Loan wasn''t going to happen anyway, but mechanics gave cover

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AirplaneFan

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Aug 20, 2002
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UAL has lost $4B in past 2 years. UAL''s anemic response was to offer to cut $5.2B over 5.5 years. I don''t know how UAL becomes profitable with its annual savings less than half its annual losses. And I might remind everyone that the U.S. has not been in recession in over a year. But the mechanics gave cover to ATSB by turning down concessions.[BR][BR]U''s concessions were about $1B per year, I don''t see how UAL given its size can give equal to U. My prediction is that UAL must double its annual concessions to get ATSB approval.[BR][BR]
 
One needs to look deeper than the headlines in the USA Today for one's information. The size of cost cuts at UAL is $14 Billion over the 5 1/2 years, not just the $5.2 billion for the unions. If almost $3 Billion per year in cost savings is not going to do it, we might as well just fold the tent and have a big party with the money we have left!

mancityfan
 
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[BLOCKQUOTE][BR][PRE][BR][BR]
So if I were to try to read between the lines, I might deduce the folling[BR][BR]
[BR][BR]
Unions to give back $5.2B[BR][BR]
Non union labor to give back $1.2B[BR][BR]
[BR][BR]
And the remaining $7.7B is from what exactly? Reduction in leases?, [BR]less food?. That's a whopping large number and it doesn't look like a cut [BR]it looks like a projection that UAL will get more revenue (while it cuts [BR]supply). At first blush, you might deduce that UAL is not serious, when [BR]the govt asks for cost savings, it produces a documen saying it will grow [BR]revenue by $7.7B[BR][BR]
[BR][BR]
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Here's where the $14B comes from:
[blockquote]
Code: 
$ Billions

-----------------------------------------------------------

                      Average Annual    Total Profitability

                      Profitability      Improvements Over

                      Improvements        Program Period

                                          (5.5 years)(a)

-----------------------------------------------------------

Labor and Capacity

 Reduction                 1.2                6.4

-----------------------------------------------------------

Non-Labor Cost Reduction

 and Revenue Enhancement   1.4                7.7

-----------------------------------------------------------

Total                      2.6                14.1

-----------------------------------------------------------

(a) Totals for the period may be less than if multiplied by 5.5 years due to rounding

[/blockquote]

Non-Labor Cost Reduction includes things like reduced capital spending (deferred aircraft, decreased facility improvements, delayed replacement of ground equipment), renegotiated contracts with major vendors (CRS's, caterers, suppliers), reduced meal service, deferred maintenance (not safety items, but discretionary things like cabin upgrades), and reduced IT development.

It might even include little things like keeping the HVAC turned down in office buildings on weekends, having employees turn off PC's and printers overnight, reduced watering of WHQ's lawn...

The biggest problem I see with this is that revenue enhancement is included as part of the non-labor cost savings. Given where revenue has been for most of the majors during the past two years, I don't think too many analysts are buying into that argument.

Take out revenue growth, and the real cost savings are probably still only in the $2B - $2.3B range. Throw in a couple other variables, like increases in fuel or landing fees, and those savings could be even lower.

Not trying to be a pessimist, but finance is not one of those areas where being too optimistic pays off...
 
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[blockquote]
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On 12/1/2002 12:26:16 AM mancityfan wrote:

One needs to look deeper than the headlines in the USA Today for one's information. The size of cost cuts at UAL is $14 Billion over the 5 1/2 years, not just the $5.2 billion for the unions. If almost $3 Billion per year in cost savings is not going to do it, we might as well just fold the tent and have a big party with the money we have left!

mancityfan
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There is something bizarre in those numbers (no offenxe intended to mancityfan). Wher exactly is UAL going to get the $8.8B it is not getting rrom the labor groups? It certainly is not fuel. Someone please explain where $8.8B in savings are coming from.
 
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On 11/30/2002 11:33:30 PM AirplaneFan wrote:

UAL has lost $4B in past 2 years. UAL's anemic response was to offer to cut $5.2B over 5.5 years. I don't know how UAL becomes profitable with its annual savings less than half its annual losses. And I might remind everyone that the U.S. has not been in recession in over a year. But the mechanics gave cover to ATSB by turning down concessions.

U's concessions were about $1B per year, I don't see how UAL given its size can give equal to U. My prediction is that UAL must double its annual concessions to get ATSB approval.

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Uh, the 5.2B) is just the labor side of the equation. UAL is also planning for 8.3B in additional cost cuts. For more details, see: http://biz.yahoo.com/bw/021126/262484_1.html

That works out to 14.1B over 5.5 years, or just over 2.5B per year. Of course, it's likely that revenue will drop a bit from the capacity cuts, all other things being equal. We'll see what UAL can do on the revenue side (or if the industry will improve over the next few years, hard to see it getting much worse).

Last I checked, 2.5B is more than double 1B. Still think UAL's cost cuts wouldn't be sufficient if somehow UAL could get the mechanics on baord?

-synchronicity
 
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On 12/1/2002 1:02:25 AM AirplaneFan wrote:

And the remaining $7.7B is from what exactly? Reduction in leases?, less food?. That's a whopping large number and it doesn't look like a cut it looks like a projection that UAL will get more revenue (while it cuts supply). At first blush, you might deduce that UAL is not serious, when the govt asks for cost savings, it produces a documen saying it will grow revenue by $7.7B

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No where in the law authorizing the ATSB does it require huge labor cuts. It merely states preference will be given if companies can get them. AWA didn't get any, and still has an open pilot contract. ATA got tentative approval a couple weeks after giving it's pilots a HUGE raise. The ATSB is tasked with analyzing whether or not the loan will be repaid. Anything beyond that is clearly overstepping it's mandate. In UALs case, if we show new areas that we will get revenue, and other areas of money saving. then that can absolutely take the place of some labor cost reductions.
 
What does the size of US Airways cuts have anything to do with UA's situation? UA's ability to repay the loan is much greater than US Airways. Why? Here's just a few of the reasons:

1) UA is MUCH bigger than US
2) UA is a global airline with a large and strong route network; US is essentially a regional airline with almost no presense west of PIT
3) UA is one of the pillars of the STAR alliance, which is the strongest alliance in the industry; US has no alliance whatsoever and only recently entered into a codeshare with UA
4)US average stage length is MUCH shorter than UA's, which helps
to drive up their costs.

There are many more reasons to differentiate the two carriers. I just don't agree with people who insist on saying that because U achieved X number of billions in concessions, UA must equal or surpass that number. Wrong. Each carrier's business plan is different. Each carriers' ability to generate a revenue stream strong enough to repay the loan are different.

While I still believe UA will not get the ATSB loan, it shouldn't have anything to do with US Airways situation.
 
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I guess I was right[BR][BR][A href="http://biz.yahoo.com/rb/021204/markets_afterthebell_ual_2.html"]http://biz.yahoo.com/rb/021204/markets_afterthebell_ual_2.html[/A][BR][BR]I feel badly for the UAL employees who will have to undergo DEEPER CUTS in the short-term, but feel much worse for the exemployees. I think this ruling will actually help them as the cuts will have to be double from what they were currently proposed. This will make some routes that were considered unprofitable, now profitable and return some people back to work.[BR][BR]I think this is a big ++ for UAL in the long term. They won't be able to limp along for years being marginally profitable/unprofitable.[BR][BR]AA is most likely moving up from the on-deck circle to the plate.
 
If UAL survives CH11 it will be "Corporately" much better off. You will never ever see AMR file BK while GW is in the White House. AMR will cry the blues and he will infuse them with an unlimited amount of money claiming " We cant allow the Air Transportation Industry collapse". UAL is just on the wrong side of the Political fence on this one. If your headquarters are in Texas rest assured you are in good shape.
 
Exactly UAL24. Remember who sponsored Dubya's innaguration ball? Or whom flew him to Washington after he was appointed (not elected) leader?

It truly is disgusting.

UA is going to kick AA's ass after emerging. I just read the AFA's statement. I think they are spot on in their analysis of what will happen to AA, DL, CO, and NW. Of course, the "dis-stabilazation" comment is a tad on the dramatic.



"The employees of United Airlines have made significant, difficult concessions that will severely affect the quality of our lives in an effort to keep our airline out of bankruptcy. The savings and strategic initiatives provided to United by the United Airlines Union Coalition position the carrier to generate significantly more revenue, lower costs and become profitable again in the near future.

"Today's announcement by the ATSB inaccurately characterizes United's aggressive cost-cutting measures as insufficient. That's not just disappointing, it's irresponsible. And we call on the ATSB to reconsider United's application.

"Anyone in the airline industry who would applaud this decision is a fool. The likely effect of the denial of the loan guarantee is that capital markets will close not just to United, but to all of the major network carriers, who are also in serious financial trouble.

"If the denial of the loan guarantee forces United into bankruptcy reorganization, the impact will be felt across the industry and in communities throughout the country. As United goes through the bankruptcy process, renegotiates leases to below market rates, refinances credit at significantly lower levels, the assets the other major carriers have to offer potential creditors -- airplanes -- will lose significant value, further damaging their ability to access credit.

"If the decision stands, the Air Transportation Stabilization Board will have failed in its mandate to stabilize the airline industry. The ATSB might as well change its name to the Destabilization Board because that's what today's decision effectively does to the U.S. airline industry."
 
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On 12/4/2002 9:17:51 PM Rhino wrote:

UAL's bizplan was deemed unsound. All the cable biz shows applauded the ATSB decision, citing the requirement for UAL to 'fundamentally change' the way it does business. Whatever that means.

I don't think anyone buys the $8+ savings projections when the cash burn shows no sign of abating.


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No offense but your facts are about as off as your in times. Glenn Tilton, after returning from Rio, reported to the press that cash burn was 5 to 7 million a day and getting better and that UAL had "significantly" more than $1 billion cash. And how would you think that the proposed changes would be affecting cash flow now? They are PROPOSED changes. That's code for not being in effect yet. Don't think the majors adopting lower cost structures will benefit you. Expect another "war" video and pay freeze.
 
It is likely UAL will enter Ch.11 within the next 24 to 36 hours. That's not something anyone should be gloating over (and believe me when I say that Continental's press release is inexcusable...).

Sad as this is for the UAL employees, it also isn't free license to blame everyone else under the sun for what has and is still happening.

There are a lot of reasons UAL is in the situation that they're in. It not something you can blame on Bush, the ATSB, AMR, NWA, JetBlue, or even as much as I'd like to, Gordon Bethune.

Who ran John Edwardson out of WHQ? Who held Jim Goodwin accountable for anything while he was at the helm, or let Jack Creighton remain as a lame-duck CEO for nine months?

The Board has accountability for all of that, and that includes the three employee representatives, and all of the ESOP participants, who probably should have taken on a more active role in owning the airline since 1994.

Godspeed to all the UAL employees...
 
UAL's bizplan was deemed unsound. All the cable biz shows applauded the ATSB decision, citing the requirement for UAL to 'fundamentally change' the way it does business. Whatever that means.

I don't think anyone buys the $8+ savings projections when the cash burn shows no sign of abating.
 
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