Us Airways Searches For Cash
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USA320Pilot
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Funguy2:
With the successful resolution of the United – Air Wisconsin “fee for departure†arrangement and their new tentative agreement, US Airways can now move forward to finalize its disclosure statement and plan of reorganization (POR). Senior management continues to hold active discussions with multiple parties interested in providing further equity investment(s); as well as discussions regarding different potential corporate combinations. This should not come as a surprise because different management teams have held active M&A discussions with a number of potential suitors since the 80s.
It is still unclear to senior management how this will unfold because there are multiple parties involved in the discussions, including Mesa, TSA, and other interested investors, although I understand the POR is becoming more “in focusâ€. In fact, despite reports suggesting Mesa is no longer a US Airways player because of the Republic and Air Wisconsin deals, Mesa CEO Jonathan Ornstein is still in discussion with the US Airways “executive suite†to help return the Arlington-based airline to profitability. Mesa’s risk remains high because the regional airline obtains about 40% of its revenue from US Airways. Moreover, Mesa has a vested interest in America West’s success with nearly 50% of its revenue coming form the Phoenix-based company.
Meanwhile, there have been additional reports during the past week that US Airways and America West are holding corporate combination discussions. Last February Pittsburgh Post-Gazette Staff Writer Dan Fitzpatrick wrote a column titled “Piecing together the US Airways puzzle - US Airways could become a mosaic of carriers as the airline seeks money, partners for post-bankruptcy world.†Fitzpatrick commented on potential deals for the Arlington-based company specifically siting United Airlines, America West, Virgin America, and US Airways’ affiliate carriers.
See Story
Then last Friday J.P. Morgan airline analyst Jamie Baker fueled the latest round of rumors in a research note to investors when he referred to "early speculation" about a proposed "linkage" between America West and US Airways. Following Baker’s report, last Saturday the Arizona Republic wrote a column on a potential corporate combination, followed by a similar story in today's Post-Gazette, with even more reports surfacing today on CNN’s Headline News.
In my opinion, a US Airways and America West combination is not possible without a third party willing to provide enough money to carry the relationship forward during the integration in light of current energy prices. Both US Airways and America West have financial problems and Baker noted the Phoenix-based carrier’s cash could fall as low as $60 million, a dangerous level, by the end of the year.
For more information on this weeks news media reports click onto the following hyperlinks:
US Airways, AmWest deal?
See Story
Talk about America West, US Airways link heats up
See Story
Meanwhile, I believe it’s interesting to take a look at the carrier’s combined mainline fleet, route networks, and then discuss a potential major flaw in the potential combination.
US Airways and America West combined mainline fleet:
See Story
Note: The US Airways fleet plan is based on the year end 2007 fleet count of two hundred forty five mainline jets, which includes the reduction of ten A319s from February through September 2005, eleven B737s in May 2005, and fifteen B737s in 2006/2007. US Airways had an order for ten A330, thirteen A321, and six A320 deliveries in 2008 through 2010. It’s unclear whether or not the Airbus agreement will be affirmed, adjusted, or cancelled through the bankruptcy process.
US Airways Route Network
America West Route Network
According to US Airways’ marketing and planning department, a US Airways and America West corporate combination would have difficulties because the two companies operate East and West Coast operations, with little in-between. US Airways tried this type of merger in 1988 and failed. Current management now believes a large part of the PSA – US Airways failure was due to not having a hub located between the Midwest and the Continental divide. This is a key reason why a merger between US Airways and United is attractive because of the Chicago-based company’s Denver hub. For example, United’s EF&A Department believed the last merger attempt between the alliance partner would have transferred $1.9 billion in revenue to the combined business entity, but that was prior to September 11, dramatic LCC expansion and revenue deterioration. It’s unfair to judge the benefits of a US Airways-United merger and try to compare them to US Airways-America West, but the point is a hub located between US Airways’ and America West’s operations is very important.
By merging the US Airways and America West operations, the systems would be linked by transcontinental flights that already have high load factors and some of the poorest domestic yields in the industry. These flights would not generate much additional incremental revenue because of a lack of a fully integrated hub network and current transcontinental flight fundamentals. US Airways’ management believes the combination would require a hub east of the continental divide and west of US Airways’ principal operations, which would add 3 to 4 connecting opportunities for each passenger trip. Thus, this would require adding another piece to the puzzle to create an industry revenue shift to the new business enterprise, with the only viable option to “fill in†the US Airways-America West void Frontier Airlines.
Frontier currently operates a fleet of forty-four aircraft including thirty-seven A319s and seven A318s, which would be compatible with the combined business entity three-way fleet plan. When viewing the Frontier network and adding it to US Airways and America West’s network(s), it’s easy to see why a Denver hub would be important to the combined business enterprise.
Frontier Route Network
However, US Airways has tried a complex three-way merger and failed. This type of deal is difficult to implement and in today’s environment it could prove to be catastrophic.
With that said, I believe industry consolidation will occur and third party capital will likely drive M&A activity, whether it’s between US Airways and America West or other carrier’s.
Separately, UAL CEO Glenn Tilton continues to publicly comment on the merits of industry consolidation. Thus, United Airlines and US Airways could once again attempt a merger, however, both companies need to stabilize their finances and probably emerge from bankruptcy before a deal can proceed. United has a number of obstacles to overcome before it can exit its formal reorganization, which complicates the matter, per the following article:
See Story
Meanwhile, it’s my understanding that Lufthansa is interested in being an equity investor in its Star Alliance partners, but may only invest if it can have controlling interest in a U.S. carrier, which is now prevented by U.S. law. Either way, for United and US Airways to combine it would require a third party investor because both companies are basically “ financially brokeâ€.
In conclusion, US Airways senior management is being very quiet regarding unfolding discussions, which leads me to believe the company has “rounded third and is heading home†in its quest to finalize its disclosure statement and POR. I personally do not expect any major carrier to liquidate in the near-term and I believe troubled airlines will continue "limping along" while fuel prices continue to drop to more manageable levels, capacity is incrementally reduced, and the inevitable industry consolidation occurs.
Best regards,
USA320Pilot
With the successful resolution of the United – Air Wisconsin “fee for departure†arrangement and their new tentative agreement, US Airways can now move forward to finalize its disclosure statement and plan of reorganization (POR). Senior management continues to hold active discussions with multiple parties interested in providing further equity investment(s); as well as discussions regarding different potential corporate combinations. This should not come as a surprise because different management teams have held active M&A discussions with a number of potential suitors since the 80s.
It is still unclear to senior management how this will unfold because there are multiple parties involved in the discussions, including Mesa, TSA, and other interested investors, although I understand the POR is becoming more “in focusâ€. In fact, despite reports suggesting Mesa is no longer a US Airways player because of the Republic and Air Wisconsin deals, Mesa CEO Jonathan Ornstein is still in discussion with the US Airways “executive suite†to help return the Arlington-based airline to profitability. Mesa’s risk remains high because the regional airline obtains about 40% of its revenue from US Airways. Moreover, Mesa has a vested interest in America West’s success with nearly 50% of its revenue coming form the Phoenix-based company.
Meanwhile, there have been additional reports during the past week that US Airways and America West are holding corporate combination discussions. Last February Pittsburgh Post-Gazette Staff Writer Dan Fitzpatrick wrote a column titled “Piecing together the US Airways puzzle - US Airways could become a mosaic of carriers as the airline seeks money, partners for post-bankruptcy world.†Fitzpatrick commented on potential deals for the Arlington-based company specifically siting United Airlines, America West, Virgin America, and US Airways’ affiliate carriers.
See Story
Then last Friday J.P. Morgan airline analyst Jamie Baker fueled the latest round of rumors in a research note to investors when he referred to "early speculation" about a proposed "linkage" between America West and US Airways. Following Baker’s report, last Saturday the Arizona Republic wrote a column on a potential corporate combination, followed by a similar story in today's Post-Gazette, with even more reports surfacing today on CNN’s Headline News.
In my opinion, a US Airways and America West combination is not possible without a third party willing to provide enough money to carry the relationship forward during the integration in light of current energy prices. Both US Airways and America West have financial problems and Baker noted the Phoenix-based carrier’s cash could fall as low as $60 million, a dangerous level, by the end of the year.
For more information on this weeks news media reports click onto the following hyperlinks:
US Airways, AmWest deal?
See Story
Talk about America West, US Airways link heats up
See Story
Meanwhile, I believe it’s interesting to take a look at the carrier’s combined mainline fleet, route networks, and then discuss a potential major flaw in the potential combination.
US Airways and America West combined mainline fleet:
See Story
Note: The US Airways fleet plan is based on the year end 2007 fleet count of two hundred forty five mainline jets, which includes the reduction of ten A319s from February through September 2005, eleven B737s in May 2005, and fifteen B737s in 2006/2007. US Airways had an order for ten A330, thirteen A321, and six A320 deliveries in 2008 through 2010. It’s unclear whether or not the Airbus agreement will be affirmed, adjusted, or cancelled through the bankruptcy process.
US Airways Route Network
America West Route Network
According to US Airways’ marketing and planning department, a US Airways and America West corporate combination would have difficulties because the two companies operate East and West Coast operations, with little in-between. US Airways tried this type of merger in 1988 and failed. Current management now believes a large part of the PSA – US Airways failure was due to not having a hub located between the Midwest and the Continental divide. This is a key reason why a merger between US Airways and United is attractive because of the Chicago-based company’s Denver hub. For example, United’s EF&A Department believed the last merger attempt between the alliance partner would have transferred $1.9 billion in revenue to the combined business entity, but that was prior to September 11, dramatic LCC expansion and revenue deterioration. It’s unfair to judge the benefits of a US Airways-United merger and try to compare them to US Airways-America West, but the point is a hub located between US Airways’ and America West’s operations is very important.
By merging the US Airways and America West operations, the systems would be linked by transcontinental flights that already have high load factors and some of the poorest domestic yields in the industry. These flights would not generate much additional incremental revenue because of a lack of a fully integrated hub network and current transcontinental flight fundamentals. US Airways’ management believes the combination would require a hub east of the continental divide and west of US Airways’ principal operations, which would add 3 to 4 connecting opportunities for each passenger trip. Thus, this would require adding another piece to the puzzle to create an industry revenue shift to the new business enterprise, with the only viable option to “fill in†the US Airways-America West void Frontier Airlines.
Frontier currently operates a fleet of forty-four aircraft including thirty-seven A319s and seven A318s, which would be compatible with the combined business entity three-way fleet plan. When viewing the Frontier network and adding it to US Airways and America West’s network(s), it’s easy to see why a Denver hub would be important to the combined business enterprise.
Frontier Route Network
However, US Airways has tried a complex three-way merger and failed. This type of deal is difficult to implement and in today’s environment it could prove to be catastrophic.
With that said, I believe industry consolidation will occur and third party capital will likely drive M&A activity, whether it’s between US Airways and America West or other carrier’s.
Separately, UAL CEO Glenn Tilton continues to publicly comment on the merits of industry consolidation. Thus, United Airlines and US Airways could once again attempt a merger, however, both companies need to stabilize their finances and probably emerge from bankruptcy before a deal can proceed. United has a number of obstacles to overcome before it can exit its formal reorganization, which complicates the matter, per the following article:
See Story
Meanwhile, it’s my understanding that Lufthansa is interested in being an equity investor in its Star Alliance partners, but may only invest if it can have controlling interest in a U.S. carrier, which is now prevented by U.S. law. Either way, for United and US Airways to combine it would require a third party investor because both companies are basically “ financially brokeâ€.
In conclusion, US Airways senior management is being very quiet regarding unfolding discussions, which leads me to believe the company has “rounded third and is heading home†in its quest to finalize its disclosure statement and POR. I personally do not expect any major carrier to liquidate in the near-term and I believe troubled airlines will continue "limping along" while fuel prices continue to drop to more manageable levels, capacity is incrementally reduced, and the inevitable industry consolidation occurs.
Best regards,
USA320Pilot
TransatlanticFlyGuy
Advanced
Please o please! If this ever does happen, take all the planes flying out west and slap a BIG BLACK SMILE on them! People still remember PSA and the fact that PSA was the original low cost airline. How WN say that they were I will never know.I think this might be the worst nightmare for WN, having a merged US/HP in their PHX backyard, with a HUGE presence in the US,Caribbean and Europe. Hmm. This is very interesting indeed. Cant wait to see how it all plays out. PHL,CLT,PHX,LAS,DCA,LGA,BOS and FLL as hubs/rolling hubs/focus cities! Very impressive!
Travelpro72
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With HP's cash possibly as low as $60million by year end, BK could be around the corner for them too. All the talk of US is true, we are on life support and have been for some time. Others are not that well either. IMO HP with a third party can not swallow what we have. Through all the bs we OBVIOUSLY have what alot want. It's anybody's guess as to what will happen. Numbers, plans, ideas, all specs. Nobody knows and nobody WILL know until you read it in the paper. It's so crazy really. My team will beat YOUR team. It's like two kids playing with trucks in the sandbox. We are all but numbers being shifted around. Regardless of what your airlines name or colors the quality of the job still has been ruined.
I was waiting to see how long it would take for Frontier to work into the merger discussions. Unfortunately...unless US Airways is able to adopt the mood and business culture at HP and F9 - they would be stupid to get involved. Plus what would you rather see on tv? That yellow haired guy or the talking tails? I'll take Larry, Griz, and the other critters talking about flying in your underwear over that other guy. 🙂
Light Years said:
Since we're all playing what if (what else can we do here?) I think bringing back the SunKing and the National name would be a great look for a modern day LCC especially if HP and US did get together. I know National wasnt an LCC (there werent too many around back then), but the SUNKING logo and a brightly colored look would help out the image (US and whomever we might end up with). National is no more and neither is Southeast who purchased the SunKing logo so have at them.
I am not good with graphics, but put the SunKing logo on top of a (PSA) smile with NATIONAL (in dark blue) under the smile and you have instant recongnition for all corporate property. Of couse the smile on the plane would be under the nose and the SunKing on the tail could be stand alone on a dark blue tail. Keep the plane white or silver ( I actually like the NWA color silver on their planes) That would stand out bigtime. Anyone with spare time and good graphics skills want to take a stab at it?
Travelpro72
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US Airways being broken up and picked at like roadkill by a crow is doubtful. That is the wish of so many. We at US although not proud in any means by this poor excuse for management, have something that everyone wants. HP or any other is in no shape to take on anyone right now. All carriers should fix the mess they have of their own before trying to merge two messes together. Even if this were to happen, nobody and I mean NOBODY would know how it would pan out. As for attitudes of f/a's at HP versus US I think ya all have a short memory of how it was there at good ol' America West and ya ain't out of the woods yet. Lets, as employee peeons, just sit back and see where it goes. More than likely nowhere.
USA320Pilot said:
1. In all of that garbage, you have still not accounted for your lack of being able to tell us first... After, one of your favorite expressions is, "Who first told you..." Well, it wasn't you. Where were your super secret top management sources?
2. America West is not PSA!
PSA Routemap, 1987
America West's current Route Map
A careful inspection of the attached links would show that America West has a rather significant transcontinental route structure. Furthermore, it will show that America West serves approximately 45 destinations further East than ABQ and furhter South than SJD. Furthermore, I seem to recall that America West is a big player in the California to NE market, due to their hubs and pricing structure. This is a market US Airways has not penetrated significantly. Neither has Frontier.
As for weak transcon yields, possibly a problem, but AWA seems to do ok with it. IIRC, they had a profitable year in either 2002 or 2003... and discussed a string of profitable quarters.
I think you are overestimating the importance of a mid-continent hub. A combined US-HP would be able to effectively serve all the places in the middle of the country via hubs at PHL, CLT, PHX, LAS. For example, a combined company would be able to offer better service to DFW, MCI, IAH, MEM, IND, STL, ORD, MKE, MSP, etc because the combined company would be able to serve 2 coasts, not just 1.
Lastly, the top 2 growth cities in the USA are LAS and PHX. That means there is a natural growth pattern for the major airlines that serve these cities... As opposed to trying to gouge passengers from a hub where the population is declineing, for example.
3. DEN is only marginally better situated geographically... HP has done ok over the years by building its hubs in LAS and PHX. The flexibility of the Airbus aircraft has helped HP tremendously by being able to go from PHX/LAS nonstop to the east coast without the capacity of a 757. Notice that their CMH hub was marginalized as the Airbus fleet grew, and eventually terminated.
Furthermore, a three-way merger would create 2 western hubs too many. PHX and LAS are already duplicative, and presumably only works because LAS is more of a destination than a connections point (which is more than can be said for PIT/PHL). I will note that there are only 4 destinations served by Frontier that AWA does not serve: LIT, RSW, TUL, and CAK. Those four destinations are not a compelling reason to me to add Frontier to the mix.
4. Lastly, whatever happens is not very likely to be determined by US Airways. IIRC, US Airways preferred a relationship with TPG during BK#1, but RSA bid higher and that was that.
5. Oh, and I forgot to mention... other than gaining a presence in the competitive East Coast market, no body has given a compelling argument for why AWA would get involved. Obviously, if a merged HP-US is run the same way as US is currently run, HP would be best to not participate in any US reorganization.
6. Oh, another thing... Maybe Mesa/Orenstein has not made an investment in US Airways because the best assets for Mesa have already been sold to Republic. If Mesa feels they can place their US Airways jets somewhere else, why bother investing in US Airways with high risk and little reward (as opposed to the Republic deal, which I increasingly think is a very good deal for Republic... what are the chances of US Airways being in business in 2006 and having the ability to repurchase the slots? Less than 50-50 in my opinion).
CLT-Douglas
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America West + US Airways = America Airways? I vote they should put a red and blue "A" on the tail and make it a bare metal based paint scheme.
RowUnderDCA
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Ok, here's the big, super-secret master plan:
Three-way.... America East Airways (U), America West Airways and United Airways (or Airlines). With United/Star as a support service/ground service company.
All of this transitions to:
US becomes the new 737/EMB division, HP becomes the A320/19 division (maybe TED) and UAL becomes the big boeing division, United/Star becomes the sales, reservation, booking, ground handling airport presence. NW and Airbus work a deal to transition U's airbuses to NW, United and HP transition their 73's to U, UAL transitions its Airbuses to HP and both HP and US transition their 75 and 76s to UAL.
UAL takes over U's transatlantic with parked or leased widebodies as the A330s go to NW.
The US division becomes the locus for transitioning new narrowbody aircraft into the fleet. EMBs and then Airbuses or next generation Boeings.
Three-way.... America East Airways (U), America West Airways and United Airways (or Airlines). With United/Star as a support service/ground service company.
All of this transitions to:
US becomes the new 737/EMB division, HP becomes the A320/19 division (maybe TED) and UAL becomes the big boeing division, United/Star becomes the sales, reservation, booking, ground handling airport presence. NW and Airbus work a deal to transition U's airbuses to NW, United and HP transition their 73's to U, UAL transitions its Airbuses to HP and both HP and US transition their 75 and 76s to UAL.
UAL takes over U's transatlantic with parked or leased widebodies as the A330s go to NW.
The US division becomes the locus for transitioning new narrowbody aircraft into the fleet. EMBs and then Airbuses or next generation Boeings.
I know. As I said in my response. If U goes up for sale in parts I don't think HP would be able to get much. U is worth much more carved up. The other legacy carriers would pay more if they don't have to deal with employees and seniority issues. HP can have the whole pie but to get it cheap your gonna have to deal with employees. As things go with U now it doesn't look like we are going to have to sell off any parts for the short term. I think everyone knows that U is not going to go it alone for the long term. Someone is going to buy U sooner or later. If U comes up with the last 100 million I think you will see some transaction very quickly. HP could probably get all of U for 300 million but if you wait for the company to split up (if that ever happens and I don't think it will) you will pay that for 10 gates in LGA. In the end I bet this turns out in a way no one has thought of yet.hp_fa said:
If America West is so broke, they obviously don't know it. They have been hiring like crazy!!!!!!!!!! I have alot of friends that work there now. They gave up at U and they went to work for America West. They are all happy. 🙂 Just talked to one of them and they have not heard a whole lot about a merger between the two. Last year the U's AFA were nosing around in PHX to see what there contracts were about. Now the pay is very similar. <_<
