Update on today's Omnibus Hearing

usfliboi

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Aug 20, 2002
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CHip, You must still think that an Ual/US trasaction is possible. If we are to believe this, then we must believe that both tpg and rsa have motives to rescue both Ual and Us in some form..I was tending to understand your thoughts about tpg and the Corperate transaction between ual and us, but how can you still feel that way now that Tpg stepped aside and didnt want to make an additional bid? Also, is this what your were referring to in the past few days when you wrote that there would be an announcement concerning tpg and us?
 
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chipmunn

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Usfliboi:

Today S&P said it may still change UAL, United Airlines ratings

NEW YORK, Sept 26 - United Air Lines Inc.'s (CCC/Watch Developing/-) unions offered the company labor cost concessions that they said would save $1 billion annually for five years as part of a financial restructuring plan intended to secure a $1.8 billion federal loan guaranty and avoid bankruptcy.

Standard & Poor's Ratings Services said its ratings on United and parent UAL Corp. (CCC/Watch Developing/-) remain on CreditWatch with developing implications.

The offered concessions fall short of the $1.5 billion annually over six years that management had earlier proposed, but exceeds savings previously negotiated with the pilots' union and noncontract employees (other unions had rejected any concessions), said Standard & Poor's credit analyst Philip Baggaley. United's management did not comment on the proposal other than to say that they would examine it, and many important details such as allocation of concessions among employees were left open. The proposed labor cost savings are not as extensive proportionately as those agreed to at US Airways ($840 million annual average over six years, with no snap-back to previous wage levels), an airline about one-half United's size.

However, United, with its extensive route system, has more revenue generating potential, and thus may not need cost uts as deep as those at US Airways.

United's management and unions are expected to enter into intensive negotiations to try to work out the agreed savings and how to achieve them. However, this process and the Air Transportation Stabilization Board's (ATSB) review if any revised loan guarantee application may be difficult to complete in the dwindling time before United's next large ($350 million) debt payment on Nov. 17, 2002.

A revised application with savings that are material, but not fully satisfactory to the ATSB, could set up a politically charged confrontation, with congressional supporters of labor and representatives from cities and states with major United operations, pressing the board to approve the application.

The situation is further complicated by the prospect of a military confrontation between the U.S. and Iraq, which would likely deepen airline losses, reducing United's liquidity and possibly necessitating deeper cost cuts. Such a crisis, however, could also pressure management and labor to reach a speedy resolution of cost-cutting negotiations.
 
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usfliboi

usfliboi

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I still dont understand how the same senerio applies though? Who at tpg was involved or had connections to Ual, that led you to the belief about a corporate transaction between us and ual?
 
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chipmunn

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Reports indicate US Airways unsecured creditor’s committee brokered the new Retirement Systems of Alabama (RSA) credit facility and emergence financing deal approved by the bankruptcy court between US as the debtor and RSA. Last weekend the creditors urged RSA to provide the debtor-in-possession (DIP) financing as a way to convince the US Board to accept its investment offer.
Reports indicate after RSA decided to provide the sweetened bid, the US BOD’s held a conference call last night to approve the agreement and then Dave Siegel and RSA’s Dave Bronner met in Charlotte to work out the final details. Interestingly, former UA President Rono Dutta, who resigned his UAL position on the day new CEO Glenn Tilton assumed control of the Elk Grove Twp based airline, was Bronner’s consultant on the agreement to provide US with $740 million in financing, $500 million for the DIP credit facility and $240 in emergence equity.
The new credit facility and equity emergence agreements are basically the same deal completed with TPG except has a few improvements.
· Immediate access to $300 million of the $500 million credit facility, pending a final hearing on the facility scheduled next month. Out of this $300 million CS First Boston will be repaid for the first DIP financing installment of $75 million.
· TPG will receive $2 million for expenses and has waived the $7 to $10 million break up fee.
· The MPC credit card clearing house cash hold back has been reduced from $140 to $60 million.
· US Airways receives a 20 percent premium of $40 million over the TPG offer of $200 million in emergence financing. RSA will provide $240 million for a 37.5 percent versus TPG 38 percent of the company. RSA will become the majority stakeholder with the issuance of preferred stock, which will replace the same clause offered to TPG.
The most notable change is that RSA holds EETC’s on F-100 and 21 Boeing aircraft. RSA has agreed to restructure the Boeing lease agreements, which are part of the 150 jets US seeks to obtain relief on, to market rates. Reports indicate the company plans to operate the new fleet plan of 279 aircraft, but may reduce that number to 245 mainline jets if traffic does not come back to acceptable levels.
The new agreement contemplates that the US unsecured creditors would obtain at least 8.5 percent of the new equity issued upon emergence; however, per the bankruptcy code with a new bid being approved RSA will have 60 days to perform “due diligenceâ€, during which time other bidders could submit a bid to the court, but competing bidders must match or exceed the RSA agreement.
According to Bloomberg News, “The good news is that the Texas Pacific people have terminated their interest as of now, Bronner said. That doesn't mean they won't reignite their interest. Indeed, Texas Pacific's statement left the door ajar. We will continue to watch the company's progress through Chapter 11 with interest, it said of US Airways.
I suspect we have not heard the end of TPG and their CEO David Bonderman may be waiting to see how events unfold. In addition, I find it interesting that Dutta is advising RSA.
Chip
 
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chipmunn

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Usfliboi:

There were reports from inside and outside of the company that negotiations were being brokered by the creditors committee between US, TPG, & RSA, which began last weekend. Nobody knew for sure until last night how this would turn out and all of the information was kept confidential, but TPG is not out of this by a long shot.

It's still to early to tell how a potential US-UA agreement would be negotiated because of the uncertainty surrounding UA's restructuring, but there is reason to believe the parties have been involved in ongoing discussions.

In my opinion UA is in trouble and will likely file for a formal reorganization and I believe Argento’s comments are accurate.

UA asked its unions for what is required to obtain the loan guarantee because the duration of the cuts and new agreement amounts equal the ATSB timeline for loan guarantee approval.

The ATSB requires a business plan that provides a 7 percent profit margin and Fitch Rating to provide a projected B credit rating within 7 years.

The company's numbers of $1.5 billion per year in annual employee cuts and $1.0 billion per year in creditor, vendor, and lessor cuts are very similar to the US ATSB application on a percentage basis.

The biggest UA problems could be with the IAM because of the AMFA issue and with the aircraft lessors, who after taking a haircut in the US reorganization are likely to be in no mood to voluntarily provide major financial relief, which we clearly understand here at US.

These two hurdles will be large obstacles to quickly over come and in the case of labor may need to be resolved in bankruptcy court with a Section 1113 hearing.

In regard to the aircraft lessors, this may require bankruptcy as well to have some aircraft returned to the lease company's at an early Omnibus Hearing, to get the lessor's attention and to obtain the cuts necessary to qualify for the federal loan guarantee. This issue was the primary driver with RSA electing to provide the sweetened offer for both the US credit facility and the emergence equity investment.

I do not believe it's a coincidence that Rono Dutta has been retained by RSA as a consultant when the pension fund has $25 billion in assets that can be invested or used for an acquisition, not to mention the combined federal loan guarantee of two parties involved in a corporate transaction are permitted to be used to finance an M&A.

Chip
 
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usfliboi

usfliboi

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Chip! I can appreciate the fact you hold confidence, its a great trait, however! Im assuming your saying that you have developed an unique relationship or have a personal transaction with someone very very very close to dave? or dave himself? I cant believe they would discuss these types of issues with any line employee.. Im not doubting you in fact alot of what you say on here makes plenty of sence however im still not understanding why you think that rsa has the same plans as tpg did esp since the entire plan fell apart with tpg {for the time being} Besides if you have private information,i would assume the person who told you would not appreciate at all that your even touching on this subject :) My bottom line is im trying to understand why your senerio, which one could believe if tpg had not backed out, now applies to rsa.... Trying really hard to understand here and not asking you to reveal you sources...
 
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chipmunn

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Usfliboi:

I do not reveal conversations held in confidence.

Chip
 

DCAflyer

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USfliboy writes:

Chip! I can appreciate the fact you hold confidence, its a great trait, however! Im assuming your saying that you have developed an unique relationship or have a personal transaction with someone very very very close to dave? or dave himself? I cant believe they would discuss these types of issues with any line employee.. Im not doubting you in fact alot of what you say on here makes plenty of sence however im still not understanding why you think that rsa has the same plans as tpg did esp since the entire plan fell apart with tpg {for the time being} Besides if you have private information,i would assume the person who told you would not appreciate at all that your even touching on this subject :) My bottom line is im trying to understand why your senerio, which one could believe if tpg had not backed out, now applies to rsa.... Trying really hard to understand here and not asking you to reveal you sources...

DCAflyer replies:

Why do you assume TPG or RPA holds the cards in any potental corporate transaction involving U and UAL? 37.5 percent does not a majority make. I believe Chip's earlier thought process was along the lines that TPG, with its connections, could help finesse a corporate transaction involving the two airlines. But I don't believe TPG was the source or the reason of the potential discussions between U and UAL. As I have said earlier, a friend of mine who works at U HQ indicated to me that there are very active discussions between U and UAL involving some sort of a corporate transaction. It goes without saying that all the cards would have to fall into place. As Chip has said, it may happen and it may not. Time will tell.
 
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chipmunn

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Usflyboi:

TPG and RSA would be investors who control the Board, but will empower current senior management to run the company. TPG backed out of the deal at Dave Siegel's request and both TPG & RSA objectives appear to be the same.

Chip
 
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chipmunn

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Busdrvr:

I'm not going to get into a tit for tat issue with you, I simply report facts and when its my opinion I state either I believe... or In my opinon...

Nobody likes this situation any more than anybdoy else, but Argento's comments about employee denial appear to be true. In fact, your last post would seem to suggest that to be the case.

However, today Jennifer Waters reported airline anslysts believe the UA union proposal lacks teeth and credibility. In addition, the following comments were made:

J.P. Morgan analyst Jamie Baker said, We are unimpressed. It's essentially an offer to negotiate, not a hard offer. There's nothing we've seen in the last 24 hours to lessen our conviction that a bankruptcy filing is far more likely.

Blaylock & Partners analyst Ray Neidl said, This is smoke and mirrors. They have to get serious, said analyst Neidl of the unions. Time is short and there's no time for fun and games.

Waters wrote however, the company left open bankruptcy as an option, which some observers believe could be the best long-term route to take. We are focused on ensuring that United remains a highly competitive business for the long term, the UA statement noted.

Chip
 

Busdrvr

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[blockquote]
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On 9/26/2002 2:47:02 PM chipmunn wrote:

However, United, with its extensive route system, has more revenue generating potential, and thus may not need cost cuts as deep as those at US Airways.

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Chip, you apparently forgot to underline that part
 

Busdrvr

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The point Chip is it is your Modus to only emphasize those things that support your conspiracy theory. You emphasized the fact that you took a bigger cut, but by not that you HAD to to get similar results. I'm glad to see that Dutta found work though, less COBRA for UAL to pay. Guess he'll be your prob now . I see you think you have the best management team out there now. Just for a frame of reference, what was you opinion of Wolfe? Seems you thought he was a wonderful at one time didn't you?

Got a question for you Chip, you keep talking about our high A/C lease rates Which jets are leased at a high cost, and how much a month are those payments?
 
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chipmunn

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Busdrvr:

Busdrvr said: I see you think you have the best management team out there now. Just for a frame of reference, what was you opinion of Wolfe? Seems you thought he was a wonderful at one time didn't you?

Chip comments: Busdrvr, it appears you are putting words into my mouth and I never said the comments you made, but I'll now offer my opinion. I have gotten to know Stephen Wolf through the US Airways Ambassador program and being selected to publish articles for the company on the meetings with Wolf. I also have gotten to know Dave Siegel from two private meetings on our jump seat, other personal conversations, and at numerous employee meetings. By the way, why do seem to purposefully mispronounce Wolf’s name, which I believe is insulting ?

US Airways primary problem was created by Ed Colody who took three regional airlines and combined them to create the worlds highest cost and most unproductive work force in the industry. In my opinion Stephen Wolf was hired to solve this problem and had two choices: Acquire another airline or sell US Airways to average its high cost network and labor contracts onto a network carrier and use the revenue synergies to cover the higher costs. Wolf came close to first buying AA, spinning off Sabre and using the stock buy back to accomplish this goal. When this failed he auctioned US off to the highest bidder on May 24, 2000 to US, because as Rick Dubinsky said AMR was waiting on the doorsteps with an offer for US. Wolf has a proven M&A track record and he almost sold the company for a premium.

In regard to Siegel, in six short months the man has accomplished what Seth Schofield and Stephen Wolf could not do. Bring down US Airways CASM to competitive levels and develop a business plan to not only compete, but to eventually thrive in today's marketplace. Siegel and his new management team are brash, bright, people-oriented, and highly motivated individuals who are quickly becoming very respected within the industry.

In fact, I have been told by a reliable source one of the reasons the ATSB provided unanimous support for the US loan guarantee application was the Board believes in Siegel.

After emerging from Chapter 11, US will become a real jewel because of reduced labor costs, rationalized fleet, and focus on regional routes, Bronner said before the fund reached the agreement with the airline. Bronner noted US is a better investment for the $24 billion Alabama Pension Fund than the stock or bond markets.

Busdrvr asked: Got a question for you Chip, you keep talking about our high A/C lease rates Which jets are leased at a high cost, and how much a month are those payments?

Chip answers: US will not disclose specific details, but Siegel told me that some of the US B-737s have above market lease rates between $270,000 to $250,000 per month due to FOMC interest rates in the 80's that averaged about 11 percent. Today the lease rate is about 5.5 percent and the company has a one-time Chapter 11 opportunity to ask the court to reject those high cost leases and Siegel has said he can replace those aircraft with a used A-320 for about $100,000 per month. Chris Chimes, US vice president of corporate communications said the company will exceed its pre-bankruptcy target of $200 to $300 in creditor, vendor, and lessor concessions, which bode well for final federal loan guarantee approval.

The company has received permission to return 67 aircraft to the lessors and further asked Judge Mitchell to reject up to 150 additional leases despite strong objections from 18 firms that financed those purchases. It was revealed in court today US had resolved 16 of those objections through negotiation with the parties and Mitchell said he would rule on the other two as soon as possible. A 60-day deadline that makes it easier for US to dispose of aircraft leases expires Wednesday, October 9.

In regard to the RSA deal, David Bronner said the pension fund debt holdings is backed by F-100s, B-737s and B767s. Bronner said he expects US to retire the Fokker aircraft and keep flying the Boeing planes and he will accept the new market lease rates on these aircraft, which is obviously good news for the company and its employees.

Chip
 
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chipmunn

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Busdrvr:

You seem awfully defensive. What's your point?

I simply report facts that are told to me from a variety of inside and outside sources and if I state my opinion I clearly identify that intention.

Chip
 

Busdrvr

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[blockquote]
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On 9/26/2002 10:13:44 PM chipmunn wrote:

By the way, why do seem to purposefully mispronounce Wolf’s name, which I believe is insulting ?

Wolfe is pronounced Wolf You seem to think I mean Wolfie. One of my best friends spelled his surname Wolfe I apologize for the error.

Chip answers: US will not disclose specific details, but Siegel told me that some of the US B-737s have above market lease rates between $270,000 to $250,000 per month due to FOMC interest rates in the 80's that averaged about 11 percent. Today the lease rate is about 5.5 percent

So what you are saying is you are merely speculating that UAL has high lease rates on it's 737s. Are you aware of the length of the leases? Do you know what the agreement for the disposition of the A/C at the end of the leases is? UAL just picked up a few of the -500s off lease. I'd assume the term wouldn't be that long. The 300s average about 13 YO and the -500s are on average 10 YO.


In regard to the RSA deal, David Bronner said the pension fund debt holdings is backed by F-100s, B-737s and B767s. Bronner said he expects US to retire the Fokker aircraft and keep flying the Boeing planes and he will accept the new market lease rates on these aircraft, which is obviously good news for the company and its employees.

And good news for the folks who trusted you enough to lease you the jets in the first place




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