The values of major unionized airlines.

lottopol

Newbie
May 3, 2003
1
0
The values of major unionized airlines.

There are 4 major airlines whose value is significantly impaired by the existence of union contracts. UAL, AMR, CAL and NWAC. The securities of each of these airlines is publicly traded and a rough gauge can be constructed by computing what it would “cost†to acquire all of the equity and unsecured debt of each of the entities at current market values.

After UAL, NWAC is probably now the airline most impaired by union contracts. Northwest Airline’s assets on a net book value basis are about $13.3 billion. The market value of NWAC debt is about $5.6 billion, of the Redeemable Preferred Stock $.5 billion and the NWAC stock outstanding is $.845 billion. Thus, the market is assigning an “enterprise value†of about $7 billion to NWAC.

A similar analysis using market quotes indicates that the market is assigning an “enterprise value†of about $7 billion to AMR as well which compares to AMR’s assets on a net book value basis of about $27.7 billion.

For CAL, which has not indicated as yet that it must obtain labor concessions to remain in business, the market is assigning an “enterprise value†of about $5.6 billion as compared to CAL’s assets on a net book value basis of about $10.7 billion.
In the case of UAL, the old shares and preferred stock can be ignored since they will be cancelled upon reorganization. Markets do exist for UAL’s bonds and other liabilities subject to compromise, which totaled $14,012,000 as of March 31. They are trading for about 5% thus the market value of the enterprise is only about $.7 billion. UAL’s assets on a net book value basis are about $23.1billion.

It appears that someone looking to buy a major legacy airline can get a lot more “airline†for their money with UAL. UAL’s union contracts now are not appreciably worse than AMR or NWAC. Presumably, UAL has much better lease terms now than the other legacy airlines. Either in or out of bankruptcy UAL’s enterprise value should be close to that of its peer legacy carriers. Thus, either UAL’s securities are way undervalued or those of NWAC, AMR and CAL are overvalued. Particularly those of NWAC, which has been, told by the AMFA that no wage concessions will be f
 

airlineorphan

Senior
Aug 20, 2002
380
0
www.usaviation.com
And how impaired is Southwest by unions? They''re more unionized than the rest of the airlines.


If unions were the impairment, then Southwest would be in the toilet. Methinks we should look a little higher in the ranks for the "impairment."

-Airlineorphan
 

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