Forward Thinking at Trans States

TRANS STATES HOLDINGS, PARENT OF Trans States Airlines and GoJet Airlines, is a little company with big ideas. In October it signed a letter of intent with Mitsubishi Aircraft Corp. covering 50 firm orders and 50 options for the MRJ, making it the US launch customer for the new regional jet set to enter service in the first quarter of 2014. Trans States President and COO Rick Leach tells ATW he expects to formalize the deal by year end.

At a time when the aviation industry continues to roil and regional airlines are beset with uncertainty, the decision to make a major commitment to a new aircraft type from a manufacturer with no recent history of building commercial transports seems counterintuitive. But it makes perfect sense to Leach: "I want to make sure we have the opportunity to be at the front of the line with new technology, bringing fuel efficiency and environmental friendliness to the marketplace in ways the competition does not. It's exciting for us."

The MRJ program was launched officially in March 2008 in 78- and 92-seat versions with a commitment from ANA for up to 25 of the larger model. They will be powered by Pratt & Whitney's PW1000G geared turbofan currently under development. Two months ago, Mitsubishi announced the final design. Fuselage height was raised by 2.5 in. to 116.5 in., enabling a 1.5-in. increase in cabin centerline headroom to 80.5 in. and 12% more overhead bin volume. The cargo holds were redesigned to eliminate the smaller forward hold and enlarge the aft compartment, which will simplify baggage loading.

When the fly-by-wire aircraft was launched, Mitsubishi said composite materials would comprise 30% of the airframe including the wing and vertical stabilizer, but in September it said it would switch to aluminum for the wingbox owing to a desire to simplify manufacturing and allow shorter lead times for structural changes, such as the 100-seat variant being evaluated. Additionally, with an aluminum wing box the wings can be optimized to match the attributes of each member of the family, the company maintains.

Flexible Terms

Leach tells this magazine that the agreement with Mitsubishi does not specify which member of the MRJ family Trans States will order. He leans towards the 70-seat version, but entry into service will be a year after the first version--the MRJ90--rolls off the production line. He is keenly aware that an aircraft with more than 70 seats likely would violate scope clauses contained in the labor agreements between major US airlines and their pilot unions, which govern the size and number of aircraft that can be operated by regional partners in codeshare. He is hopeful there will be relaxations of scope that will enable mainline carriers to take advantage of the economics of larger regional jets. During the 2001-04 crisis, most US airlines were able to achieve a bit of leeway with their pilots on this issue, but not nearly as much as analysts had expected, and 70-75 seats remains the de facto line in the sand for aircraft flown by regional partners.

"We were extremely pleased to receive this order from TSH, which will be our launch customer in the United States," Executive VP Junichi Miyakawa tells ATW. "We see this as a major step forward for the [MRJ], one which will help us increase our momentum as we bring the aircraft into production and to the market. It is also an indirect endorsement of the MRJ, and we are confident that the market is beginning to recognize the truly revolutionary nature of the MRJ."

"Given the contract terms [TSH] got, it was fairly risk free," says Teal Group VP Richard Aboulafia. "I am sure they have walk-away rights." Still, he was somewhat surprised by the deal, given the state of the US regional business. "It's a grim market and all of the players are in grim shape. None of them are expanding. The name of the game is to contract to survive."

Trans States knows this firsthand, having ended its flying agreement with American Airlines earlier this year, terminating an estimated 400 employees and removing 10 ERJs from service. "We've always been survivors," Leach explains. "We were the original codeshare partner for TWA and we are one of the only ones that survived. We learned that with TWA, the biggest opportunity is also the biggest challenge." Since AA departed, the carrier has negotiated a flying agreement with US Airways.

Trans States started flying in 1982 as a charter operation named Resort Air. In 1985 it entered into an agreement with TWA to operate as Trans World Express, serving six cities in Missouri and Illinois from St. Louis with a fleet of 19 Metros. When TWA was acquired by American, it began operating as an AmericanExpress carrier at St. Louis. In 2003 it inked a 10-year deal with United Airlines to operate CRJ700s that include first class cabins. In 2008 AA announced it would reduce flying by smaller RJs dramatically and last May Trans States stopped flying for AA.

Today it operates two regional subsidiaries that serve a total of 50 cities. GoJet flies 23 CRJ700s under the agreement with United and will take delivery of two more this month. It operates about 146 flights daily with an average stage length of 600 mi. Trans States Airlines flies as a US Airways Express partner with a fleet of 31 ERJ-145s providing about 188 daily flights with an average stage length of 450 mi. The company expects to carry 5 million passengers by the end of 2009.

School of Hard Knocks

The relationship with TWA taught Trans States how to run a quality airline in a challenging environment, Leach says. "Having survived three bankruptcies with TWA--and that was before it was fashionable--taught us a great deal. We learned that there is life after bankruptcy. We also learned that when your bankrupt partner is struggling and trying to find its legs, that's when you can bring the most value to it." Later, the company would work alongside UA and US as they went through bankruptcy reorganizations.

Trans States is controlled by a single investor, Hulas Kanodia, who maintains a low profile and prefers to keep the company's financial performance confidential. It has not filed required financial information with the US Dept. of Transportation for a few years, according to ATW research. But Leach says it has been profitable for 26 of its 27 years; post-9/11 in 2001 was the exception.

"We're private for a reason," he says. "We've always found a way to get things done. After 9/11, people saw how being a private company gave us the ability to act quickly, be nimble and flexible. The fact that we are a private company has been one of our biggest assets in helping us manage and navigate this industry."

American's departure from St. Louis was a bitter pill, he adds. "St. Louis is our home--it's where we were founded." Today Trans States operates flights out of Chicago O'Hare (45%), Washington Dulles (45%), Denver (8%) and Pittsburgh (2%).

But Leach, who until November served as chairman of the Regional Airline Assn., takes it all in stride and expresses confidence in the future of the regional sector. "We actively seek new partners, always. I maintain a strong relationship with current partners and prospective partners," he says. He points out that by 2014 many of the regional aircraft now in service will be coming up for renewal on leases. "We could go out there with all of my other formidable friends and offer the same products--E-Jets or CRJs. They are good products, but we're all flying them. Our job is to bring new alternatives to our partners, broaden their horizons and bring value to them wherever we can."