The Current State of US Airways

C

chipmunn

Guest
[P align=center][STRONG][/STRONG][FONT face=Times New Roman size=3][STRONG]The Current State of US Airways[/STRONG][/FONT][BR][BR][BR]
[P align=justify][FONT face=Times New Roman size=3]Last month US Airways management told its creditors at the S.341 meeting, investors in a regulatory filing, and its unions in individual meetings the company was not reaching its revenue targets, which jeopardizes the loan guarantee that is critical to the company's restructuring plans.[BR][/FONT][FONT face=Times New Roman size=3][BR]Management has provided each of its unions a confidential power point presentation on US Airways financial status, revenue performance and projections, passenger bookings, and the status of the ATSB loan guarantee. Union leaders cannot comment on this information to its rank-and-file members because of confidentiality agreements and SEC regulations.[BR][/FONT][FONT face=Times New Roman size=3][BR]Reports indicate the company does not meet the 7 percent profit margin required to obtain the loan guarantee due to dramatic industry-wide revenue shortfalls. On November 7 the Pittsburgh Post-Gazette reported US Airways' attempt to secure $900 million in federal loan guarantees, crucial to the airline's survival, could be in jeopardy unless the bankrupt carrier is able to coax more concessions from employees, aircraft lessors and creditors.[BR][/FONT][FONT face=Times New Roman size=3][BR]Moreover, the Post-Gazette reported With its revenue flat or declining, the airline recently said it would need up to $1.6 billion in annual cuts, or $400 million more than originally projected, to qualify for the federal loan guarantee.[BR][/FONT][FONT face=Times New Roman size=3][BR]US Airways has begun initial discussions with its unions regarding additional savings through further pay, productivity, and retirements cuts, as well as laying off additional employees, to further cut labor expense. [BR][/FONT][FONT face=Times New Roman size=3][BR]At the November 7 Omnibus Bankruptcy hearing the court gave final approval for the Retirement Systems of Alabama (RSA) to provide US Airways with $500 million in debtor-in-possession (DIP) financing. US Airways has drawn $300 million of the $500 million credit facility. Under the terms of the agreement, the remaining $200 million can be accessed, subject to certain conditions, including that US Airways meets all the conditions of the ATSB loan guarantee. [BR][/FONT][FONT face=Times New Roman size=3][BR]This ruling threatens US Airways liquidity/restructuring because the final $200 million DIP payment cannot be credited to the airline’s treasury until it meets all of the ATSB conditions, of which one is for the company to emerge from bankruptcy.[BR][/FONT][FONT face=Times New Roman size=3][BR]On November 7 the Pittsburgh Tribune Review reported It's a big step to get over, but we still have another half-mile more to go, said David Bronner, head of Alabama's pension system by telephone from Montgomery yesterday. Progress has been good so far, he said. But we're heading into a war with Iraq, and we still have problems our CEO has to work through with the unions to make sure we have a mousetrap that works. [BR][/FONT][FONT face=Times New Roman size=3][BR]To meet the ATSB requirements, the company is not only slashing costs, but is trying to boost revenue with additional regional jet (RJ) expansion, which is required per the business plan submitted to the board. According to the Air Line Pilots Association (ALPA): [BR][FONT face=Times New Roman size=3][BR]1. 20 regional jets are scheduled to be introduced at affiliate carriers throughout December, January, February and March.[/FONT] [BR][FONT face=Times New Roman size=3][BR]2. Midway Airlines should begin operations in the first quarter 2003 and the company has entered into discussions Chautauqua Airlines about RJ expansion.[/FONT] [BR][BR][FONT face=Times New Roman size=3]3. It is likely that additional 70-seat small jets would be placed at Freedom Air. [BR][/FONT][FONT face=Times New Roman size=3][BR]4. Management restated its commitment to starting operations at MidAtlantic Airways, now believed to begin flying in late 2003 or early 2004.[/FONT] [BR][FONT face=Times New Roman size=3][BR]The [/FONT][/FONT][FONT face=Times New Roman size=3]pilots union authorized its Negotiating Committee to begin negotiations on an expedited basis to resolve differences on the Freedom Air issue because an accord would be beneficial in generating more revenue for US Airways and to assure job opportunities for US Airways pilots.[BR][/FONT][FONT face=Times New Roman size=3][BR]One of US Airways’ challenges is that it cannot obtain RJ funding during bankruptcy and the only way it can add regional jet flying, which is required to obtain the loan guarantee, is with affiliate carriers. Sources believe there will be an acceptable Freedom Air agreement announced shortly between Mesa, Mesa ALPA, US Airways, and US Airways ALPA.[BR][/FONT][FONT face=Times New Roman size=3][BR]Meanwhile, the court did approve US Airways' request for Mesa to increase its US Airways Express flying from 32 to 52 RJ aircraft.[BR][/FONT][FONT face=Times New Roman size=3][BR]Also noteworthy, RSA is the Equity Plan Sponsor (EPS) and the pension fund is expected to invest $240 million to acquire a 37.5 percent stake in the airline when it emerges from bankruptcy. With the court permitting the Alabama pension system to proceed as the EPS, it still could be outbid by others. The bankruptcy court extended the 50-day period for other potential bidders to submit offers to be the equity investor by four days until November 15.[BR][/FONT][FONT face=Times New Roman size=3][BR]US Airways must have all employee, creditor, vendor, and lessor negotiations complete by December 9, which is the last day it can alter its reorganization plan currently on file with the court. The airline also could extend the filing deadline, but that is considered unlikely with the potential of war breaking out in the Middle East. [BR][/FONT][STRONG][FONT face=Times New Roman size=3][BR]During the latest bankruptcy hearing the company's Counsel said US Airways, as the debtor, hopes to have a number of deals ready for approval at its December 12 omnibus hearing.[BR][/FONT][FONT face=Times New Roman size=3][BR]US Airways challenge is that is cannot obtain additional liquidity until it emerges from bankruptcy. The airline reported it [/FONT][/STRONG][FONT face=Times New Roman size=3]ended the quarter with total restricted and unrestricted cash of $1.33 billion. The figure includes $897 million in unrestricted cash, cash equivalents, and short-term investments and $433 million in restricted cash. Goldman Sachs believes US Airways’ current average daily cash burn rate is $1.7 million per day; therefore, the company end the year with about $740 million, adjusted for forward ticket sales, and the first quarter of 2003 with $583 million, without a war. [BR][/FONT][FONT face=Times New Roman size=3][BR]Sources who spoke on the condition of anonymity said management is very concerned about war in the Middle East, its effects on revenue, and the ability for the company to qualify for the loan guarantee. Today’s U.N. Security Council resolution Weapons Inspectors must report back to the Security Council by February 21 gives US Airways about 3.5 months to emerge.[BR][/FONT][FONT face=Times New Roman size=3][BR]The company is expected to accelerate discussions with all stakeholders to reach final accords to cut costs and quickly deploy more 37, 50, and 70 seat RJs, so it can access essential liquidity. Upon emergence the company will obtain the remaining $200 million credit facility, the federal loan guarantee of $900 million of a $1 billion loan, and the $240 million RSA equity investment. The DIP financing must be repaid out of the loan guarantee; therefore, the company would have access to $940 million upon emergence, which management believes must occur before an invasion of Iraq, if the company intends to successfully reorganize. Without emergence before war breaks out, the company could end up liquidating due to a dangerously low cash position.[BR][/FONT][FONT face=Times New Roman size=3][BR]However, with appropriate new agreements with its unions and final restructuring accords with other stakeholders, sources believe the company can keep its fast track reorganization on schedule, gain access to additional liquidity, and successfully emerge in the fist quarter of 2003. [BR][/FONT][FONT face=Times New Roman size=3][BR]Chip[/FONT] [/P]
 

DCAflyer

Veteran
Aug 27, 2002
821
0
Thanks for the update, Chip. It looks like we're going to have a very stressful few months. It seems to me that even if we do emerge from C-11, there will continue to be revenue problems for at least a year, so emergence doesn't mean we are out of the woods until at least early 2004. RJ deployment will help trememdously in terms of cost savings. But hopefully the RJ feed projections will prove fruitful.
 

wings396

Veteran
Aug 20, 2002
3,672
1,122
We MUST STOP giving up market share and cities also. We have pulled out of over 20 stations in the past few years, and we all know that it hasn't stopped the bleeding. If anything it may have incresed it. The less choices that the passengers have, the more likely they are to go to the competition. What ever happend to the saying that you can't shrink your wany into profitability......soon we will fly between PIT-CLT-PHL, and nothing else. My station used to board a lot of people to PIT..now the boardings are next to NIL due to the fewer connecting choices.They are taking UA to ORD or DL to CVG to get there.
 

HogDriver

Member
Sep 2, 2002
64
21
Thanks for the well researched update, Chip. We are now approaching the most critical period in our company's history. Just when you thought it couldn't get any more down to the wire, it goes beyond it. Freedom Air is a big sore point with ALPA because it is trying to be set up as a non-union, whip-saw airline, to use against the Mesa and CCair union pilots. This could turn into the opening for ALPA to get Freedom set up as a union shop in order to make the deal work. U needs someone else to pay for 70 seaters in the near term and needs the feed revenue now, Orenstien wants to get the U business and Freedom Air going, ALPA wants a union shop and U furloughed pilots jobs. Can all of this be worked out before the JDAMs start dropping on Baghdad??? Stay tuned.......

I need a break from all this stress, so I am taking a relaxing trip to Afghanistan. I plan on seeing exotic locations, enjoying wonderful weather, meeting interesting people (Al Qada).....and killing them (payback is ****). I look forward to finding out how this all plays out when I return. Ciao!
 

atc

Member
Aug 28, 2002
23
0
Good information. However, assumption that nothing will happen with Iraq until the February 21 report to the Security Council is overly optimistic. Things are going to happen quickly with the weapons inspections, and Iraq could be found to be non-compliant well before the official 2/21 report.

Of course, Iraq could decide to come clean, and avoid war altogether. That doesn't square with their track record, though.
 

michael707767

Senior
Aug 21, 2002
332
0
I think Iraq will come clean just enough to prevent war, for a while, then later when tensions die down, they'll start to play hardball again.
 

AOG-N-IT

Veteran
Aug 19, 2002
1,132
1
www.usaviation.com
My views are a bit more direct...but based on facts , as I see them.

(1) Fact U is setting performance records in every catagory imaginable...except the two that matter most. (A) Profits (B) Percentage of Seats Filled for profit

(2) U is addressing only the issues of decreased demand...by shrinking in terms of frequency. This inturn is idling not only the numbers of Acft we fly...but thousands and thousands of Employee's with it. This is a known and given fact. This is also something that isn't new to any of the other carriers...with the noted exception of WN and B6.

WN , B6 and FL are all setting great operating figures...even WN has noted to expect increased operating costs in the future...and have semi-braced themselves for the possibility of reporting a losing quarter in the future.


U has made some great strides in regards to obtaining DIP Funding, Employees Concessions..and even better Lease rates on a number of the Acft that still remain..these issues alone should be making a dramatic impact on our financial performance , As we know...it's NOT!!..or not in a manner that seems to be changing the level of the playing field in our favor.

You have to step back and ask yourself something , with all of the above in mind.

(1) Is our problem Employee costs? (Awnser) Obviously not as we have always been lead to believe. Concessions and Furloughs have not stopped the bleeding...or have not even made a real dent in the problem.

(2) Is our Lease rates on equipment so out of perportion that we can't make a profit?
(Awnser) Yes...and No. We have had the ability to shed ourselves of multitudes of un-economical Acft types...MD-80's , DC-9's and the B737-200's and F-100's....we have all but been granted absolution on thier financial draw. Then we have recieved some relief in regards to what still remains...hopefully more relief is coming!!

Has any of the above issues changed the bottom line? (Awnser) Frankly No!!...We are still reducing everything..and gaining nothing that resembles profit...My guess on emerging from BK in the first quarter of 2003 , would be a decided NO.

Why you ask?....Simple , With all the positive moves made...with all the sacrifices willingly endured...It still goes back to having a Failing Business Model....until this aspect is changed...or the need for change is taken to heart? We will continue to shrink, reduce and concede...until absolutely nothing is left...or the chances to operate in a figurative profitable manner become to negligable to even warrant the effort. This aspect should concern everyone!!

USAirways cannot afford to look at the world..through the same color of glasses anymore...Shrinking is not making the desired impact. We need to stop alienating ourselves from those that are willing to fly...and this can only come from making ourselves more advantagious to fly with.

It's about Marketing...and the multitudes of pricing levels we insult our customers with. This is the first area in need of repair..The Employee's have awnsered ..in terms of give-backs...and delivered performance stats. It is now time for CCY to figure out what our customers want?...and figure out a way to deliver to the need?
 

N628AU

Veteran
Aug 22, 2002
909
106
www.usaviation.com
WBT-AM Radio here in CLT on Friday morning had a report from a CBS News reporter in Baghdad. This reporter believes the Saddam will eventually back down and let the inspectors in. Just because they can get in, he reported, does not mean they will actually accomplish much. He talked about the Iraqis being experts in creating traffic jams to slow convoys down, and creating detours to get them lost. This seems like a fairly plausible scenario.

Regardless, GW is between a rock and a hard place. Saddam must be taken out as he does pose a continuing clear and present danger to the national security of the United States and our allies, as well as continuing to lead to more instability throughout the Middle East. At the same time, he must balance this with a fragile economy. Bethune put is pretty bluntly a few months ago, stating that what may not be good for his airline, can still be very important for the nation as a whole.

There is truly a one month window for something to happen. The inspection report is due February 21, and people with military knowledge have commented on problems starting a fight after March due to the harsh desert conditions (last week the high in Riadyh was still close to 100 degrees).

This being said, our restructuring continues at a snails pace on the all important revenue side. I ask again, what is being done to bring in more revenues? What drastic steps have been taken to encourage business travellers to get back in the air? $2400 walk-up fares have failed miserably, and other perks like triple miles on the Shuttle have limited effects. Drastic times call for drastic measures, yet we have seen little to stimulate things for the business traveller. Continued fare sales for leisure travellers do nothing but depress already miserable yeilds. While we may never low fares like Southwest, people will pay a premium to fly on us, just not the premiums we asking them to now. We can, however, IMO, go for a fare structure which limits maximum yields, in favor of driving up the average yield. Firms like Wal-Mart continue to thirve in this economy by using this strategy. I believe Wal-Mart focuses it's pricing for a 8% profit margin. Sounds awfully familiar to what we need for the ATSB, does it not? Wal-Mart does not do this by putting items on sale well below cost and then charging an outrageous price for something else. Major department stores like Macy's do use this pricing strategy, and they follow the same boom-bust pattern the airline industry does, following the ebb and flow of the overall economy. Failure to address the underlying problems here is akin to slapping new paint on house that has cracks in the foundation. It will inevitably come down like a house of cards under it's own weight if the underlying issue is not addressed. Likewise, failure to address the underlying problems of our revenue structure will only lead to perpetuate the boom-bust cycle of this industry. Southwest's revenue model takes this into account, and they prove it on the P&L statements by making good solid profits in the best of times, with minimum falloff in bad times. Even in this time, regarded as the worst time in the industry's history, they can continue to eek out profits, albeit a small one.

Even without the full effect of our cost savings initiatives in place, we have drastically reduced our unit costs, and this should show up even more so by the end of the winter months. We are on track to have the lowest unit cost structure of the major network carriers, who will always have somewhat higher costs than Southwest or JetBlue. At the same time, we should be seeing higher unit revenues. Driving revenues is a management task that none of us can really do much to help, except what we are already doing, running the best d@mn airline from a performance standpoint around. There is only so much cost you can cut before it starts to harm revenues at least as much as the costs they are saving. Have we already reached that point? Who knows, but some signs may be starting to point that way. If we had 31 aircraft in spring losing more money than it costs to park them, and we have parked them, then there are another 30, signs would point to cost cutting not getting the job done. It becomes a vicious cycle. Dave says sometimes you need to prune the tree to grow, and I agree. However, if you don't water or fertilize the tree, you can prune all you want, and you be left with nothing but a dead trunk.

End of rant.
 

airlineorphan

Senior
Aug 20, 2002
380
0
www.usaviation.com
More like W's trying to keep himself and his veep out of jail on the insider trading hijinks!

With 250,000 troops being called up, I can't see them not being used, whether Iraq complies with the UN resolution or not.

And management at all the airlines will continue to push that call bell--more please!

Beware of weapons of mass distraction!
11.gif']
 

Rhino

Senior
Aug 20, 2002
308
0
US Airways' employees have bled the company for years. Look at what the FAs did, threatening CHAOS less than two years ago. Not to mention pilots getting parity+1 when the company was hemoraghing (sp).

Now US wants alter-ego scabs to save their butts. What a joke.

Just declare 7 and go away. You won't be missed one bit. US employees just don't have what it takes. Me, me, me.

UAL is next. Don't for a minute think you provide a product people want/need badly enough to prevent congress from letting you disappear.

These are facts, I'm not slamming individuals. I am slamming your unions'leaderships.

Good luck, I don't know anyone who needs it more than US folks.
 

N628AU

Veteran
Aug 22, 2002
909
106
www.usaviation.com
[blockquote]
----------------
On 11/10/2002 1:53:35 AM Rhino wrote:

US Airways' employees have bled the company for years. Look at what the FAs did, threatening CHAOS less than two years ago. Not to mention pilots getting parity+1 when the company was hemoraghing (sp).


Now US wants alter-ego scabs to save their butts. What a joke.


Just declare 7 and go away. You won't be missed one bit. US employees just don't have what it takes. Me, me, me.


UAL is next. Don't for a minute think you provide a product people want/need badly enough to prevent congress from letting you disappear.


These are facts, I'm not slamming individuals. I am slamming your unions'leaderships.


Good luck, I don't know anyone who needs it more than US folks.
----------------
[/blockquote]

Me. me, me. Yeah, right. We were all in it for ourselves when we just ratified the largest employee concession package in the history of commercial aviation. We have been in it just for ourselves all summer turning in the best operating statistics of any carrier despite fearing for our jobs on a daily basis. ALPA and the IAM were in it for themselves when WolfGang forced parity plus 1 down our throats. They threatened to cancel the Airbus order to get the pilots to go along with that and MetroJoke. BTW, read my numerous postings, I am by no means a defender of big labor, but you are so off base it borders on nauseating.

If you are not slamming individuals, then you need to edit your post and rremove the line stating US employees just don't have what it takes. The last thing we need is an outsider coming in and slamming us. Your ignorance comes shining through with your improper usage of the word scab. If you are referring to Freedom Air, I make no secret I highly dislike what Jonanthan Ornstein has done to the CCAIR pilots, but please tell me what struck work is being flown by Freedom Air. Do I want Freedom flying 70 seats jets for us? No, if Mesa Air Group flies them it should be by CCAIR amd Mesa Airlines pilots within the provisions allowed by the U MEC. Now go back to the Yahoo board. I would expect this kind of hate filled flamebait over there, but this board, while getting pretty riled up sometimes, should be above that kind of trash.
 
OP
C

chipmunn

Guest
Nobody knows what will occur in Iraq or the timing and the February 21 date was provided because it exists in the U.N. resolution. If history is an indicator, at the last minute of each resolution deadline Iraq will comply and then play cat and mouse. The real objective is for Saddam Hussein to leave power and how that occurs is the real question.

In regard to US Airways, in the first quarter costs will be cut and the cash burn rate will begin to moderate due to: Completion of severance pay and lower head count (unfortunate for employees), the new PPO medical plan will lower benefit expense, the company will have lower facility costs, aircraft rental expenses are expected to be lower, etc.

In 2003 the company will add 60 to 80 RJs to the US Airways Express network to fill in mainline restructuring voids. With last Thursday's court approval to add 20 Mesa 50-seat RJ additions; plus Midway start-up, Freedom Air 70-seaters, possible Chautauqua RJ additions, and late in 2003 MDA start-up (with a fast track emergence), additional RJs will begin flying in December and the network could see 6 to 7 additional RJ aircraft each month in 2003.

In addition to the additional RJ deployment, domestic alliance development will add additional traffic, feed, and revenues and late next year the company will begin work on joining the Star Alliance, which will add incremental revenues in 2004.

Provided US Airways emerges from bankruptcy in February, it is expected the DOT to provide MDA an operating certificate and the airline will order EMB-170 and EMB-175 RJ aircraft. It is also expected there will be other wholly owned aircraft orders and US Airways Group is expected to negotiate a total of 200 firm RJ deliveries and 300 options upon emergence.

MDA will be the low cost response. The 70-seat EMB-170 and 78-seat EMB-175 will have first class seating, a 2x2 cabin seating, stand-up cabin, large overhead compartments, and wing mounted engines. From an RJ perspective, this is an intimidating product that will have a cost structure to compete with Southwest, JetBlue, and AirTran. It does provide an employee soft landing, but it is also mainline outsourcing.

The next three months will be critical to US Airways future. Provided the company emerges, with seasonal traffic patterns, the company could post a small profit in Q2 and Q3, but I expect full year 2003 the airline will post a loss and not return to profitability until 2004.

Chip
 

autofixer

Veteran
Aug 20, 2002
1,804
241
www.usaviation.com
As a Gulf War I vet, I am here to tell you that the Feb 21st date is an optimum weather date for ground troops to operate in the Gulf. The first Gulf War ended on Feb. 28th. The temperatures are cool, as low as the 40s. We like that, the Iraqis do not. I believe that Saddam will try to stay in power, like he always has. There will have to be a war to remove him, as he drives around the desert in his RV--just like the last time. Do not get up any false hopes otherwise. The date is no coincidence.
 

magsau

Veteran
Aug 20, 2002
787
0
[H5][SPAN]State of US AIRWAYS[BR][BR]Reports indicate the company does not meet the 7 percent profit margin required to obtain the loan guarantee due to dramatic industry-wide revenue shortfalls. On November 7 the Pittsburgh Post-Gazette reported US Airways' attempt to secure $900 million in federal loan guarantees, crucial to the airline's survival, could be in jeopardy unless the bankrupt carrier is able to coax more concessions from employees, aircraft lessors and creditors.[BR][BR]Moreover, the Post-Gazette reported With its revenue flat or declining, the airline recently said it would need up to $1.6 billion in annual cuts, or $400 million more than originally projected, to qualify for the federal loan guarantee.[BR][BR][/H5][/SPAN]
 

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