12/26 UA will file motion to change exisiting labor contracts

Aug 20, 2002
UAL to file motion next week that could eliminate labor contracts
Dateline: Thursday December 19, 2002
UAL Corp., parent of bankrupt United Airlines, said it intends to file a motion on Dec. 26 to ensure that the company remains in compliance with the financial requirements of its debtor-in-possession financing agreements.
The motion, under Section 1113 of the bankruptcy code, will allow the company to seek the bankruptcy court’s assistance if the company and its unions fail to reach consensual agreements on cost reductions by Feb. 15. The court potentially could throw out existing labor contracts.
United currently is attempting to cut $2.4 billion annually in labor costs, according to its flight attendants. The cuts are necessary if the airline is to be permitted to tap into the second part of the $1.5 billion in DIP financing it has arranged.
UAL said it presented its business plan and cost-reduction proposals to its unions, which are considering them, and that it is committed to achieving consensual agreements. The airline's pilots, represented by the Air Line Pilots Assn., said they understand the filing is “purelyâ€￾ procedural. “The company talks about a commitment to forging consensual agreements. We hope they mean what they say, but so far the process they have employed gives us pause and concern,â€￾ ALPA said.
Please do the right thing folks.


Aug 20, 2002
Given that ATSB financing is dependent on hitting the revenue goals; do these numbers indicate that such goals are un-obtainable even if all the Unions were to agree to the new concession packages?


Airline Shares Fall After More Bad News

AP Business Writer

December 18, 2002, 4:20 PM EST

NEW YORK -- The most recent bad news from the airline industry shocked even the pessimists, sending stock prices sharply lower on Wednesday and forcing analysts to reconsider widely-held assumptions.

Shares of American, Delta, Continental and other major carriers fell after data from an industry group showed that revenue fell 1.5 percent industrywide in November compared with the same month a year ago.

While the decline might appear inconsequential, it caused a stir because it showed the situation worsening just when everyone thought it was improving, however minimally.

"Frankly, we're surprised by the magnitude of the deterioration," said Jamie Baker, an analyst at J.P. Morgan who had predicted a year-over-year November revenue increase of 1.8 percent.

"While a single month of weak results ... doesn't reverse our belief that revenue trends will improve in 2003, it does chip away somewhat at our conviction," Baker said in a report.

Airline analysts and executives paid little attention to comparisons made between the industry's financial performance in September and October with its performance during the same months in 2001.

After all, the logic went, this year's data would undoubtedly look better than last year's because of the sharp decline in travel in the months immediately after the terrorist attacks.

But that logic was debunked after the Air Transport Association, an industry trade group, released the November revenue data late Tuesday.

Comparing November 2002 revenue with November 2000 revenue -- a 20.6 percent drop -- was no less disappointing, analysts said.

"This is not only worse than October's 16.9 percent drop, but the largest decline all year when compared to 2000," said Michael Linenberg, a Merrill Lynch analyst.

Shares of American fell 80 cents, or nearly 11 percent, to close at $6.64 on the New York Stock Exchange. Delta's stock dropped $1.02, or 8 percent, to $11.90 on the NYSE, where shares of Continental slumped 75 cents, or nearly 10 percent, to $6.99.

Copyright © 2002, The Associated Press


Aug 20, 2002
From Reuters, the same story.


November revenues for U.S. airlines dismal
Wed December 18, 2002 02:06 PM ET
By Kathy Fieweger
CHICAGO, Dec 18 (Reuters) - U.S. airlines are still struggling with declining revenues, new data shows, just as they head into the slowest travel period of the year and face more damage from a potential invasion of Iraq.

For an industry still depressed after the Sept. 11, 2001, attacks, key measures of financial health have yet to recover as fares remain low and fewer people fly.

One of those gauges, November revenue per available seat mile, or unit revenue, fell 1.7 percent systemwide over the year, according to airline analysts. That was bad news considering how poor the November 2001 results were following the Sept. 11 attacks.

Domestically, this November's unit revenue dropped 5.6 percent to the lowest absolute result in eight years, according to Merrill Lynch.

The industry trade group known as the Air Transport Association released the data only to Wall Street firms late Tuesday, as is its usual practice.

Most analysts were predicting a slight increase in the systemwide unit revenue figure and were surprised by the drop.

"November system revenue sank 11.2 percent from October, considerably below our minus 8.5 percent estimate," said JP Morgan analyst Jamie Baker. "These are obviously weak results .... Industry trends deteriorated in November, having largely held stable (though weak) over the past several months."

Gary Chase, analyst at Lehman Brothers, also said the data shows that demand for air travel remains stubbornly weak.


"While the industry is managing the capacity equation aggressively, pricing weakness persists, boding ill for overall industry demand and quelling the hopes of some that a pricing recovery was budding," he said.

Susan Donofrio of Deutsche Bank said the data show that airline industry revenue is not going to recover in a straight line as in the past.

Major U.S. airline stocks fell after the data's release. AMR Corp. AMR.N -- parent of American Airlines, the world's largest carrier -- fell 11 percent and No. 3 carrier Delta Air Lines DAL.N fell 8 percent, both on the New York Stock Exchange.

Plagued by high debt and low revenues, UAL Corp.'s, parent of United Airlines UAL.N , the No. 2 U.S. airline, filed for bankruptcy protection two weeks ago, following rival US Airways Group UAWGQ.OB . US Air, the No. 7 U.S. airline, filed for bankruptcy in August and has yet to file a reorganization plan with the court.

Merrill Lynch's Mike Linenberg said that without a material improvement in industry revenue, major U.S. airline stocks are likely to be confined to a broad trading range.

"A sustainable share price rally is not likely to occur unless fundamentals improve markedly," he said.

Baker of JP Morgan said while he would not expect stocks to retest their October lows, he advises waiting for about a 15 percent correction in prices before adding to positions.

"Seasonality and bankruptcy aren't reasons enough to own the airlines; revenue recovery must occur next year, in our view," he said. "Based on November results, the industry has taken a step in the opposite direction."


Sep 16, 2002
Contractors eye United work

3rd-party firms are prepared to step in

By Jack Naudi


December 19, 2002

The future of United Airlines' maintenance center in Indianapolis could rest somewhere in Alabama, North Carolina, Florida or Texas.

Those warm-weather states are home to about 100 Federal Aviation Administration-certified companies that repair and maintain aircraft for many U.S. passenger and cargo airlines. Those companies, along with a few on the West Coast, could easily take over all of United Airlines' vast maintenance operations in as little as three or four months, said one aviation expert.

"I doubt that you would see United get to 100 percent (outsourcing of maintenance), but it will get larger," said Bruce Strand, president and chief executive of Denver-based Strand Associates Inc.

For example, Pemco Aviation Group sure would like a piece of United Airlines' maintenance business.

The company is hardly alone.

With United looking to cut costs amid last week's bankruptcy filing, Pemco is among dozens of small and midsized companies coveting the possibility of getting more work for aircraft maintenance operations. That work could very well include the maintenance of Boeing 737s and 757s now done by United workers in Indianapolis.

"If they determine they wanted to outsource . . . we would love to do that work," said Doris Sewell, vice president of legal and corporate affairs for Birmingham, Ala.-based Pemco.

The reason for United's possible interest is simple. The outside companies typically charge airlines from $45 an hour to $55 an hour for maintenance work. A United mechanic earns $30 to $35. Strand figures that when benefits and overhead are added, United pays close to $80 per hour to repair a plane in-house.

With United in bankruptcy court, striving to cut costs to survive, maintenance is a logical place to start. Wages for the company's 13,000 mechanics, including the 1,125 to 1,225 in Indianapolis, cost the company close to $1 billion a year. The company will spend an additional $500 million this year on nonwage costs for its aircraft maintenance operations.

By contract with its mechanics union, United cannot outsource more than 20 percent of its maintenance work. Today, the work the company does farm out goes mainly to TIMCO Aviation Services in Greensboro, N.C., and ST Mobile Aerospace Engineering in Mobile, Ala. Representatives from both companies declined to comment for this story.

Although exact numbers are not known, United probably is "well behind the curve" compared to its competitors in outsourcing maintenance work, Strand said. Globally, airlines spend about $37 billion on aircraft maintenance, with about half going to third-party maintenance companies.

A bankruptcy judge could soon remove United's chief obstacle to outsourcing a large chunk of its work: the company's contract with its mechanics union. Besides the limit on outsourcing, the contract prohibits United from closing any of its three primary maintenance centers in Indianapolis, San Francisco and Oakland.

If the judge guts those provisions, every part of United's maintenance operation could easily be outsourced, Strand said.

"Indianapolis has a very real challenge on its hands to make sure that some of that very modern facility is used, if not by United, then by someone else," he said.

Local mechanics have beat a steady drum against the third-party maintenance companies, suggesting that the quality of work is sub-par.

In fact, FAA records show that third-party vendors have relatively solid safety records. One exception was last year when a TIMCO repair center failed to reinstall fuel system components on a United-owned Boeing 737. In that case, United was fined $200,000 because it bears ultimate responsibility for the planes.

To put that in perspective, however, the FAA during the past year has proposed or collected fines totaling $2.3 million on American Eagle, $1.4 million on United, $300,000 on Saber Cargo and $170,000 on American Airlines for various maintenance-related violations by the companies' mechanics.

The third-party company operations are subject to the same level of scrutiny as those run by the airlines, said an FAA spokeswoman.

"If they are not safe, we do not allow them to continue to function," said Elizabeth Corey, a spokeswoman for the FAA. "We consider all of them safe."

So does Stan Mackiewicz, executive director of maintenance technology for Embry-Riddle Aeronautical University in Daytona Beach, Fla.

Embry-Riddle has one of the leading aircraft maintenance education programs in the country, and many of its graduates work today for United. Many also work for the third-party companies in the Southeast, he said.

"The quality (of those companies) has to be equivalent, if not better (than the airlines)," he said.

At Pemco, all of the mechanics hired must have previous experience, Sewell said. Most of them worked for regional airlines or in general aviation, repairing turboprop planes and small jets.

Not all airlines, however, see the third-party vendors as a benefit. For one, Indianapolis-based American Trans Air does all of its maintenance in-house. Most of the work is performed at Indianapolis International Airport and Midway International Airport in Chicago.

"I don't know who espouses the theory that it's cheaper to do it outside, but that is not the case for ATA," said Jim Hlavacek, the company's chief operating officer.

ATA mechanics, however, earn on average about $20 per hour, roughly 40 percent less than United mechanics. But Hlavacek said conducting all of the maintenance in-house also offers the airline considerable flexibility that it would not have by farming out the work.

"It gives you better control on the type of maintenance," he said. "And let's say the FAA comes out with some modification. You can work that right into your schedule (of regular maintenance). You know exactly what is scheduled."

The third-party companies also are facing the same economic hardships that have struck major airlines such as United.

TIMCO, for example, has been restructured in the past year. The company has sold several unprofitable units and only recently extricated itself from more than $400 million of debt.

Lockheed Martin, the military aircraft giant, is trying to sell its small commercial aircraft maintenance operation in Greenville, S.C. "It's difficult for us to compete with the third-party providers," said company spokesman Dave Jewell.

At Pemco, sales fell nearly 15 percent in the third quarter compared with the same period a year earlier.

But at least Pemco remains profitable. One of the largest airline maintenance outsourcers, San Antonio-based Dee Howard Aircraft Maintenance, filed for bankruptcy late last year and its assets eventually were sold to ST Mobile.

Despite those blips for third-party companies, Strand figures it's not a matter of whether United, if allowed, would outsource more maintenance work; it's more like how much.

"I think the economics are going to drive United to take advantage of more outsourcing," he said. "Whether they totally outsource the work in Indianapolis . . . it will be completely an economic issue."


Aug 21, 2002
== The third-party company operations are subject to the same level of scrutiny as those run by the airlines, said an FAA spokeswoman.

"If they are not safe, we do not allow them to continue to function," said Elizabeth Corey, a spokeswoman for the FAA. "We consider all of them safe." ==

Sure. The FAA also said there were no problems at Alaska Airlines either, even when the employees there where calling the hotline. Buncha fluff.