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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
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
10 PM chipmunn wrote: 
