United News

[Cosmo]

Here is some recent news about United's efforts to emerge from Chapter 11.

1.) It was announced yesterday (Sunday, 11/09/03) that United has reached an agreement with Denver regarding its airport lease through 2025 and the building of 38 RJ gates on the east end of the B concourse. Here's the Denver Post article with the details.

2.) A Reuters article came out this afternoon (Monday, 11/10/03) stating that United has begun negotiating with two of its DIP lenders to provide the airline's exit financing in the form of a loan guaranteed by the ATSB. Presumably, this would amount to at least $2 billion and be in lieu of any equity infusion. Here's the Reuters article with some more details.

3.) ACA's ALPA-represented pilots agreed to a new contract that reduces their compensation only if the carrier begins its low-fare operation from IAD. But the current contract will remain in effect if ACA continues to operate as a United Express carrier, regardless of whether or not it is run by current management or another management team. Here's ACA's press release from this afternoon with more details.

All in all, this sounds like one step forward (the DEN lease agreement), one step in place (the DIP lender exit financing talks), and one step slightly backwards (the ACA pilots' contract approval). I guess that makes it somewhat more positive than negative.

 

[737nCH11]

Thanks for the post Cosmo. I think things are finally starting to happen for UAL. 'Bout damn time!

 

[BoeingBoy]

This may be a step sideways...

Reuters
Some in Congress seek scrutiny of Mesa Air bid
Monday November 10, 8:10 pm ET
By John Crawley

WASHINGTON, Nov 10 (Reuters) - A handful of U.S. House and Senate lawmakers have asked the Bush administration to closely examine Mesa Air's proposed hostile takeover of Atlantic Coast Airlines Holdings Inc. (NasdaqNM:ACAI - News), raising potential competition concerns.

Reps. Joe Wilson, a South Carolina Republican and assistant majority whip, and Sen. Gordon Smith, an Oregon Republican and Commerce Committee member, are among the lawmakers who have expressed concern recently in letters to senior officials about Mesa's plans.

"I respectfully request that you investigate Mesa Airlines' hostile takeover of Atlantic Coast Airlines," Wilson wrote to Transportation Secretary Norman Mineta.

Wilson said he was concerned Mesa Air Group Inc. (NasdaqNM:MESA - News) will derail Atlantic Coast's plan to offer low-fare service from Washington D.C.'s Dulles airport in competition with United Airlines.

Lawmakers have also contacted Transportation Department Inspector General Kenneth Mead, an agency and industry watchdog who is conducting a separate review of competition on regional airline routes.

Atlantic Coast said in July it planned to end long-standing ties to UAL Corp.'s United Airlines (OTC BB:UALAQ.OB - News) to start a low-fare carrier based at Dulles. Analysts have called the plan risky.

Mesa has launched a takeover bid, which would create the nation's largest regional airline. The carriers have sued each other over the takeover proposal.

A spokesman for Mineta said the agency was monitoring the situation and would not comment further. A spokesman for Mead said that he was also reviewing the correspondence and would not comment.

Justice Department antitrust enforcers and transportation regulators are expected to review any potential impact of any merger on domestic routes, ticket pricing and service to small communities.

But a source close to the matter said it was "a stretch" at this point to say that the Bush administration had any immediate concerns as some have claimed.

Atlantic Coast has said that Mesa's bid would prevent it from establishing an "economically viable" low-cost airline.

A representative from Mesa had no immediate comment.

Many members of Congress, especially those from rural areas, are sensitive to the impact that airline mergers have on service to their communities.

Fierce congressional lobbying, mainly over competition concerns in the eastern U.S., helped to derail United's plans to buy US Airways (NasdaqNM:UAIR - News) in 2001.

 

[737nCH11]

I've got news for you. The best thing UAL could do would be to cut ACA loose. It's a shoddy operation. I'm not saying Mesa would be better, but if they would free up some 737s to fly some of the IAD routes it's a win for UAL and it's customers.

 

[iflyjetz]

Thanks for the post, Cosmo.

I like how UAL solved the A gate controversy ... giving up 3 (of 8) gates until Oct 2005. That'll allow UAL to get the gates back when (hopefully) they'll need them.

As for the equity infusion, it'll be interesting to see what UAL intends to do with all of that cash. UAL has only drawn $800 mil in DIP financing; UAL currently has $2.4 bil in cash ($1.8 bil unrestricted). UAL could pay off all DIP financing and still have $1.6 bil in cash on hand.
With $2.0 bil in exit financing, that'd leave $3.6 bil cash on hand; almost double what you'd expect to see during 'normal' times. That's a LOT of money burning a hole in management's pocket.

 

[kcabpilot]

That's a LOT of money burning a hole in management's pocket.

Oh don't you worry, they've got a big crapper up there at WHQ that just loves to have money shoved down it.

 

[Ukridge]

Warning: The question that follows is in no way meant to "bait" anyone though it will reference a certain purveyor of an "alternate" business plan" (from henceforth known as the ABP). It is simply a question that must be asked.

iflyjetz referenced the amount of the tranche that United drew upon from the DIPs. It is significantly less than the 1.5 billion that was available. Yet on another board in the headlong tumult to rain on your parade, mention was made by the proponent of the ABP that the new loans would be merely to pay off the DIPs. Well, if United only drew 800M and had 1.5B available, would this discussion with these exit financiers be perhaps a bit more than just borrowing more money from them to pay off the DIP loans that they orginally made to United - A rather dubious arrangement at best?
If I read the interpretation correctly under the ABP, Morgan and others would merely be lending money to pay off 1.5B (of which I am confued over since United did not draw this amount) and then the man from Alabama with the banjo on his knee would provide the "real" exit financing.
As I stated, this is not meant to bait anyone but is this not the daftest idea? Why in the blazes would United take that route? I render due homage as well as apology to those of you that follow this a little closer, but would someone expostilate as to why United at this time has a need for chop-shop financing from Alabama. Has this horse of an idea not already lost the steeplechase by stumbling upon the first hurdle? It seems that things are progressing smartly but just in another direction than forecast.
Perhaps I am rooting too vigourously for the United team but I cannot help but harbour the thought that Mr. Tilton knew why the first cut at the ATSB failed so miserably and like any student with cerebral activity, he learned what needed to be changed and is doing so. Am I missing something here? Of course part of the problem is that my sources keep trying to tell me that the earth is really round instead of flat!
Cheers
Ukride - Flat Earther till the end.

 

[iflyjetz]

UKRidge, the 'mastermind' that dreamt up the ABP doesn't allow facts to get in the way of a good story.

Let me address exit financing for a moment as if UAL was an individual citizen.
If one has good credit, he can borrow money at a low interest rate. If he's a credit risk, he pays higher interest rates. If one declares bankruptcy, he pays even higher rates unless he provides significant collateral.
Along the same lines, the individual can go to a reputable bank or savings and loan, a financial institution that deals in higher risk (and interest rate) loans, or a loan shark.
Who gives and gets the best terms on loans?

UAL wants the ATSB loan guarantee to ensure that they can get a low interest rate on the loan. If unable to get such a loan, they will probably resort to paying higher rates or an equity stake to Wall Street types (who are lurking in the shadows; they don't display themselves in the PT Barnum atmosphere surrounding Bronner & RSA, Marvin Davis, or David Bonderman).
There are plenty of Bronner/RSA types out there willing to throw money at UAL. The problem is that their terms are not competitive with UAL management is currently able to find through conventional sources.

The author of the ABP is either unwilling or unable to comprehend the vast difference in credit quality of UAL and U, much less the behind the scenes dealings of Wall Street. Wall Street types have no desire to have a spotlight on themselves or their institutions; they just want to make money.

 

[Ukridge]

"There are plenty of Bronner/RSA types out there willing to throw money at UAL. The problem is that their terms are not competitive with (that which) UAL management is currently able to find through conventional sources."

iflyjetz: Exactly. I re-read my post and I can see that my often turgid prose can lead to confusion. What I was trying to bring out was that with United seemingly making progress, with cash in the bank, with the possible DIP loan drawn to only 800m, and renewed confidence in your economy, why would United's management look to a loan-shark like the Banjo man for money? It seems that the purpose of the ATSB is to allow firms such as United to gain the funds they need at decent rates and without sacrificing the future to someone who may not even be in the airline business a fortnight from now. This reality and its out of sync variance with the proponent of the APB is what left me confused.
Cheers

 

[Busdrvr]

"with cash in the bank, with the possible DIP loan drawn to only 800m"

Actually, current DIP draw is 727 million. UAL has been paying it down while in BK.

 

[Ukridge]

"Actually, current DIP draw is 727 million. UAL has been paying it down while in BK"

Hmmmm. If United is actually paying down the debt then I wonder how this is going to fit into that unified theory of imminent asset sales?

 

[Cosmo]

Ukridge:

Good to hear from you again. And don't worry about your "turgid prose" -- nearly all of us (other than a certain Captain) understand what you're saying!

And if you haven't already done so, you might want to read my response to Chip on the US Airways board regarding why the CASM numbers don't appear to support a United/US Airways merger, at least from United's standpoint.

 

[Ukridge]

Very informative and well thought out post Cosmo. Your reasoning and logical rigour add a great deal to the debate. I can only hope that your efforts will get the other party to respond in kind and argue the facts and merits rather than relying on "secret sources."
Cheers

 

[iflyjetz]

iflyjetz: Exactly. I re-read my post and I can see that my often turgid prose can lead to confusion.

KCabpilot, I've been concerned as to WHQ's plans for that cash. Perhaps a UCT where UAL buys small (less than 10% at a time so as not to trigger any contractual clauses) pieces of U? If I say it enough and quote secret 'informed' sources, maybe I can 'will' it to happen.


UKRidge, I wasn't confused with your post. The illustration wasn't intended for you (I know that you are well informed on the subject); it was for the entire USAviation audience. BTW, thanks for correcting my grammatical error; I didn't do a very good job of proofreading.

Busdriver, thanks for the info on UAL paying down DIP debt. I wasn't aware that UAL was making payments. Anything in the quarterly statement about any of UAL's unpaid bills that have been alluded to by the ABP mastermind?

 

[Busdrvr]

jetz,
The only "bill" that isn't being paid and shows up as a reduction on the balance sheet is some of the interest on unsecured debt. As for leases, and gate fees, just simple math would indicate that they are "being paid". Just look at the changes in those YOY numbers. I'f we "weren't paying leases", then "lease costs" would have gone down by 100% instead of 29%.