt Romney the 1,144 needed to secure the nomination. According to the Independent Voter Network, if no candidate wins on the first ballot all delegates will be released to vote for whomever they choose. This is called a brokered or contested convention. In this case, the convention would become a free-for-all. There is speculation that many of Romney’s delegates might be Ron Paul “sleeper” supporters that would then vote for Rep. Paul on subsequent ballots.

Paul’s covert strategy explains why he is remaining in the race even though he has yet to win a single election. In spite of Paul’s failure to win over Republican voters, he has a chance to become the Republican nominee and the only person standing between Barack Obama and a second term as president.

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Tuesday, April 24, 2012

Barack Obama’s doomsday tax plan

While President Obama has been stumping for his proposed Buffett Rule, a minimum 30 percent tax on the wealthy, the United States is hurtling toward a combination of tax increases and spending cuts that will automatically go into effect at the end of the year. If Congress does nothing, these across-the-board tax increases will likely cause the already stagnant U.S. economy to slide back into recession. Many economists are calling the looming increases “Taxmageddon.”

The danger is realized by all sides. Ben Bernanke, chairman of the Federal Reserve, recently warned Congress that the nation is “headed for a massive fiscal cliff.” As reported by The Hill, Bernanke said, “Under current law, on Jan. 1, 2013, there’s going to be a massive fiscal cliff of large spending cuts and tax increases.” He continued, “All those things are hitting on the same day, basically. It’s quite a big event.”

The root of the problem lies in the fact that Congress has been solving problems with temporary solutions for years. Some recent examples of this include the vote in 2010 to extend the low Bush-era tax rates for another two years and the extension of the payroll tax cut in February 2012 through the end of the year.

Perhaps the most egregious example of kicking the can down the road was the formation of the super committee on deficit reduction in August 2011. The committee was part of a compromise, the Budget Control Act of 2011, which allowed President Obama to raise the debt ceiling and avoid a federal default without making significant spending cuts. The committee’s job was to find a bipartisan path for deficit reduction, but by November the committee announced that its members had “come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee's deadline" according to CNN. As a consequence of the committee’s failure, $1.2 trillion in automatic across-the-board cuts were scheduled to go into effect beginning in 2013.

The problem with these cuts is that they are not targeted to wasteful or unnecessary programs. Because they are general cuts to almost all government programs except Social Security and Medicaid vital programs such as national defense will face draconian cuts unless Congress acts. According to ABC News, half of the $109 billion in annual cuts would come from defense spending. Medicare would also face cuts of up to $11 billion.

The New York Times and the Wall St. Journal provide partial lists of the tax increases that will go into effect on January 1, 2013. These include the expiration of the low Bush-era tax rates which would increase the top individual rate to about 42 percent when the phase out of deductions is included. The capital gains tax would increase to 20 percent from 15 percent today. President Obama’s payroll tax cut for employees would increase by two percent. CBN adds that many temporary fixes, such as those for the marriage penalty and the Alternative Minimum Tax, will disappear at the same time. The child tax credit will be halved from $1,000 per child to $500.

There are also new taxes scheduled to go into effect at the same time. These include provisions of the Affordable Care Act (“Obamacare”) such as an additional 0.9 percent tax on taxpayers earning more than $200,000 and a 2.9 percent tax on investment and interest income.

In all, the Wall St. Journal estimates that investment taxes would see a total increase of about 60 percent within a year. The New York Times notes that the tax increase for a middle-class family earning $50,000 would be almost $2,000. Many low-income families taken off the tax rolls by President Bush’s tax cuts would have to start paying taxes again as well.

The only way to avert the coming catastrophe is for Congress to act. Given the past history of the current divided Congress, action is not likely to be forthcoming before the election. Republicans are willing to reform the tax system, but have proven unwilling to bow to Democratic pressure for tax increases. For their part, the Democrats have proven resistant to the smallest spending cuts even though spending is at record-high levels for peacetime.

If a deal is not made before the election, the matter will go before the lame-duck Congress and, possibly, a lame-duck president as well. If the Democrats lose control of the senate and Mitt Romney becomes the president-elect, President Obama and the current crop of congressional Democrats could still force the nation’s taxes to rise sharply by simply failing to act. The new president and Congressmen would not take office until late January 2013, too late to stop the automatic tax increases and budget cuts.

What this means is that even if President Obama is not re-elected, he can force the country to pay higher taxes simply by doing nothing. At the same time, he could likely avoid much of the blame for his actions. He would be out of office by the time the tax increases were felt and the economy faltered. Aided by the media, he could deny culpability and blame the incoming administration and Congress even though they never had a chance to address the problem.

These tax increases would be far more extensive than the Buffett Rule tax on the wealthy that the president has been pushing. For all the hype, the Buffett Rule would not produce enough revenue to pay for even one percent of President Obama’s federal budget according to an analysis by the Senate Finance Committee. Theoretically, the 2013 tax increases would produce more revenue, but this does not take into account the fact that they would cause the economy to slip back into recession. As profits fall, so would tax revenues.

The longer the delay in resolving the Taxmageddon problem, the more likely it is that the economy will suffer the consequences. Businesses plan investments months or years in advance. If it appears that there will be massive tax increases at the beginning of the year, businesses will defer investments and move money into tax shelters as the date of the tax hikes approaches. This would mean fewer jobs and less spending throughout the economy. The longer Congress takes to address the looming issue of Taxmageddon, the more likely it is that the nation will again face economic hard times, regardless of who wins the election.

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Sunday, April 22, 2012

Merger between US Airways and American may be close

A merger between American Airlines and US Airways may be imminent.  Reuters reports that three of American’s unions have expressed support for the proposed merger.  The Allied Pilots Association, the Association of Professional Flight Attendants, and the Transport Workers Union issued a joint statement in which they said that a merger with US Airways would be the fastest way to bring American out of bankruptcy.

At the same time, US Airways filed federal disclosures that stated that no agreement had yet been reached between the two companies according to CNBC.  American’s filings state that it has reached collective bargaining agreements that would govern treatment of its employees in a merger.

The reports of the merger come at a time when high fuel costs are exacting a toll on airline profits.  American Airlines entered bankruptcy in November 2011 in an attempt to restructure and cut costs.  Since 2001, Delta, Northwest, United, and US Airways had all filed for bankruptcy.

The quest to lower costs and achieve maximum efficiency has already fueled a wave of airline mergers.  US Airways merged with America West in 2004.  Delta and Northwest merged in 2008.  More recently, United and Continental merged in 2010.  The trend even reached smaller, niche airlines as Southwest acquired AirTran in 2011.

In theory, airline mergers allow companies to see greater efficiencies from larger fleets.  They also mean that there is less competition on specific routes.  As the number of available seats decreases, the price of each seat can increase.  This can lead to greater revenues that help offset the rising costs of fuel and labor.