Concerns That UA May Liquidate Are Overblown...

[767jetz]

Dow Jones Business News
UAL Uses Bankruptcy Protection to Help It Survive
Thursday March 27, 3:28 am ET


CHICAGO -- UAL Corp. (NYSE:UAL - News) , which reported further losses for February, is taking advantage of its bankruptcy-court proceedings to squeeze deeper savings from its workers and equipment lessors, Thursday''s Wall Street Journal reported.
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As a result, some analysts believe recent concerns that the United Airlines parent could be forced to liquidate have been overblown.

UAL said its net loss last month was $367 million, which followed a loss of $ 382 million in January. The company''s chief financial officer warned that the war in Iraq is expected to negatively affect the carrier''s results and cash flow.

Some industry analysts recently raised the probability that UAL would be unable to restructure in Chapter 11 and be forced to liquidate. Employees are fretting and customers who hold United frequent-flier miles worry, too, that the world''s second-largest airline is on the brink of failing. But for now, despite the war, a decline in bookings industrywide and higher fuel prices, UAL''s place in bankruptcy-court protection is giving the troubled company some flexibility that its competitors lack.

Wall Street Journal Staff Reporter Susan Carey contributed to this report.

 

[dfw79]

It is a shame their tax refund is already spent - which March''s cash drain. If UAL liquidates...it liquidates. We don''t want it to happen...but some things happen for a reason - and a broad capacity reduction would help the whole industry.

 

[Cosmo]

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On 3/27/2003 11:25:20 AM dfw79 wrote:

It is a shame their tax refund is already spent - which March''s cash drain. If UAL liquidates...it liquidates. We don''t want it to happen...but some things happen for a reason - and a broad capacity reduction would help the whole industry.
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I believe that there is a broad misconception of the capacity-reducing benefits that would accrue to the industry if United liquidated. First, it is likely that some carrier (Delta?) would pick up the Pacific operation nearly as is, at least from the West Coast, with American picking up most of the rest (ORD-NRT/HKG). The only reduction in capacity would come from United''s remaining 747-400s being replaced with more 777s. Second, the majority of United''s Atlantic operation will be continued by one or more carriers, and all of the LHR service will keep operating (although not necessarily with the same number of flights from the same gateways). Third, at least some of United''s Latin American service will survive, with the current ORD-GRU/MEX nonstops most likely being picked up by American and the SFO/LAX-MEX nonstops probably being replaced by Alaska. Fourth, one of several carriers (Continental and US Airways most prominent among them) would be likely to replicate the majority of United''s current DEN hub and, given the size of the local Chicago market, there is a good chance that some carrier would try to do the same at ORD (although it would be tough against a stronger American operation there). And fifth, Transcon service between the major East Coast airports (BOS/JFK/EWR/PHL/BWI/IAD) and the major West Coast airports (SEA/PDX/SFO/LAX/SAN) would probably be increased by American, Continental, Delta and US Airways on order to replace a significant portion of United''s current service in those markets. Plus, JetBlue (from JFK/IAD) and Southwest (from BWI and maybe BDL/PVD) are also likely to more rapidly add to their current coast-to-coast offerings.

If you add all of this together, as a rough estimate it probably totals somewhere between 50% and 75% of United''s currently offered systemwide capacity. Thus, rather than an 17-18% reduction in U.S. carrier capacity (United''s current ASM share) in the wake of a liquidation of United, we would most probably see only a 5-8% overall capacity reduction. I don''t believe that such a relatively small capacity reduction would be enough to save this industry, and those who are expecting it to do so are likely to be in for a rude awakening. JMHO.

 

[Falco]

The other result of even a 10% capacity reduction would be an increase in efficiency of the overall system. All of United''s overhead would be eliminated. Aircraft that other airlines have parked and are still paying leases on would then be fully utilized. This is what the industry needs more than a reduction in labor costs.

 

[Wild Onion]

Cosmo, I think you make a great point in spelling this out. I thought is that you maybe overestimate how much of that capacity would be picked up by other majors, though

As you suppose, ORD would probably become an AA fortress hub (a la ATL/DL). This is a large portion of UA''s capacity. IAD would probably cease to be anyone''s hub. The pacific routes would be picked up, but not in their entirety (at least not right away). Someone would use the LHR rights, but the rest of the continental European routes would probably just go away (especially in the current environment). CO would move to DEN, but does not have nearly enough assets to fill the total void. The transcons would be replaced, but not all of them.

Also consider that the remaining airline will pull assets out of other areas to fill the void (CO out of CLE, AA out of STL).

My guess is that the overall capacity reduction would be in the 10-15% range.

All just my opinion, though...

 

[Segue]

Rather than specific routes, the focus of restructuring will likely be fequency. For example, rather than 20 daily flights in a non-stop market of AA and UA combined, it would be reduced to say 15 AA only, increasing load factors and yields at the same time.

 

[767jetz]

It''s interesting to note that I posted this article to stress the point that UA will NOT liquidate, and everyone seems to still be intent on splitting up UA''s carcass.

Haven''t any of you seen todays news. ALPA has come up with a significant tentative agreement. You can be sure that the IAM and AFA will soon follow. (or have changes forced upon them in court.)

Assuming the pilot''s ratify the agreement, UA has just taken a huge step AWAY from the CH7 door. If anything it will put even more pressure on competitors to follow into CH11.

 

[ual06]

767jetz,

I feel you are right. Yes, a big step away from Ch 7. I feel the other unions will
come through. At this time, my concern is the IAM141m. The situation in IND is
not a help. But, yes the court spoke to the IAM before.

In general, persons posting here - mostly OA persons - are only reading and thinking
what they want to happen. Can''t really blame them. They see what may well be
headed their way.

 

[Cosmo]

767jetz:

The point of my post above was to show all those folks who believe that the liquidation of United will somehow save the industry, that they are sadly mistaken. I was simply trying to indicate that much of United''s current capacity would remain in the system, only with different carriers. I was not suggesting that United''s liquidation should occur, and if I was not clear enough about that, you have my apologies.

Also, I agree that the United/ALPA tentative agreement (assuming that it''s ratified) is a huge step in the right direction for United, its employees and its customers.