JetBlue founder’s revenge: A new airline

JetBlue’s ousted founder is heading back to the skies with an upstart airline in Brazil.

By Ian Mount

(Fortune Small Business) — David Neeleman, founder of Brazil’s new Azul Airlines, is seated in the back of his armored Ford Fusion, stopped in a rush-hour traffic jam between the airport and his office in Sao Paulo. “How did he get dengue fever?” he asks Paulinho, the rotund, well-armed cop who moonlights as his bodyguard/driver.

Neeleman’s HR manager contracted dengue in Rio de Janeiro, Paulinho explains. What’s more, Azul’s head of purchasing is in the hospital with a broken jaw after his motorcycle skidded out on a chaotic Sao Paulo highway and the line of bikers behind used him as a speed bump.

Neeleman, 49, laughs ruefully, then rubs his eyes with his palms as if to wake himself from a nightmare. He looks out the window at the stalled traffic and the polluted Tiet River. Dressed in jeans, two-tone tasseled loafers and a blue blazer that hangs loosely on his tall frame, Neeleman has just survived a nine-hour red-eye from New York; this car trip threatens to equal it.

“I’m going to buy a Jet Ski and a hazmat suit and shoot down the river at 70 mph – if the engine can handle the sewage, that is,” he tells Paulinho. “I’ll get there in 10 minutes, and you can pick me up at the other end.”

Two years ago, Neeleman had bigger problems than sick employees and traffic jams. In May 2007 he was unceremoniously ousted from the CEO role at JetBlue Airways (JBLU) – the company he founded in 2000 and grew to revenues of some $2.5 billion per year – after what he calls the “Valentine’s Day Massacre.” An ice storm caused the cancellation of almost 1,700 flights, stranding more than 130,000 passengers and exposing massive organizational failings. Despite his heartfelt, and well-received, YouTube apology and the creation of a Customer Bill of Rights, JetBlue’s board dismissed him.

Publicly, Neeleman agreed with the board’s decision – “Great, let’s do it,” he said at the time – but he now admits that the episode left a deep wound. “I had no notice,” he says. “The way they did it was all wrong.”

Perhaps that explains why Neeleman flies to Sao Paulo almost every Monday from his home in New Canaan, Conn., where he lives with his wife and five of their nine children. He spends three days a week there building Azul.

“My 11-year-old said, ‘Dad, would it be easier if we moved to Brazil?’ ” he says. “My wife and I are talking about coming down here for the summer.”

For Neeleman, working in Brazil is a sort of homecoming. He was born in Brazil in 1959 while his father was doing a stint there as a correspondent for United Press International, the wire service. Neeleman, who has dual citizenship and speaks fluent Portuguese, later spent two years as a Mormon missionary in northeastern Brazil. His son Daniel, 20, just finished training for his own mission in Sao Paulo.

Although Brazil has found its economic direction in recent years, the slowdown in the global economy can be felt there too. But the country’s 185 million increasingly affluent citizens still take 250 million long-distance bus journeys a year, vs. fewer than 50 million domestic flights. The problem? The airline industry, dominated by the duopoly of TAM and GOL, makes flying expensive – almost 50% more per mile than in the U.S. – and doesn’t provide much direct service between smaller cities.

“Before Azul, it was cheaper to buy tickets from Sao Paulo to the U.S. than from Sao Paulo to Fortaleza, in northern Brazil,” Neeleman says. It also meant that some 80% of all air travelers were business fliers whose employers picked up the tab.

Azul’s offices are housed in a former TV studio in the 35-year-old planned community of Alphaville, 15 miles west of Sao Paulo. Alphaville is a sprawling walled suburb with 50,000 residents (the population swells to 200,000 during the workday) that is growing, wealthy and an hour’s drive from a major airport – just the kind of small Brazilian city that inspired Neeleman to ignore all the risks and start an airline in the midst of a worldwide financial crisis.

Cash isn’t a problem for Neeleman: He secured $200 million from investors including Western Presidio, an American venture capital firm that helped bankroll JetBlue, and launched Azul in December 2008 – four weeks ahead of schedule. Within a month the airline was filling 58% of its seats and scaring the competition into adding routes and lowering fares.

Sound familiar? It should. The DNA of Neeleman’s former airline permeates Azul. He hired several former JetBlue executives, including finance director John Rodgerson and marketing vice president Trey Urbahn. Azul leases two JetBlue planes, and even the name Azul – Portuguese for blue – is either a tribute to his old company or a swipe at it. “Samba” won a name-the-company contest that yielded 157,000 entries, but Neeleman selected the moniker that came in second.

Neeleman expects to triple the Brazilian air travel market, to 150 million flights a year, by working from the JetBlue playbook. Azul offers restricted fares at bus prices to leisure travelers who book ahead; features leather seats and TVs to attract business travelers who buy expensive tickets at the last minute; and flies direct routes to secondary airports opening new markets. The airline also uses small planes – Azul flies 106- and 118-passenger jets from Brazilian airplane manufacturer Embraer – to keep costs down and make less popular routes profitable.

David Beckerman, vice president in the Washington, D.C. office of OAG Back Aviation Solutions, a data and consultancy firm, thinks Neeleman is on the right track. “The populations are large enough in many Brazilian cities,” he says, “and with these smaller planes they can go into markets that GOL and TAM would shy away from.”

Which is exactly what Neeleman needs to do if he’s going to persuade a wide swath of middle-class Brazilian bus riders to make the jump to airplanes. “In the development of this country, air service is so critical,” he says. “People now take 33-hour bus trips to Salvador to see their families. If we can fly them, it’s a much better thing.”

Lessons learned from JetBlue

The mood at Azul’s Tuesday management meeting makes it feel more like a Silicon Valley startup than an airline. The young, multicultural executives (all but one are men) shift easily between English and Portuguese as they compare notes. All agree that the first six weeks have been good – Azul sold $7.5 million in tickets and flew 56,000 passengers between five cities. The plan now is to add a raft of new flights, including five daily from Sao Paulo to Rio de Janeiro (the “filet mignon of Brazilian air travel,” as Neeleman calls it). But Rio’s governor, Srgio Cabral, is refusing to open Rio’s desirable downtown Santos Dumont airport to Azul, and the airline has filed a lawsuit against Brazil’s aviation regulator, Agncia Nacional de Aviaço Civil. Meanwhile, Azul is using the more distant Galeo International Airport. “We need to add a big city to our network,” says marketing director Gianfranco Beting.

Finance director Rodgerson argues that it’s overkill to have five daily flights between Azul’s hub in Campinas – 55 miles northwest of Sao Paulo – and Rio’s secondary airport. Neeleman steps in. “We’ve got to be in Rio,” he says crisply. “There are 8 million people there. That’s just how it is.”

If there’s a recurring criticism of Neeleman, it’s his penchant for details – some would call it micromanagement. But it was his involvement in every aspect of JetBlue – from route choices to call-center wait times – that made it a success.

“He gets what the customer wants in a way that’s almost uncanny,” says Todd Thompson, a former JetBlue CIO who worked with Neeleman for three years. “He’s very interested in operations, almost too much so. I think David wants to keep his hands on the controls much longer than he probably can as the company grows.”

But Tim Claydon, who worked for six years as head of sales and marketing at JetBlue and regularly speaks with Neeleman, argues that his former boss has learned from his past mistakes.

“David loves to design solutions,” Claydon says. “I think he became frustrated by some of the complications that came with growth at JetBlue. David has learned to deal with the less sexy aspects of the business.”

Today Neeleman is doing just that, stopping at Azul’s call center to quiz the employees about customer feedback. Speaking to a class of call center trainees, he talks about meeting a woman on an Azul flight who’d never flown before – his ideal customer. After arriving in the executive offices, he sticks his head into a workroom and gently reminds his executives to speak to the call center people more. “We should go over there once a week and talk to 10 agents,” he tells them. “We think we know what happens. But they really know.”

For all his exuberance, Neeleman seems to understand his limitations. This time around he’s acting more like a chairman than a CEO. And he plans to cede more operational control to his management team than he did at JetBlue. “I’m here to get things going and start making money,” he says.

He’s also made sure that he has complete voting control over executive decisions. “At least I’m not going to get sucker punched like last time,” he says, sitting in his tiny office, which is undecorated save for a map of Brazil. “If someone has a problem, he’ll talk to me, not about me when I’m not around.”

But for all his tough talk, Neeleman wears his heart on his sleeve. Behind him his laptop radiates blue light into the room. The screen shows a plane flying past New York.

Brazil vs. the U.S.A.

Brazil: 196 million
U.S: 304 million
Brazil: 8.5 million square km
U.S.: 9.8 million square km
Cost to fly
Brazil: 20 cents per air mile
U.S.: 13 cents per air mile
Domestic flights
Brazil: 50 million per year
U.S.: 653 million per year

Cougar investigators find gearbox flaw from earlier alert

Investigators scouring the wreckage of the Cougar Helicopters S-92A that crashed or ditched off the coast of Newfoundland 12 March, killing 17 of 18 onboard, have discovered a broken main gearbox (MGB) component that was the subject of a 28 January alert from Sikorsky.

Alert Services Bulletin 92-63-014 called on operators to replace three titanium studs that hold the main gearbox oil filter bowl in place with steel studs within the next 1,250h or within one year, whichever occurred first.

In Canada, investigators have discovered a broken titanium stud in the crashed Cougar S-92A gearbox, a find that could explain the pilots’ reports of MGB oil pressure loss before the aircraft reversed direction and headed back toward land on the flight to oil rigs off the coast Thursday morning.

Flight International has learned that during a similar incident with a broken stud in Australia in early February, pilots reported a main transmission oil pressure warning and decreasing oil pressure. The crew in that case performed a forced landing on land and no one was injured.

Given the Cougar find, it is expected that the US Federal Aviation Administration and others will issue a directive that will ground the twin-engine heavy helicopters until the studs are changed out.

Discovery Will Clean Out ISS Sample Storage

Frank Morring, Jr./Johnson Space Center

Mission managers are carefully planning the space shuttle Discovery’s return from orbit to bring back some five months of biological samples from cold storage on the International Space Station (ISS) without letting them overheat.

The station’s freezer is full of blood, urine and other life-science samples scientists on the ground need for studying how humans adapt to long-term stays in microgravity, and it all must be kept at the proper temperature to be useful, according to Dan Hartman, ISS mission integration and operations manager here.

“What we’re trying to do is preserve the research,” Hartman said. “We basically have about a 125-hour clock.”

That is more than sufficient to keep the samples at the required temperature range between 4 and minus 20 degrees centigrade in special cold bags that will return in middeck lockers on Discovery, provided the orbiter goes through its normal undocking and landing sequence.

But in a worst-case scenario, with the landing extended by two days because of landing-site weather, the temperature requirements for science might not be met. To give the samples as much time as possible in the freezer, managers decided today to wait until Wednesday to close the hatch between the station and Discovery, instead of closing it on Tuesday.

The crews will move the samples into the cold bags as late as possible before the hatch is closed. The late closing will give the crew a little more scheduled off-duty time on Tuesday, but it will push back Discovery’s undocking Wednesday by four orbits — about six hours.

The mission management team here gained the flexibility to rejigger the schedule by the extremely smooth deployment of the station’s final solar array wing Friday morning. With engineers at Mission Control Center – Houston here watching over their shoulder electronically, the crew inched out the two halves of the final solar array wing out one at a time.

They stopped motion in the middle of each deployment to give the arrays time to warm in the sunlight to free chemical “stiction” between arrays jammed against each other in their launch boxes. The station also maintained a “solar inertial attitude,” with the sun beaming on the same side constantly, for more of the warming effect.

Each array measures 115-by-38 feet when fully extended. First the crew deployed the array designated 1B to the aft of the starboard end of the station truss, using thrusters on the forward-facing shuttle orbiter to maintain attitude control without damaging the unfolding array.

After that they switched control of the station to engines on the Russian side of the massive spacecraft, and deployed array 3B forward toward the orbiter. That array had been packed longer than its counterpart, and gave the crew their only bad moment of the deployment when one of the “bays” appeared out of line when it stopped at the halfway mark. After warming in the sun for about 45 minutes, the wrinkled bay flattened out as the array was cranked out to its full extension.

Throughout the deployment, the combined station and shuttle crews monitored the action on the arrays carefully, both through windows and with video displays on the laptops they use to manage the station’s systems.

NASA managers here were prepared to rewrite the scripts for the mission’s remaining two spacewalks if it was deemed necessary to go outside to correct a problem. But in the end the arrays deployed fully in a little more than two of the four-and-a-half hours allotted to the task.

Photo: NASA

FAA Prepares For Safety Management System

Kerry Lynch

FAA is targeting a June 30 release of an advanced notice of proposed rulemaking (ANPRM) laying the groundwork for requiring aviation operators and businesses to implement a Safety Management System (SMS).

FAA last month completed the initial ANPRM and sent it for Dept. of Transportation review. The ANPRM also must undergo Office of Management and Budget review.

Don Arendt, manager of FAA’s Flight Standards SMS Program Office, called the ANPRM “basically a fishing expedition,” a survey that seeks industry input on requiring SMS. The ANPRM is the first step toward a more forward rulemaking that would mandate SMS.

FAA defines SMS as “a management system for integrating safety activities into normal day-to-day business practices.” SMS is designed to help organizations integrate a systematic risk-based and process-oriented approach to managing safety. “The FAA is considering SMS rulemaking to further enhance the practice of managing safety and oversight of that management,” the agency said. “Such an approach stresses not only compliance with technical standards, but increases emphasis on those management systems.”

Current regulations impose technical standards for industry products and services, the agency said. “However, they do not address the framework within which the safety of those products and services are to be managed. SMS requires a proactive approach to discovering and correcting problems before they exhibit safety consequences. SMS also includes processes that seek to identify potential organizational breakdowns and necessary process improvements.”

Arendt stressed SMS is not a substitute for compliance nor oversight. SMS is not indicative of a “cozy relationship,” he added, but it is designed to establish a more cooperative, collaborative environment. “It’s about how to make safety decisions,” he said.

The ANPRM is expected to cover all aspects of aviation – from operators to manufacturers, maintenance organizations and other service providers. The rulemaking would create a new “Part” within the Federal Aviation Regulations to accommodate SMS, but also would include elements that would fold in with the existing FARs that apply to the different aspects of aviation, Arendt said.

The agency late last month convened a new Aviation Rulemaking Committee to develop recommendations for the comprehensive SMS rule (BA, March 9/105).

The ARC initially is made up of 12 people from across the industry, but Russell Lawton, the director of safety management for the Air Charter Safety Foundation who was appointed to the ARC, said that the membership will grow as working groups form to consider the application of SMS to various aspects of industry.

Chartered through February 2012, the ARC will review comments and develop recommendations for the rulemaking.

FAA is under an international directive to establish an SMS rule. ICAO established a January 2009 deadline for nations to adopt an SMS mandate. Most member nations – including the U.S. – have not yet met the requirement. Canada is one of the few nations to have an SMS rule in place.

Also, the FAA has established a pilot project to help organizations voluntarily implement SMS. The project, ongoing since 2007, currently has about 50 participants, and Arendt indicated that his office would be willing to work with other volunteers. The agency also has issued an order, 8000.36, which Arendt said basically states “we buy into SMS.”

But the agency currently has no guidance or procedures in place to formally approve SMS programs, which is worrying some international operators.

Flight Safety Foundation President Bill Voss acknowledged those concerns at the 2009 Air Charter Safety Symposium held earlier this month. His concerns were focused on liability protection, especially with the growing trend of criminalizing accidents. Companies must demonstrate that they have met best industry practices. But it would be difficult for U.S. organizations to meet those practices without an approved SMS program in place, Voss said.

Rafale Production Drop Confirmed

Michael A. Taverna/Paris

Dassault Aviation confirms that deliveries of Rafale fighters to the French air force and navy will slow as a result of redrawn priorities in France’s new 2009-13 defense spending plan.

The plan, currently awaiting parliamentary approval, is oriented towards protection of forces in the field, deep strike, force projection and ballistic missile defense. To help defray the cost of these initiatives, Cold War programs like the Rafale and Tiger helicopter will be cut back.

So far, however, the only concrete measure taken was the elimination last year of a squadron of nuclear strike aircraft.

But Chairman and CEO Charles Edelstenne said March 19 that the current rate of Rafale production, 1.2 aircraft per month, is headed for a sharp drop. The rate will decline from 14 this year to 11 annually starting in 2010 and will remain at this level — the minimum considered viable — even if one of several export deals in negotiation now leads to a breakthrough on the international market. Export sales, Edelstenne said, will simply allow French forces to stretch out their own deliveries further.

Despite the production rollback, the French government still intends to keep ordering new Rafales, at least for now. Last year, it converted eight options that had been created to help fund improvements to the aircraft to make it more attractive for export customers to firm up buys. The government has confirmed that it will purchase another batch of 60 aircraft this year.

Qualification of the F3 full multirole standard last year, along with a second deployment to Afghanistan, is expected to boost export chances. So is a slate of further improvements currently way, including an active array radar antenna.

Edelstenne declines to comment on Rafale export negotiations, including efforts by the United Arab Emirates — considered one of the most serious candidates — to find a buyer for its 60 Mirage 2000-9s. Last week, Laurent Collet-Billon, head of French armaments agency DGA, said France was not interested in taking back the 2000-9s. But he points out that training requirements would keep the Mirage 2000-9s in service at least through 2013-14.

He confirms that discussions are underway with the UAE to develop a higher powered hot-and-high version of the Rafale for its requirements. Executives at Snecma, which makes the Rafale’s M-88 engine, also confirm these reports.

US Airways Pilot Sullenberger Signs Book Deal

Chesley “Sully” Sullenberger, who brought a crippled US Airways jet to a textbook emergency landing on New York City’s Hudson River, will write a book about his life, but he won’t give up flying.

Publisher William Morrow said on Friday the pilot would work with a writer to produce two books.

The first, scheduled for release late this year, will be his autobiography. It will touch on his childhood, military service and the events that made him a hero. The second book is yet to be determined.

All 155 people survived the emergency landing after the Airbus A320 was struck by birds, blowing out the engines of the plane, moments after take-off from New York’s LaGuardia Airport in January.

The former US Air Force pilot’s grace under pressure made him a hero during glum economic times.

“Sully believes his life experience prior to the emergency landing was a preparation for that success; and that life’s greatest challenges can be met if we’re ready for them,” William Morrow said in a statement.

A spokesman for Sullenberger’s family, Alex Clemens, said in the statement that the pilot would be returning to his job with US Airways in June or July.

“While he has agreed to write a book about his life and the dramatic events of January 15, 2009, he is eager to return to his profession and the US Airways family of 34,000 employees in the near future,” Clemens said.