767jetz:
United’s battle to survive has gone up and down and as such, my take on United’s chances of emerging have changed.
Let’s put things into perspective.
In regard to the Senate agreeing to pension relief and the bill going to President Bush for his signature, it’s my understanding in conference the two committee’s agreed to change pension calculations from the 30-year treasury bond to a corporate bond rate and to defer 80% of required contributions for two years. At the end of two years company’s will be required to make balloon payments, thus the question is the pensions may be saved, but it could cost the company loan guarantee approval. Why? The airline must account for the balloon payments in their update application and prove it can meet a 7% profit rating in 7 years.
In regard to UCT airport municipal bond payments, United received a reprieve on some debt payments, but the company must make $261 million payment to Denver or reject the gates, facilities, and maintenance operation. Furthermore, Judge Wedoff deferred ruling on the Chicago suit where the company has defaulted on about $600 million of special facility bonds. This could be a smoking gun and the immediate question is why did Wedoff not rule on this part of the litigation but handled the suit filed by Los Angeles, San Francisco, Denver, and the Port Authority for NY and NJ?
If Wedoff rules in favor of Chicago, United could be forced to pay $861 million to keep its Denver and Chicago operations, appeal the decision, or reject the leases and pull out or sell part of the UCT airport facilities/gates, etc.
Obviously, payments of this magnitude will effect the loan guarantee application and must be ruled upon before the company can exit Chapter 11.
The EETC situation is much less clear and maybe we will hear more at the next Omnibus hearing scheduled for April 16. The company has 174 EETCs in jeopardy that are financed by 100 different lenders, including RSA. It’s unclear at this time how this issue will be handled and there are a number of options.
United is working on a phased integration a number of different airlines to replace Atlantic Coast Airlines at Dulles, but there is not a clear picture on how this will play out. Just as the ATSB was concerned about Southwest’s entrance into Philadelphia and its effect on US Airways revenue, I understand the ATSB has a similar concern on how Atlantic Coast Airlines will depress Dulles revenue. United is going to have to reduce its revenue projections and than find additional cost cuts to offset the revenue loss to convince Fitch Rating the airline can obtain the 7% profit rating in 7 years, due to Atlantic Coast flying A320s and RJs at a CASM lower than United.
Probably the biggest concern is that the company lost $300 million in the first two months of the year and the board is concerned about declining industry revenue due to the LCC problem. Furthermore, the company must repay up to $1.5 billion of DIP financing before it can emerge, although its uncertain how much money the company has used from the bankruptcy credit facility. The company is losing $5 million per day after the massive cost cuts, its CASM remains too high and it RASM too low, and its code share revenue with US Airways is uncertain going forward, therefore, I believe its uncertain on whether or not the ATSB will approve the loan guarantee.
If the loan guarantee is rejected then to exit bankruptcy the company may have to seek deeper employee cuts, seek an equity plan sponsor, and/or possibly sell assets to emerge. Potential assets sales could be a major portion of Denver and Chicago operations, which could be used to settle the outstanding municipal bond litigation.
Separately, Richard Branson recently told the BBC a financier could buy Frontier and US Airways and then merge the two companies for less than the cost of the aircraft alone. In other words, presuming US Airways completes its transition to a hybrid LCC/network carrier, the merged company could be in place and obtained virtually for nothing assuming you can deal with the debt and ask for reductions from the debtors.
Regardless, Dave Siegel has indicated that US Airways will be involved in a corporate transaction and CCY reports indicate it will likely be with United, but it’s my hope our company integrates with another carrier.
Regards,
USA320Pilot
