United's Future

[JetClipper]

You are correct about that Jet. I find it odd that so many people seem to get that happy, giddy feeling when they imagine United gone. We must be doing something right that they find themselves so enthralled with United. It will take a lot of work on the part of the employees but we will endure. B)

Unfortunately, I think a lot of people at other legacy carriers think that if UAL (and, possibly, US) fail, their problems will be solved. While the loss of either airline would certainly reduce capacity (and possibly cause fares to marginally increase), it wouldn't do anything to alleviate the biggest domestic threat the network carriers face; the LCCs. In fact, the LCC's rely on rapid expansion to keep their costs under control, so UAL's demise could quite possibly "add fuel to the fire."

Quite honestly, I'm not in favor of UAL getting the loan, as I agree with the article's assertion that to do so would be akin to providing liquor to a "recovering" alcoholic. That being said, I want to be perfectly clear that I am in no way advocating United going out of business; I just think they'll be much stronger in the long term if they are forced to work though their issues without relying on "outside" assistance.

 

[Fly]

But don't you think they need a loan from someone? So why not this one at the lower rate? Not attacking, just asking

 

[JetClipper]

But don't you think they need a loan from someone? So why not this one at the lower rate? Not attacking, just asking

Hmmm...good point. I guess I don't know enough about what UAL plans to use the proceeds for to make an "informed" decision. Does anyone have any information on that?

 

[Busdrvr]

"use the proceeds for to make an "informed" decision. Does anyone have any information on that?"

LIQUIDITY!!!! Just like the DIP financing. Most of it was never tapped. It would also provide the LIQUIDITY to do wise things like fuel hedging. I have heard that prior to it's last BK and sale, had TWA enjoyed the same lease and finance rates as AMR, they would have been profitable. Reasonable rates, and UAL will be also.

As to UAL's debt to equity, the other poster is completely incorrect. Thats the purpose of BK, to get rid of the excess debt. UAL will emerge with one of the best D/E ratios in the business.

 

[Bigsky]

As to UAL's debt to equity, the other poster is completely incorrect. Thats the purpose of BK, to get rid of the excess debt. UAL will emerge with one of the best D/E ratios in the business.

Remember though, airlines are run on borrowed capital. United is going to have a tough time getting money from any bank in the future. The BK filing is most definetly a huge negative in almost every aspect for UA. And there still is the challenge of avoiding Chap 7 to deal with. Good luck.

cheers

bigsky

 

[Fly]

You're wrong

 

[Bigsky]

Okay then. FLY. Please enlighten me on all the great positives the BK filing has done for, at one time, one of the world's most respected airlines.

 

[JetClipper]

Certainly, anyone who claims that bankruptcy is an “easy†way to reduce costs is deluding themselves, as I’m sure you fellows at United will attest.

That being said, I find one of the more perverse aspects of the bankruptcy process to be that a company (United or anyone else) can shed a good portion of debts incurred during the normal course of business (as opposed to under duress), almost literally with the stroke of a pen. This places the company emerging from bankruptcy at an enormous advantage over its competitors. Given how the network carriers continued to act as though everything was “fine†long after the effects of 9/11 appeared permanent, I’m frankly surprised all of them aren’t in Chapter 11.

Liquidity issues aside, my concern about United getting the loan is twofold. First, they will be obtaining access to capital at a rate other network carriers can only dream of which, like bankruptcy, will give them an advantage (whether or not they “earned†it is debatable). Second, as with before the December 2002 Chapter 11 filing, United’s entire business plan seems to be built around getting the loan. If they get it and simply use the proceeds to fund continued losses while searching for a viable, long-term strategy, they won’t have helped anyone, least of all themselves.

 

[Fly]

As has been stated numerous times on this site. If United shows they have ANY other plan besides the ATSB loan, they are no longer eligible for the loan. Therefore, they cannot and will not state any other business plan. When the loan was offered, ALL airlines had the ability to apply for it.

 

[WorldTraveler]

UAL has said nothing publicly about the equity side of their restructuring so it is impossible to estimate UAL's post-BK D/E ratio. If they can come up enough equity to drive that ratio down dramatically, then one has to wonder why UAL needs the ATSB loan anyway. It is true that debt (except for unsecured debt) doesn't go away in BK - it is restructured. UAL will continue to be a highly leveraged company and will have to devote billions of dollars each year to debt service and pension obligations. Financial Times reported that one competitor sent a 65 page presentation to the ATSB to show that UAL's business plan is unrealistic. Based on even AMR's performance (which has the 9.5 cent CASM which UAL projects), a similar route system, but lower pension obligations, UAL is far from out of the woods. There is no doubt that United's competitors are telling the ATSB that message loud and clear.

 

[JetClipper]

As has been stated numerous times on this site. If United shows they have ANY other plan besides the ATSB loan, they are no longer eligible for the loan. Therefore, they cannot and will not state any other business plan. When the loan was offered, ALL airlines had the ability to apply for it.

That seems a bit odd, doesn't it?

The ATSB should not only be asking, "What is your strategy for making a profit and paying-off the loan?", but "If you don't get the loan, what contingency plans do you have in-place for remaining a going concern?" As a potential lender, I would be leery at best of a company that comes to me and essentially says, "Give me the loan or I'm going out of business.â€￾ What happens if they get the loan and another crisis hits (or, worse, they make an egregious mistake)?

Of course, I guess that’s the whole point of an ATSB-backed load; if the recipient fails the individual lenders aren’t left holding the bag. However, if that were to occur, taxpayer money would have been used to prop-up not just an ailing, but also a failed business. No one in Washington or anywhere else is going to be too happy about that.

 

[Busdrvr]

Congress set aside 10 BILLION for this loan guarentee program. Would any of you guys kindly tell me one company you think qualified? Why or why not? If congress didn't intend the loans to be given, why did they offer the level of funding they did? What do you think UAL hasn't done that would qualify them? I think Denny Hastert has been clear in his belief that the ATSB clearly did not live up to it's mandate.

 

[JetClipper]

Congress set aside 10 BILLION for this loan guarentee program. Would any of you guys kindly tell me one company you think qualified? Why or why not? If congress didn't intend the loans to be given, why did they offer the level of funding they did? What do you think UAL hasn't done that would qualify them? I think Denny Hastert has been clear in his belief that the ATSB clearly did not live up to it's mandate.

I'm not about to get sucked into this argument. Plus, it's been raging for weeks on another thread.

 

[Fly]

It took six posts on THIS thread to decide you aren't participating in this thread?!?

 

[Segue]

"use the proceeds for to make an "informed" decision. Does anyone have any information on that?"

LIQUIDITY!!!! Just like the DIP financing. Most of it was never tapped. It would also provide the LIQUIDITY to do wise things like fuel hedging. I have heard that prior to it's last BK and sale, had TWA enjoyed the same lease and finance rates as AMR, they would have been profitable. Reasonable rates, and UAL will be also.

As to UAL's debt to equity, the other poster is completely incorrect. Thats the purpose of BK, to get rid of the excess debt. UAL will emerge with one of the best D/E ratios in the business.

Exactly how do you figure that?

UAL's total liabilities are $28BB, of which $14BB is subject to compromise. Most of that will be re-scheduled, not forgiven.

At the peak of UAL's valuation in 1999 total equity was only $6BB.