Too many clowns and not enough circuses. I will be available via phone should the need arise. You have my permission to use this as you see fit.
Warmest regards,
Don
Don M. Hollerbach CPA, CFE, CVA, CDFA
Memorandum
To: My Fellow Pilots and Families
CC: Record
From: Don M. Hollerbach CPA, CFE, CVA, CDFA
Date: 9/11/2004
Re: Memo for Record 040910
Ladies and Gentlemen:
Please excuse my absence from the meeting today but I have chosen to attend my son’s varsity football game which at this point is important to me given the time that I have already invested in this process that has ended with no resolution. I have already missed three of them and choose not to miss any more. Given the position that the pilot group and the company are in, it is even more important to spend time with family as it is readily apparent that we are headed for Armageddon.
The Financial State of the Airline
Let there be no mistaken impression, the airline is in dire financial condition. The cash position is poor and the forecast is for a cash burn that if unchecked will cause the company to be unable to meet its obligations as a going concern. There are creditors that have access to the cash in the treasury if certain covenants are not maintained and the covenants will not be maintained given the future projections. Once the cash position is breached, the airline will probably begin to shed assets as the lease agreements will not be fulfilled. Certain lease agreements are for airplane assets that currently are below market and the leasor will reclaim those assets in order to release them for a higher net lease and the leasee has already been identified—and it is not US Airways.
The credit rating is going down like an anvil. As the credit rating goes down, certain groups have the ability to demand cash on deposit in order to provide services that we need. They do this in order to reduce their business risk while dealing with the Company. This is another drain on the cash position.
Revenues are suffering the effects of pressure on the marketplace. Revenue projections are down due to this pressure and while restructuring the revenue generation of the airline, our costs have not been restructured and the gap remains wider than necessary which once again affects, you guessed it, cash.
I have been granted access to the company’s books of financial record, the covenants associated with the loans, the loan documents themselves, the agreements with most of the credit card companies and the financial model of the restructuring plan. In concert with Michael Glanzer, Robin Gise of Cohen, Weiss & Simon, Amy Alperi of ALPA Economic & Financial Analysis and other professionals, we conducted reviews using methodologies that replicated audit by exclusion. We are going into bankruptcy without any unencumbered assets which means that we are hocked up to our ears and beyond. Everything is mortgaged and we have nothing of real value to borrow against. We are eating ourselves and the only thing to sustain us is current cash flow. Period.
Our current audit opinion letter that accompanied the audit report of last year signals the trouble we are in by an outside audit firm. Going concern is a concept that questions our ability in our current condition to sustain ourselves as a business. The auditor put the world on notice that there was a definite concern that we would be able to continue. I can only assume that given the current situation that his paragraph in the opinion will remain and may be more strongly worded.
The Glanzer Report
I find nothing materially misstated in this report. Unlike the PHL First Officer representative who asserts that he came to a different set of conclusions based on no formal financial training, professional expertise or study of the relevant facts on any other level other than a cursory one, I find the report reasonably accurate based on the facts as we know them today. Given the professional resumes of the two contrasting views, I would tend to believe the professional and discount heavily the opinion of the amateur in this area as would any prudent investor or reader.
Dysfunctional Paternalism
There should not be any confusion about the process that has occurred over the past months. There has been deceit and manipulation of the negotiating process by the PIT and PHL representatives. It is documented and verifiable. In my estimation, I have wasted 4 months of my life involved in a process that was doomed from the start because the constraints that were placed in the way of a negotiated settlement prior to bankruptcy and the conduct of those individuals.
The four representatives from PHL and PIT have shown via the roll call vote their lack of faith in the pilot group and have attempted to save you from yourselves. They have denied the 3,000+ pilots of USAirways the right of self determination. Because of that, we are where we are heading into bankruptcy with no protections at all for our contract. But then, you were saved from yourself.
The Problem and the Solution
We are where we are. We are in a situation where we have a failing company and a decision to make as to whether we wanted to engage in a solution with the company or to wait for the outcome which the company and the creditors will dictate. Unfortunately, given recent events, we are in the second category. The company will be forced to make less than optimal choices because the ATSB, GE and the credit card companies are making the calls to protect their investments. Cash is King and he who controls the cash wins. The PIT and PHL representative have dictated this course for our group. I would expect the same stoned faced, indignant behavior from these individuals as we receive what the creditors deem appropriate for an economic solution. I would also expect no whining from them as they have decided for you that this is a better solution.
Leverage has always been the battle cry. Well, your leverage is gone. With no contract protection, there can be furloughs out of seniority, discipline without recourse, no scope protection at all and we as a group have become the leveraged. Welcome to the Full Nelson.
It will only be out of the benevolence of management that any reasonable solution will be obtained and that is not necessarily the best place to be but once again thanks to our reps from PHL and PIT we are where we are.
Dispelling Myths
1. A Promise to Pay Has as Much Value as Cash—In the world of valuation, a promise to pay cash has less value than the actual cash. It all goes back to the bird in the hand is worth two in the bush. Therefore, notional promises to pay cannot have the same value as cash flow today and to think otherwise has no support in theory or practice in the real world. Call the financial advisor or accountant of your choice and they will support this.
2. We Want a Promise to Pay—Given the truth of the statement above, everyone else in the world wants the company’s cash except the PHL and PIT reps and one member of the negotiating committee. Is everybody else in the world wrong and these individuals correct? So these misguided individuals would rather take a 23% pay cut and reduction in current cash available to them for use at their discretion to protect an unsecured debt and promise to pay in the future and not factor a discount to that promise to pay. The promise to pay is not cash. The company has already shown it’s unwillingness to pay cash as the LTD pilots did not get cash contributions to their DC but notional entries because the company was unwilling to deposit the cash. So guess what—the notional amount has less value in theory and in practice.
a. Get over it—a promise to pay (notional money) does not have the same value as cash!
b. Everybody else in the world wants the company’s cash so we should too because current cash pays current bills and results in the ability to survive—duuhhhhhh!
3. We Would Have Made A Profit Had We Not Paid The ATSB $250 Million Dollars—Once again, the PHL reps don’t get the fact that a payment of debt is not an expense but a reallocation of assets with a reduction in liabilities. I received a phone call that Ira Josephson reported the profit theory as true. Call whatever financial professional you want but this is not true and is blatantly false. If it were true, then every time you receive a loan for a car, you should show it as income on your personal tax return and every time you repay the loan you should take it as a deduction. It would be really horrible to have to report to the IRS that you have $200,000 of income based on a home mortgage for your house and you don’t have the cash to pay the taxes on it. So for the last time, this is not true and Pacioli, the Italian monk who is the father of accounting is rolling in his grave because some people are too stupid to get this after multiple explanations. Just take it as fact because there are just some things you need to believe like if you jump out of an airplane without a parachute, you are going to bust your ass.
What Should We Do Now
1. Personally thank the 4 individuals who have placed you in the situation that you are in because they have been protected you from yourself by not allowing you to voice your position by vote.
2. Go home and be with your family—Enjoy your loved ones and get reacquainted because very possibly, they may be all you have left.
3. Remove any restrictions from those who will go back into battle to try to salvage your careers because that task has been made monumentally more difficult because of the deceit and manipulation that has occurred to date.
4. Fly your airplanes and trips like they may be your last because that may very well be the case.
5. Personally thank the valiant who have struggled to provide you with your voice and who have been unable due to the misguided fools who go to such lengths to manipulate your lives.
I wish everyone good fortune under these trying times. I will be available via phone should anyone have a question.
Warmest regards,
Don M. Hollerbach CPA, CFE, CVA, CDFA
Warmest regards,
Don
Don M. Hollerbach CPA, CFE, CVA, CDFA
Memorandum
To: My Fellow Pilots and Families
CC: Record
From: Don M. Hollerbach CPA, CFE, CVA, CDFA
Date: 9/11/2004
Re: Memo for Record 040910
Ladies and Gentlemen:
Please excuse my absence from the meeting today but I have chosen to attend my son’s varsity football game which at this point is important to me given the time that I have already invested in this process that has ended with no resolution. I have already missed three of them and choose not to miss any more. Given the position that the pilot group and the company are in, it is even more important to spend time with family as it is readily apparent that we are headed for Armageddon.
The Financial State of the Airline
Let there be no mistaken impression, the airline is in dire financial condition. The cash position is poor and the forecast is for a cash burn that if unchecked will cause the company to be unable to meet its obligations as a going concern. There are creditors that have access to the cash in the treasury if certain covenants are not maintained and the covenants will not be maintained given the future projections. Once the cash position is breached, the airline will probably begin to shed assets as the lease agreements will not be fulfilled. Certain lease agreements are for airplane assets that currently are below market and the leasor will reclaim those assets in order to release them for a higher net lease and the leasee has already been identified—and it is not US Airways.
The credit rating is going down like an anvil. As the credit rating goes down, certain groups have the ability to demand cash on deposit in order to provide services that we need. They do this in order to reduce their business risk while dealing with the Company. This is another drain on the cash position.
Revenues are suffering the effects of pressure on the marketplace. Revenue projections are down due to this pressure and while restructuring the revenue generation of the airline, our costs have not been restructured and the gap remains wider than necessary which once again affects, you guessed it, cash.
I have been granted access to the company’s books of financial record, the covenants associated with the loans, the loan documents themselves, the agreements with most of the credit card companies and the financial model of the restructuring plan. In concert with Michael Glanzer, Robin Gise of Cohen, Weiss & Simon, Amy Alperi of ALPA Economic & Financial Analysis and other professionals, we conducted reviews using methodologies that replicated audit by exclusion. We are going into bankruptcy without any unencumbered assets which means that we are hocked up to our ears and beyond. Everything is mortgaged and we have nothing of real value to borrow against. We are eating ourselves and the only thing to sustain us is current cash flow. Period.
Our current audit opinion letter that accompanied the audit report of last year signals the trouble we are in by an outside audit firm. Going concern is a concept that questions our ability in our current condition to sustain ourselves as a business. The auditor put the world on notice that there was a definite concern that we would be able to continue. I can only assume that given the current situation that his paragraph in the opinion will remain and may be more strongly worded.
The Glanzer Report
I find nothing materially misstated in this report. Unlike the PHL First Officer representative who asserts that he came to a different set of conclusions based on no formal financial training, professional expertise or study of the relevant facts on any other level other than a cursory one, I find the report reasonably accurate based on the facts as we know them today. Given the professional resumes of the two contrasting views, I would tend to believe the professional and discount heavily the opinion of the amateur in this area as would any prudent investor or reader.
Dysfunctional Paternalism
There should not be any confusion about the process that has occurred over the past months. There has been deceit and manipulation of the negotiating process by the PIT and PHL representatives. It is documented and verifiable. In my estimation, I have wasted 4 months of my life involved in a process that was doomed from the start because the constraints that were placed in the way of a negotiated settlement prior to bankruptcy and the conduct of those individuals.
The four representatives from PHL and PIT have shown via the roll call vote their lack of faith in the pilot group and have attempted to save you from yourselves. They have denied the 3,000+ pilots of USAirways the right of self determination. Because of that, we are where we are heading into bankruptcy with no protections at all for our contract. But then, you were saved from yourself.
The Problem and the Solution
We are where we are. We are in a situation where we have a failing company and a decision to make as to whether we wanted to engage in a solution with the company or to wait for the outcome which the company and the creditors will dictate. Unfortunately, given recent events, we are in the second category. The company will be forced to make less than optimal choices because the ATSB, GE and the credit card companies are making the calls to protect their investments. Cash is King and he who controls the cash wins. The PIT and PHL representative have dictated this course for our group. I would expect the same stoned faced, indignant behavior from these individuals as we receive what the creditors deem appropriate for an economic solution. I would also expect no whining from them as they have decided for you that this is a better solution.
Leverage has always been the battle cry. Well, your leverage is gone. With no contract protection, there can be furloughs out of seniority, discipline without recourse, no scope protection at all and we as a group have become the leveraged. Welcome to the Full Nelson.
It will only be out of the benevolence of management that any reasonable solution will be obtained and that is not necessarily the best place to be but once again thanks to our reps from PHL and PIT we are where we are.
Dispelling Myths
1. A Promise to Pay Has as Much Value as Cash—In the world of valuation, a promise to pay cash has less value than the actual cash. It all goes back to the bird in the hand is worth two in the bush. Therefore, notional promises to pay cannot have the same value as cash flow today and to think otherwise has no support in theory or practice in the real world. Call the financial advisor or accountant of your choice and they will support this.
2. We Want a Promise to Pay—Given the truth of the statement above, everyone else in the world wants the company’s cash except the PHL and PIT reps and one member of the negotiating committee. Is everybody else in the world wrong and these individuals correct? So these misguided individuals would rather take a 23% pay cut and reduction in current cash available to them for use at their discretion to protect an unsecured debt and promise to pay in the future and not factor a discount to that promise to pay. The promise to pay is not cash. The company has already shown it’s unwillingness to pay cash as the LTD pilots did not get cash contributions to their DC but notional entries because the company was unwilling to deposit the cash. So guess what—the notional amount has less value in theory and in practice.
a. Get over it—a promise to pay (notional money) does not have the same value as cash!
b. Everybody else in the world wants the company’s cash so we should too because current cash pays current bills and results in the ability to survive—duuhhhhhh!
3. We Would Have Made A Profit Had We Not Paid The ATSB $250 Million Dollars—Once again, the PHL reps don’t get the fact that a payment of debt is not an expense but a reallocation of assets with a reduction in liabilities. I received a phone call that Ira Josephson reported the profit theory as true. Call whatever financial professional you want but this is not true and is blatantly false. If it were true, then every time you receive a loan for a car, you should show it as income on your personal tax return and every time you repay the loan you should take it as a deduction. It would be really horrible to have to report to the IRS that you have $200,000 of income based on a home mortgage for your house and you don’t have the cash to pay the taxes on it. So for the last time, this is not true and Pacioli, the Italian monk who is the father of accounting is rolling in his grave because some people are too stupid to get this after multiple explanations. Just take it as fact because there are just some things you need to believe like if you jump out of an airplane without a parachute, you are going to bust your ass.
What Should We Do Now
1. Personally thank the 4 individuals who have placed you in the situation that you are in because they have been protected you from yourself by not allowing you to voice your position by vote.
2. Go home and be with your family—Enjoy your loved ones and get reacquainted because very possibly, they may be all you have left.
3. Remove any restrictions from those who will go back into battle to try to salvage your careers because that task has been made monumentally more difficult because of the deceit and manipulation that has occurred to date.
4. Fly your airplanes and trips like they may be your last because that may very well be the case.
5. Personally thank the valiant who have struggled to provide you with your voice and who have been unable due to the misguided fools who go to such lengths to manipulate your lives.
I wish everyone good fortune under these trying times. I will be available via phone should anyone have a question.
Warmest regards,
Don M. Hollerbach CPA, CFE, CVA, CDFA
