United bankruptcy could mar US Airways recovery

USAirBoyA330

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Aug 23, 2002
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United bankruptcy could mar US Airways recovery
By Julie MacIntosh
NEW YORK, Dec 5 (Reuters) - Even the best-laid plans by US Airways Group Inc. [UAWGQ.OB] to emerge from bankruptcy may be thwarted, experts say, if US Airways'' alliance partner, United Airlines, also goes bankrupt.
United, the second-largest U.S. airline and a unit of the UAL Corp. [UAL.N], is teetering on the brink of Chapter 11 bankruptcy after a federal board denied its request for aid in the form of $1.8 billion in loan guarantees.
As United''s fate comes into question, airline industry experts are assessing the immediate effects a United bankruptcy could have on the industry.
And the verdict is harsh, in particular, for US Airways.
If United files, it drives up the probability of US Air folding, said Richard Gritta, a University of Portland professor with expertise in airlines. It puts more pressure on US Air, and any more pressure on US Air could tip the balance.
The Arlington, Virginia airline, which is already working to offset paltry revenue growth with as much as $1.6 billion in annual expense cuts, may have to become even more creative with cost cutting if United slides into bankruptcy.
In many sectors of the U.S. economy, companies can grab bigger shares of the market and gain power over prices when a rival files for bankruptcy. But in the airline industry, with its convoluted fare pricing structures, bankruptcy can send shock waves across the entire sector. United, with no debt-related bills to pay in bankruptcy, could gain cost advantages over its rivals, most of whom are also hard-pressed for cash.
DISTRESS TEST
If United slashed its fare prices to lure apprehensive travelers, known as distress pricing, it could punch holes in the desperately-needed revenue streams of its competitors.
Nearly all of the major U.S. airlines are posting huge losses as they grapple with depleted revenue. But US Airways, which is falling short of revenue targets it used in its own application for federal loan guarantees, could falter further if United siphons away its revenue.
That could mean the difference between US Airways emerging from bankruptcy, which it currently plans to do in March, or liquidating, Gritta said. And with its pilots claiming US Airways'' $500 million in emergency financing is in jeopardy because the airline is falling short of revenue targets, there may not be much leeway.
(US Airways is) in receivership right now anyway, so it''ll be two drunks in a boxing ring, slugging at each other, Gritta said. Their two choices are both terrible -- cut prices to match them and bleed, or don''t match them and die. Either way, you''re in trouble.
A US Airways spokesman could not be reached for comment.
Some analysts stressed, though, that a United bankruptcy should bode well for the industry over the long term.
Bankruptcy may not trash ticket prices as much as the imbalances between supply and demand, Lehman Brothers analyst Gary Chase said in a study of historical airline bankruptcies. And a United court reorganization could create opportunities for other airlines to lower their own cost structures.
United has been lambasted by its rivals for giving workers huge raises in recent years, forcing the entire sector''s labor costs higher. Airlines'' efforts to offset those costs have largely failed, since even before the Sept. 11, 2001 attacks.
THE WEAK STICK TOGETHER
US Airways and United, whose proposed merger was broken up by regulators in the summer of 2001, have already rolled out several key components of a new marketing alliance approved by the government last month.
United has said it expects the alliance to boost its revenue by $200 million a year, as the airlines combine frequent flyer programs and ticketing. The extra revenue could help boost the outlook for US Airways as it works to win final approval for $900 million in government backing on its loans.
But United plans to cut its capacity, the number of passengers it can transport systemwide, by nearly one quarter through next year, and analysts said it could drop even further. The airline is burning through about $7 million in cash each day and has worked feverishly to scale back its operations.
As United shrinks, the amount of revenue it takes in will also drop. It is only logical that US Airways, which is about half the size of United, will reap less revenue from the alliance as United downsizes, said Thomas Boland, a managing director at Seneca Financial, and an airline restructuring expert who helped America West get a loan guarantee.
You can almost guarantee it, said Boland, who was the former chairman of USAir Shuttle. And what United Airlines is going to look like when all is said and done still remains to be seen.

12/05/02 11:42 EST
 

1ab

Advanced
Aug 21, 2002
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maybe we should have gone with NW/CO code share....oh well maybe mother nature will do in U seeing it is playing havoc with U yesterday and most of today...

Was it true that U ran out of deicing fluid in CLT yesterday
 

1ab

Advanced
Aug 21, 2002
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maybe we should have gone with NW/CO code share....oh well maybe mother nature will do in U seeing it is playing havoc with U yesterday and most of today...

Was it true that U ran out of deicing fluid in CLT yesterday
 

tug_slug

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Sep 9, 2002
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www.usaviation.com
[P][blockquote][BR]----------------[BR]On 12/5/2002 12:07:56 PM USAirBoyA330 wrote: [/P]
[P]I swear when is the bad news going to stop? It's never ending around here! Has U management not thought about UAL filing for bankruptcy? It's like we tied ourselves to a big rock...someone threw us both in the water and hope it floats.......DUUUUUUUUUUUH!!![/P]
[P]On another note.......from what I am reading in the S 1113 letter IAM is in VIOLATION of this agreement. It clearly states that if requested...both parties will sit down with the company for further discussions. AFA acknowledges this .....so does ALPA and even CWA. IAM needs to get with the program before it's too late. Heck...I think it already is.[BR]----------------[BR][/blockquote][/P]
[P]USAIRBOY the IAM has already had their fire side chat with Management.[BR] [BR][A href="http://www.iam141m.org/usairway.htm"]http://www.iam141m.org/usairway.htm[/A][/P]
[P]Here's their reply...[/P]
[P]A conference call between Union Coalition members and US Airways management to obtain further details of management’s plan will take place tomorrow morning ([FONT color=#ff0000][STRONG]11/27/02[/STRONG][/FONT]). Labor Coalition members will discuss US Airways’ condition in a conference call on Friday, November 29, 2002. [/P]
[P]When IAM members recently ratified modifications to their US Airways agreements, it came with the company’s assurance that the revisions were all US Airways needed to successfully emerge from bankruptcy. The leadership of Districts 141 and 141-M are in agreement that additional changes to our collective bargaining agreements are not acceptable, as the company has not established that such revisions are justified. IAM members have already answered US Airways’ distress call, and acted responsibly. US Airways needs to work within the framework they designed to find solutions to their latest situation.[/P]
[P]We will keep you updated as developments occur.[/P]
[P]Sincerely and fraternally,[/P]
[P]S.R. (Randy) Canale[BR]President and General Chairman[BR]District 141[/P]
[P]Scotty Ford[BR]President and General Chairman[BR]District 141-M[/P]
[P]Whether the IAM changes it's agenda and decides to bring the new work rule changes to the membership for a vote is yet to be seen but at this point in time it doesnt appear their going to do so. [/P]
 

tug_slug

Veteran
Sep 9, 2002
550
0
www.usaviation.com
[P][blockquote][BR]----------------[BR]On 12/5/2002 12:07:56 PM USAirBoyA330 wrote: [/P]
[P]I swear when is the bad news going to stop? It's never ending around here! Has U management not thought about UAL filing for bankruptcy? It's like we tied ourselves to a big rock...someone threw us both in the water and hope it floats.......DUUUUUUUUUUUH!!![/P]
[P]On another note.......from what I am reading in the S 1113 letter IAM is in VIOLATION of this agreement. It clearly states that if requested...both parties will sit down with the company for further discussions. AFA acknowledges this .....so does ALPA and even CWA. IAM needs to get with the program before it's too late. Heck...I think it already is.[BR]----------------[BR][/blockquote][/P]
[P]USAIRBOY the IAM has already had their fire side chat with Management.[BR] [BR][A href="http://www.iam141m.org/usairway.htm"]http://www.iam141m.org/usairway.htm[/A][/P]
[P]Here's their reply...[/P]
[P]A conference call between Union Coalition members and US Airways management to obtain further details of management’s plan will take place tomorrow morning ([FONT color=#ff0000][STRONG]11/27/02[/STRONG][/FONT]). Labor Coalition members will discuss US Airways’ condition in a conference call on Friday, November 29, 2002. [/P]
[P]When IAM members recently ratified modifications to their US Airways agreements, it came with the company’s assurance that the revisions were all US Airways needed to successfully emerge from bankruptcy. The leadership of Districts 141 and 141-M are in agreement that additional changes to our collective bargaining agreements are not acceptable, as the company has not established that such revisions are justified. IAM members have already answered US Airways’ distress call, and acted responsibly. US Airways needs to work within the framework they designed to find solutions to their latest situation.[/P]
[P]We will keep you updated as developments occur.[/P]
[P]Sincerely and fraternally,[/P]
[P]S.R. (Randy) Canale[BR]President and General Chairman[BR]District 141[/P]
[P]Scotty Ford[BR]President and General Chairman[BR]District 141-M[/P]
[P]Whether the IAM changes it's agenda and decides to bring the new work rule changes to the membership for a vote is yet to be seen but at this point in time it doesnt appear their going to do so. [/P]
 
OP
U

USAirBoyA330

Veteran
Aug 23, 2002
724
0
I swear when is the bad news going to stop? It's never ending around here! Has U management not thought about UAL filing for bankruptcy? It's like we tied ourselves to a big rock...someone threw us both in the water and hope it floats.......DUUUUUUUUUUUH!!!
Things are about to go crazy in the airline industry and I don't think ANYONE can imagine how it will turn out.
On another note.......from what I am reading in the S 1113 letter IAM is in VIOLATION of this agreement. It clearly states that if requested...both parties will sit down with the company for further discussions. AFA acknowledges this .....so does ALPA and even CWA. IAM needs to get with the program before it's too late. Heck...I think it already is.
 
OP
U

USAirBoyA330

Veteran
Aug 23, 2002
724
0
I swear when is the bad news going to stop? It's never ending around here! Has U management not thought about UAL filing for bankruptcy? It's like we tied ourselves to a big rock...someone threw us both in the water and hope it floats.......DUUUUUUUUUUUH!!!
Things are about to go crazy in the airline industry and I don't think ANYONE can imagine how it will turn out.
On another note.......from what I am reading in the S 1113 letter IAM is in VIOLATION of this agreement. It clearly states that if requested...both parties will sit down with the company for further discussions. AFA acknowledges this .....so does ALPA and even CWA. IAM needs to get with the program before it's too late. Heck...I think it already is.
 

AtlanticBeach

Senior
Aug 20, 2002
341
2
[blockquote]
----------------
On 12/5/2002 11:58:16 AM 1ab wrote:


Was it true that U ran out of deicing fluid in CLT yesterday
----------------
[/blockquote]


Don't know for certain. But it was interesting that the report originated on WSB in Atlanta (Radio Free Delta).
 

AtlanticBeach

Senior
Aug 20, 2002
341
2
[blockquote]
----------------
On 12/5/2002 11:58:16 AM 1ab wrote:


Was it true that U ran out of deicing fluid in CLT yesterday
----------------
[/blockquote]


Don't know for certain. But it was interesting that the report originated on WSB in Atlanta (Radio Free Delta).
 
C

chipmunn

Guest
[FONT size=2]I believe it is difficult to gauge how a UA bankruptcy filing would effect US. [BR][BR]With UA likely drawing down a significant amount of capacity all of the airlines will benefit because the remaining carriers will take up some of UA's lost domestic traffic. In addition, this could create more opportunities for US who would become a more important Star Alliance member, who would be able to take more Star Alliance traffic with UA having less ASMs.[BR][BR]In the short-term, which is the glaring US problem, a UA bankruptcy will have little effect until the Chicago-based carrier begins to restructure and pull down capacity. [BR][BR]Finally, if both airlines survive they will need each other even more and we will likely see an increased effort between the two companies to create greater economies of scale to further drive down unit costs. [BR][BR]Chip[/FONT]
 
C

chipmunn

Guest
[FONT size=2]I believe it is difficult to gauge how a UA bankruptcy filing would effect US. [BR][BR]With UA likely drawing down a significant amount of capacity all of the airlines will benefit because the remaining carriers will take up some of UA's lost domestic traffic. In addition, this could create more opportunities for US who would become a more important Star Alliance member, who would be able to take more Star Alliance traffic with UA having less ASMs.[BR][BR]In the short-term, which is the glaring US problem, a UA bankruptcy will have little effect until the Chicago-based carrier begins to restructure and pull down capacity. [BR][BR]Finally, if both airlines survive they will need each other even more and we will likely see an increased effort between the two companies to create greater economies of scale to further drive down unit costs. [BR][BR]Chip[/FONT]
 
C

chipmunn

Guest
Just one more point...it has been widely speculated in the news media, on Wall Street, and in industry observer offices that both UA and US would end up in bankruptcy.[BR][BR]Both companies applied for the ATSB loan and in the case of UA the board said the application had "fundamental deficiencies in the business plan" while on the other hand the board complicated US and the strength of the Arlington-based carriers application (albeit there is now a revenue shortfall). [BR][BR]Regardless, it strikes me odd that US and UA would select each other as an alliance partner if either company believed the other would fail, unless the revenue shortfall caught the industry by so much surprise that each company was blind sided.[BR][BR]Chip
 
C

chipmunn

Guest
Just one more point...it has been widely speculated in the news media, on Wall Street, and in industry observer offices that both UA and US would end up in bankruptcy.[BR][BR]Both companies applied for the ATSB loan and in the case of UA the board said the application had "fundamental deficiencies in the business plan" while on the other hand the board complicated US and the strength of the Arlington-based carriers application (albeit there is now a revenue shortfall). [BR][BR]Regardless, it strikes me odd that US and UA would select each other as an alliance partner if either company believed the other would fail, unless the revenue shortfall caught the industry by so much surprise that each company was blind sided.[BR][BR]Chip
 

FrugalFlyer

Senior
Aug 20, 2002
254
0
[blockquote]
----------------
On 12/5/2002 2:20:10 PM chipmunn wrote:
With UA likely drawing down a significant amount of capacity all of the airlines will benefit because the remaining carriers will take up some of UA's lost domestic traffic. In addition, this could create more opportunities for US who would become a more important Star Alliance member, who would be able to take more Star Alliance traffic with UA having less ASMs.
----------------
[/blockquote]

Although I agree that a chpt. 11 filing by UA will benefit the remaining carriers, I don't think the benefits will be too significant (unless UA is then forced into chpt. 7). And, sadly, US is hardly in any position (financially or geographically) to reap those few benefits.
As far as the * alliance is concerned, I think that LH and others are more concerned about the condition of UA, as oppossed to concerning themselves on bringing in another member. US would nicely compliment * alliance, but in no way is US a replacement for UAL.
 

FrugalFlyer

Senior
Aug 20, 2002
254
0
[blockquote]
----------------
On 12/5/2002 2:20:10 PM chipmunn wrote:
With UA likely drawing down a significant amount of capacity all of the airlines will benefit because the remaining carriers will take up some of UA's lost domestic traffic. In addition, this could create more opportunities for US who would become a more important Star Alliance member, who would be able to take more Star Alliance traffic with UA having less ASMs.
----------------
[/blockquote]

Although I agree that a chpt. 11 filing by UA will benefit the remaining carriers, I don't think the benefits will be too significant (unless UA is then forced into chpt. 7). And, sadly, US is hardly in any position (financially or geographically) to reap those few benefits.
As far as the * alliance is concerned, I think that LH and others are more concerned about the condition of UA, as oppossed to concerning themselves on bringing in another member. US would nicely compliment * alliance, but in no way is US a replacement for UAL.