Slot Swap

[FutureUScapt]

It means that US can buy the slots Republic is selling if they match the highest offer from anyone else - it's the same as was the case when US only managed the Shuttle. Since those slots are being used by Republic for USX flights, buying them back probably wouldn't make any difference in the DOT's approval of the slot swap, but if someone else bought them it would reduce the number of slots US effectively has in DCA. IIRC, US fought to get those slots converted from "commuter" to mainline slots so MDA could use them for the 170's. If that's the case, WN, B6, and any other mainline carrier would probably also like to have them so if Republic does decide to sell there could be a bidding war. If I recall WN's quarterly filing correctly, they have $3.7 billion in unrestricted cash and another $800 million in an untouched revolving credit facility (and have said that they'll be "aggressive" buyers of available slots". AA has $4+ billion in cash, DL $3.3 billion, UACO $8.2 billion.

Jim

Are you sure that is entirely accurate?

My understanding has more or less been that US could repurchase these slots starting from the second anniversary on which they were sold to Republic and furthermore that US has the "first right of refusal."

 

[mrbreeze]

US Airways' Earnings Conference Call: October 27, 2011

Daniel McKenzie - Rodman & Renshaw, LLC, Research Division

Scott, when does the impact of the slot swap begin showing up in the schedules data? And then related to that, is there any revenue risk in the transition that we need to worry about?

Daniel McKenzie - Rodman & Renshaw, LLC, Research Division

Scott, when does the impact of the slot swap begin showing up in the schedules data? And then related to that, is there any revenue risk in the transition that we need to worry about?

Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division

All right. And then lastly, with the DOJ, they're still studying it. In theory, you could proceed even if DOJ was still studying it. They would have to make a decision whether or not to try to block it. But DOJ can study, you could proceed in theory, right?

J. Scott Kirby

Well, I don't know. I...

Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division

Ideally, you don't want to do that. But in theory, that wouldn't stop it from happening, would it?

J. Scott Kirby

Well, in theory, you're correct.

Ted Reed - TheStreet.com

All right. I'd also like to ask one question about national. When it finally happened, it's going to be a big boost for US Airways, isn't it to have so much presence at national?

J. Scott Kirby

Well, we said publicly that it's going to be worth $75 million a year for us. It will be good for US Airways. It's one of those rare transactions that's going to be good for US Airways, good for Delta and good for consumers as we have a larger operation with more connectivity at national airlines -- national airport.

Click here to read the story.

should I buy the stock now?

 

[BoeingBoy]

First right of refusal means the same thing and applied to the Shuttle also - it's the corporate-speak way of saying "match the highest offer and it's yours". US has to refuse to match the highest offer for someone else to get them. No one else could get the slots no matter how much they offered until US refused to meet that offer first, hence "first right of refusal". I think I said "highest bidder" before, but "bidder" would only apply if Republic held an auction for the slots. Really only a semantic difference - bids or offers.

With the Shuttle, I think it was AA that made an offer to the banks that owned it. US agreed to match the offer and got the Shuttle. If US had refused to match AA's offer, AA would have gotten it.

The nice thing about having "first right of refusal" is that you don't have to guess what the highest offer will be or even make an offer. Sit back, let whoever else that's interested make offers, find out what the highest offer is, decide if you want to pay that much, and agree or refuse to match it.

Jim

 

[BoeingBoy]

should I buy the stock now?

Buy a case of beer and US stock. That way you can't lose - you still get drunk no matter if you win or lose on US.

Jim

 

[FutureUScapt]

Perhaps the terminology I'm looking for was call option instead of first right of refusal.

The US Execs were certainly coy about it when asked about it on the investor call today but ultimately made it sound that it was akin to that.

 

[BoeingBoy]

Yeah, "call option" is a misnomer as I understand the term. My understanding is that a call option give the holder the right to basically take whatever the option is on (DCA slots in this case) for an agreed upon price (the call price). I've always stayed away from options, so if that's not right somebody correct me. That's why I assumed that US had a first right of refusal.

The only thing I remember about the deal with Republic reached early in 2005 was that US could buy the slots back (both LGA and DCA) under certain conditions/circumstances. I don't remember anything more specific than that being mentioned. In either 2007 or 2008 there was a blurb in one of the quarterly filings that due to some legislative change US had repurchased DCA slots from Republic, but again details weren't given.

Jim

 

[WorldTraveler]

perhaps the reason DL took responsibility for the slot divestitures is to minimize the payment they would have to make to US in order to balance the larger size of the acquired LGA slots relative to the DCA slots.
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I would be surprised if US succeeds at acquiring any more slots after this transaction - at least for a while.
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The DOJ cannot legally block the DOT's approval of the slot transaction... they must file a lawsuit and the decision has to be made in court - highly unlikely to occur.
But the chances that US could continue to add to its slot portfolio at DCA is small.
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There are alot of ways the Republic slot sales could play out but it says that the market will determine where they can most effectively be used... which means that the carriers that are able to spend the money will be those that will set them up for longterm success.
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It is precisely that variable that US and DL are counting on as the core rationale behind the slot transactions.

 

[X-U]

Are you sure that is entirely accurate?

My understanding has more or less been that US could repurchase these slots starting from the second anniversary on which they were sold to Republic and furthermore that US has the "first right of refusal."

I think you are correct. I also believe the right to repurchase is at a set price, not a match of a high bid. The Republic slot sale was also a sale/leaseback, so US has continually used these slots and the government has already factored these into the DL deal.

 

[crusher]

I believe the agreement with RPA was we had the right to repurchase our slots after whatever the period of time was for the same amount that RPA purchased them from us and they could not just sell them to anyone.

 

[SparrowHawk]

Hey guys dumb question. Does LGA have International flights besides Canada? Can a Wide Body even land/take off from LGA? I always liked the airport just never spent much time in it. The Club agents were the best of all the clubs IMO. Thus the questions

 

[FWAAA]

Hey guys dumb question. Does LGA have International flights besides Canada? Can a Wide Body even land/take off from LGA? I always liked the airport just never spent much time in it. The Club agents were the best of all the clubs IMO. Thus the questions

DC-10s and 767s can certainly use the airport and have done so in the past. AA requested that Douglas design the DC-10 so that would be LGA-capable. DL and other airlines have flown 767s at LGA at various times over the past 25 years.

 

[Jester]

I believe the agreement with RPA was we had the right to repurchase our slots after whatever the period of time was for the same amount that RPA purchased them from us and they could not just sell them to anyone.

It looks as if Republic would consider selling its DCA slots in order to raise capital, which might make for some interesting deals if US wants to grab some additional slots.

"Steps under study in the new restructuring round include whether to sell flight slots at Ronald Reagan Washington National Airport valued at almost $50 million..." and with Republic's market cap of only $135 million, why not just buy the whole airline and avoid a bidding war over slots and sell what it does not work for US operations?

http://www.bloomberg.com/news/2011-10-26/republic-studies-113m-boost-on-sale-of-planes.html?cmpid=yhoo

Doesnt Frontier also have a few LGA slots, as well? Something else to sell-off with real value... I feel like an investment banker selling-off the parts which are of greater value than the whole.

So Formulates Jester.

 

[SparrowHawk]

It looks as if Republic would consider selling its DCA slots in order to raise capital, which might make for some interesting deals if US wants to grab some additional slots.

"Steps under study in the new restructuring round include whether to sell flight slots at Ronald Reagan Washington National Airport valued at almost $50 million..." and with Republic's market cap of only $135 million, why not just buy the whole airline and avoid a bidding war over slots and sell what it does not work for US operations?

http://www.bloomberg.com/news/2011-10-26/republic-studies-113m-boost-on-sale-of-planes.html?cmpid=yhoo

Doesnt Frontier also have a few LGA slots, as well? Something else to sell-off with real value... I feel like an investment banker selling-off the parts which are of greater value than the whole.

So Formulates Jester.

Frontier does have slots at LGA. I think they got them when they bought Midwest. They also have flights out of EWR as well. I could never figure out why US doesn't just do what you say and just buy them and be done with it. Heck the aircraft alone have to be worth the market cap. Half the fleet is already in US livery.

Here's how I see it:
Buy Republic lock stock and barrel
De hub DEN as quick as is feasible, DEN has to be a money loser with WN & UA smashing it out for market share
Turn MKE into a connecting hub similar to what PIT was or CVG is to Delta
With more A/C you can expand into the Caribbean and possibly South America
Possibly ship the Dash-8's to MKE to serve the small cities of the Upper Midwest
MKE provides access to all of the medium sizes cities of the Midwest

I imagine the O & D out of MKE sucks but concourse that Midwest had there was a great place to connect through as a customer. It even has gates for a commuter operation. It's kind of like the D concourse at BWI where you walk down stairs to the commuter flights. I've always thought it to be workable and profitable. Maybe US is waiting for them to file C11 before they make a move but then there is the danger of a bidding war with WN

 

[crazystnic]

It looks as if Republic would consider selling its DCA slots in order to raise capital, which might make for some interesting deals if US wants to grab some additional slots.

"Steps under study in the new restructuring round include whether to sell flight slots at Ronald Reagan Washington National Airport valued at almost $50 million..." and with Republic's market cap of only $135 million, why not just buy the whole airline and avoid a bidding war over slots and sell what it does not work for US operations?

http://www.bloomberg.com/news/2011-10-26/republic-studies-113m-boost-on-sale-of-planes.html?cmpid=yhoo

Doesnt Frontier also have a few LGA slots, as well? Something else to sell-off with real value... I feel like an investment banker selling-off the parts which are of greater value than the whole.

So Formulates Jester.

why would they do that, then they would have to run an airline...

 

[jimntx]

It looks as if Republic would consider selling its DCA slots in order to raise capital, which might make for some interesting deals if US wants to grab some additional slots.

Considering the fact that the DOJ has already expressed reservations concerning the number of DCA slots which US will control as a result of the Delta deal, what makes you think that even more slots would ease their minds? I think that if Republic put their DCA shares on the market, the DOJ would insist that other airlines with no or limited access to DCA be given first dibs on the slots.

After all, we must protect the government employees/agencies from higher fares, mustn't we?