United And The Atsb

[ohcaptainron]

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Joined: 13-September 02



United and the ATSB:

The main concern of the LCCs and Legacy carriers alike is the prospect of UAL's restructured balance sheet, which many are not talking about. Current debt to equity ratios in the industry run from 80 to 130 %. A post BK UAL will have a estimated debt to equity of 46%. Coupled with an estimated $4.5 billion in cash and seat mile costs in the Frontier range mainline and TED costs below. This WILL change the dynamics in the industry and the long awaited rationalization of assets and consolidation will begin in earnest. The point is, the legacy carrier component of this industry cannot continue to operate with the traditional level of debt irregardless of employee or other costs. Unfortunatly DAL and AMR will most likly feel the pain of the BK process to restructure their mountains of debt as well. If I were Frontier or any other lcc that competed directly with UAL I would be VERY worried.

 

[whatkindoffreshhell]

Don't worry about it. UA has Jake Brace on their team.

 

[laura62]

So if UALl is denied the ATSB loan it's the result of who had the biggest political hammer. AMR's hometown is Dallas, Texas after all...But obvious and blatant.
And if things are as you say in your post why isn't UAL shouting this from the rooftops (and the NY Times editorial page)?

United will Stand!

 

[ohcaptainron]

"And if things are as you say in your post why isn't UAL shouting this from the rooftops (and the NY Times editorial page)?""

I believe they are, Titon responded to both the USA TODAY AND THE WSJ. But mostly they are making their case to the ATSB, where it will do the most good.
I would expect the ATSB to grant the loan guarantee in the next 30 days. Sooner the better, If US Airways implodes between now and then all bets are off. UAL is currently funneling revenue to US Air for this exact reason. Excellent results just posted for April. UAL will be profitable in MAY on an operating basis, if fuel starts heading south, could be a very profitable summer. Look for 45+plus airbusses announced after exit. Most of which were aircraft that were not taken during BK. 25 737s will be rejected by August. 1110 process. Still a possible purchase of some US Air assets, very fluid.

 

[ladevale]

United and the ATSB:

The main concern of the LCCs and Legacy carriers alike is the prospect of UAL's restructured balance sheet, which many are not talking about. Current debt to equity ratios in the industry run from 80 to 130 %. A post BK UAL will have a estimated debt to equity of 46%. Coupled with an estimated $4.5 billion in cash and seat mile costs in the Frontier range mainline and TED costs below. This WILL change the dynamics in the industry and the long awaited rationalization of assets and consolidation will begin in earnest. The point is, the legacy carrier component of this industry cannot continue to operate with the traditional level of debt irregardless of employee or other costs. Unfortunatly DAL and AMR will most likly feel the pain of the BK process to restructure their mountains of debt as well. If I were Frontier or any other lcc that competed directly with UAL I would be VERY worried.

Exactly, how do you figure?

After almost $5 Billion of labor and non-personnel cost cuts, United's mainline costs (including costs for providing regional feed) are 10.18 (ASM). By comparison, Frontier's CASM is 8.31.

I am also having trouble figuring out how you arrived at the $4.5 billion in cash for a post-BK UAL. United currently has a cash balance of $2.6 Billion ($683 of it unrestricted). Did you arrive at your number by siimply adding the ATSB loan amount to the current cash balance? That doesn't seem logical since United will have to use some of the loan proceeds to pay off its DIP Financing. As of December 31, 2003, United had a total of $663 milllion outstanding in DIP financing. United made a payment of $60 million in March on the Bank One portion of the DIP.

As to United post-BK debt to equity ratio, I guess 46% is as good as 1%. With so much pre-petition debt still unsettled, with United now assuming the leases for much of the regional fleet coming on line in the next few years, and with so much uncertainty still hanging over the Section 1110 negotiations, it is not clear how you could come up with 46%. Care to explain?

 

[Borescope]

An editorial Wednesday in the Pittsburgh Tribune-Review said that United Airlines (UA) does not deserve a $1.6 billion loan backed by U.S. taxpayer dollars. The article refers to UA CEO Glenn Tilton's letter to The Wall Street Journal in which he claimed that UA had slashed costs, has "unprecedented operating flexibility" and should be granted a government loan guarantee.


The editorial quoted George Mason University economist Donald Boudreaux who said, "The fact that (United) is seeking taxpayer-backing for some of its loans is evidence that this company's future is not as rosy as Mr. Tilton claims." Boudreaux said that private investors would be eager to lend the airline the money if its CEO's claims were accurate.


This last statement, "not as rosy" is to be expected. Tilton job at United is that of a paid cheerleader, the board wouldn't expect him to to say things are all doom and gloom. He gets the big bucks even if we go down. His contract says Full pay to the last day. So, get out there Glen and Rah, Rah, Rah.

 

[ohcaptainron]

Exactly, how do you figure?

After almost $5 Billion of labor and non-personnel cost cuts, United's mainline costs (including costs for providing regional feed) are 10.18 (ASM). By comparison, Frontier's CASM is 8.31.

I am also having trouble figuring out how you arrived at the $4.5 billion in cash for a post-BK UAL. United currently has a cash balance of $2.6 Billion ($683 of it unrestricted). Did you arrive at your number by siimply adding the ATSB loan amount to the current cash balance? That doesn't seem logical since United will have to use some of the loan proceeds to pay off its DIP Financing. As of December 31, 2003, United had a total of $663 milllion outstanding in DIP financing. United made a payment of $60 million in March on the Bank One portion of the DIP.

As to United post-BK debt to equity ratio, I guess 46% is as good as 1%. With so much pre-petition debt still unsettled, with United now assuming the leases for much of the regional fleet coming on line in the next few years, and with so much uncertainty still hanging over the Section 1110 negotiations, it is not clear how you could come up with 46%. Care to explain?




Sure, this information came from a senior management briefing last week.

Cash, company is currently generating $ 5.0-7.0 miliion a day in positive cash. Which is expected to increase dramatically thru the summer, lets say $200 million per month.
Approx 4 months till exit approx an additional $800million. So $2.6(CASH ON HAND)+ 800(cash flow)+2.0 (ATSB)-663( DIP)=
Appox$4.5 billion

The seat mile costs are calculated based on the full anticipated savings from the 1110 process and all expected savings associated with the BK process, less the costs of being in BK.The total of $ 5.0 billion in labor costs have not been fully allocated nor have the 900million in annual lease costs reductions. Mainline costs at 8.4, TED 7.9. Buy the way TED is running 84% system load factor and is currently making a good profit. And all costs currently are running less than plan. Except for fuel.

The debt to equity ratio calculation is based on the current business plan. How it was calculated is above my pay grade. But allegitly is conservative. I really do not know, except to say that UAL believes that post BK the business model will be very strong and competitive.
This info is from my notes of that breifing.

 

[ohcaptainron]

An editorial Wednesday in the Pittsburgh Tribune-Review said that United Airlines (UA) does not deserve a $1.6 billion loan backed by U.S. taxpayer dollars. The article refers to UA CEO Glenn Tilton's letter to The Wall Street Journal in which he claimed that UA had slashed costs, has "unprecedented operating flexibility" and should be granted a government loan guarantee.


The editorial quoted George Mason University economist Donald Boudreaux who said, "The fact that (United) is seeking taxpayer-backing for some of its loans is evidence that this company's future is not as rosy as Mr. Tilton claims." Boudreaux said that private investors would be eager to lend the airline the money if its CEO's claims were accurate.


This last statement, "not as rosy" is to be expected. Tilton job at United is that of a paid cheerleader, the board wouldn't expect him to to say things are all doom and gloom. He gets the big bucks even if we go down. His contract says Full pay to the last day. So, get out there Glen and Rah, Rah, Rah.
_______________________________________________________________
Yes, I have seen all of the editorials the pro and the con .The Pit Tribune says UAL does not deserve the loan guarantee? It is not about deserving it, it IS about qualifying under the existing guidelines of the current program. I would agree that if UAL does not qualify under the ATSBs very demanding guidelines they should not get the guarantee. On the other hand if they meet the criteria of the guarantee they SHOULD receive it, very objective. Deserving it or not should not be the criteria. But if you look at all the companies that have applied and that were sucessful, UAL in my mind does deserve it not only from its direct involement in 9-11. But it is the first legacy carrier to restructure. Just my opinion.

Donald Boudreax fails to understand that UAL is just trying to take advantage of a program that happens to be available and one that UAL believes to be a good deal. So using his logic UAL should not try to use a program that is current law? And one that UAL believes advantages the company? There is much vested prochial interest at stake here. You will continue to see the pro and con editorials that are motivated shamelessly by each side. Call it human behavior. One thing for sure is if UAL is successful the current paradign in the industry will change. Which many in the industry DO NOT want to see. From the LCC picking the low fruit in the industry. To the other legacy carriers fixing there own structrual problems.
You are right about Tiltons role he is a cheerleader, but what CEO isn't?

 

[WorldTraveler]

"UAL is currently funneling revenue to US Air for this exact reason. "

Can you explain? I sorta doubt it especially when I've seen plenty of comparisons that show that UAL is undercutting US on codeshare flights operated by US.

 

[avek00]

The ATSB is currently asking other airlines for their revenue/yield forecasts in order to ascertain if United's projections are out of line. You can be sure that AA, DL, CO, , NW, FL et. al. will provide sufficiently gloomy forecasts to make United's numbers appear unrealistic. If that does not work, then the majors and larger LCCs will simply engage in another round of borrowing to demonstrate that a failure to access the capital market is a problem for a failing AIRLINE, not the industry as a whole.

 

[Cosmo]

"UAL is currently funneling revenue to US Air for this exact reason. "

Can you explain? I sorta doubt it especially when I've seen plenty of comparisons that show that UAL is undercutting US on codeshare flights operated by US.

WorldTraveler:

Remember that the operating carrier gets the revenue on a code-share flight, so whatever United charges for flights on US Airways metal goes to that carrier. And since the assumption is that these passengers are new to US Airways (which is, after all, the main rationale for the code-share), United is indeed helping to "funnel" new revenues to US Airways -- although perhaps not quite as much as US Airways would like to receive.

 

[avek00]

WorldTraveler:

Remember that the operating carrier gets the revenue on a code-share flight, so whatever United charges for flights on US Airways metal goes to that carrier. And since the assumption is that these passengers are new to US Airways (which is, after all, the main rationale for the code-share), United is indeed helping to "funnel" new revenues to US Airways -- although perhaps not quite as much as US Airways would like to receive.

Talk about a death row marriage...

 

[Cosmo]

The ATSB is currently asking other airlines for their revenue/yield forecasts in order to ascertain if United's projections are out of line. You can be sure that AA, DL, CO, , NW, FL et. al. will provide sufficiently gloomy forecasts to make United's numbers appear unrealistic.

avek00:

Before you go making such an assumption, remember that these other carrier forecasts had better be pretty close to the guidance they recently gave in their conference calls with the Wall Street analysts. Otherwise, some of these folks could find themselves in BIG trouble with the SEC, accused of telling the public one thing while actually believing something else. I imagine the SEC would not find such "Enron-style" shenanigans very amusing.

In addition, United has been able to achieve load factor and yield growth in excess of the industry average in recent months (and keep in mind that United will benefit disproportionately compared to the other carriers -- except Northwest -- from the strong rebound in Transpacific traffic and yields that we're seeing now). So if the other carriers' submittals to the ATSB merely show a continuation of those trends, it shouldn't cause the ATSB any heartburn.

 

[UnitedChicago]

Talk about a death row marriage...

Avek: go "play" somewhere else please.

 

[JFK777]

There is one very valuable thing UA has Usair doesn't. International landing rights at LHR and NRT. If UA goes out of business, DL, CAL and NW would salivate at LHR rights. In NRT AA, CAL & DAL would bid. No one is impressed by Usair's landing rights, they are easily replicated at little clost. UA can encumber these landing rights for Financing. I think USair should be sacrificed for every one's good, UA has too many jobs in to many politically sensitive places: California, Illinois, Virginia, Washington D.C. & Colorado.