Gems in the Desert?

Squonk

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Aug 20, 2002
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[P]The word heard on the street said that U recently made a deal on 5 late model A320''s that were sitting in storage in the desert. Word had it four of the five departed for U country. The fifth may have sustained some damage to the tail assembly after over rotating on take off. Can anyone shed any light on this breaking story?[/P]
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ClueByFour

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Aug 20, 2002
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[blockquote]
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On 10/2/2002 9:43:54 PM chipmunn wrote:

I have been told by a senior management member one option is if an aircraft financier will not restructure an agreement to market rates, the company could reject a current aircraft and replace them with used A-320s. It would not surprise me if your rumor were true.

Chip

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[/blockquote]

Chip:

I'm not familiar with engine choices on the A319/320/321 series, but would picking up baby busses from the desert only make sense if they were CFM powered?
 
C

chipmunn

Guest
Squonk:

US has a one-time opportunity to reduce its aircraft rental fees through the bankruptcy process. 60 days after an airline formal restructuring filing the bankruptcy law makes it easier for the company to dispose of excess aircraft. On October 9 US can reject certain aircraft and the court can order these jets/turboprops returned to the lessors.

As noted in another thread, US has reached restructuring agreements with 16 of 18 lease companies and only 10 of 32 aircraft scheduled for retirement have obtained court approval to reject the lease agreements.

Also noteworthy, the pilot December Bid has been cancelled and the November 4 furlough notices have not been released. Normally a pilot bid is released approximately 10 to 12 weeks prior to the effective month and for whatever reason there is no December bid or January announcement.

I have been told by a senior management member one option is if an aircraft financier will not restructure an agreement to market rates, the company could reject a current aircraft and replace them with used A-320s. It would not surprise me if your rumor were true.

Chip
 
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chipmunn

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ClueByFour:

The US A320 family aircraft are powered by CFM engines.

Chip
 

iflyjetz

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Oct 2, 2002
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Chip, does that mean the U could cancel most of their leases and turn themselves into a regional feeder, flying RJs, for United?
 
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chipmunn

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Iflyjets:

Iflyjets asked: Chip, does that mean the U could cancel most of their leases and turn themselves into a regional feeder, flying RJs, for United?

Chip answers: No, in fact it increases the opportunity to fly more mainline aircraft for a number of reasons. By now having tremendous leverage on aircraft lessors, the company can lower its aircraft rental expense and more profitably operate aircraft with its entire operating with market rate interest expense of about 5.5 percent. If an aircraft lessor will not renegotiate the lease payment, they can have their jets back where since September 11 over 1000 jets have been retired.

There is a report on the message board where US may have obtained five used A-320s, which was a strategy I was told could be used to replace rejected aircraft by a member of the US Executive fleet.

The UA code share plan only provides for US or UA to obtain revenue for the portion of the trip where the passenger flies on the individual airline. Therefore, it behooves the company to fly long haul flying to obtain the greatest amount of code share revenue.

If my memory serves me correct, US intends to grow Caribbean and long-haul transcontinental flying from its hubs which may include new service Belize, Guatemala City, Mexico City, Panama City, Panama, Oklahoma City, Tulsa, Austin, San Antonio, Albuquerque, Tucson, Colorado Springs, Salt Lake City, Portland, Reno, Sacramento, and Ontario.

As RJs come on line to increase feed, grow long-thin markets, and fly in some current mainline markets, there will be more traffic to fill up mainline aircraft in the current and new markets listed above. I understand the business plan is to place MDA aircraft on current B-737 routes, the B-737s on East Coast A-319 routes, and redeploy A-319s into the long-thin mainline markets listed above.

This will increase stage length that will further drive down unit costs, just like obtaining market rate leases that will reduce lease expense from 11 to 5.5 percent and the monthly aircraft rental on a B-737 from $250,000 to $270,000 to about $120,000 per month.

By the way, there is reason to believe UA & US have been negotiating for US to obtain some of UA’s flying.

Chip
 
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chipmunn

Guest
Hi Usflyer:

Chip said: By the way, there is reason to believe UA & US have been negotiating for US to obtain some of UA’s flying.

USflyer asked: Chip, what makes you think this, and how on earth could they get that past labor? Whether it makes business sense or not...Assuming this may be in the works, what markets do you think would be covered in such an agreement?

Chip comments: USflyer, this topic has received a significant amount of attention. You can read all about it in the threads titled U buying part of United?â€￾ or two different US/UA merger threads. The first US/UA merger thread had a whopping 14,061 views and the newest thread has been viewed by 2,119 people. To say this topic has received an enormous amount of attention, would be a gross understatement.

Chip
 

USFlyer

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Aug 19, 2002
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[blockquote]
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On 10/3/2002 1:48:13 AM chipmunn wrote:

By the way, there is reason to believe UA & US have been negotiating for US to obtain some of UA’s flying.

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[/blockquote]

Chip, what makes you think this, and how on earth could they get that past labor? Whether it makes business sense or not...

Assuming this may be in the works, what markets do you think would be covered in such an agreement?
 

USFlyer

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Aug 19, 2002
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Chip -

Believe me, I've read those other messages. I guess I'm wondering why you think there is reason to believe. Is this from conversations you've had, overheard, etc.? I would think this would be CLOSELY guarded at the upper management level, if in fact it is being discussed.
 
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chipmunn

Guest
USFlyer:

I know you will understand this point and I wish I could say more, but in business especially with corporate transactions, informed people always speak on the condition of anonymity. If somebody's confidence is broken, they will never trust the person who revealed their identity again.

Nonetheless, there have been discussions. Will it occur? Nobody knows and with US in bankruptcy & apparently UA on a path to file for a formal reorganization, anything is possible. But, the parties have talked about a deeper relationship and what has been referred to as a unique corporate transaction. I will say this, it is from conversations I've had...

Chip
 

UAL777flyer

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Aug 20, 2002
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Such a transaction with US Airways could be used as significant leverage to get UA labor to play ball. I don't view the prospect of UA fragmenting some of its domestic system to US as likely. You'd be talking about near total armageddon for UA labor. Remember what happened when Wolf was running UA. He threatened to downsize unless the unions played ball. They didn't blink and he sold off the flight kitchens. They came around. If they think UA is serious about fragmenting some of its system to another carrier, they would be complete fools for not playing ball unless their intent is to take UA down ala Eastern.

However, as most folks know by now, if UA files for bankruptcy, anything can happen. As much as I'd like to believe that UA Senior Mgmt and Labor will reach an acceptable voluntary agreement to avoid Ch.11, I view that to be an extremely unlikely scenario, given the time frame to get it done and the history of labor relations at United.
 

DLFlyer31

Senior
Aug 20, 2002
444
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[blockquote]
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On 10/3/2002 1:48:13 AM chipmunn wrote:

Chip answers: No, in fact it increases the opportunity to fly more mainline aircraft for a number of reasons. By now having tremendous leverage on aircraft lessors, the company can lower its aircraft rental expense and more profitably operate aircraft with its entire operating with market rate interest expense of about 5.5 percent. If an aircraft lessor will not renegotiate the lease payment, they can have their jets back where since September 11 over 1000 jets have been retired.

Chip
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[/blockquote]

Truly the American way. Renege on your contracts and use BK to gain leverage on aircraft lessors. Very sad and very damaging to the economy as well.

Chip, do you really expect to see US expand to all those Western US destinations because I think you are dreaming? None of U's hub's have the geographical placement to serve these markets. Look at U's recent schedule cut down and see how much of it involves the West Coast. Also, what do you think that UAL codeshare is for? I don't think UAL would appreciate U overflying DEN with all these new routes.

If you look at the size of U's network, U's hubs and the number of RJ's on order, U is right on track to be converted to a regional carrier.
 

ClueByFour

Veteran
Aug 20, 2002
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www.usaviation.com
[blockquote]
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On 10/3/2002 10:43:51 AM DLFlyer31 wrote:
Chip, do you really expect to see US expand to all those Western US destinations because I think you are dreaming? None of U's hub's have the geographical placement to serve these markets. Look at U's recent schedule cut down and see how much of it involves the West Coast. Also, what do you think that UAL codeshare is for? I don't think UAL would appreciate U overflying DEN with all these new routes.
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[/blockquote]

While it is true that US has been cutting back on the west coast of late (which, I personally don't like, BTW), it does not really matter if U overflies DEN or anywhere else (nor does it matter whether United cares).

This code-share is supposedly being implemented without any pricing or schedule collaberation/collusion. If that is in fact the case, not only should United not care, but it would probably violate the terms of the agreement with the DOJ.
 
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chipmunn

Guest
Hi DLFlyer31:

DLFlyer31 said: Chip, do you really expect to see US expand to all those Western US destinations because I think you are dreaming. I don't think UAL would appreciate U overflying DEN with all these new routes. If you look at the size of U's network, U's hubs and the number of RJ's on order, U is right on track to be converted to a regional carrier.

Chip answers: DLFlyer, I attended a briefing conducted by US CEO Dave Siegel where he said the company is evaluating each of those long-haul markets from all three hubs and the company would like to enter them. The key ingredient in the code share agreement is that each airline will only receive revenue only when a passengers travels on its own flight, which increases the motivation to grow stage length to obtain greater code share revenue. This point has been clearly identified by US.

In regard to UA would (not) appreciate what US will do, the Elk Grove Township-based carrier does not have any say in the matter and this would be collusion. In fact, in their press release the DOT it was fearful of anticompetitive results and the department said it will monitor closely how the two airlines would implement their pact.

By the way, US does not have any RJs on order, although the company will shortly. Also noteworthy, Siegel said he expects to grow the US mainline fleet to between 350-400 mainline aircraft, up from the current fleet count of 301, within the next seven years.

In regard to your comment that US is being converted to a regional carrier, in the near future the company will have the lowest hub and spoke carrier CASM, thus there is reason to believe just the opposite will occur. It may be necessary to prune before we grow, Siegel said. However, with more RJs, greater feed, stronger hubs, the domestic code share, and the Star alliance, Siegel said as revenue returns the airline will grow its mainline Caribbean, transcon, and international markets; and will not only be a stronger East Coast competitor, but a stronger global carrier as well.

Chip