Could Us Airways Merge?

[USA320Pilot]

Shaka:

Shaka said: “If there is a merger in the future, I am 99.99% certain UAL will have majority control. I am a US Air pax and love US Air, but the reality is US Air is not UAL and will never come close to their global network.â€￾

Chip comments: Shaka, in a perfect world United would be the survivor, but with the company in bankruptcy there is a perfect opportunity to conduct the heavy merger restructuring because United could reject unwanted leases and there would be no antitrust issues to address due to the DOJ's “failing carrier guidelinesâ€￾.

Furthermore, just yesterday in an Omnibus hearing Judge Wedoff approved United’s Orbitz sale overriding an objection. Why? United needs the cash. In fact, Dow Jones reported "This IPO (Orbitz) will undoubtedly be of assistance to the debtor," Wedoff said. UAL needs liquidity and is constrained by its ability to raise cash by other means, he said.

However, US Airways has access to the joint ATSB funds of both United and US Airways per the OMB guidelines and RSA backed financing. Can US Airways pay for the deal? No, but its chairman and government backed investors can, which is something United cannot do if Wedoff’s comments that United “needs liquidity and is constrained by its ability to raise cash by other means.â€￾

Shaka, another words Wedoff said United must sell assets to raise liquidity because its constrained by other normal means.

Regards,

Chip

 

[repeet]

Hmmmmmmmm???

United Airways

 

[767jetz]

Chip, Chip, Chip...

And here I thought there was some hope for you.

Let me point out a few things. Just as gaining long haul flying would reduce USAir's CASM, adding short haul flying would increase UAL's CASM. Soooooo, any merger would ultimatley be more advantageous to USAir. Increasing UA's CASM would be a bad thing, don't you agree?

UAL can and will continue to lower CASM into 2004. USAir on the other hand, is basically out of ideas for lowering CASM, and it's only hope (your only hope) is a merger. Here is another quote from UA's press release: "The groundwork has been laid for 2004 projects, which are expected to
result in 650 million dollars in cost reduction in 2004, part of the
planned 1.4 billion dollars in profit improvement next year."
Also remember that lease renegotiation is not complete yet, which will further bring down cost, and the LCO in DEN has not started yet, which will also lower UA's cost. Tilton just the other day cautiously predicted that UA will be profitable for all of 2004. Many informed sources and analysts are saying that UA's restucturing is on track and UA will emerge in late spring of 2004.

As for pensions, here is an excerpt from an ALPA update. "The Senate Health, Education, Labor and Pensions Committee on Wednesday approved a bill that would offer companies such as United a more lenient formula for calculating pension obligations under defined benefit plans. The bill sponsored by Committee Chairman Sen. Judd Gregg (R-N.H.) would provide companies a $30.5 billion break over a three year period.

Sen. Gregg’s bill differs from a pension reform bill already approved by the Senate Finance Committee that would provide companies $60 billion in relief over a three-year period. That bill is sponsored by Finance Committee Chairman Sen. Charles Grassley (R-Iowa).

These two bills have to be reconciled before pension reform legislation reaches the Senate floor. The MEC Legislative Committee is working to help secure a bill that includes Deficit Reduction Contribution relief as well as interest rate relief."

I have to agree with ohcaptainiron's account of his talk with Tilton, since my sources have told me the same thing. Tilton understands the leasons learned from the past attempts. A merger may still be on the table a few years down the road, but long after UA fixes it's house and emerges from BK. Additionally, IMO the employees would rather have their pensions handed over to the PBGC than to see another merger attempt.

In conclusion, I also must point out that during the previous attempt for a UAL purchase of US, you said it was a done deal. It obviously was not.
Since then you have speculated about numerous forms of ICT's, UCT's, SCT's, etc. None of them have come true. Now you say the UCT is dead and a merger is pending.

The only thing that seems certain around here, is that the better UA does, the stronger your assertions become. If anything, I do believe that US is strongly pushing for a merger they desperately need, and finding Tilton to be unreceptive at this time. This is not the same scenario where US has a slick deal maker like Wolf pulling the strings of an amateur and buffoon like Goodwin. Tilton will continue his slow and methodical approach and will not be pushed into a deal that UA can do without.

You know, it is possible that talks about increased cooperation and future consolidation could mean that Seigel knows he is up against the ropes, and is preparing the public for a possible divestiture of assets to UA. The fact remains that many informed insiders and industry analysts are now saying that UA's restructuring is on track and UA will emerge intack in late spring 2004. There are hundreds of scenarios a person can dream up to explain what's going on behind the scenes, each just as clever as the next. Without any proof, we are back to quoting news articles and secret sources who have been off the mark many times before.

767jetz

 

[shaka]

Chip,

I must admit I have been very enlightened by your comments since joining this forum several months ago.

I believe many things you have posted have been 100% accurate.

However, in regards to US Air acquiring the assets and routes of UAL, I strongly disagree with you in this scenario. Bonner is already looking at his investment and wondering if he made the right decision in purchasing the majority of this airline. US Air is certainly not out of the woods yet, I highly doubt he is looking to pony up more dollars in going after UAL. You are correct in stating that the state of Alabama has a ton of money to put to work but they have got to have some concern about their initial investment.

Furthermore, you will continue to see UAL shed non-strategic assets such as its stake in travel web-sites, but Tilton realizes he has a strong network that is beginning to comeback. I highly doubt he will be giving up anything strategic in regards to his hub operations.

Good Luck

 

[Cosmo]

United posted a $367 million loss, including $330 million in special charges, and September results looked weak with an operating loss of $120 million.

For the entire quarter US Airways had a net loss of $90 million, of which $24 million was a one-time charge for the employee stock distribution plan -- thus the real net loss was $66 million.

I just love your ability to mix and match numbers to "support" your theories. But let's look at United's and US Airways' 3rd quarter results on a level playing field.

As you note, United had a net loss of $367 million vs. US Airways' net loss of "only" $90 million. But if you subtract out the special charges to arrive at the "real net loss" (your words, not mine), the two carriers' positions are reversed, with US Airways showing a $66 million net loss while United recorded "merely" a $37 million net loss for the quarter. An interesting turn of events, wouldn't you say, that a carrier in bankruptcy actually achieved a smaller "real net loss" than a carrier that exited bankruptcy more than six months ago!

And with regard to operating results, United bettered US Airways by an even wider margin, recording an operating profit of $19 million vs. US Airways' operating loss of $37 million. But wait, it gets better -- to make it an appropriate comparison of "real operating results", we need to take out a $71 million charge from United's operating results which pushes United's quarterly operating profit up to $90 million. This figure is $127 million better than US Airways' quarterly results.

So Chip, on an ongoing business basis, which of these two carriers do you think performed better financially during the 3rd quarter?

 

[USA320Pilot]

Cosmo:

Cosmo asked: "So Chip, on an ongoing business basis, which of these two carriers do you think performed better financially during the 3rd quarter?"

Chip answers: US Airways. Why? United is not paying all of its bills. For example, the company has stiffed the cities of LAX, SFO, DEN, ORD, and NYC/NJ and that is why there is still the pending litigation over the missed municipal bond payments, landing fees, and leases. In addition, the company has not made all of its EETC payments.

Therefore, it's a diffcult comparison -- not.

By the way, which airline had the largest net loss of any U.S. airline in the thrid quarter and did not pay all of its bills? Furthermore, which U.S. airline did the Denver Post write about today when the newspaper said, "its planes are booked more fully and at higher fares than last year, analysts predict a fourth-quarter loss in the range of $400 million to $500 million," not including bankruptcy costs.

That's huge!

I would be willing to bet US Airways' losess are far less than $400 to $500 million, excluding bankruptcy costs.

During the past 18 months, I have studied Dave Siegel and I understand his communication style. His comments were purposely placed into his Washington Aero Club speech for the DOT, DOJ, ATSB, Wall Street, and other industry sources to hear.

Again, Siegel made the comments on cosolidation, Bronner is willing to back a deal, the OMB guidelines permit loan guarantee funds to be used for a purchase, and Judge Wedoff approved the Orbitz sale because as he said,"This IPO (Orbitz) will undoubtedly be of assistance to the debtor," Wedoff said. UAL needs liquidity and is constrained by its ability to raise cash by other means, he said.

Again, these comments were made by Siegel and Wedoff, not Chip Munn.

With analyst predictions of a fourth quarter loss of one half of a billion dollars plus bankruptcy costs and Siegel and Wedoff's comments, I now strongly believe United must shed assets or sell itself to emerge from bankruptcy.

Regards,

Chip

 

[Cosmo]

Chip:

As is often the case, the logic of your comments below is flawed.

Furthermore, just yesterday in an Omnibus hearing Judge Wedoff approved United’s Orbitz sale overriding an objection. Why? United needs the cash. In fact, Dow Jones reported "This IPO (Orbitz) will undoubtedly be of assistance to the debtor," Wedoff said. UAL needs liquidity and is constrained by its ability to raise cash by other means, he said.

If United is so "constrained" for cash, why is it selling only a small fraction of its shareholding in Orbitz?

However, US Airways has access to the joint ATSB funds of both United and US Airways per the OMB guidelines and RSA backed financing.

How so? If United can get a $2 billion ATSB loan, even if it comes with the condition that there must be a merger with US Airways, why wouldn't United then simply buy US Airways with the money and thus be the surviving carrier? Your assumption that United would simply hand the ATSB's $2 billion to US Airways and say "Buy us!" strains logic to the breaking point.

Chip, you really need to take off those rose-colored glasses and realize that, at this time, United's prospects appear to be improving (although with some significant hurdles still to overcome) while those of US Airways appear to be stagnant at best. Thus, IMHO, your nearly constant touting of some variant of a "US Airways takes over United" scenario doesn't seem to have any basis in reality at this time. Indeed, has the possibility occurred to you that Seigel's trips to United's HQ (to the extent that they even took place) may have actually involved a "United takes over US Airways with the ATSB loan" scenario that would give Seigel and Bronner their exit strategies?

 

[USA320Pilot]

You can shoot the messenger all you want, but my information comes from people involved in the discussions, Wall Street, or the press.

Regards,

Chip

 

[N628AU]

Two reasons there wil be no merger:

(1) US has no cash to buy UA

(2) US restructuring agreements return everyone to pre concession contracts upon a change in ownership.

 

[ual06]

Perhaps it is time to invest in whoever is selling Ludwig van Beethoven - Symphony 5. Should a merger occur, that piece of music will be propelled to the "Top Ten List" overnight.

 

[USFlyer]

People are forgetting something about mergers. A merger does not necessarily mean "company A buys company B". In this scenario, the two companies could be combined to create a third, new entity. Using ATSB funds for this purpose is very much allowed. Granted, this new entity would probably keep the United name (which makes sense for an international carrier), but don't assume one needs to buy the other.

 

[USFlyer]

Two reasons there wil be no merger:

(1) US has no cash to buy UA

(2) US restructuring agreements return everyone to pre concession contracts upon a change in ownership.

For what it's worth, US has every intention of reopening contract negotiations. Listen to Siegel's weekly message this week and last. Clearly, management sees a need to further reduce work rule restrictions. I also think an early retirement plan for some employee groups is desperately needed. No offense to the senior US employees, but your work groups are way too "old" relative to other carriers. Some will say all the furloughs caused this. This is true, but it's the way in which furloughs are required to be handled that resulted in this situation. In my industry, for example, we layoff at all seniority levels to avoid being too top heavy.

 

[RowUnderDCA]

Hmmmmmmmm???

United Airways

Yes, with its associated LCC: United Star Airways (aka ? )

 

[a320av8r]

This is the dumbest discussion I have ever heard.
1- Chip, when have you been right?
2- Mergers don't work, show me one that has.
3- Nobody can afford to buy anybody, nor would they want to- too expensive for nothing.
4- US and UA are both in deep doo-doo.
5- I hope for UA to pull through and pray for US we both need it.
6- We have our management and there is nothing we can do to change things. Get over it.
7- WN is a great company, wish I was there...
8- I used to work for a great company too (see point 2)...
9- Lets just get along, UA and US are both battle fatigued- all professional and hard working folks that I am proud to have worked with over the years.
10- Its Miller time!!!

 

[USA320Pilot]

Chip said: "You can shoot the messenger all you want, but my information comes from people involved in the discussions, Wall Street, or the press."

Chip comments: Let me state something more clearly, the UCT, ICT, PIT hub negotiations being tied to UA exit financing, and US Airways'United's involvement in the Mesa takeover of ACA were information I provided from "informed sources". The merger thread is my opinion based on a strategic analysis.

You can shoot the messenger all you want, but my information comes from people involved in the discussions, Wall Street, or the press.

N628AU said: "US has no cash to buy UA."

Chip comments: I agree, but RSA and the ATSB does.

N628AU said:"US restructuring agreements return everyone to pre concession contracts upon a change in ownership."

Chip comments: In regard to ALPA, this is untrue and I suspect the other labor agreements do not contain this clause. Regardless, in the scenario I disucssed US would be the survivor.

Regards,

Chip