Us Airways Strategic Analysis

[BoeingBoy]

-- 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.

[post="259577"][/post]​

I didn't want to address this without digging in the BK filings to verify my memory.

One of three things is happening here:

1 - Whoever told you that was at best wrong.

2 - Whoever told you that was talking about the average monthly cost for the 11 airplanes. If this is the case, some very cheap airplanes are going to be returned to the leasors.

3 - We're going to lose more than 11 737's soon.

Why? Because the 4 737's identified by tail number for rejection are costing $110,000 per month in "basic rent" each according to BK filings.

Regards

Jim

 

[funguy2]

-- 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.

...
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.

On the first point, it is my understanding that airlines generally have to return aircraft to lessors in similar condition as to when they recieved it. This often includes some amount of heavy MX prior to return, paid for by the airline. In fact, I have known airlines in cash crunches who have opted not to return airplanes due to these type of lease contract provisions. Perhaps BK laws afford a way around this, I don't know. But, USA320Pilot implies that the airline WILL save the cost of the heavy MX, which may or may not be true.

On the second point... Let's just look at how much success ATA had in selling their wholly owned turbo-prop unit as a whole operating airline. I beleive it had none, shut it down, and is auctioning off what is left. What does that tell you of the potential market for selling Piedmont?

Lastly, US Airways was granted a further extention to May 31 today. This seems to indicate that it cannot complete equity financing by April 15th. How many missed equity financing deadlines does this make now? This, and the fact that all of the financing parties involves thus far either sink or swim with US Airways, seems to indicate to me how the financial markets view US Airways.

 

[funguy2]

The increase in operating revenue in Feb. compared to January is encouraging since Feb is 3 days shorter. Isn't Feb usually the worst month of the year in terms of revenue?

[post="259603"][/post]​

Well... January, being right after the holidays, is a lower demand period as well. I think it would be more telling to compare YOY revenue... But we'll get to do that at the end of the quarter.

 

[FWAAA]

On the first point, it is my understanding that airlines generally have to return aircraft to lessors in similar condition as to when they recieved it. This often includes some amount of heavy MX prior to return, paid for by the airline. In fact, I have known airlines in cash crunches who have opted not to return airplanes due to these type of lease contract provisions. Perhaps BK laws afford a way around this, I don't know. But, USA320Pilot implies that the airline WILL save the cost of the heavy MX, which may or may not be true.

[post="259684"][/post]​

I agree with your take on it (and, oddly enough with USA320Pilot). In Ch 11, if the debtor chooses to reject the lease, it is released from all the obligations of that lease, including any requirement to return the property in similar condition.

"Here's the keys" is all that's required.

 

[700UW]

Not exactly true, ask any of the mechanics who had to do all the engine changes.

The engines that came with the plane must be put back on. It occured on all the planes that were lease abrogated in the 1st chapter 11 case.

 

[whlinder]

Whlinder:

I do not understand your question? Can you be more specific?

I'm getting ready to go to work and if you are more specific, I will answer your question late tonight.

Regards,

USA320Pilot

[post="259665"][/post]​

You said that US Airways "is still recovering from the earlier predictions that the carrier would be out of business in January."

I assume that this means passengers are booking away. Yet March 18-20th US Airways had 3 consecutive days with 90% systemwide load factors for the first time ever. If passengers are booking away and the company is still recovering from the predictions that it wouldn't be around in January, how is the airline setting load factor records?

 

[FWAAA]

Not exactly true, ask any of the mechanics who had to do all the engine changes.

The engines that came with the plane must be put back on. It occured on all the planes that were lease abrogated in the 1st chapter 11 case.

[post="259693"][/post]​

I agree. I was not clear.

Given that any different engines (other than the originals) are probably (definitely) collateral for someone else's loan, of course you have to return the airplane with the correct parts, including the engines attached when you leased that airplane.

My point was that you don't have to overhaul anything - you just have to give it back.

 

[mweiss]

When you owe everyone more than you have in the bank that is called "NO CASH".. Its a numbers game.. Simple as that.

To quote someone really close to you, "This proves how dumb you really are." When you owe more than you have in the bank, that is called "negative net worth," not "no cash." "No cash" is the condition one has when the balance on cash accounts reads zero.

 

[funguy2]

FWAAA: I guess thats is an advantage of BK then. Thanks for the info.

 

[javaboy]

One more note on fuel....

It's just rough numbers, but assuming that March fuel usage is the same per day as Feb and using the average spot price of fuel thru Mar 25, it looks like fuel cost for March will be about $20 million more than Feb.

Although, as they say - "Your actual fuel milage may vary."

Jim

[post="259588"][/post]​

just wondering, if 20mill more in fuel, and lets say 100,000 pax per day, means that for 6.45 per ticket (31 days) you could neutralize the increase in cost of fuel. for 10 dollars you could offset most of 2005s increase for 20.00 per passenger NOT PER SEGMENT but TOTAL TICKET. you would probably be in the black.


oh no we can't raise prices(think mgmt talking here) 0 people will fly on US. Indulge me for a month if you will, since the FLL hub is a "chance taken" nice a bold step, lets try something, anything. well try it again. up prices 10-20 bucks across the board and keep it there for 30 days. then if less TOTAL revenue comes in then i submit it would have been a bad idea and promise never to bring it up again. However if as i suspect (since the famous starbucks theory has been used in the past) people will pay more in some cases for some products even though they can get cheaper elsewhere... starbucks case in point they raised their prices to pass along cost increases, REVENUE has not dropped off, even though you could go to a local MickeyDs and buy coffee 1. in more places 2. at a much cheaper price, people still stand inline to buy starbucks.

Not at all disagreeing with Boeing boy here, but just seemed like the best post to quote pertaining to fuel prices.

 

[mweiss]

javaboy,

While I agree with you in principle, I'd like to extend your Starbucks analogy. If Starbucks kept reducing the quality of their product in order to reduce the cost of their product in order to compete against McDonalds, they'd find themselves no longer able to charge the premium against McDonalds.

It gets worse when Starbucks has to buy really cheap robusto beans while McDonalds continues to serve moderate grade arabica.

I submit that the analogy extension is indicative of the current environment.

 

[eolesen]

US's recovery plan is a house of cards waiting to collapse....

Until the Republic/MDA pilot contract issue is solved, or the AirWisc/UAL $90M issue is resolved, it's unlikely that anyone else is going to be ponying up to the bar for the remaining $100M investment.

Bronner's already lost his initial investment. Why lose more?

Mesa has had a month to put in an investment bid, but all the good assets to attach to went with the Republic bid.

ATA couldn't sell off Chicago Express, so the notion of selling off Piedmont or any of the other wholly owned turboprop operations is really nothing more an empty bag.

 

[justaumechanic]

Not exactly true, ask any of the mechanics who had to do all the engine changes.

The engines that came with the plane must be put back on. It occured on all the planes that were lease abrogated in the 1st chapter 11 case.

[post="259693"][/post]​

Having done many an engine change on lease return aircraft I will agree with 700UW on this..

Keep something in mind.. In the last Chapter 11 new leases were put together for the majority of the fleet.. In those leases there were protections built in for the leasing companies.. So yes they get to walk away but US Airways still has certain obligations on the condition of the aircraft..

These can include engine condition, Landing gear time limits, Avionics upgrades etc etc..

It is pretty complicated.. The leasing companies do come in and go over the aircraft pretty closely. They inspect all the components, verify the work packages for compliance and we have done full C checks on aircraft before they are returned as part of the lease return deal..

So they do get to walk away but there are some restrictions.. Not like the first time around.. In the first Chapter 11 we parked the aircraft in the desert and said ""here you go".. (after we changed the engines)

Engines and hard time items like gear, flight controls and APU are big lease return drivers. The overhaul is not a big deal. (especially is they get some low time engines and APU's)

 

[USA320Pilot]

According to US Airways executive vice president of finance and chief financial officer Ron Stanley, the eleven B737s to returned "are older, less fuel efficient planes that are facing newly mandated modifications. We estimated that the cost of additional upcoming maintenance for these aircraft would amount to about $750,000 each. Combine the cost with the fact that revenue continues to be weak, we made the decision that we would be better off by pulling out of these aircraft while in reorganization and to do it before incurring these maintenance costs."

Regards,

USA320Pilot

 

[USA320Pilot]

Whlinder:

USA320Pilot saidâ€￾ US Airways "is still recovering from the earlier predictions that the carrier would be out of business in January."

Whlinder asked: “I assume that this means passengers are booking away. Yet March 18-20th US Airways had 3 consecutive days with 90% systemwide load factors for the first time ever. If passengers are booking away and the company is still recovering from the predictions that it wouldn't be around in January, how is the airline setting load factor records?â€￾

USA320Pilot answers: Good question. US Airways carry’s revenue on the books for “good willâ€￾ bookings, which is revenue obtained today for flights in the future. During December and early January the company had a significant reduction in revenue (I cannot quote the number) due to lost “good willâ€￾ booking. To offset some of this lost revenue the company announced a couple of fare sales to immediately obtain revenue to comply with the ATSB loan guarantee requirements while it was negotiating the Eastshore agreement (DIP financing).

These passengers are now traveling and the planes are full, but the revenue for these passengers travelling this month is too low. Thus, the real answer to your question is not in load factor today, but reduced passenger revenue due to a loss of previous “good willâ€￾ passenger confidence.

The good news is that the consumer perception is the carrier will survive and fares have increased during the last month, although PRASM is coming in slower than desired.

Regards,

USA320Pilot