Yesterday in its monthly operating report filed with the SEC and the bankruptcy court US Airways reported:
A net Loss in February of $119.2 million, a result that included $8.2 million in reorganization expenses, and an operating loss of $85.7 million.
The operating loss was an improvement of $48.7 million from the January operating loss $134.4 million.
Monthly operating revenue rose in February to $506 million, up from $478.4 million the month before.
During January and February, US Airways had large aircraft rental payments of $36.1 million that were anticipated and have been included in its business plan.
The company’s current assets as of February 28 include:
-- Cash and cash equivalents - $405,534 million
-- Restricted cash - $111,817 million
-- Receivables, net - $305,400 million
-- Materials and supplies, net - $165,504 million
-- Prepaid expenses and other - $171,362 million
-- Total Current Assets - $1,159,617 million
The drop in cash left the airline with about $406 million in cash on hand at the end of February -- compared with $543 million at the end of January.
SEC 8K report (March 30, 2005)
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According to US Airways’ chief financial officer Ron Stanley in a March 2 interview, "we’ve have actually been pretty good at hitting our (ATSB) cash forecasts. On Tuesday (March 1), we drew down $75 million from the Air Wisconsin agreement, but even without those funds, we would have been above the ATSB minimum requirement. (Note - another $25 million of the Air Wisconsin financing becomes available today -- March 31 -- from the initial draw down and $25 million more becomes available on approval of the disclosure statement for the total financing of $125 million). With the twin devils of weak revenue and high fuel prices, having a cash cushion in excess of $100 million over the ATSB covenants is a comfort," Stanley said.
What’s important to note is the Eastshore/Air Wisconsin agreement brought immediate cash at the lowest point in the company’s cash cycle as the airline climbs out of the slow winter season.
Much of US Airways’ restructuring savings has yet to be realized and in fact the new labor agreements in some areas have increased costs. For example, the IAM mechanic and utility layoffs did not occur until the end of February and these employees are receiving severance pay, while the airline also pays contractors for outsourced work.
In addition, there are many cost cuts yet or just being realized such as:
-- The removal of 8 more A319s and 11 B737s that will be returned to the lessors. The company’s published fleet plan will remove five more A319s in July through September, which will reduce the mainline fleet from 281 to 260 aircraft. Also noteworthy, for pilot manning purposes bid 05-02A reflected 265 aircraft, with five A319 reductions left for the remaining 2005 bids that will run from July through December 2005.
-- The 11 B737s to be removed from service in May have monthly lease payments of about $85,000 and have upcoming heavy maintenance required that would equal an amount of $750,000 each.
-- The May schedule will pull down more unprofitable flying.
-- Full labor costs savings are yet to be achieved and there will be significant incremental savings.
-- Facility closure savings from the closure of some Pittsburgh hangars, Airport Clubs, Pittsburgh Reservations Facility, Baggage Call Center, and other facilities.
The challenge for the airline is to create a plan that works for all stakeholders in the short-term (at current fuel prices) where the airline remains viable while continuing to build the longer term plan that converts the company to a low cost business model.
Meanwhile, increases in industry wide PRASM are coming slower than needed to meet projections and the company is still recovering from the earlier predictions that US Airways we would be out of business in January. The passenger booking fear is being removed, passenger confidence has returned, and the company is seeing record load factors as it works off the January fare sales.
On a positive note, May and June bookings and revenue are ahead of projections and eventually increased PRASM, continued cost efficiencies, and reduction of unprofitable flying will all help return the company to profitability at today’s costs and fuel prices.
In the short-term, I understand the company has identified about 75% of the additional cost cuts and/or increased revenue necessary to put into the Disclosure Statement and the Plan of Reorganization (for both near and long-term profitability) due to current fuel prices. I am surprised and encouraged at how far the company has come to close the profitability gap created by increasing fuel prices, but more needs to be done to survive. I believe the airline will need to cut costs and/or increase revenue more, or see a moderation of fuel prices down to about $50 per barrel, before the final POR can be submitted. Without another 10% to 15% reduction in current energy prices, US Airways could see some more pain in the not-to-distant future that will be required to survive.
Separately, a key point in the company’s survival will be to get the operation back on track and regain customer confidence, which is now being actively addressed and which is something every employee should focus on.
Thus, where does the company go from here?
US Airways needs to find further solutions to high fuel prices and needs more equity. Therefore, I believe the airline will file a "placeholder" POR on or before April 15 to meet the GE requirement. The company needs to close the "Fuel Delta Gap" to complete the operating plan and have all of the equity pieces in place, before the final POR can be submitted. US Airways continues to hold active discussions with other equity investors and a key element of these discussions are the Air Wisconsin-United, Mesa-United, Air Wisconsin-US Airways, Mesa-US Airways, TSA-US Airways, and private equity-US Airways talks. Thus, it’s easy to see how a "placeholder POR" will be filed, which is a plan that is quite common for companies, especially those with complex formal reorganizations, which in US Airways’ case is compounded by soaring fuel prices.
US Airways current problem is fairly simple: it’s fuel prices, which is jeopardizing its business plan. Thus, increased liquidity and exit financing from the Air Wisconsin deal, the Republic deal, and the need to sell MDA and 137 East Coast commuter slots appears necessary for survival. However, the Air Wisconsin deal now has a new wrinkle.
United Airlines unsecured creditors want Air Wisconsin to pay back $90 it has received from its "fee for service contract". The creditors have filed a motion asking the bankruptcy court to bar Air Wisconsin from using the money if United rejects its "fee for service contract" with the Appleton-based carrier, which could effect Air Wisconsin’s agreement with US Airways. A hearing on the matter is scheduled for April 22, but by that time US Airways will have received $100 of the $125 million it has negotiated from Air Wisconsin.
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Finally, it would not surprise me to see another complex financing deal cut that includes the sale of PSA and Piedmont and like the Republic deal, these potential agreements will also require approval of the ATSB. Interestingly, if MDA, PSA, and Piedmont are sold the proceeds would used to bolster the balance sheet and/or pay down the loan guarantee. Also noteworthy, these potential deals would remove the final nail in the coffin of the last United – US Airways merger attempt because the United AFA scope clause provision regarding United flying being conducted by non-United AFA seniority based flight attendants would be eliminated.
For more important news regarding today's Omnibus bankruptcy hearing and US Airways bankruptcy information click here and then click on "Rumor Control" and "Daily Airline News".
Regards,
USA320Pilot
A net Loss in February of $119.2 million, a result that included $8.2 million in reorganization expenses, and an operating loss of $85.7 million.
The operating loss was an improvement of $48.7 million from the January operating loss $134.4 million.
Monthly operating revenue rose in February to $506 million, up from $478.4 million the month before.
During January and February, US Airways had large aircraft rental payments of $36.1 million that were anticipated and have been included in its business plan.
The company’s current assets as of February 28 include:
-- Cash and cash equivalents - $405,534 million
-- Restricted cash - $111,817 million
-- Receivables, net - $305,400 million
-- Materials and supplies, net - $165,504 million
-- Prepaid expenses and other - $171,362 million
-- Total Current Assets - $1,159,617 million
The drop in cash left the airline with about $406 million in cash on hand at the end of February -- compared with $543 million at the end of January.
SEC 8K report (March 30, 2005)
See Story
According to US Airways’ chief financial officer Ron Stanley in a March 2 interview, "we’ve have actually been pretty good at hitting our (ATSB) cash forecasts. On Tuesday (March 1), we drew down $75 million from the Air Wisconsin agreement, but even without those funds, we would have been above the ATSB minimum requirement. (Note - another $25 million of the Air Wisconsin financing becomes available today -- March 31 -- from the initial draw down and $25 million more becomes available on approval of the disclosure statement for the total financing of $125 million). With the twin devils of weak revenue and high fuel prices, having a cash cushion in excess of $100 million over the ATSB covenants is a comfort," Stanley said.
What’s important to note is the Eastshore/Air Wisconsin agreement brought immediate cash at the lowest point in the company’s cash cycle as the airline climbs out of the slow winter season.
Much of US Airways’ restructuring savings has yet to be realized and in fact the new labor agreements in some areas have increased costs. For example, the IAM mechanic and utility layoffs did not occur until the end of February and these employees are receiving severance pay, while the airline also pays contractors for outsourced work.
In addition, there are many cost cuts yet or just being realized such as:
-- The removal of 8 more A319s and 11 B737s that will be returned to the lessors. The company’s published fleet plan will remove five more A319s in July through September, which will reduce the mainline fleet from 281 to 260 aircraft. Also noteworthy, for pilot manning purposes bid 05-02A reflected 265 aircraft, with five A319 reductions left for the remaining 2005 bids that will run from July through December 2005.
-- The 11 B737s to be removed from service in May have monthly lease payments of about $85,000 and have upcoming heavy maintenance required that would equal an amount of $750,000 each.
-- The May schedule will pull down more unprofitable flying.
-- Full labor costs savings are yet to be achieved and there will be significant incremental savings.
-- Facility closure savings from the closure of some Pittsburgh hangars, Airport Clubs, Pittsburgh Reservations Facility, Baggage Call Center, and other facilities.
The challenge for the airline is to create a plan that works for all stakeholders in the short-term (at current fuel prices) where the airline remains viable while continuing to build the longer term plan that converts the company to a low cost business model.
Meanwhile, increases in industry wide PRASM are coming slower than needed to meet projections and the company is still recovering from the earlier predictions that US Airways we would be out of business in January. The passenger booking fear is being removed, passenger confidence has returned, and the company is seeing record load factors as it works off the January fare sales.
On a positive note, May and June bookings and revenue are ahead of projections and eventually increased PRASM, continued cost efficiencies, and reduction of unprofitable flying will all help return the company to profitability at today’s costs and fuel prices.
In the short-term, I understand the company has identified about 75% of the additional cost cuts and/or increased revenue necessary to put into the Disclosure Statement and the Plan of Reorganization (for both near and long-term profitability) due to current fuel prices. I am surprised and encouraged at how far the company has come to close the profitability gap created by increasing fuel prices, but more needs to be done to survive. I believe the airline will need to cut costs and/or increase revenue more, or see a moderation of fuel prices down to about $50 per barrel, before the final POR can be submitted. Without another 10% to 15% reduction in current energy prices, US Airways could see some more pain in the not-to-distant future that will be required to survive.
Separately, a key point in the company’s survival will be to get the operation back on track and regain customer confidence, which is now being actively addressed and which is something every employee should focus on.
Thus, where does the company go from here?
US Airways needs to find further solutions to high fuel prices and needs more equity. Therefore, I believe the airline will file a "placeholder" POR on or before April 15 to meet the GE requirement. The company needs to close the "Fuel Delta Gap" to complete the operating plan and have all of the equity pieces in place, before the final POR can be submitted. US Airways continues to hold active discussions with other equity investors and a key element of these discussions are the Air Wisconsin-United, Mesa-United, Air Wisconsin-US Airways, Mesa-US Airways, TSA-US Airways, and private equity-US Airways talks. Thus, it’s easy to see how a "placeholder POR" will be filed, which is a plan that is quite common for companies, especially those with complex formal reorganizations, which in US Airways’ case is compounded by soaring fuel prices.
US Airways current problem is fairly simple: it’s fuel prices, which is jeopardizing its business plan. Thus, increased liquidity and exit financing from the Air Wisconsin deal, the Republic deal, and the need to sell MDA and 137 East Coast commuter slots appears necessary for survival. However, the Air Wisconsin deal now has a new wrinkle.
United Airlines unsecured creditors want Air Wisconsin to pay back $90 it has received from its "fee for service contract". The creditors have filed a motion asking the bankruptcy court to bar Air Wisconsin from using the money if United rejects its "fee for service contract" with the Appleton-based carrier, which could effect Air Wisconsin’s agreement with US Airways. A hearing on the matter is scheduled for April 22, but by that time US Airways will have received $100 of the $125 million it has negotiated from Air Wisconsin.
See Story
Finally, it would not surprise me to see another complex financing deal cut that includes the sale of PSA and Piedmont and like the Republic deal, these potential agreements will also require approval of the ATSB. Interestingly, if MDA, PSA, and Piedmont are sold the proceeds would used to bolster the balance sheet and/or pay down the loan guarantee. Also noteworthy, these potential deals would remove the final nail in the coffin of the last United – US Airways merger attempt because the United AFA scope clause provision regarding United flying being conducted by non-United AFA seniority based flight attendants would be eliminated.
For more important news regarding today's Omnibus bankruptcy hearing and US Airways bankruptcy information click here and then click on "Rumor Control" and "Daily Airline News".
Regards,
USA320Pilot
