Goldman, Sachs & Co. UAIR analysis - March 4, 2004
Subject: US Airlines: US Airways Initiation: Crisis Management
Crisis management. Despite its emergence from bankruptcy, USAirways has not solved its structural cost problems.
Given that UAIR has ample liquidity and stakeholders with an incentive to keep the company alive, we believe that near-term bankruptcy risk is overstated.
We have resumed our coverage with an In-Line rating.
Still the high-cost producer despite bankruptcy; status quo unsustainable
Despite bankruptcy concessions, US Airways remains one of the industry's higher-cost producers. We do not believe that the company can make much money absent a strong recovery and significant fuel price decline, and the path to further cost reductions remains unclear. We resume coverage of the stock with an In-Line rating and estimate a $6.75 per share loss in 2004.
Imminent bankruptcy filing unlikely ...
With $1.3 billion in unrestricted cash and cash burn under $1 million a day, we see few events that would catalyze an additional bankruptcy filing. US Airways has little liquidation value, and neither management, creditors, nor labor has any incentive to force another bankruptcy.
Dependent on strong economy and business-travel recovery this year
An improving economy and lower fuel prices could make US Airways' cash flow break even in 2005, and as evident by the last cycle, the company has tremendous leverage in an extended recovery, but considerable risk to a faltering economy or exogenous event.
High risk, high reward
US Airways will probably not meet its debt covenants this spring, but we doubt that the government and creditors will force bankruptcy, and pilots appear willing to grant new concessions. Union leaders resent having to repeatedly go back to their members for concessions, but labor tends to give enough to permit a company to survive, though not flourish.
Over time, we see US Airways again trying to merge with a larger airline.
Subject: US Airlines: US Airways Initiation: Crisis Management
Crisis management. Despite its emergence from bankruptcy, USAirways has not solved its structural cost problems.
Given that UAIR has ample liquidity and stakeholders with an incentive to keep the company alive, we believe that near-term bankruptcy risk is overstated.
We have resumed our coverage with an In-Line rating.
Still the high-cost producer despite bankruptcy; status quo unsustainable
Despite bankruptcy concessions, US Airways remains one of the industry's higher-cost producers. We do not believe that the company can make much money absent a strong recovery and significant fuel price decline, and the path to further cost reductions remains unclear. We resume coverage of the stock with an In-Line rating and estimate a $6.75 per share loss in 2004.
Imminent bankruptcy filing unlikely ...
With $1.3 billion in unrestricted cash and cash burn under $1 million a day, we see few events that would catalyze an additional bankruptcy filing. US Airways has little liquidation value, and neither management, creditors, nor labor has any incentive to force another bankruptcy.
Dependent on strong economy and business-travel recovery this year
An improving economy and lower fuel prices could make US Airways' cash flow break even in 2005, and as evident by the last cycle, the company has tremendous leverage in an extended recovery, but considerable risk to a faltering economy or exogenous event.
High risk, high reward
US Airways will probably not meet its debt covenants this spring, but we doubt that the government and creditors will force bankruptcy, and pilots appear willing to grant new concessions. Union leaders resent having to repeatedly go back to their members for concessions, but labor tends to give enough to permit a company to survive, though not flourish.
Over time, we see US Airways again trying to merge with a larger airline.
