Interesting Corporate Combination Twist?



The DOT's informal review of the UA-US code share plan was extended until September 23, but the regulators refused to open a docket on the carriers' request to form an alliance, despite the urging by the Air Carrier Association of America (ACAA) in Docket OST-02-12986.
In their DOT code share filing UA-UA asked for the filing to not be publicly disclosed, which indicated there could be more to their application, otherwise why would there be a need to keep the information confidential?
DL & AA backed the ACAA request for both the UA & US ATSB applications and code share plans to have a docketed proceeding with full disclosure; however, the DOT declined the request to discuss details of the UA-US application and have kept the reveiw on the front burner. Why would Norm Mineta have done this?
Today the Washington Post reported under the terms of the Texas Pacific Group (TPG) - US Airways agreement after September 23, US is free to consider other offers from other interested parties. This is the same day that the DOT's code share review is complete.
John Luth, president of the investment bank Seabury Securities LLC, the consulting firm hired by US Airways to negotiate DIP financing and renegotiate aircraft leases, thinks there will be others. "We expect that a number of parties will be in touch," he said, "and it's likely a better offer will emerge," the Post reported.
Is it a coincidence or part of a greater plan that the UA-US code share plan was submitted to the DOT as confidential, competing airlines filed a formal request for a docketed proceeding to force disclosure, and the DOT's informal review expires the same day as US Airways' agreement with TPG to be exclusive investor or financier expires? Is this coincidental or is there more to the story?
TPG has gotten got the nod...for now, but other group(s) could top the TPG offer and the Post said others bidders are probably waiting in the wings, according to Luth.
Also noteworthy, at both the Charlotte and Orlando Road Show meetings last week Dave Siegel said (paraphrased), "Expect to see many bidders surface to purchase our airline. The new BOD will only discuss a purchase with credible investors, with a good history. If a buyer surfaces, union officials will have an opportunity to interview the buyer." Siegel noted "TPG has never made a bad airline investment. They are convinced our plan will work, and are willing to risk their investment."
Siegel said US has officially been invited into the Star Alliance, which will probably occur next year.
Could Leo Mullin, Richard Anderson, & Gordon Bethune know something and that is why they filed their three-way code share plan?

You've assembled some of the pieces to the puzzle, now how about some speculation about what its going to look like? Is TPG really angling for the whole enchalada (US and UA)? Or is it looking for the really fast buck (expecting someone else, like Marvin Davis or Jonathan Ornstein, to come along and buy out its USAir position)? Is Siegel going to be CEO of a much larger airline?

Do you recall the New York Post piece last week about the cocktail napkin found on the floor of a NYC taxicab seemingly indicating that Jack Creighton was moving upstairs at UA to be replaced by Jake Brace for 100 days and that Rono Dutta and Andy Studdert were out?

Please weave this all together.
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I want to start this post by stating that I do not have any special information regarding my comments below, but there could be an unfolding story regarding the US reorganization.

On August 11 the U.S. Bankruptcy Court approved motions to hold a hearing on US’ request, as the debtor-in-possession (DIP), the party in possession of the business entity or debtor, on September 26.

US is seeking to have the Court approve the remaining $425 million in DIP financing provided by a group of investors lead by TPG, CSFB, and BOA.

The Court will also hear a motion seeking approval of the US-TPG MOU to provide a $200 investment in the new equity of the reorganized company. In exchange for its investment, TPG will obtain 38 percent of US, will have 5 of 13 Board seats, and will have 51 percent Board voting control upon emergence now scheduled for March 2003.

The US-TPG agreement provides for the investor to be the sole US financier until September 23; however, US chief executive officer Dave Siegel told employees in meetings last week the company expects to receive competing bids to provide the financial backing. The court is required to entertain financing bids that compete with TPG, but Siegel said as the DIP, who is still in control of the business, US will reject any bid that is not labor friendly.

During a Chapter 11 reorganization the Courts primary purpose is to obtain the greatest return for the creditors regardless if the Plan of Reorganization keeps the business intact or bidders provide the Court with options to buy the company intact or parts of the airline.

It is unclear who may offer competing bids, but one possible party per the Charlotte Observer could include a group lead by Marvin Davis and Jonathan Ornstein. Some observers have speculated competing airlines such as NW, who reportedly is interested in the US Northeast Shuttle, the Philadelphia hub, and the Airbus aircraft or possibly the whole airline may make an offer.

Interestingly, the DOT review of the UA-US code share agreement is scheduled to conclude the same day, September 23, as other parties may provide bids that compete with TPG, which is three days before the September 26 bankruptcy hearing. Furthermore, it is believed UA-US could be exploring a “much deeper” relationship than their code share proposal, but it is uncertain of whether or not the parties will reach any form of an agreement.

Nonetheless, nobody knows for sure if or who could provide competing bids, but three things are clear. First, the TPG initial DIP financing agreement has received court approval, second, the company believes competing bids could surface, and third the September 26 hearings on the disposition of the remaining DIP $425 million financing and to consider competing financing bids with TPG’s MOU part of the process.

Only time will tell how things will turn out; however, why would John Luth, president of the investment bank Seabury Securities LLC, the consulting firm hired by US Airways to negotiate DIP financing and renegotiate aircraft leases, have told the Washington Post he thinks there will be other bidders? What could be Luth’s motivation to provide this information to the news media? Moreover, why would Luth have told the Post, “We expect that a number of parties will be in touch,” he said, “and it's likely a better offer will emerge?”

US Current Reorganization Timeline:

August 28 – IAM Mechanic & Utility restructuring agreement ratification vote

August 30 – IAM Fleet Service restructuring agreement ratification vote

September 10 – Court hearing to obtain emergency relief from any union who has not reached a restructuring agreement with the company

September 23 – Agreement with TPG expires as sole emergence financial backer

September 23 – Current DOT alliance review deadline

September 26 – Court hearing on the disposition on the DIP $425 million financing and to consider financing bids that compete with TPG’s MOU.

In all this, I get a wierd feeling that some new buyers may come in and want to do anything but keep us flying. Is it possible that WN could come and buy part of US? There's no secret that they're looking to expand a great deal on the east coast. They also have a much better track record than US and weathered the whole 9/11 aftermath. Creditors like that fact a lot I'm sure. If any airline could get financing to buy part of US it would be WN. I feel like US has been just thrown out there to allow chance to determine our fate. I hope fate is on our side.
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Bankruptcy has significant risk because the company is no longer in control of its fate. The Court has a primary responsibility to the creditors and I am certain if the judge deems that Siegel's plan is unfair to the creditors, we could see the eventual liquidation of the company.

I'm also certain several people on the creditor's committee are rather upset at the turn of events. How could they not be if a voluntary restructuring could have occurred without having to revert to the courts for protection? Nobody likes being "stiffed" especially if you are a lender during the current economic climate.

I believe those people who advocated "going to the judge" versus providing concessions were shortsighted, because if Siegel's plan is unsuccessful, there could be little and maybe no job transfers to WN or anybody else with approximately 100,000 furloughed airline workers. Why would any company want to take on another airlines employees with integration headaches, when they can be a hero to its own workforce by recalling their own employees to work additional assets?

For a traditional merger both UA & US do not have any money to buy one another, but if the ATSB decides consolidation is the answer to much of the industry's ills, there is language in the ATSA to permit these funds to be used for some sort of corporate combination.

There are a number of interesting points that may be coincidences, may just be to not let the competition or labor understand combination financial benefits, or could part of a greater plan.

Nobody but the parties involved know for sure what is occurring and they are likely bound by strict confidentiality agreements. Moreover, there are likely moving parts and players considering options to US' final disposition, which could dramatically change Siegel’s plans.

By filing for a formal reorganization as the DIP US maintains a certain amount of control over the company's destiny, but I am concerned about reports some members of the creditor's committee are upset about the filing.

However, there are a number of points that make me believe US & UA may still want a deeper relationship such as:

1. Multiple attempts to integrate during the past 10 years.

2. The current UA ALPA TA that has pre-nuptial seniority integration language although membership ratification has been put on hold.

3. The lack of US-UA code share public disclosure.

4. Why did the DOT refuse to open a docket on the carriers' request to form an alliance, despite the urging of AA, DL & the ACAA, per Docket OST-02-12986?

5. Why did UA's merger termination press release state the company looked forward to ways to work with US now that US agreed to terminate the merger on July 27, 2002?

Nobody knows fore sure how this will turn out because of the bankruptcy uncertainty, but in my opinion US employees may find out it would have been better for all stakeholders to reach voluntary restructuring accords that would have helped the company remain in control of its own destiny.