737nCH11, Salesguyccy, Azdryheat,& Pineybob:
Salesguyccy asked: 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?
Chip answers: Salesguy, yes I talk with some people in the national and local news media and I have been quoted in some articles, however, I shy away from publicly talking with the press because of Company and ALPA policy. In regard to this specific report or rumor, the information was provided by an analyst.
737nCH11 asked: Are you talking about a full-scale merger, or just a transfer of assets?
Azdryheat asked: 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?
Chip answers: I have repeatedly said that I do not believe UA will liquidate, however, I agree with last weeks Chicago Tribune article titled "Rhapsody In Blues" that UA’s structure could change and the airline could become smaller. In its special report the newspaper said, "One sure thing: United will be a much smaller carrier than it was in its heyday, and its heavy debt load will hinder it from buying new planes and generously rewarding workers for the sacrifices they have made."
Moreover, the recent news or maybe a national rumor that a third party investor has emerged, who may be interested in providing UA with exit financing and acquire RSA’s controlling interest in US, provided the two companies further integrate, could change management’s business plan for both carrier’s, although it’s unclear how this could unfold or if any offer will be made.
In my opinion, I believe the two companies will not merge and we could see some form of the UCT, which I understand is still being discussed within CCY. Some of the current UCT drivers are David Bronner’s UA EETC exposure, more flexible US union work rule and RJ agreements than at UA, as well as the UA ALPA successorship clause that permits up to 50% of the airline to be sold without employee transfer to the successor.
Meanwhile, it appears UA’s pension problems are a big issue per my previouscomments. In his weekly recorded message to employees, UA chief executive officer Glenn Tilton yesterday carefully told employees that the new "collective bargaining agreements reduced pension obligations to some extent." Clearly, this statement was intended to tell employees that without legislative relief per the Air Line Pension Act of 2003, recently introduced as H.R. 2719, that UA’s underfunded pensions could prevent the carrier from emerging from bankruptcy.
Tilton said that "more needs to be done" on the legislative front, there was "opposition from some important members of Congress" to H.R. 2719, and the "pension plans are cash liabilities that must be met" for the company to successfully emerge from court protection.
737nCH11, you have asked some valid questions and I have enjoyed professionally discussing the issues with you, but a few weeks ago I found out from sources close to the UA pension issue that similar to OA’s who have defined benefit retirement plans, the UA ALPA pension was a "time bomb" ready to explode. In fact, Tilton said the "decisions will be made as we move further along in the process in our restructuring" on how to deal with the retirement plans, which clearly could be the biggest hurdle for UA to emerge.
737nCH11, I’m not sure how this all will work out because there are a number of variables being discussed by influential parties such as:
737nCH11, in my opinion, UA has significant challenges ahead of itself and it’s future remains unclear. I agree that the restructuring is gaining clarity in some areas, however, I also believe the restructuring is becoming more obscured in other areas. If a corporate transaction occurs, my bet would be a UCT with an asset transfer by UA to US because of the parties previous interest in this type of deal. But, I find it equally intriguing that somebody like Henry Silverman or David Bonderman may step up to the plate and make a condition of a UA investment some form of a corporate combination with US. Furthermore, since Bonderman did a similar deal with HP & CO and then had the NW – CO alliance, it would not surprise me to see TPG be the final player where Bronner sells his US investment to TPG with a profit, while also protecting his UA EETC’s.
In conclusion, how this situation eventually unfold remains unclear because there appear to be multiple players involved. However, I believe UA and US need one another to provide a revenue premium to fight the low cost competitors, but before anything can be done, UA must figure out what to do with its underfunded pension in light of Tilton’s comments at 800-393-6682 (eye-on-ua), prompt 2, which I first reported on this website a few weeks ago.
PneyBob asked: Assuming that the rules are relaxed/eliminated, does a US/LH merger seem more plausible then a US/UA merger? Chip, have you considered that possibility? What do your sources say?
Chip answers: As you know, current federal regulations prevent a foreign carrier gaining control of a U.S. airline, which is clearly understood at US because of the previous relationship with BA. In regard to LH-US or LH-UA, late last year LH said it was not interested in providing UA with money or investing in the Chicago-based airline. If foreign ownership laws are relaxed as a means of permitting the marketplace help restructure the industry, than I believe a LH-US or LH-UA deal could become a "front burner" item. In regard to my sources, the only thing I have been told is that US and LH are aggressively moving forward with their independent bilateral agreement, which is expected to be implemented in Q4.
Best regards,
Chip
Salesguyccy asked: 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?
Chip answers: Salesguy, yes I talk with some people in the national and local news media and I have been quoted in some articles, however, I shy away from publicly talking with the press because of Company and ALPA policy. In regard to this specific report or rumor, the information was provided by an analyst.
737nCH11 asked: Are you talking about a full-scale merger, or just a transfer of assets?
Azdryheat asked: 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?
Chip answers: I have repeatedly said that I do not believe UA will liquidate, however, I agree with last weeks Chicago Tribune article titled "Rhapsody In Blues" that UA’s structure could change and the airline could become smaller. In its special report the newspaper said, "One sure thing: United will be a much smaller carrier than it was in its heyday, and its heavy debt load will hinder it from buying new planes and generously rewarding workers for the sacrifices they have made."
Moreover, the recent news or maybe a national rumor that a third party investor has emerged, who may be interested in providing UA with exit financing and acquire RSA’s controlling interest in US, provided the two companies further integrate, could change management’s business plan for both carrier’s, although it’s unclear how this could unfold or if any offer will be made.
In my opinion, I believe the two companies will not merge and we could see some form of the UCT, which I understand is still being discussed within CCY. Some of the current UCT drivers are David Bronner’s UA EETC exposure, more flexible US union work rule and RJ agreements than at UA, as well as the UA ALPA successorship clause that permits up to 50% of the airline to be sold without employee transfer to the successor.
Meanwhile, it appears UA’s pension problems are a big issue per my previouscomments. In his weekly recorded message to employees, UA chief executive officer Glenn Tilton yesterday carefully told employees that the new "collective bargaining agreements reduced pension obligations to some extent." Clearly, this statement was intended to tell employees that without legislative relief per the Air Line Pension Act of 2003, recently introduced as H.R. 2719, that UA’s underfunded pensions could prevent the carrier from emerging from bankruptcy.
Tilton said that "more needs to be done" on the legislative front, there was "opposition from some important members of Congress" to H.R. 2719, and the "pension plans are cash liabilities that must be met" for the company to successfully emerge from court protection.
737nCH11, you have asked some valid questions and I have enjoyed professionally discussing the issues with you, but a few weeks ago I found out from sources close to the UA pension issue that similar to OA’s who have defined benefit retirement plans, the UA ALPA pension was a "time bomb" ready to explode. In fact, Tilton said the "decisions will be made as we move further along in the process in our restructuring" on how to deal with the retirement plans, which clearly could be the biggest hurdle for UA to emerge.
737nCH11, I’m not sure how this all will work out because there are a number of variables being discussed by influential parties such as:
- How will the DIP financiers react to a potential bankruptcy financing covenant violation and ultimately the underfunded pensions?
- Who are the potential third-party investors and what will be their demands?
- Who are the people interested in investing in both UA and US, with the intent of some sort of corporate transaction? Could there be people lurking in the wings like Carl Icahn, Marvin Davis, Henry Silverman, or David Bonderman? Moreover, what are their intentions and how will the airline’s react? In my opinion, of the two companies, UA would appear to be at more risk because its destiny could be decided by the court and not its board, whereas US’ destiny could be decided only by its board since the company has emerged from bankruptcy.
- David Bronner, US’ chairman of the board, who holds 37.5 of the company, also holds UA EETC’s. Clearly, Bronner has a vested interest in seeing these debt instruments continued to be paid, therefore, what effect will this have on UA and for that matter US?
- How will the ATSB react to UA’s pension problem if there is no legislative relief? Since the ATSB said in UA’s last attempt to acquire a loan guarantee that the board had "serious concerns" regarding the company’s underfunded retirement plans, with yesterday’s news that the UA CEO said union concessions only "reduced pension obligations to some extent", how will ALPA react if the ATSB says the only way the company can get a loan guarantee is for the union to terminate its Defined Benefit retirement plan?
737nCH11, in my opinion, UA has significant challenges ahead of itself and it’s future remains unclear. I agree that the restructuring is gaining clarity in some areas, however, I also believe the restructuring is becoming more obscured in other areas. If a corporate transaction occurs, my bet would be a UCT with an asset transfer by UA to US because of the parties previous interest in this type of deal. But, I find it equally intriguing that somebody like Henry Silverman or David Bonderman may step up to the plate and make a condition of a UA investment some form of a corporate combination with US. Furthermore, since Bonderman did a similar deal with HP & CO and then had the NW – CO alliance, it would not surprise me to see TPG be the final player where Bronner sells his US investment to TPG with a profit, while also protecting his UA EETC’s.
In conclusion, how this situation eventually unfold remains unclear because there appear to be multiple players involved. However, I believe UA and US need one another to provide a revenue premium to fight the low cost competitors, but before anything can be done, UA must figure out what to do with its underfunded pension in light of Tilton’s comments at 800-393-6682 (eye-on-ua), prompt 2, which I first reported on this website a few weeks ago.
PneyBob asked: Assuming that the rules are relaxed/eliminated, does a US/LH merger seem more plausible then a US/UA merger? Chip, have you considered that possibility? What do your sources say?
Chip answers: As you know, current federal regulations prevent a foreign carrier gaining control of a U.S. airline, which is clearly understood at US because of the previous relationship with BA. In regard to LH-US or LH-UA, late last year LH said it was not interested in providing UA with money or investing in the Chicago-based airline. If foreign ownership laws are relaxed as a means of permitting the marketplace help restructure the industry, than I believe a LH-US or LH-UA deal could become a "front burner" item. In regard to my sources, the only thing I have been told is that US and LH are aggressively moving forward with their independent bilateral agreement, which is expected to be implemented in Q4.
Best regards,
Chip
