Is there discontent at US business partner UA?

[USA320Pilot]

767jetz:

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

767jetz said: "Oh my God! Here he goes again! Someone please wake me up from this nightmare..."

Chip comments: It's no secret within the halls of CCY, on Wall Street, and in Montgomery that US and UA have held on and off discussions since last winter regarding a corporate transaction between the two carrier's. David Bronner has said in three independent interviews he is willing "to buy UA assets provided it makes sense for US."

Everybody on the planet understands the huge economic benefits of combining operations, but there have been the seniority based union greed issues interfering with the process.

I believe the current issue is that US does not have deep enough pockets and Bronner will only buy UA assets at a discount, so he can eventually sell US stock at a premium.

However, UA was given a DIP financing reprieve with the short war, IRS refund, last week's federal aid, and the significant drop in fuel prices. Without these dramatic events, UA would have missed their April and May DIP requirements, which is one of the reasons UA warned the SEC the airline could liquidate. However, come fall things may very well change with the pressure ratcheted up month after month with more stringent EBITDAR, revenue, and cash flow DIP financing requirements.

Meanwhile, I find it interesting that UA ALPA changed its contractual seniority integration policy written in ERP I & II from a "pre-nuptial" agreement to have language identical to US ALPA. This language specifically says the integration will be either Allegheny-Mohawk LPP's or ALPA Merger and Fragmentation policy.

767jetz, why do you believe UA ALPA changed their seniority integration policy?

Regardless, the only difference between the two pilot contracts is that if more than 15% of US assets are sold, US pilots must transfer with the assets. However, the UA ALPA contract says that no pilots have to transfer to the surviving business entity unless 50% or more of the assets sold.

Therefore, if Siegel desires he could technically use RSA money to buy UA assets and if he acquires less than 50% of UA, he would not have to take any UA pilot per the UA ALPA contract. Will that occur? Personally, I doubt it because if Bronner/Siegel buy UA assets I believe he would take UA pilots just like the last US-AA agreement, to provide a faster "spool up".

Dave Siegel knows exactly what's going on within both companies and I understand a fragmentation of UA assets into US may be the only way UA can emerge and get its POR approved, with the very real possibility of UA failure in the fall dependent on fundamentals.

Will it occur? At this point it is unclear if a deal will proceed because of the state of the industry. Could it occur? Absolutely.

Best regards,

Chip

 

[767jetz]

Fine Chip, We get it... Anything is possible. We all know that this industry is full of suprises.

But can't you understand that you've been spinning this corporate transaction thing for the better part of a year, and most of the people around here are tired of hearing about it. Much of what you predict simply hasn't materialized, yet you reference 'many analysts' and 'informed sources'as if you have some special insight into the plans of an airline you don't even work for. And then you cut and paste any news article that supports your claims, while ignoring the many that contradict you.

Can we at least agree for the sake of everyone on this site, that your posts about United are purely Chip's personal SPECULATION and nothing more. Until you can quote CREDIBLE sources and show us PROOF, then it is nothing but pure OPINION.

 

[Falco]

UAL''s strategy to exit from bankruptcy early might actually be believable if you view it from the standpoint of the DIP financing requirements. If UAL can find financing from the provider of last resorts (US taxpayer), they can jettison the DIP agreement that requires them to make money. In other words, UAL realizes it can''t meet the DIP requirements, and wants to get out of that agreement. This is right along the lines of U''s early exit from bankruptcy, even before they knew they could make money.

 

[USA320Pilot]

767jetz:

767jetz said: "Can we at least agree for the sake of everyone on this site, that your posts about United are purely Chip's personal SPECULATION and nothing more. Until you can quote CREDIBLE sources and show us PROOF, then it is nothing but pure OPINION."

Chip answers: 767, my comments on this site are both my opinion and information I have obtained from others, including leading Wall Street analysts, national news media personnel, airline management, and directly with Dave Siegel. When I offer an "informed" opinion, I normally indicate that with the phrases "I believe" or "In my opinion".

I have articulated in the past why a transaction has not proceeded and just this week I broke on this website that there was discontent at UA, in its executive suite, and between Doug Hacker and McKinsey & Co., in this thread titled "Is there discontent at US business partner UA."

Then TheDeal.com and Crain's Business News echo my comments 48 to 72 hours after I broke them on this site. How could that be and how did I beat the national news media to this story?

Regardless, in my opinion David Bronner will only acquire UA assets for US if he can buy low and sell high, which will require UA to be under duress. I believe that could ahve occurred this spring, except for the sudden and dramatic shift in fundamentals, but UA clearly could miss the October and beyond DIP financing requirements. If this occurs I suspect UA may be forced to sell assets to stay in business and US's "white knight" and Dave Siegel may opt to acquire them, at a discount versus having to pay a premium today.

According to Crain's "analysts say United won't be able to attract the multibillion-dollar financing it needs to emerge from bankruptcy without a credible business plan." Therefore, doesn't it make sense for Bronner to wait until Glenn Tilton is forced by the unsecured creditors committee to divest of assets and buy them low so he can maximize his ROR?

Again, I wish no harm to UA and its employees and as I have said before, I believe if the two companies had integrated in 1996 neither airline would have entered bankruptcy, but that did not happen.

Finally, I believe Bronner's three public comments about his interest in acquiring UA assets for US is a credible source. After all, he's only the chairman of the board. Do you agree?

Best regards,

Chip

 

[767jetz]

Well PineyBob,


"chip has supported his opinions with credible sources."

This is where you are wrong. Chip has no credible sources, and if he does he refuses to reveal them. Why would that be? His sources are the same news papers you and I read. They are the same "experts" that have been making false predictions about both US and UAL for a long time.



"Instead of skewering him with insults why not post all of these opposing pieces to refute or blunt his claims?"

I have in the past cut and paste many opposing points of view from news articles and "industry experts" that are just as credible (unreliable) as Chip''s. Plus I go to UA meetings, union meetings, and talk to UA management. Something Chip does not have access to. Who do you think gets better info? Additionally, I don''t go on and on for months at a time speculating on the fate of other airlines. I am not so arrogant to think that I know more about US Air for instance, than the employees of US Air. I am too busy looking after my own carreer, and my own company, to waste endless hours speculating on the fate of others.



"...why are Chip''s speculations so wild?"

Whether or not his speculations are wild or not, are of no concern to me. Chips is entiltles to his OPINIONS. The gripe I have with him is that he states everything as if it is undisputable fact, and then references unreliable sources. Posting quotes from the opinions of another person who happens to write for a newspaper, who agrees with Chips opinion, does not suddenly make that opinion factual. You seem to agree from your post, that what Chip writes is SPECULATION, and for that I commend you.

 

[USA320Pilot]

Collision course for UAL, creditors

CHICAGO (Crian's Business News) - A public rift between management and creditors of United Airlines has exposed a fundamental disagreement over the carrier's revival plan, undercutting recent talk of an early departure from Bankruptcy Court.

While there's no doubt United has to find a way to compete against fast-growing discount airlines, management's plan to create a low-fare subsidiary — code-named Starfish — has met with skepticism from Wall Street and United's unions, as well as the committee of unsecured creditors overseeing United's bankruptcy.

The creditors committee signaled its unhappiness by refusing to approve management's plan to expand the role of the consulting firm responsible for fleshing out the Starfish concept and other aspects of the recovery strategy. In response, United, which has been in bankruptcy since December, has asked the court to approve the contract despite the committee's objections.

Although the Elk Grove Township-based carrier achieved substantial reductions in labor costs last month, avoiding the immediate threat of liquidation, the fight over Starfish underscores that the carrier hasn't articulated the strategy it will rely on to emerge from Chapter 11.

Discount doubts abound

Starfish has been a hard sell from the start, given that discount carriers operated by mainline carriers — including Shuttle by United — have generally failed. Last week, Texas-based American Airlines added to the doubts by declaring it would cap fares and add seats to compete in heavily discounted markets, instead of adding a discount carrier.

"American's unwillingness to consider a low-cost carrier-within-a-carrier has added to the skepticism," says Joseph Schwieterman, director of the Chaddick Institute for Metropolitan Development at Chicago's DePaul University.

While Mr. Schwieterman, a former strategic planner at United, favors the Starfish idea, he adds that "United can expend only so much energy on a concept that doesn't have Wall Street's support."

Moreover, analysts say United won't be able to attract the multibillion-dollar financing it needs to emerge from bankruptcy without a credible business plan, whether or not it includes Starfish.

But at this point, the reliance on the unproven concept of a discount subsidiary — absent any details — raises questions about United's overall ability to exit bankruptcy successfully.

"People still want to get a look at that before they're completely bullish (on United)," says Steven Casley, co-founder and principal at Back Aviation Solutions Inc., a New Haven, Conn.-based consulting firm. Creating a low-cost subsidiary may be unnecessary, he adds, echoing a widely held opinion, "if they can get their baseline costs down low enough."

For the last few weeks Atlanta-based Delta Air Lines has been experimenting with a discount subsidiary called Song, but mostly in the Eastern U.S.

On the other hand, United has talked about integrating Starfish into its entire network.

The main similarity — aside from Wall Street's skepticism that either concept will work — is that both carriers used the same consulting firm, McKinsey & Co., to develop their plans.

United's creditors are objecting to management's plan to extend its contract with McKinsey, which is helping United develop its business plan in bankruptcy, with fees totaling about $4 million to date. Because of that objection, United was forced to seek court approval for the extension.

The creditors committee said in a court filing last week that it has been unable to get information or analysis from McKinsey in order to judge whether its fees are justified.

United's response was that the creditors had been able to meet with McKinsey's professionals, but wanted only to learn "McKinsey's views about the correctness of the debtors' views regarding various business strategies — views McKinsey was retained to provide to the debtors."

'Not dead, but not a plan'

While tensions between a company in bankruptcy and its creditors committee are to be expected, sources say this latest dispute largely revolves around McKinsey's advocacy of the discount carrier-within-a-carrier.

"Most of the creditors are justifiably skeptical of it," says a source close to the creditors committee. "It doesn't mean it's dead, but it's not a business plan."

United hasn't discussed the Starfish concept lately, though a spokesman for parent UAL Corp. says planning is still under way.

"At this point," he adds, "it's premature to even talk about it."

In a recent taped message for employees, United's newly hired executive vice-president for customer relations not only failed to mention the low-cost carrier plan but also seemed to steer away from it.

"Clearly, I've had substantial involvement with low-fare, low-cost operators," said John Tague, former president of Indianapolis-based ATA Holdings Corp., a medium-sized discount carrier. "I would not draw any conclusions by that experience that that is directional in nature, in terms of what United needs to do in the future.

"Clearly, in order for us to be successful, we have to maintain a premier level of quality and service in the eyes of the market."

 

[avek00]

Falco:

At this stage, I have to believe that the ATSB would reject any subsequent UAL application unless it provided a strong but reasonable business plan. Uncle Sam was more than a little displeased by UAL''s previous smoke-and-mirrors scheme in late 2002...

 

[767jetz]

----------------
On 5/26/2003 1014 AM Chip Munn wrote:

... as I have said before, I believe if the two companies had integrated in 1996 neither airline would have entered bankruptcy, but that did not happen.

Finally, I believe Bronner's three public comments about his interest in acquiring UA assets for US is a credible source. After all, he's only the chairman of the board. Do you agree?


Chip

----------------​

Chip, I do agree that Bronner's interest in UA assets is true and credible. Do you agree that there is a huge difference between expressing interest and actually being able to achieve something? I've been showing interest in winning the lottery for many years now.

Just out of curiosity, if UA had bought USAir in '96 and "integrated" the airlines, where do you think you would be as far as fleet and seat in the combined airline today, and lets say on 9/10/2001? How does that compare to where you actually are today and were on 9/10/2001?

 

[Light Years]

Chip-
Again, thank you for the interesting posts. Welcome back.


Folks, say what you will, but no one has more facts and figures to back up statements than Chip. His posts are relevent, well-written, and interesting. I dont understand people getting upset about someone's opinions/predictions, especially when they are supported so well. He never said he was Miss Cleo and can predict the future, but he does present credible scenarios.

 

[USA320Pilot]

Light Years, thank you for your kind words and I appreciate your thoughts.

767jetz, I understand your concern and the bankruptcy stress. We have lived through your situation and it's unpleasant, but that doesn't change the facts and what has been reported by the news media after I first broke the story.

I truly wish I could tell whom I speak with, but you bring up a good point because some of my information comes from the high-level halls of WHQ.

When people discuss "inside" information they can not reveal their sources for a publicly traded company and the SEC looks at such disclosure dimly. Moreover, how many times does the news media make comments like "people familiar with the discussions" or "sources close to the company"?

When somebody tells me something in confidence I will not break his or her trust in me.

I fully recognize how the UA situation is disconcerting, but a corporate transaction between US & UA may be the only way UA can survive as an independent business entity.

Best regards,

Chip

 

[magsau]

If we are all entitled to an opinion as say Mr. munn. Then I have an opinion about his prognositcations. They may be derived from "credible" sources but so is the National Enquirer. They take a sound bite or half truth and make a miniseries out of it.

If you look at Chips post on UA they are all "US partner UA is doomed to some fate" I have not looked at this forum for quite some time and glad to see the players have not changed.

Chippy is a back and he has not changed his story. Aviod the problems at U and drag down UA.

UA is going to survive, MY OPINION.

 

[737nCH11]

Hey Bob,

Jeez! Talk about skewering people. Kindly look in the mirror.

You are exactly the type of customer that we don''t need. "I didn''t get my upgrade! Not enough people kissed my old wazoo on this trip! Waaa Waaaa"

Tell it to somebody that gives a crap.

Kindest regards,

737nCH11

 

[737nCH11]

Bob,

I guess you''re right. I just get kinda irked at Chipper some times. We are far from out of the woods, and I personally think that we''re heading for big trouble. But, Chip would have us believe that we''re going to buy pieces of UAL. Give me a break!!! If anything, they will likely acquire pieces of us (hopefully with the employees). From what I have seen, UAL is turning things around - they are pulling planes out of the desert and recalling employees. What are we doing besides becoming an RJ carrier for Lufthansa?

 

[USA320Pilot]

767jetz:

767jetz asked: Just out of curiosity, if UA had bought USAir in '96 and "integrated" the airlines, where do you think you would be as far as fleet and seat in the combined airline today, and lets say on 9/10/2001? How does that compare to where you actually are today and were on 9/10/2001?

Chip answers: 767jetz:

767jetz asked: Just out of curiosity, if UA had bought USAir in '96 and "integrated" the airlines, where do you think you would be as far as fleet and seat in the combined airline today, and lets say on 9/10/2001? How does that compare to where you actually are today and were on 9/10/2001?

Chip answers: 767, I have no idea where I would be and that would have been decided by ALPA Merger Policy, UA's demands to furlough 1,000 US pilots, and for US ALPA to agree to park a number of our aircraft. However, one thing I do know is that I am much better off today by staying at US than returning to UA in 1985 as a member of the 570 for two reason: More gross pay during my career that I would have made at UA and US surviving bankruptcy.

Regardless, US and UA have vested interests in each other because of the alliance and the pending Star Alliance offer for US now expected as early as May 31.

767jetz, my comments about another US-UA corporate combination attempt are purely written from a business opportunity versus a union projectionist perspective.

As I have said before, if US and UA had integrated in 1996 UA and US would not be in the position they are in today.

US has its own problems because it has just emerged from a formal reorganization. But, UA apparently has no clear cut strategy for a Plan of Reorganization, no Equity Plan Sponsor, serious questions on whether or not the ATSB will provide UA with a loan guarantee/exit financing, and serious discontent within the WHQ Executive Suite.

I believe it might be best for UA management and its employees to work together to figure out how to get the company out of this mess, even if it requires an asset divestiture, than to liquidate. For that matter, maybe that's why ALPA placed ALPA Merger Policy in their new CBA versus the pre-nuptial clause.

It is no secret that our two companies have held corporate combination discussions in 1995, 1999-2000, 2002, and now 2003. The business combination in one form or another would create the strongest hub and spoke network in the world. Therefore, why is it so hard to comprehend why Siegel is interested in acquiring UA assets, backed with Bronner's money, if UA cannot figure out how to get out of Chapter 11?

Best regards,

Chip

 

[USA320Pilot]

Just one more thing…

Last week I suspected there was discontent within the UA executive suite because of incongruent arguments on whether or not the airline was making sufficient progress in its efforts to emerge from bankruptcy. This news could have an effect on US because of the alliance between the two airlines, which was the purpose of this thread.

Moreover, after writing my column I contacted some industry contacts and found out UA’s problems were even deeper than I expected. What’s important to note is that this discussion is not about hating UA, predicting what may or may not occur with a corporate transaction, but instead identifying problems that exist at US’ business partner.

Instead of focusing on a potential corporate transaction, which was brought to this thread in earnest by UA employees, the real issue should be how can UA fix its problems and what effect will UA’s restructuring have on US.

The bottom line is I identified before the news media on this website five major points:

1. The unsecured creditors committee does not endorse a POR, which likely does not exist.

2. UA hasn't articulated a business strategy required to emerge from Chapter 11.

3. Sources told me UA will not obtain exit financing without a credible business plan, which does not currently exist.

4. People close to UA (and some within UA) have indicated the latest dispute largely revolves around McKinsey's advocacy of Starfish and the disagreement within WHQ on whether or not to proceed on this controversial program, which now appears DOA.

5. Jake Brace’s May 20 interview, conducted by the WSJ, likely mislead employees and industry observers.

Again, the purpose of this thread was to discuss a question: Is there discontent at US business partner UA -- versus past or future business arrangements between the two companies.

Best regards,

Chip