EYE on United

AIRBORN1

Advanced
Feb 8, 2006
146
0
EYE-ON-UA
May 19, 2008 - How We Stack Up Competitively
We are reducing domestic capacity substantially-with mainline domestic capacity expected to be down by 9% in the fourth quarter of this year, and that is on top of a 5% reduction we took in the fourth quarter of 2007. We are using the pricing power we enable through capacity discipline to support fare initiatives, seeking to pass along the higher commodity costs to customers. And we are accelerating our efforts to unbundle products and services to provide more choice for our customers and to generate more revenue as they pay for the products that they use and value. Second bag fee is an example of this strategy, as is charging for Economy Plus, the increased ticket change fee we implemented a few weeks ago, and the host of other service fees we increased just this past Thursday. All told, we expect these initiatives to generate $600 million in revenue by next year.
We are also retiring aircraft, reducing our non-fuel costs and cutting our planned capital spending this year by $200 million.
The work we have done to strengthen the airline and improve our balance sheet puts us in a better position to address the current industry challenges that we face. We ended last quarter with $2.9 billion in unrestricted cash, on par with our network peers. Importantly, we have more than $3 billion in unencumbered assets allowing us to raise capital if needed, in stark contrast to some of our peers that have already leveraged most of their assets. This fiscal responsibility extends to our position relative to new aircraft. Because we have no new aircraft on order, unlike many of our peers, our capital requirements are relatively modest over the next few years. As part of our balance sheet restructuring, we smoothed out our required debt payments, and since our exit, we have reduced debt by some $2.8 billion. Two weeks ago, we renegotiated the financial covenants required by our $1.5 billion credit facility, making it easier for us to maintain compliance, and giving us the flexibility we need to execute against our plan. All of this means that we have a strong liquidity position and more modest demands on our cash over the next few years versus most of our peers-better positioning United, our company, to withstand the difficult environment we now face.
So just to wrap up, we are well positioned to manage through this tough environment:
Our financial performance is competitive Our cash balance is comparable and we have more unencumbered assets than most, giving us more flexibility to raise money if we need it Finally, we are not sitting still, our action plan is aggressive and it's well under way Back to you, Glenn.
Glenn: Thanks, Kathy.
As Kathy noted, we stack up well competitively, and we also benefit from the work we have done to improve our balance sheet, giving us some flexibility in an environment that will continue to be extremely challenging for this industry.
As we discussed on the last call, we are all focused on aggressively executing against the five-point plan to drive the changes that are required to get our business back to profitability and have every reason to be confident that we can navigate our way through these challenging times. We will continue to keep you informed, as always, giving you the straight facts.
That's all for now. I'll be talking to you again soon. Until then, stay focused on our customers and, of course, on one another... and stay united.
 
Why didn't somebody ask "Glenn" how much his new cushy downtown offices cost and exactly how that move contributed to the UA value experience for the customer?

And how can being the only major airline in the world to NOT have any new aircraft on order be a competitive advantage ?

Unless of course you're not planning to be around in a couple years...
 
Why didn't somebody ask "Glenn" how much his new cushy downtown offices cost and exactly how that move contributed to the UA value experience for the customer?

And how can being the only major airline in the world to NOT have any new aircraft on order be a competitive advantage ?

Unless of course you're not planning to be around in a couple years...
This is very amateur analysis. Not that I agree with the new HQ. According to ALPA's MEC Chairman, there is not one single airplane picture or reference to UA's long and proud history in the new building. It is cold and sterile and one would not even know they are in the offices of an airline. However, the the new downtown office actually saved UA money through incentives from the city.

As for the lack of airplanes on order, again I would like to see that myself for personal reasons, but from a business point of view it is an advantage. And seeing it any other way is an emotional and not a rational response. After 9/11 one of NWA's advantages was the fact that they owned a large number of airplanes and had few airplanes on order. This saved them huge amounts of capital on lease payments, and allowed the company the flexibility to temporarily park a large number of airplanes with little expense to them. This gave them a leg up in the investment community. You can not park leased planes because the payments are still due even when the birds don't fly. Notice how NW was the one who spoiled most attempts to raise fares in the years following the terrorist attacks. This was their strategy to wait out the down turn. I'm not saying it worked in the end. But at the time it helped them weather the storm.

Now UA finds itself in the same position. First of all, UA's fleet is far from being "ancient." That's because for many years while other airlines sat on their fleets, UA was buying new planes. Now the pendulum has swung and UA is sitting on their fleet, upgrading where appropriate. UA's fleet is adequate to service it's long haul route structure for the time being. Sure, having shiny new planes that sip less fuel would be nice, but not at the expense of more debt that would need to be serviced. Having planes on order is only useful if you plan expansion. Which I will say again, I would love to see! I am talking from a purely financial perspective right now. But absent any expansion, those orders would only serve as replacements for aging aircraft. So with all the talk of everyone having planes on order, ask yourself how many of them will be used for new flying, and will they generate enough income to offset the additional debt. (No one but SW buys airplanes outright.)

Additionally, UA has the ability to borrow against $3 Billion in unencumbered assets, and can raise another few Billion by selling off Mileage Plus, or borrowing against it's value. So coming up with the money to place an order for new airplanes would be very easy if circumstances change and it would be profitable to do so. Right now the industry is preparing for an adjustment, and those with the most financial flexibility and least outstanding commitments are the best off.

So please analyze the facts before arbitrarily quoting the latest sound byte from the local news report. Did it ever occur to you that once the other airlines realize they need to scale back on their routes and reject orders so as to conserve capital, UA might be able to pick up those orders at a discount? Try to see the big picture.
 
Is this the same ALPA MEC chairman who sits on the UA BOD and endorsed Tilton/Brace's compensation and strategy? Remarkable!

And now you are citing NW's recent business model as wise? NW was rebuffing fare increases way back in the 90's so don't play spin with me.

You sir are regurgitating the local newsbytes when you again use the term "unencumbered" assets -- I don't believe any other industry has such a fascination with this term as your woebegone airline. Well maybe us320capt and his bunch of incompetent managers.

If you could've have sold or borrowed against any piece of your carcass they would've already done that. PBGC anyone?

Remain on your current course on you are headed for the scrap heap. Spinmeisters do not add value to your product.

Even that much so be obvious to you.
 
Is this the same ALPA MEC chairman who sits on the UA BOD and endorsed Tilton/Brace's compensation and strategy? Remarkable!

And now you are citing NW's recent business model as wise? NW was rebuffing fare increases way back in the 90's so don't play spin with me.

You sir are regurgitating the local newsbytes when you again use the term "unencumbered" assets -- I don't believe any other industry has such a fascination with this term as your woebegone airline. Well maybe us320capt and his bunch of incompetent managers.

If you could've have sold or borrowed against any piece of your carcass they would've already done that. PBGC anyone?

Remain on your current course on you are headed for the scrap heap. Spinmeisters do not add value to your product.

Even that much so be obvious to you.
Oh my! What emotion an venom! If you choose to look at things so emotionally that it effects your objectivity, that's your choice.

#1: I don't know of any ALPA MEC Chairman who "enorsed" Tilton's or Brace's compensation or strategy. Care to post any proof of your assertion. Because I happen to know that ALPA's MEC Chairman (yes, who does hold ONE seat on the board) very much opposed such compensation and strategy. It was by no means a unanimous vote on the board.

#2: If you re-read what I said instead of just attacking me, you would realize that no where did I cite NW's post 9/11 strategy as wise. And their resistance to fare increases I referred to was POST 9/11, where is was a known fact that their business plan relied on US AND UA to go CH7. When that did not materialize, they and DL both visited the judge as well. This doesn't change the fact that right now, having no aircraft on order and hence less debt to service, and having large amounts of unencumbered assets to borrow against, is what puts UA in a better position than it's peers according to the financial community.

#3: Having the ability to borrow against assets does not mean that you do so until it is necessary. Do you max out your credit cards just because the bank offers you more credit? If you do, then your ability to get favorable rates or even borrow at all in the future is diminished. United does not need to "borrow against any piece of our carcass" as you so eloquently put it, with nearly $3 Billion in cash on hand.

#4: The Mileage Plus asset is something ALPA certainly argued in court with regard to pension termination and the PBGC. (So did USAirways pilots at the time, btw) You can blame the judge for that one. UA successfully argued that "forward mileage" was not an asset in bankruptcy due to the insolvency of the airline at the time. Suddenly when UA emerged from bankruptcy it was worth something again. And again, I/we didn't agree. But the judge made the decision in the end. US was/is in the same position, only the mileage program is not worth nearly as much.

I will repeat here what I said on the US thread:

UAUA has passionately advertised the fact that it has approximately $3 billion in unencumbered assets. The company has significant untapped value in its pool of unencumbered aircraft (110 in total, worth perhaps $2 billion) and spare parts/engines (could be worth another <$1 billion)

This is the $3 Billion in unencumbered assets referred to. Mileage plus, the SFO maintenance facility, etc. are all additional assets that could generate a large amount of capital if necessary. This would happen long before any consideration of selling off slots, routes, or other assets central to the core of UA's primary business.

Compare this to the situation at US:
LCC owns 25 unencumbered E190s worth approximately $500 million dollars which it has said it could sell or refinance to bolster liquidity. Additionally, LCC has valuable DCA slots (worth <$75 million, $2 million per slot).

A sale to United is much discussed and seemingly likely.

LCC has the option, as do others, to engage in a forward mileage sale.

#5: As for "heading for the scrap heap" I guess the people with the money disagree:
Given LCC's relative absence of material liquidity levers, we actually ascribe a slightly higher Ch11 probability to LCC than to AMR and UAUA in this scenario (mirroring our thoughts on NWA).
 
767jetz,

The way I see it we are currently in a bloodbath of fuel costs, hence the reductions in capacity in the fall, (for UA 737's), and 10% capacity for other airlines.

To me this is the interesting question:

Which airlines will fail first? In order- big and small.
Who is bleeding X amount of cash based on their cash reserves and ability to create cash?

I know Air Tran is hurting and I can only image that Spirit will go away with their newer aircraft and limited funds but what about the big boys too- AAL joining the BK, no pension crowd?
And aside, at what point does the govt. step in to help bail out, at least, with respect to fuel prices?
 
Where do you see personal attacks and comments? You're fairly new here, aren't you Richard.

Just a friendly reminder that he is a moderator and questioning a moderator's posts in public can earn you time off in the cornfield.
 
Sounds like Nazi Germany. Asking a simple question and he gets removed? You chime in so you look good to the gestapo. Lovely. :down: Did you read the exchange? Looks like a simple debate. Isn't that what a message board is for? It is getting difficult to exchange ideas here anymore unless we always agree.
 
Where do you see personal attacks and comments? You're fairly new here, aren't you Richard.
FYI, Richard is a moderator, so he's not new here.

And I think he was referring to this:

I don't believe any other industry has such a fascination with this term as your woebegone airline.

Well maybe us320capt and his bunch of incompetent managers.

If you could've have sold or borrowed against any piece of your carcass...

...you are headed for the scrap heap.

Not offensive to me personally. But certainly inflammatory and a bit personal and not in line with board rules.
But that's just my opinion.
 
He's a moderator that's been on the board 2 years and some change....

and you've taken (and me too) a lot worse in the past
 
As for the lack of airplanes on order, again I would like to see that myself for personal reasons, but from a business point of view it is an advantage. And seeing it any other way is an emotional and not a rational response.

UA might be able to pick up those orders at a discount? Try to see the big picture.

"United says it can sell or borrow against $3 billion in assets such as aircraft and its frequent-flier business. It's the only major U.S. carrier with no aircraft on order."

Bumpy ride ahead for United article May 2008
 
"United says it can sell or borrow against $3 billion in assets such as aircraft and its frequent-flier business. It's the only major U.S. carrier with no aircraft on order."

Bumpy ride ahead for United article May 2008

UA may be in for a bumpy ride, like all legacy airlines. But, "...the worst hit was US Airways (LCC), whose stock is down more than 17% after Standard & Poor’s put the firm’s debt on credit watch with negative implications."

US Airways debt on credit watch
 
UA may be in for a bumpy ride, like all legacy airlines. But, "...the worst hit was US Airways (LCC), whose stock is down more than 17% after Standard & Poor’s put the firm’s debt on credit watch with negative implications."

US Airways debt on credit watch

Look for Airline management to take full advantage of this. No one will be untouched by this. Take from your company as much as you you can, while you can.

"nine major domestic airlines on CreditWatch with negative implications."

Standard & Poor's puts ratings of 9 US airlines on CreditWatch negative, cites fuel costs