Is it me or do I smell merger?

[737nCH11]

Ahhhh Chip,

We posted at the same time. I commend you for responding to me, so I retracted my post when I saw yours. I jumped the gun, and for that I apologize.

It must be coincidence that we are logged on at the same time. I have spent my morning planting gold mound spireas in my garden. Very hot work in the south.

I would like you to expound on your remark about UAL being on life support. Was this a knee-jerk response, or do you have information that we don''t know yet?

 

[737nCH11]

I said in an earlier post that U might expand in the Carribbean because no other Star carrier has a large presence there. As for European and domestic flying, wait and see what happens when U is initiated into Star.

 

[azdryheat]

Chip,

It seems like you are starting to back off from the death watch statements about UA. This was from an email from the UA ORD Chief Pilot.

* YIELDS ARE UP 30% OVER APRIL.
* LOADS CONTINUE TO BE HIGH. WE CARRIED 160,000 A DAY IN MAY. WE ARE UP
TO 220 TO 230,000 A DAY NOW.
* UAL HAS THE LOWEST "IN CLASS" COST STRUCTURE. OUR COST IS 8.29 CENTS
PER SEAT MILE VS. 9.7 CENTS FOR AA, 10.26 FOR DAL AND CAL, 10.22 FOR USAIR
AND 10.5 FOR NWA.
* DENIED BOARDINGS: INVOLUNTARY DBS CONTINUED TO TREND DOWN RAPIDLY EVEN
WITH OUR HIGH LOAD FACTORS. OVERALL DB'S ARE TRENDING DOWN.
* FINANCIAL PERFORMANCE: MAY $ WERE GOOD, IN PART DUE TO THE $ THE
GOVERNMENT GAVE US. DIP MILESTONES LOOK GOOD THROUGH THE END OF THE YEAR
DUE TO INCREASED YIELDS AND LOADS.

While not out of the woods, seems to be a long way from death watch. Also you note that it is not likely that DIP lenders will pull the plug on UA's assets.

 

[N628AU]

----------------
On 7/19/2003 2:43:24 PM 737nCH11 wrote:

I said in another post that all Siegle had to do was Change U''s name back to Allegheney, and you would be right back to where you were in the 1970s. U is becoming a regional carrier, because that is where it can be profitable again. UAL relies heavily on it''s Atlantic and Pacific operations, and so it requires feed from the entire U.S. to support itself. I believe this is why CEO Glen Tilton has stated that UAL has no desire to shrink.

I may be totally wrong, but I believe U is setting itself up to be the new Atlantic Coast Airlines for the Star Alliance.

----------------​

They did not "drop the Gatwick flights", only PIT-LGW, and it probably has more to do with the ability to use the aircraft more profitably in other capacities (especially to the Carribean in the winter), than anything else. If we are becoming the "Atlantic Coast Airlines for the Star Alliance", please explain this week''s announcement of more Carribean flying. It is basically for US what the Pacific is to UA.

I wish everyone here would stop trying to read so much into avery line of every press release.

 

[USA320Pilot]

737nCH11:

My "life support" comment was too strong and probably inappropriate. As we discuss the issues let me be more specific on some general points.

• 
  I do not believe UA will liquidate, however, the company has many challenges ahead. The carrier must develop a business plan that convinces the ATSB the airline can obtain a 7% profit margin in 7 years, they must obtain exit financing and repay up to $1,5 billion in DIP financing, and management must effectively deal with the underfunded pensions (if there is not legislative solution). By the way, after discussing the UA pension issue with ALPA R&I, the UA ALPA pension problem will likely become an issue with the ATSB. If true, than the UA pilots could be faced with the same choice as the US pilots with the Treasury Department involved with the ATSB and PBGC.
  

• 
  I believe UA will miss its DIP financing in October, maybe even September. However, J.P. Morgan, CIT Group, Citigroup, and Bank One are probably not interested in holding UA's collateralized assets. I believe they want to make a buck and get their investment back, thus they should provide some form of relief.
  

• 
  I do know for fact since last winter the parties have talked on and off about a UCT -- with both companies remaining independent. In my opinion, if a corporate transaction occurs there could be a third party investor who emerges. It would not surprise me if somebody like Henry Silverman, who normally does not play in this type of market, or more likely David Bonderman does something similar to HP and CO. Knowing the players and getting to know Dave Siegel personally, I believe this could easily happen, which could give RSA an exit strategy with their investment intact with a nice ROR.
  

In conclusion, there is a lot in play here and both companies need their partner healthy to provide a joint revenue premium to cover their costs, which remain fair to high in today's environment. I'm not sure how this will turn out, but my bet is something could occur this fall.
Best regards,
Chip

 

[USA320Pilot]

Azdryheat:

With all due respect, there is no need to shout. However, this week's AA, DL, NW, & CO conference calls painted a bleak Q3 and Q4 picture. Thus, it's likely to the same thing will occur all over again when both US and UA report their Q2 numbers on July 28 and August 1.

- In particular, June pricing data was in line with expectations but marks continued demand weakness and most analysts estimate that demand levels have yet to returned to pre-war levels. In fact, one analyst estimates June's domestic demand shortfall at 22.7% below pre-war levels.

- RASM improved in June, but only as a result of higher loads; yield is still very weak, especially given large industry wide capacity reductions.

- For the ATA carriers who reported, domestic RASM improved by 4.0% and full system RASM improved 2.5%, marking the second straight month of positive comparisons.

- The rally in Atlantic RASM faded when the airline's added capacity back into the system and the Pacific remains very weak, but is somewhat rebounding as SARS abates. Latin strength, principally on the shoulders of the Caribbean, persists. My take -- this is bad news for UA and good news for US

- The positive RASM trend remains a product of higher load factors, which will likely not translate into higher yields as some now postulate. Unfortunately, yields continue to decline, and the carriers do not yet feel any pricing power. This is especially problematic for UA since AVMARK believes the Chicago-based airline has the lowest legacy carrier yield RPM.

- Finally, all four of the network airline's who have reported forecast grim Q4 and Q1 numbers, which could be very bad for UA since the company must be cash flow positive in October.

Best regards,

Chip

 

[iflyjetz]

----------------
On 7/20/2003 7:25:29 PM Chip Munn wrote:
With all due respect, there is no need to shout.
----------------​

He wasn''t shouting, Chip. He copied an e-note from UAL''s unimatic system. It''s a bit archaic, and only allows e-notes to be sent with all caps. What you read above is a straight copy & paste job from ORD''s chief pilot without any ''editing.''

----------------
On 7/20/2003 7:25:29 PM Chip Munn wrote:
- Finally, all four of the network airline''s who have reported forecast grim Q4 and Q1 numbers, which could be very bad for UA since the company must be cash flow positive in October.
----------------​

Chip, I see that you still don''t understand the DIP covenants in regard to EBITDAR targets. Those target numbers are cumulative from 1 Dec 2002. As long as UAL remains EBITDAR positive and builds a positive buffer going into the fall, they can be EBITDAR negative in October and still meet DIP targets. UAL was more than $300 mil EBITDAR positive in May. Reread this press clipping: http://www.ual.com/press/detail/0,1442,51120,00.html. Note how Jake Brace said that UAL was EBITDAR positive even before including the $300 mil govt assistance? Whether or not UAL is cumulatively EBITDAR positive at this time is unknown; I don''t know where UAL stood at the end of April and WHQ has never publically released exact EBITDAR numbers.

 

[USA320Pilot]

Iflyjetz:

Regardless of whether or not information is cut and pasted from an internal company program is not the point. In computer language uppercase is shouting and Microsoft and WordPerfect both provide a change case function.

Meanwhile, I fully understand EBITDAR, UA’s bankruptcy financing requirements, and the financiers stringent requirements to be cumulative revenue and cash flow positive in October. After discussing this requirement with some Wall Street analysts, reviewing the dismal legacy carrier Q2 EPS reports so far, and listening to some conference calls, the fourth quarter is forecast to be weak for the entire industry. These reports coupled with UA having the industries worst yield RPM, according to the recent AVMARK analysis, increase my opinion UA could be in violation of DIP financing covenants this fall.

As I have said before, I do not believe UA will liquidate.

However, as I commented on before, the company was given a huge reprieve and was EBITDAR positive in the spring due to the IRS tax refund and $300 million bailout, but not necessarily a change to the business model. The question continues to be will the company be revenue and cash flow positive with a cumulative EBITDAR of $46 million since December 1 by the end of October?

Moreover, when will the airline announce its business plan (I believe it’s POR must be submitted to the court by December 6), obtain exit financing, submit its revised loan guarantee application, and find an investor? Also noteworthy, there are reports within ALPA R&I that the UA pilot pension plan may need further changes -- if true how will effect the company's reorganization when UA ALPA spokeswoman Scotty Calrk said this could cause a "meltdown" of the airline?

Iflyjetz, I agree with your comment of "whether or not UAL is cumulatively EBITDAR positive at this time is unknown" and I could be wrong, but I still believe UA may not meet its "DIP milestones" to meet the $46 million figure in October, which must be higher in November and December.

Meanwhile, last Friday the National News media began inquiring with analysts about another corporate transaction involving US and UA, which could occur in the near future. It seems that not a month goes by without another reliable source discussing the two airlines and usually where there’s smoke there is fire, however, will something occur this time? This report is focused on how can UA get exit financing. Apparently, there may be a third party investor willing to acquire RSA’s US investment and provide UA with additional exit financing, provided the two companies can integrate. Will it occur? I do not know. Is it being discussed in New York and around the country by key money players? Yes.

Best regards,

Chip

 

[SalesGuyCCY]

Chip:

How do you know that "national news media" made inquiries last Friday and why have we not heard about it? Do you have an inside source in the media too?

 

[737nCH11]

Chip,

Are you talking about a full-scale merger, or just a transfer of assets?

 

[willyloman]

737n:


reliable sources in the news media and others dealing with M&Es have confirmed with me that there is a transfer of assets from U to UA is being discussed. Chip, my sources are definitely better than your sources.

 

[trvlr64]

If there are "merger" talks in the future I hope to GOD it''s not UA, but in all likelyhood it will be. After the past 2 days of dealing with UA I swear that when a bird in Tokyo farts, UA delays it''s planes. It''s frustrating from a customer''s POV to have to deal with that airline, even a customer that flies frigging weekly, like me. I can only hope that your management gets it''s head out of the sand and starts to grow this airline. Obviously people are flying. Every damn flight of mine is full to the gills. Someone wake Dave and crew up!!

 

[SalesGuyCCY]

UA is the WORST for non-rev''ing..the treat US employees like DIRT..rarely upgrade...etc, etc! Our FA''s ARE the best!

 

[oldiebutgoody]

----------------
On 7/21/2003 1:38:11 PM willyloman wrote:

737n:


reliable sources in the news media and others dealing with M&Es have confirmed with me that there is a transfer of assets from U to UA is being discussed. Chip, my sources are definitely better than your sources.


----------------​

Willy, you sure ruined your credibility with that one! My guess is that neither is going anywhere, except maybe some kind of mutually agreed "merger", possibly under the STAR ALLIANCE banner. UA has to get it''s finances straight before ANYTHING happens. These airlines need each other, or they''ll be slaughtered by SW and Jetblue within 5 years (yes, both of them. Without domestic feed, UA AND US would whither on the vine, just like Pan Am did.) It''s the modern reality of the airline industry.

 

[azdryheat]

Chip,

Sorry for shouting. As someone already pointed out, I pasted the item into my post. I''m somewhat stupid and ignorant or I would have corrected it before I posted.

With all the info you get regarding UAL and the inside info you obtain at U, you must have some idea/sources of what could be happening between UAL/U. Care to share them?