Boyd's Perspective On a UAL Bankruptcy


Aug 19, 2002
[FONT face=Arial Black][EM][FONT color=#000080 size=4]A United Airlines Bankruptcy[BR][BIG]The Fallout Will Be Different Than The Academics Predict[/BIG][BR][/FONT][FONT color=#808080]There Is No Precedent To This One[/FONT][/EM][/FONT]
[P][FONT face=Arial Narrow color=#000000]It almost seems that some people really would like to see United go into Chapter 11. They view a UA bankruptcy as some sort of cleansing ritual that will improve the airline industry. Bring labor costs down. Reduce capacity. Bring rationality to the marketplace.[/FONT][/P]
[P][FONT face=Arial Narrow color=#000000]Yeech. These folks are latter-day descendants of that Dickens character - the French bimbo who brought her knitting along while she entertained herself watching the guillotine do its thing. It''s seems the same with a potential UA bankruptcy. Seeing other people suffer can be fun for some. Knit-one, pearl-two, as they witness thousands of people having their economic lives snuffed out. Since it doesn''t affect them, it''s a show. Or so they think.[/FONT][/P]
[P][FONT face=Arial Narrow color=#000000]Write this down. If United goes Chapter the results will be very different from what these detached-from-reality academics are predicting. Economic gore will splatter in all directions. There will be nasty fallout for the airline industry, the airport industry, and the national economy in general. [/FONT][/P]
[P][FONT face=Arial Narrow color=#0000ff][STRONG]No, It Won''t Be Like Continental''s Bankruptcy.[/STRONG][/FONT][FONT face=Arial Narrow color=#000000] Or, for that matter US Airways'', either. Those airlines had a plan when they went into Chapter 11. United hasn''t had a clear direction for years. The last CEO squandered a couple hundred million on a merger that United later cancelled, and tossed maybe $50 million more into a mis-conceived business jet fiasco. As far as having a vision for United Airlines, Ray Charles could have done better.[/FONT][/P]
[P][FONT face=Arial Narrow color=#000000]The new CEO is, apparently, still in a learning curve. There are indications he''s hired big-name outside companies to help him determine the extent of United''s troubles. He''s looking for ways cut more costs. He''s engaged in efforts to gain the cooperation of United''s (here''s that dreaded word) stakeholders. [EM]All of which is exactly what United cannot afford right now.[/EM] It''s out of time. If it has to hire outsiders to tell it what''s wrong, the Fat Lady can start singing now. If a bankruptcy is filed, it won''t be part of a clear plan to manipulate United out of the mess. Instead, it will be a last-ditch attempt to buy time and conserve cash. It will be another reaction. And United got into this mess by reacting. [/FONT][/P]
[P][FONT face=Arial Narrow color=#000000]Some people seem to think that Chapter 11 is just an action where United will clean up its balance sheet, bludgeon labor to a bloody and lower-paid pulp, and emerge lean and mean to the benefit of the entire industry. This, too, isn''t necessarily so. Just filing bankruptcy does not get more $$ into the till. That''s United''s biggest problem. Not costs, but revenues. Chapter 11 does nada to bring in more revenues. So, if revenues don''t increase, with or without filing Chapter, the fact is that United is dead. Gone. And, please, anybody who says that such an outcome would be good is full of canal water. [/FONT][/P]
[P][FONT face=Arial Narrow color=#000080][STRONG]The Outcomes of Bankruptcy[/STRONG][/FONT][/P]
[P][FONT face=Arial Narrow color=#000000]Let''s look at how the aviation industry would be affected by a UA Chapter 11 filing.[/FONT][/P]
[P][FONT face=Arial Narrow color=#000000][STRONG]Aircraft Lessors[/STRONG]. A lot of financial institutions will find their aircraft collateral sinking faster than McCain doing one-liners on Saturday Night Live. United is already parking 747-400s as they come up for D-checks. Maybe a dozen are in the desert already, or on their way. In this environment, it''s not very likely that all of these out-of-time behemoths will be picked up by other airlines. United isn''t likely to pony up the cash to get them into heavy maintenance, either. The result is that the next time the public sees some of these planes, it will be in a Budweiser display at their local supermarket. The point is that these aircraft are ending their careers years early and their projected residual values are dropping into the tank. Big hits for the financial institutions and lessors who are holding the paper on these machines. Some may be wounded lethally. Outcome: when the industry begins to recover, the cost of financing new aircraft will be much higher, if they can find anybody wanting to take the risk. [/FONT][/P]
[P][IMG height=396 alt=Denver1.gif (15197 bytes) hspace=15 src= width=424 align=right vspace=15][FONT face=Arial Narrow color=#000000][STRONG]Airport Financing.[/STRONG] United is a lynchpin supporting the financing of some airports. The bond houses that have foisted Denver International''s bonds have made it clear that it''s the health of UA on which that airport depends. United goes into Chapter, reduces flights, delays or halts payments, and Denver International will see its bond rating go into the ceramic fixture. As it stands, all of the airports where United has connecting hubs are projected to see traffic declines through 2004, according to Airports:USA, our annual forecast of enplanements. That alone is damaging. In a Chapter 11 situation, it could be a lot worse. But the damage goes well beyond SFO or DEN. A United bankruptcy would chill interest in virtually all airport financing, making it more expensive for airports across the nation to get the funding they need in the future. [/FONT][/P]
[P][FONT face=Arial Narrow color=#000000][STRONG]Regional Airlines.[/STRONG] We can expect to hear the usual suspects in the media trumpet how regional airlines will continue to prosper, even with a United bankruptcy. Wrong. Carriers operating as United Express, such as Skywest and ACA are tethered to the future of United. If it goes into bankruptcy, its regional partners will see their revenues hammered as well. If, as a doomsday scenario, United can''t get out of Chapter and goes completely down, it will deal a near-lethal blow to its regional partners as well. You cannot find homes quickly for 40 to 60 CRJs.[/FONT][/P]
[P][FONT face=Arial Narrow color=#000000][STRONG]Air Service Levels[/STRONG]. If United cuts service to small or mid-size communities, there is no guarantee that there will be any replacement. The academics tell us that the elimination of capacity will be good. What they don''t know is that the elimination will not be uniform, and it will affect cities that are by and large not over-served, and can ill-afford to lose any air service. [/FONT][/P]
[P][FONT face=Arial Narrow color=#000000]These are just the economic issues. There are human costs and human victims of a bankruptcy filing. The small vendors who can''t make payroll when they find they''re just unsecured creditors. Employees out of work (and there will be layoffs.) Small airports and other vendors finding that anything United paid them within 90 days of the filing the court wants back. The list goes on and on.[/FONT][/P]
[P][STRONG][FONT face=Arial Narrow color=#000080]Can United Avoid Bankruptcy?[/FONT][FONT face=Arial Narrow color=#000000] [/STRONG]Six weeks ago, yes. Now, after the public has been spooked with all the media stories, maybe not. One thing to think about. Amid all the efforts to turn the airline around, it seems one United stakeholder is rarely mentioned, and clearly not much considered. But it''s the one that really holds the future of United. The one that is being alienated. It''s the [EM]customer[/EM], and the business travel customer in particular. Instead of seeking ways to increase the value perception of United, its management has instead almost gone out of their way to run these people off. Closing lounges for million-mile passengers, implementing dumb fare rules, assuring no waivers and favors. [/FONT][/P]
[P][FONT face=Arial Narrow color=#000080][STRONG]The Solution''s On The Other Side of The Balance Sheet. [/STRONG][/FONT][FONT face=Arial Narrow color=#000000]What Glenn Tilton should have done by his third day in office was to start crafting a plan to assure that United would be the airline of choice everywhere it flies. A plan that tells employees that as a team, United was going to kick its competitors'' tushies by giving passengers the perception of more, not less. Give them an airline that''s easy to do business with. One that fully applies the skills and dedication of United''s rank and file. Forget the instant-panacea crowd in the media, who oh, so confidently report that it''s all labor''s fault. That''s trendy, shallow, and flat out misleading. Like we noted a few weeks ago, United''s solution is [EM]not[/EM] at the bargaining table. It''s at the ticket counter and in the cabins of its airplanes. [/FONT][/P]
[P][FONT face=Arial Narrow color=#000000]Unless United management starts to understands this, Chapter 11, and maybe worse, is a lead-pipe cinch[/FONT][/P]


Aug 20, 2002
Typical Mike Boyd you heard it here first commentary. While I don't dispute a lot of what he says, he always seems more interested in getting credit for being the first guy to predict something.


Sep 12, 2002
On 10/21/2002 1:18:20 PM UAL777flyer wrote:

Typical Mike Boyd "you heard it here first" commentary. While I don't dispute a lot of what he says, he always seems more interested in getting credit for being the first guy to predict something--------------------------------------------------------------------------------------

For those of us that know Mike this grandstanding is not unexpected. I believe him to be sincere, but many of his 'predictions' are to call attention to him and his firm, remember Mike said that the UAL /US aquisition was a SLAM DUNK. Mike if you are listining I will call you this week and hopefully I can straighten you out on the facts, and discusss the latest from the MEC.


Aug 19, 2002
[P][BR]Actually DEN would be the least affected hub if UA files for Chapter 11.[BR][BR]The reason should be pretty obvious too. DEN hardly has any competition compared to IAD, ORD, and SFO. United has nearly 60% of the marketshare in DEN right now.[BR][BR]Also, UA has actually slowly been growing in DEN with the addition of HNL, KOA, and MEX on United, and YEG, PSC, ELP, YWG, PSP, and MFR on United Express.[BR][BR]DEN-MFR should be officially announced in a couple days.[BR][BR]Sadly, SFO is going to be seeing some domestic reductions. For example, UA is reducing frequencies on SFO-FAT. SFO will remain a strong in the Pacific market and I don't think we will see any Pacific cuts on United other than the just announced downgauging.[BR][BR]Regards[/P]