Is there discontent at US business partner UA?

[Busdrvr]

"Interestingly, the Times reported Texas Pacific Group is not talking with United about bankruptcy exit financing."

Following considerable pressure from CAL

"Reports indicate this plan includes the pre-bankruptcy reduction of 30 to 35 percent of its ASM’s and the implementation of the Low Cost Operator."

No secret here. Glenn said this to my face in DEN. HOWEVER, the plan was for MAINLINE to cut ASM''s by 30% and for the LCC to FLY THAT ENTIRE 30 %.

"Does it seem a little suspect the unsecured creditors committee, who hold significant power over UAL’s formal reorganization, feel compelled to ask the court to force the airline to provide this information?"

everybody on the commitee is NOT on the same sheet of music. If you have any questions, run your self a search for our last big "confidential" breifing to the CC. You''ll find it on the internet. What makes you think the company would want it''s entire new business plan on th internet for the chipster to read?

"why does ACAI believe it would be better of without the Chicago-based airline?"

read todays news, apparently you filled in all the holes yourself and took ACA out of context. Makes for interesting reading, but so does other fiction.

 

[Busdrvr]

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On 5/23/2003 5:08:19 PM Diesel8 wrote:

Not that I doubt it, but a CASM of 8 cents a mile is impressive indeed. Where did this number get derived from?

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The last I''d heard, they were talking a CASM that started with an 8, but it looks like 767 has heard of additional cost cuts (he IS somewhat connected). One place not considered by most folks is through additional utilization of our current fleet. One of the reasons that Jblu''s numbers are so low is the high amount of daily utilization of the fleet (13 hours?) UAL is currently MUCH lower. I don''t think you will see much released about the future plans because we ARE still hammering out lease agreements (also a reason the company doesn''t want the work of the consultants appearing in it''s entirety in the court documents). It''s tough to negotiate if the leasor KNOWS you really want to keep a certain asset. But the current whisper is that once things get hammered out, UAL will actually expand agressively (almost entirely through increased utilization), adding back most of the city pairs of "old" shuttle (LAX-PHX, LAX-TUS, ect). But I''ll also be the first to say that another go at buying U is NOT out of the question.

 

[USA320Pilot]

Group:

I wish no harm to UA and its fine employees, but there are conflicting reports on UA’s bankruptcy exit strategy and one has to wonder why Jake Brace called the Wall Street Journal so Susan Carey could write her article discussing a “possible early exit from bankruptcyâ€. Every US employee has a special interest in UA because of our business relationship and the multiple attempts to merge companies, so it’s understandable why there is discussion on this topic.

However, lets look at a couple of facts.

Yesterday UBS Warburg airline analyst Sam Buttrick upped his earnings estimates for every major airline he covers, except one, UA. Buttrick is now predicting a larger second quarter loss when he widened the per-share loss estimates for UA to $6.00 from $5.57.

Chip comments: Why is that? Because UA’s revenue is lagging the industry, which has to be deeply concerning to those parties interested in the bankruptcy process.

Yesterday CBS.MW said “the International Air Transport Association said world-wide global passenger traffic plunged 18.5 percent in April as war and pestilence kept people grounded. The biggest hurt came to carriers in the Asia-Pacific region as fears of the flu-like severe acute respiratory syndrome helped send traffic down a breathtaking 44.8 percent. The average load factor in the region was 48 percent -- a fall of 28 points year-over-year.â€

Chip comments: What U.S. airline has the highest exposure to this problem? How much effect does this fundamental problem have on UA and its bankruptcy requirements?

Chip’s OpEd comments: It is my understanding TPG has been on and off about being UA’s equity plan sponsor since last fall because they are unsure of whether or not the Plan of Reorganization (POR) is sound. McKinsey Consulting has been leading the effort for the Low Cost Operator (LCO) (in fact, McKinsey is the driver behind the project and reportedly convinced Tilton of the strength of the concept) and there is disagreement within WHQ on how to implement the plan and the LCO may never get off of the ground. Moreover, I understand that Doug Hacker and McKinsey do not see eye to eye and there is deep dissent between them.

From what I have heard, the unsecured creditors committee and four debtor-in-possession financiers (J.P. Morgan, Bank One, CIT Group, and Citigroup) are generally happy with UA’s progress because of the new labor agreements and new federal aid, but there are still glaring problems that threaten the carrier’s existence.

From this observer’s perch the major problems are:

Why is UA’s revenue performance significantly worse than its peers?

Why is there no in-house agreement on the POR and no clear-cut exit strategy?

Without a viable POR, will the ATSB re-visit the loan guarantee application and if the ATSB rejects UA’s application again, what is “Plan B�

In conclusion, there are wide spread reports of dissention within the “executive suiteâ€. People close to the company say management, the advisors, and the creditors committee cannot agree on how to proceed, and the LCO project has been dead for months. In fact, some observers believe the LCO concept was simply a union diversion strategy so Tilton could use the threat of a “spin off†division as a means to get labor to accept very deep cuts. I’m not sure I agree with that point because of McKinsey’s desire to operate the LCO as a means to compete with other low cost carriers, but it was definitely a collateral benefit to obtain unpalatable labor concessions.

Also noteworhty, it’s important to not the only reason UA is going to make its April and May DIP financing revenue and cash flow targets is because of reduced fuel prices, the IRS tax refund, and the May 16 federal aid payment, but things look bleak for this fall. With revenue and traffic soft and expected to climb only 1 percent over last year’s dismal numbers, the company must be cash flow positive in October and this is when travel traditionally drops. UA is clearly at risk of violating its bankruptcy financial requirements in the fall and if the DIP financiers do not provide relief, I believe UA and its employees could have a very difficult holiday season.

Finally, I agree with Avek00’s comments of “The bottom line is that for all of the hoopla, UAL is no better suited to emerge from BK as a VIABLE enterprise today than it was on the date of the filing. IMHO, Brace did a real disservice to UAL's employees by misleading them into thinking that re-emergence is right around the corner.â€

In my opinion, Brace’s comments to Carey were nothing more than a “smoke screen†to deflect criticism that UA executives have been slow to release details of their POR and UA has along way to go if it’s going to exit bankruptcy intact.

Best regards,

Chip

P.S. If ACA is successful in breaking its agreement with UA at next Thursday's bankruptcy hearing, this would be a devastating blow to UA’s formal reorganization and Dulles International Airport. With its new agreement, if a J4J deal could be arranged with both the US and ACA pilot groups, it would not surprise me if ACA moved its RJ fleet to Philadelphia and/or Pittsburgh to provide US Express with a turn key spool up. However, I have no inside knowledge if this would ever happen, but I do know that ACA has been talking to other airlines and with its new ALPA RJ authorization, presumably US is one of the major airlines ACA has discussed a new arrangement with.

 

[Busdrvr]

"Chip comments: What U.S. airline has the highest exposure to this problem? How much effect does this fundamental problem have on UA and its bankruptcy requirements?"

Uh, on a revenue adjusted level, it''s NWA BY FAR. If you are going to ask a rhetorical question, make sure it''s about the right airline.

"Why is UA’s revenue performance significantly worse than its peers?''

It''s called BK chip, you should know a lot more about it (you could be living it again). BTW, what makes you think OUR revenue performance if lagging?

"Without a viable POR, will the ATSB re-visit the loan guarantee application and if the ATSB rejects UA’s application again, what is “Plan Bâ€￾?"

There is a B and C plan. What makes you think we''d get rejected? If U''s plan was good enough, then UALs should pass with flying colors.

"Also noteworhty, it’s important to not the only reason UA is going to make its April and May DIP financing revenue and cash flow targets is because of reduced fuel prices, the IRS tax refund, and the May 16 federal aid payment, but things look bleak for this fall. With revenue and traffic soft and expected to climb only 1 percent over last year’s dismal numbers, the company must be cash flow positive in October and this is when travel traditional drops. UA is clearly at risk of violating its bankruptcy financial requirements in the fall and if the DIP financiers do not provide relief, I believe UA and its employees could have a very difficult holiday season"

WOW, you''ve really got a set on this one Chip. You mean an airline may come out of BK early, while still hemoraging cash and missing it''s DIP targets, and still get a government loan? IMPOSSIBLE!!! (right?...) I don''t know which one, but I heard of an airline that came out of BK under those conditions simply because continuing in BK would have likely ended in Chap 7 (the irony of ironies)

 

[Light Years]

LOL Now that one I like, PineyBob.

 

[Todd@ual]

Chip and all you United haters,


So Jake Brace and Glenn Tilton are willfully and purposefully lying to the employees and the press. The reason...to deflect criticism. Think carefully about this. Does it really make sense that they would lie about something knowing they would get caught within a month? Do you really think the very short term PR gains they would see would outweigh the consequences of publically lying about the state of United Airlines?

Your logic is just warped.

Your predictions:

1. UAL will be chap 7 by the end of the year.

2. ACA will "suceed" in breaking their contract with United - because this is something they desperately want to do- and as a result United will lose its IAD hub. ( Airways will of course move in for the kill at that point)

3. UAL revenues will lag the rest of the industry.

4. The ATSB will reject UAL.

5. United will be unable to get financing to emerge from chap 11.

I wonder what you past predictive track record is ? Without knowing a thing about you - and judging only by the reasoning methods you utilize to arrive at your conclusions - I''m guessing you have made some outlandish predictions in the past.

Time will tell in short order. I am an Airways cheerleader because the fate of our companys is most likely linked. Its sad that you feel the need to attack United with outlandish predictions.

Todd

 

[avek00]

You can all shoot Chip et. al. until the cows come home, but none of that changes the fact that UAL will NEVER emerge from bankruptcy until it radically changes the way it does business. The cost cuts obtained thus far are not enough; the company must also find ways to INCREASE revenue such that the airline might actually be able to turn a PROFIT.

Granted, UAL might be able to eke out a meager existence during its time in bankruptcy. But as the folks at US have painfully realized, cost cuts and a "blue-skies" mentality are by themselves insufficient for bankruptcy emergence; the company must alter the way it does business, or else the firm WILL ultimately fail.

 

[LavMan]

Bob, you could not be more wrong. Chip has been proven wrong numerous times, ie. the RJ deals that did not occur like he said, and the ICT of UCT between UA and US, he has lost his credibility long ago.

He brow beated every other labor group to take concessions to save the company and told them numerous times if you don''t like it quit. His own union disavowed him because of his op-ed piece in the Charlotte Observer which was full of untruths.

Then when his beloved Dave S took his pension away he started complaining like every other labor group did and when we told him the same thing that he told us, if you don''t like it quit, he took his ball and bat and went home since he could not win.

In my opinion Chip has no credibility at all, his own track record speaks for itself

 

[Todd@ual]

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On 5/24/2003 204 PM avek00 wrote:

You can all shoot Chip et. al. until the cows come home, but none of that changes the fact that UAL will NEVER emerge from bankruptcy until it radically changes the way it does business. The cost cuts obtained thus far are not enough; the company must also find ways to INCREASE revenue such that the airline might actually be able to turn a PROFIT.

Granted, UAL might be able to eke out a meager existence during its time in bankruptcy. But as the folks at US have painfully realized, cost cuts and a "blue-skies" mentality are by themselves insufficient for bankruptcy emergence; the company must alter the way it does business, or else the firm WILL ultimately fail.

----------------​

I have not fired a shot at anyone. I have pointed out the logical flaws in the conclusions you Chip any Bob seem to take so much comfort in.

I just want to make one more point and then I''ll let you go back to your post-United plans to rule the world.

To address the issue of "changing the way we do business"...

We , as pilots and indeed all employees , no longer have any work rules. If management wanted to take full advantage of the agreement , they could lay off almost 3000 of us for example. They have the tools to do absolutely anything they want. United has clearly made fundamental changes at the expense of what was once a great career for us all. ( don''t expect something dramatic like dismantaling the hub and spoke system or jets that burn pixi dust )

One last quick point and I promise to leave it. As airline employees who are watching our careers become pathetic jobs, if we are going to wish for something, may I suggest it might not be productive to wish ill on each other. We should hope for a bounce in industry revenue so our brotheren at other airlines are not forced to come down to our level. We don''t want the industry baseline to be AAA, UAL and AMR.

Ok I promise this time last point... Even the most anti-United analysts are no longer predicting a liquidation, but in the end what will happen will happen. I have clearly stated Chip''s dire predictions. I will come back and admit my error if what he says will happen actually happens. Would you be willing to admit you were wrong if United survives?

Your fellow airline employee,
Todd

 

[Busdrvr]

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On 5/24/2003 204 PM avek00 wrote:

You can all shoot Chip et. al. until the cows come home, but none of that changes the fact that UAL will NEVER emerge from bankruptcy until it radically changes the way it does business. The cost cuts obtained thus far are not enough; the company must also find ways to INCREASE revenue such that the airline might actually be able to turn a PROFIT.

Granted, UAL might be able to eke out a meager existence during its time in bankruptcy. But as the folks at US have painfully realized, cost cuts and a "blue-skies" mentality are by themselves insufficient for bankruptcy emergence; the company must alter the way it does business, or else the firm WILL ultimately fail.

----------------​

Ah, the limosine liberal is back. Please explain what it is that U did prior to BK exit that "altered the way they do business" (other than making all the employees dependant on the government for security in their old age, but that is out of the liberal playbook so you probably think that''s a good thing). As a matter of fact, U was losing BIG money before emergence (AND STILL IS). So what should UAL do to change the way the do business? I know with your vast business experience at your ripe old mid twenty''s age (having spent some of that "adult" time in politics, not business), you have lots of great suggestions. Let''s hear them. Please re-read our 1st Q financials and ask a fellow college student (try one from the campus "young republicans" club, they''ll prob have a better handle on business) to explain it to you. Also look at our financial releases since then. UAL WILL be cash flow POSITIVE this summer (likely already are). The cost cuts ARE sufficient. As a matter of fact, they would have made UAL PROFITBLE in 2002. Now you somehow think they aren''t enough? Un-F-believable.

 

[cubfan02us]

Tod,you da man.Thanks for making the effort to put forth
the concise and somewhat remarkable posts.I believe that
there is a silent group in both airlines that agrees with
most of what you are saying.In 2 years or so you''ll be
proclaimed a prophet.But no one will remember what you
said,but you will know and that''s all that matters,huh...

Good luck buddy.

 

[avek00]

----------------
Ah, the limosine liberal is back. Please explain what it is that U did prior to BK exit that "altered the way they do business" (other than making all the employees dependant on the government for security in their old age, but that is out of the liberal playbook so you probably think that''s a good thing). As a matter of fact, U was losing BIG money before emergence (AND STILL IS). So what should UAL do to change the way the do business? I know with your vast business experience at your ripe old mid twenty''s age (having spent some of that "adult" time in politics, not business), you have lots of great suggestions. Let''s hear them. Please re-read our 1st Q financials and ask a fellow college student (try one from the campus "young republicans" club, they''ll prob have a better handle on business) to explain it to you. Also look at our financial releases since then. UAL WILL be cash flow POSITIVE this summer (likely already are). The cost cuts ARE sufficient. As a matter of fact, they would have made UAL PROFITBLE in 2002. Now you somehow think they aren''t enough? Un-F-believable.


----------------​

1. US made several changes to the way it does business. For starters, it has eliminated nearly all non-hub/focus city routes. Another major change was a realignment of the company''s inflight services to the demands of the marketplace. In addition, US has established strict no waivers/no favors policies which should result in increased revenue as agents down on things like excess baggage, ticket changes, etc.

US still has a ways to go, but as you can see from the examples above, the company went BEYOND simple cost cuts and made substantive chnges to the way it operates.

2. UAL may become cash-positive this summer, but NO ONE, not even the most blue-skies UAers that I know, can offer a logical explanation as to how UAL will meet its October 2003 EBITDAR target. At best, the cost cuts simply postponed "the crunch" for six months (from April/May to October/November).

I don''t know what exactly UAL needs to change, but it is clear that change MUST occur. The cost cuts alone will NOT transform United into a VIABLE entity; they simply allow the airline to postpone its final day of reckoning. Hopefully, UAL and McKinsey will come up with something better than a half-baked plan based on a sea creature in order to transform the company before it is too late.

 

[USA320Pilot]

UAL's early exit plan may be too pushy

Airline industry and turnaround experts are skeptical of early emergence

CHICAGO (TheDeal.com) - Chapter 11 provides a cozy cocoon for insolvent companies, especially airlines. Bills can go unpaid, leases and labor pacts can be broken and debt can be wiped away under bankruptcy protection.

So why does UAL Corp. want to bolt Chapter 11 early?

When Chicago-based UAL, the parent of United Airlines, filed for bankruptcy in its home city in December 2002, it targeted June 2004 for exit. On Wednesday, however, the carrier said it would emerge late this year.

Airline industry and turnaround experts are skeptical. "Coming out in the fourth quarter of this year may be a little aggressive," says Ray Neidl, an analyst with Blaylock & Partners. "But they're making good progress."

Indeed, United has managed to extract five-year labor concessions from its unions, leaving its rivals shaken. United also boasts that it's accumulated $1.6 billion in cash reserves.

But those factors may not really make UAL ready for take off. The airline reported a $1.3 billion loss for the first quarter. Its cash position may not be all that it seems, either.

Airline experts question how many bills UAL is leaving unpaid while protected by Chapter 11. Some holders of securities that financed leases complain in court motions that UAL isn't making payments on its aircraft.

United doesn't break out how much of the cash it has built up comes from unpaid bills, says Jeff McAndrews, a UAL spokesman. And UAL CFO Jake Brace said early last week that, despite the loss, the company is ahead of the financial benchmarks in its loan covenants for April and May.

Still, once out of bankruptcy, UAL will have to start paying bills again, which could be a problem if profits don't return.

Meanwhile, UAL is being liberal about its so-called restricted cash. Of the $1.6 billion, UAL is putting some $644 million aside as restricted cash. The airline said in its quarterly report that it has set that money aside to cover workers' compensation deposits required by the states. "United takes a very narrow view of restricted cash. It's only workers' compensation [to them]," says a lawyer for aircraft investors.

UAL's ability to get out of Chapter 11 won't just depend on its cash pile, either. Its exit also hinges on convincing an outside equity investor and the federal government to help finance it.

UAL will have to make its case again to the Air Transportation Stabilization Board, which already rejected UAL's application for a $1.8 billion loan in December. And even if the ATSB agrees to a loan, United will then have to convince an outside investor to put up at least 10% of it to fulfill ATSB rules.

It won't be easy. Neidl notes that it's impossible to know where UAL's labor costs stand compared to rivals.

The carrier started from a higher wage and benefits base than American Airlines, so Neidl estimates that the $2.5 billion in annual savings United extracted from its unions will bring its labor costs down to American's level.

That's not very comforting. American has heretofore stayed out of Chapter 11, but it keeps sending out signals that it could make a filing any day now.

 

[USA320Pilot]

Avek00:

Your comments regarding US and its business plan are true.

Although not good for mainline employee pay and benefits, from a business perspective, the company will be the launch customer for the EMB-170 & EMB-175. The airplane is well suited for low demand, high yield markets like Erie to Pittsburgh or Asheville to Charlotte where there is still a revenue premium.

These markets do not have enough demand to warrant a 120-seat jet, whether its a hub and spoke carrier or a low cost operator, but are perfectly suited for the EMB-170. The business traveler will likely opt for the US product because they can fly first class, build their FFP awards, and not have this opportunity on any other carrier.

US will further narrow the RJ gap with an average of 7 RJs per month added to the network with affiliate, wholly owned, and MidAtlantic expansion, whereas most other carriers have already implemented this part of their business plan. With the EMB-170/175 the backbone of this expansion, this business plan change may take market share away from the competition. In addition, with MidAtlantic a mainline operation at AA Eagle costs, this will further lower the US CASM to a more competitive level.

Another key restructuring change is the new alliance with Lufthansa and the expected May 31 announcement US will join the Star Alliance. Most of the other hub and spoke airlines have their alliances in place and cannot generate additional revenue, but US as the exception will have another revenue source to tap due to code sharing.

Finally, if US remains independent, the company eventually operate just two airplane types, which will reduce costs even further and provide a competitive advantage.

The Arlington-based airline has a 29 aircraft on order with a mix of A330-200s, A321s, and A320s, as well as 7 A319's parked in the desert, which I understand will eventually be brought back into service. These 36 jets could replace the B767s and B757s and take the mainline down to basically two fleet types, the A330/A320 family and the B737 aircraft, which would provide US with a competitive advantage, provided no corporate transaction occurs that is still a very real possibility.

Siegel also indicated the 110-seat EMB-195 or EMB-190 could replace the B737s, which could leave US with a fleet of A-330s, A320 family aircraft, and EMB-190/195 aircraft. In addition, MidAtlantic will operate the EMB-170/175, which will provide streamlined parts inventory, maintenance, and pilot training, to further reduce costs.

These are just a few examples of business and restructuring changes, in addition to the comments you provided.

Best regards,

Chip

 

[767jetz]

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On 5/25/2003 2:42:51 PM Chip Munn wrote:

... provided no corporate transaction occurs that is still a very real possibility.


Chip

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Oh my God! Here he goes again!

Someone please wake me up from this nightmare...