Are the Bankruptcy Dominos Falling?

Aug 25, 2002
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www.usaviation.com
While USAir''s bankruptcy reorganization seems headed in the right direction (although a bidding war might be about to break out for the right to control it, and some very unsavory players might soon step out from the shadows looking for that very opportunity) the rest of the industry seems set to play out the nightmare scenario of following it right into bankruptcy court. September loads and RASM are well below plan and advance bookings seem to have fallen off a cliff. The loan window over at the ATSB is now closed (except, maybe to UAL). And, most troubling, Wall Street has completely abandoned airline securities. Todays tape tells the sad tale: AMR has broken under 5 (down 50% in two weeks!), DAL is about 12 and CAL now has a 6 handle. And UAL . . . well its trading exactly where USAir traded on the eve of its filing. The collective market capitalization of all these carriers wouldn''t pay for USAir''s international fleet!!! Worse, the listed, publicly traded debt of UAL and AMR are trading at levels implying that filings are near (UAL at twenty cents on the dollar and AMR at babout fifty cents on the dollar) . . . and these prices are for bonds that have real maturity dates and pay real interest (at north of 20%) until that time!!!! Something is very, very wrong with this picture.
 
Actually, right now is a great time to buy some really cheap airline stocks. Certain ones, of course. You don't have to look very hard to see that right now all of wall street is in a funk, but just like the bubble of yesteryear, these numbers will also change direction, this time heading up. The bottom line is that no country can survive without their infastructure, that is, things like airlines, railroads, powerplants, etc. The government would not/could not, stand by and watch too many more airlines fall to BK before they stepped in once again, and started handing out some cash. The government pays the airlines BIG money in yearly contracts, to be able to use their planes in times of need. Times of need, like hauling troops overseas. Consider... How many times have they bailed out Conrail, each time saying no more! It's simple, if infastructure were allowed to live and die like normal businesses, Conrail would have disappeared years ago, they can't have that. Talk to any money manenger, if you don't believe me. They may let UAL go into BK, but that would be about it. Also, don't forget face. Do you think the government is going to stand by and watch all the airlines go down the drain, basically saying to the world, Osama won! Not likely.

Don't worry, it may take awhile, but this cycle will change for the better just like every other one has, including the one that was the great depression.
 
PHL: The stock quotes you see for USAir are taken from the pink sheets which is a loose amalgam of direct, dealer-to-dealer transactions. USAir is no longer EXCHANGE-TRADED and it is generally expected (the company has even said so) that the existing equity issue will be cancelled as part of the Plan of Reorganization. Yes, the stout-hearted may continue to day trade USAir common, but a sunset is clearly in sight. I wouldn't classify USAir common as even a zombie per my last post -- these shares are about to become worthless, like Enron, Worldcom and Kmart shares. Do yourself a favor and don't go there.

Meanwhile, the total devastation of the securities of all other mature, network carriers continues to amaze, confound and shock.
 
USAir go out of business?? The point of this string wasn't to ridicule any particular airline. Rather, it was to note (with shock and horror) what the public securities markets have done in the last few weeks to the stocks and bonds of virtually all major airlines. (USAir common hasn't even traded on an exchange in that time, due to the Ch.11 filing). No sir, it would appear that the entire industry has been given the telco/telecom treatment by Wall Street -- the shares and bonds are regarded as Chineese money and their issuers seen as some kind of zombies, the walking dead.
 
Our industry as a whole is about to fly off the edge of the world it seems. All the ideas about how to run a sucessful airline are out the window and new ideas must be formed and implemented. The only question is by whom and when. When that is answered, you will know the names of the carriers who will be solid and sucessful in the year 2010 and beyond.

I personally hope US is one of them, since I now own through my union 2% of the NEW stock in the NEW USAirways.
 
USAirways stock(UAWGQ) went from .50 to .62 the day after the IAM and CWA contract ratifications were announced. That's about a 24% rise, which is significant. It ended up closing around .55. If we see nothing but good news in the coming months(good offers, DOT approval of UA/US, come out of BK), then I would expect it to inch it's way back above a dollar.


Disclaimer: This is pure speculation, of course. I'm not encouraging or discouraging the purchase of this stock. :)
 
[blockquote]
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On 9/20/2002 9:24:47 AM Oliver Twist wrote:

Our industry as a whole is about to fly off the edge of the world it seems. All the ideas about how to run a sucessful airline are out the window and new ideas must be formed and implemented. [/blockquote]

WN and B6 seem to have some ideas on how to run a successful airline.
 
In a true economic model --- The would be no Railway Labor Act, no labor monopoly by the unions, and airlines could lower their costs.

The government is not going to let the large network carriers disapear and it is not going to subsidize the bloated compensation of airline labor which is exactly why many will reorganize in the bankruptcy courts.


The Railway Labor Act does not seem to be hurting Southwest, the most heavily unionized airline in this country. But, I will not argue that many airline labor groups are over paid. However, they are not over paid nearly as much as airline management groups. Get your own house in order, and I will be glad to lower my wages accordingly.
 
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On 9/19/2002 11:05:37 PM flaptrack wrote:

In the true economic model --- US Airways should go out of business with out any help from the Government. But US serves Washington DC and those people are gutless.
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[/blockquote]

In a true economic model --- The would be no Railway Labor Act, no labor monopoly by the unions, and airlines could lower their costs.

The government is not going to let the large network carriers disapear and it is not going to subsidize the bloated compensation of airline labor which is exactly why many will reorganize in the bankruptcy courts.


What will you do without freedom? Mel Gibson in Braveheart
 
True Economic Model? What the heck would that be? The perfect free market competition the neoclassical economists talk about? It's even less meaningful than the ideal gas chemists talk about in 10th grade Chemistry class! Especially in the airline industry!

The airline industry was founded on government support: Remember the airmail runs in the early days? Then it was shaped by the Spoils Conference when the country was carved up amongst 4 airlines by government officials. Though this was later exposed in scandal during the New Deal era, the oligopoly stuck for a long time and a cozy corporate welfare supported system persisted for decades until the government decided it was time to play 52-card pickup with deregulation!

Pronouncements about a True Economic Model just cloud the issue. I think a more concrete historically based analysis will go a lot farther towards understanding the situation than free market fundamentalism.

-Airlineorphan
 
DL Gold Medallion, Southwest is worried. I've chatted with some of their upper management folks. Most scratch their heads and wonder why the press reports they are so successful when they are pulling in less than a 8% profit margin. As one of them said: That just isn't acceptable in most businesses. So, to answer your question, yes, Southwest is successful in the current cesspool of airline success stories. However, even they don't think it's something to cheer about.
 
Re-regulation of sorts could indeed be in the future . . . but only if Ch.11 first claims AMR in addition to UAL. A real threat exists out there, in industry after industry where failed business models are cutting a swath of devastation, that enterprises that are zombies of sorts (living dead) but refuse to liquidate, instead using Ch.11 to throw off debt and emerge able to wreck havoc on their former competitors, will condemn those industries to round after round of serial insolvencies. Think of the impact that TWA had on the airlines in the prosperity of the late '90s and then consider what damage the bankrupt WorldCom is capable of inflicting on reeling, but still solvent telcos like AT&T, Verizon, SBC and Sprint when it emerges. Now think of what the future could hold for civil aviation after USAir and UAL get done with their restructuring . . . and if that inevitably condemns AMR and then DAL, NWAC and CAL to the same, does that mean that USAir and UAL will have to go in again for Round 2? That's what might drive reregulation (if anything can).