US Airways Strategic Analysis - April 30, 2005
On Friday US Airways reported a first quarter net loss of $191 million ($3.48 a share), but the airline beat the consensus for a loss of $218 million ($4.22), estimated from a survey conducted by Thomson Financial.
See Complete Story
Key selected financial results include:
-- The mainline cost per available seat mile (CASM), excluding fuel and unusual items, of 8.46 cents for the first quarter 2004 was a 15.6 percent decrease over the same period in 2004.
-- On March 31 the company reported it had total cash position of $1.28 billion and restricted cash was $766 million. Unrestricted cash increased in March by $108.5 million to $514 million.
-- $75 million of the unrestricted cash increase was obtained on March 1 when US Airways drew down $75 of $125 million of the unique Air Wisconsin DIP/equity financing. In addition, the company can draw on another $25 million from the Air Wisconsin facility after March 31 and the other $25 million upon bankruptcy emergence.
-- The cost of aviation fuel per gallon increased from $0.994 to $1.472. Fuel expense was 48.1% over the previous year from $233 million in the year-ago quarter to $368 million.
-- It appears the company had a $19 million operating profit in March. The January and February operating loss was $134.4 million and $85.7 million, respectively, and for the quarter the operating loss was $201 million, thus it appears the company had a $19.1 million operating profit in March.
-- Year-over-year total cash dropped from $1.64 to $1.28 billion or $360 million and unrestricted cash dropped from $978 million to $766 million or $212 million.
-- The mainline passenger load factor remains strong for the first quarter and was up 3.0 percentage points to 73.2 percent.
First quarter selected network carrier and LCC RASM, CASM, and RASM/CASM Difference Comparison
Airline RASM CASM RASM/CASM DIFFERENCE
America West 8.48 7.68 +.80
Southwest 8.22 7.70 +.52
JetBlue 7.24 6.74 +.50
AirTran 8.32 8.90 -.58
American 8.96 9.80 -.84
US Airways 9.91 10.8 -.89
Continental 8.98 10.56 -1.58
Northwest 8.94 10.97 -2.03
Delta 9.63 12.16 -2.58
Note (1) – RASM & CASM equal revenue and costs per available seat mile in cents.
Note (2) – United Airlines has not yet reported its first quarter results.
Source: Airline Reports
US Airways continues to suffer from decreased revenue, rising fuel prices, and costs that still remain too high. On Friday one airline analyst reported business fare levels across the industry decreased by 37 percent year-over-year and there was a staggering 48% increase in the cost of fuel, which has increased US Airways’ fuel expense by about $500 million per year since last summer.
“It’s the hellacious competition and the environment that exists in the Northeast (that is hurting US Airways),†said airline analyst Robert Mann.
US Airways is now focusing on further reducing its costs that are too high. According to Bruce Lakefield, “(the company is) intensely focused on managing our costs and looking for ways to improve the efficiency of our operation,†because modest increases in ticket prices have not been enough to offset record high fuel prices.
Cost cut initiatives to further reduce expenses include:
-- The company has begun closing its Pittsburgh Reservations Sales Office and consolidating domestic call center operations in Winston-Salem and opening offshore reservations facilities.
-- Closing some Pittsburgh, Winston-Salem and Charlotte maintenance shops and overhaul facilities. A330, B767, and B757 heavy maintenance will be outsourced. B737 overhaul will be moved to Charlotte and A320 overhaul will be brought in-house to Pittsburgh.
-- With the virtual elimination of the Utility work force, non-hub and focus city Fleet Service Agent outsourcing, Customer Service Agent “buy outsâ€, Mechanic layoffs, and Flight Attendant “buy outs†and retirements, US Airways will shrink its workforce by about 3,200 employees. For example, AFA MEC president Teddy Xidas told the Pittsburgh Tribune Review on April 25 that “500 US Airways flight attendants to go on voluntary furlough this year, in addition to 470 who will be retiring this year.†All of these employees have been replaced by vendors or productivity improvements, but are either still on the payroll with 15 weeks severance pay, they have lump sum payments due, or are awaiting separation. These one-time expenses will actually raise employee costs in the near-term with both furloughed/severed and vendor employee costs now being incurred. In a few months, this expense will begin to moderate and by the end of the year the company will begin to see dramatic savings in this area.
-- US Airways will continue to adjust its fleet plan and reduce aircraft ownership expenses with the removal of aircraft, which all were scheduled for expensive maintenance. In May twelve aircraft will leave the fleet, which include eleven B737s and one A319. Then in June, July, and August, one A319 will leave the fleet per month. In September US Airways will remove three A319s, which will be the last aircraft retired this year.
-- In 2006 the company will remove ten B737s and in 2007 5 B737s from service. All of the mainline fleet reductions have been required by GECAS as a condition of the financiers’ continued support of US Airways’ restructuring.
-- Overall, the return of eleven 2005 B737 aircraft in May aircraft will result in a net reduction of only 14 flights systemwide compared to the February 2005 schedule, and the discontinuation of service to two destinations, as most service will be replaced with regional jets or by increased utilization of the mainline existing fleet. Even with the May 2005 capacity adjustments, systemwide available seat miles (ASMs) are expected to increase between 4 and 6 percent year-over-year.
-- US Airways will realize IT savings from its new contracts and other initiatives such as Pilot Distance Learning on the hub, the Flight Attendant Electronic Trip Trade Board, intense fuel conservation programs, Kiosk and Internet booking initiatives, and non-rev listings on the hub, which will further cut cots.
-- US Airways has negotiated new “fee for service†contracts with Air Wisconsin and Republic/Chautauqua Airlines to lower US Airways’ unit costs. According to Friday’s Dow Jones Newswire report, Republic Airways Holdings Inc. (RJET) said Thursday that its Chautauqua Airlines unit agreed to operate regional jets at a lower cost to US Airways under an amended agreement. Republic Airways, whose units provide connecting flights for major airlines, said the amended agreement also gives US Airways the right to terminate service for up 15 regional jet aircraft under certain circumstances. US Airways, however, can't terminate more than two aircraft in a month, according to Republic Air's filing with the Securities and Exchange Commission. Chautauqua Air also has the right to terminate service for a specific number of aircraft, up to 15, under some circumstances, according to the filing. In addition, the amendments extended the term of the services agreement by one year to March 2013, according to the filing. The amended services agreement also amended Chautauqua's existing code-share agreement with US Airways, the company said.
-- US Airways is currently in discussion with its other affiliate carriers to lower their “fee for service†contracts, but no final deals have been announced. The other affiliate carriers include Mesa, Trans States, Air Midwest, and Colgan. US Airways must either affirm, reject, or negotiate new terms with these carriers before the company can file its business plan, disclosure statement, and plan of reorganization (POR) with the bankruptcy court.
US Airways’ next focus to further lower unit costs is to improve operational efficiency to return its operation to industry leading standards. For April the airline is seeing improved results.
-- On April 26 US Airways reported the Shuttle was busy this weekend, especially in Washington and New York, where a large percentage of customers originated their travel. On Friday, April 22, the LaGuardia markets reached an 89.1 percent load factor, while Washington markets posted an 84.3 percent load factor. On Saturday, Washington customers traveling to Boston filled 99.1 percent of seats available, and the LaGuardia load factor for Shuttle topped 92 percent. Yesterday, the Shuttle’s load factor was once again led by the Washington-Boston market, which operated at 97.5 percent of seat capacity. Sunday’s LaGuardia departures had a 93.8 percent load factor. Shuttle’s departure completion factor also was strong throughout the weekend, with 100 percent completion days on Friday and Saturday, and 73 of the 77 scheduled departures completed on Sunday.
Source: thehub.usairways.com
-- On April 27 US Airways reported its operated 99.9 percent of its flights yesterday, canceling just one flight. US Airways also was above goal with 73.1 percent of all flights departing on time (S:00) and 84.1 percent leaving the gate within five minutes of scheduled departure (S:05). We hit our arrival goal on the nose, with 84 percent of all flights arriving within 14 minutes of scheduled arrival time (S:14). MidAtlantic also had a good day, with 100 percent of its departures completed yesterday. This marks 13 days during the month of April on which MidAtlantic has operated all of its flights.
Source: thehub.usairways.com
-- On April 28 US airways reported it set an operational record for 2005 on Tuesday, with 93.2 percent of our flights leaving the gate within five minutes (S:05) of scheduled departure time. Our hub and focus cities’ employees played a large role in this success, with Charlotte and Pittsburgh operating 100 percent of their departures at S:05. LaGuardia and Philadelphia reported 93.7 percent and 93.6 percent at S:05, respectively. Philadelphia’s performance in this area was the best day on record in 2005 for the station. April 26 also was the fifth time this month that Charlotte had 100 percent S:05 departure performance for first bank flights, and it was the fourth time for Pittsburgh.
Source: thehub.usairways.com
On Tuesday the company will take another big step when it launches its new on time initiative called “All Together On Timeâ€. Soon thereafter the company will introduce an employee incentive program based on “on Time Performance.â€
With all this effort, it’s still unclear if the company can survive because of the uncertainty of energy prices. However, the good news is that energy prices are moderating lead by a steep drop in crude oil prices.
On Friday Crude Oil Futures traded as low as $49.20 per barrel down $2.57 or about 5 percent and then closed down $2.05 at $49.72 per barrel for the June contract. This is the first closing price below $50 per barrel in about two months.
In my opinion, with the Futures price dropping below the key psychological support level of $50 there could be a market sentiment shift to “bearishâ€. Moreover, the security had significant technical damage, which could also lead to lower prices as speculators and technical analysts lock in profits.
Fundamentals seem to support lower prices too, and I believe we could see crude oil futures drop to about $45 per barrel in the not-so-distant future.
See Chart
Note: click onto the chart to expand the presentation.
To ensure the network survives US Airways has entered into discussion with America West Airlines. It’s unclear if a deal will proceed, but last week US Airways’ chairman David Bronner told the AP the two companies have entered into merger discussions. Then on Friday, April 23 America West issued a press release confirming a “potential merger†discussions were talking place.
See Press Release
Meanwhile, US Airways simultaneously issued a curious press release with a different take and said the two companies were holding discussions about a “strategic transaction.â€
See Press Release
What is interesting is that Bronner and America West both indicated the parties were holding merger discussions, but US Airways said the two companies were discussing a “strategic transaction.†Thus, why the different verbiage and what could it mean?
News media reports indicate the companies could merge and if a deal is struck the US Airways brad, identity, paint scheme and word mark would survive and the airline would be run by America West chief executive officer Doug Parker and executive vice president of operations Jeff McClelland from the airline’s Tempe headquarters.
Meanwhile, late last week a report surfaced in the Toronto Star that A Wall Street source said yesterday that Air Canada may be in talks with both U.S. Airways and America West in a deal that may see Air Canada take on international traffic with the U.S. Airways-America West concern handling domestic U.S. traffic. Robert Milton, chairman of ACE Aviation Holdings Inc., the Montreal parent company of Air Canada said, "Consolidation in the North American industry is inevitable. To the extent Air Canada is or isn't part of that is yet to be determined."
See Complete Story
It’s unclear if Air Canada is in active talks with US Airways and America West, but that might explain why US Airways described the M&A talks as a “strategic transaction.â€
Also noteworthy, today the Arizona Republic noted Air Canada's chairman didn't rule out a possible merger for the airline on a conference call, the newspaper reported, but he seemed to be commenting on its role in industry consolidation in general. The discussion was a footnote in a story about the airline's $6 billion order for Boeing jets this week. The airlines are not strangers to each other.
Air Canada and US Airways are both members of the same airline alliance, the Star Alliance, a network of airlines that feed passengers to each other globally.
See Complete Story
Separately, another link between the three companies is the Seabury Group and John Luth who has been used by all three airlines for investment banking during their formal reorganizations; as well as GECAS, who is the largest US Airways and America West creditor. GECAS also helped Air Canada with its bankruptcy financing and holds a large number of the Canadian airline’s aircraft leases.
The Arizona Republic also noted on the America West side there's a Texas Pacific Group (TPG) connection. The private equity firm brought America West out of bankruptcy a decade ago and, together with Air Canada, invested in Continental Airlines to bring it out of bankruptcy in 1993. TPG made an offer to be US Airways’ Debtor-in-possession financier and equity investor during the Arlington-based company’s first bankruptcy, but was outbid by the Retirement Systems of Alabama (RSA).
See Complete Story
According to the Arizona newspaper TPG has cooled its interest in investing in U.S. airlines for now, but that could change.
The newspaper said, TPG still owns a controlling interest in America West and is seen as a key player in any merger. The extent of its role is unclear. Rick Schifter, managing partner of TPG, wouldn't comment at an airline conference in Phoenix this week. But his overall comments on industry consolidation seemed to suggest that the airline is lukewarm on any further investments at this point. He said the industry is "still sucking wind" because the success of low-cost carriers have brought about dramatic change in the rest of the industry. "That gives us some pause as we look at the industry today," he said.
He also said the firm, a legendary bargain hunter, doesn't see a lot of steals out there because there is so much capital chasing few deals. That drives prices up.
He said they continue to keep an eye on the industry, "but we're fairly cautious at this stage."
See Complete Story
It appears from the column above that TPG may not be interested in investing in industry consolidation at this time.
Of particular interest was Schifter's comment that there is so much capital out there that it would drive prices up, which is consistent with US Airways' comments that the airline is holding talks on an equity investment with a number of interested parties.
It appears that US Airways complex bankruptcy emergence and final negotiations on its equity investment(s) and corporate transaction(s) is taking longer than expected. The company had a GECAS deadline of the end of April to file its POR, but it has missed that deadline. Separately, during its last Omnibus hearing US Airways obtained bankruptcy court approval to extend the exclusive period to file the POR until May 31, 2005.
Reuters reported yesterday US Airways has delayed filing a new business plan while it talks to potential investors. An agreement between the carrier and GE, its biggest aircraft lessor and largest creditor, for the company to file a reorganization plan by Saturday will not be met. That deadline has been extended previously and the two are discussing a timeline but no new date has been set. US Airways has until May 31 to file a plan with a Virginia bankruptcy judge without competition from third parties.
See Complete Story
According to Bloomberg News, 'We're in discussions (with US Airways) on the timing of the plan of reorganization,'' Eric Jones, a GE spokesman, said Friday.
See Complete Story
Thus, it appears US Airways and GECAS are in agreement to extend the date to file the POR, but due to complex on-going negotiations, the financier and the airline are unsure of a date to file the POR. It is expected a POR filing date will be announced in the not-so-distant future once final agreements are reached and the parties financial and legal advisors complete the documents.
Finally, in this weeks code-a-phone message recorded yesterday that can be heard at 800-873-2459 (800-US-DAILY), prompt 4, US Airways chief executive Bruce Lakefield said, the company will implement a new corporate theme titled “Never Underestimate the Power of US.†In addition, Lakefield said, “(he is) optimistic about our future and I am even more optimistic in the role you (the employees) will play in the future.â€
Regards,
USA320Pilot
On Friday US Airways reported a first quarter net loss of $191 million ($3.48 a share), but the airline beat the consensus for a loss of $218 million ($4.22), estimated from a survey conducted by Thomson Financial.
See Complete Story
Key selected financial results include:
-- The mainline cost per available seat mile (CASM), excluding fuel and unusual items, of 8.46 cents for the first quarter 2004 was a 15.6 percent decrease over the same period in 2004.
-- On March 31 the company reported it had total cash position of $1.28 billion and restricted cash was $766 million. Unrestricted cash increased in March by $108.5 million to $514 million.
-- $75 million of the unrestricted cash increase was obtained on March 1 when US Airways drew down $75 of $125 million of the unique Air Wisconsin DIP/equity financing. In addition, the company can draw on another $25 million from the Air Wisconsin facility after March 31 and the other $25 million upon bankruptcy emergence.
-- The cost of aviation fuel per gallon increased from $0.994 to $1.472. Fuel expense was 48.1% over the previous year from $233 million in the year-ago quarter to $368 million.
-- It appears the company had a $19 million operating profit in March. The January and February operating loss was $134.4 million and $85.7 million, respectively, and for the quarter the operating loss was $201 million, thus it appears the company had a $19.1 million operating profit in March.
-- Year-over-year total cash dropped from $1.64 to $1.28 billion or $360 million and unrestricted cash dropped from $978 million to $766 million or $212 million.
-- The mainline passenger load factor remains strong for the first quarter and was up 3.0 percentage points to 73.2 percent.
First quarter selected network carrier and LCC RASM, CASM, and RASM/CASM Difference Comparison
Airline RASM CASM RASM/CASM DIFFERENCE
America West 8.48 7.68 +.80
Southwest 8.22 7.70 +.52
JetBlue 7.24 6.74 +.50
AirTran 8.32 8.90 -.58
American 8.96 9.80 -.84
US Airways 9.91 10.8 -.89
Continental 8.98 10.56 -1.58
Northwest 8.94 10.97 -2.03
Delta 9.63 12.16 -2.58
Note (1) – RASM & CASM equal revenue and costs per available seat mile in cents.
Note (2) – United Airlines has not yet reported its first quarter results.
Source: Airline Reports
US Airways continues to suffer from decreased revenue, rising fuel prices, and costs that still remain too high. On Friday one airline analyst reported business fare levels across the industry decreased by 37 percent year-over-year and there was a staggering 48% increase in the cost of fuel, which has increased US Airways’ fuel expense by about $500 million per year since last summer.
“It’s the hellacious competition and the environment that exists in the Northeast (that is hurting US Airways),†said airline analyst Robert Mann.
US Airways is now focusing on further reducing its costs that are too high. According to Bruce Lakefield, “(the company is) intensely focused on managing our costs and looking for ways to improve the efficiency of our operation,†because modest increases in ticket prices have not been enough to offset record high fuel prices.
Cost cut initiatives to further reduce expenses include:
-- The company has begun closing its Pittsburgh Reservations Sales Office and consolidating domestic call center operations in Winston-Salem and opening offshore reservations facilities.
-- Closing some Pittsburgh, Winston-Salem and Charlotte maintenance shops and overhaul facilities. A330, B767, and B757 heavy maintenance will be outsourced. B737 overhaul will be moved to Charlotte and A320 overhaul will be brought in-house to Pittsburgh.
-- With the virtual elimination of the Utility work force, non-hub and focus city Fleet Service Agent outsourcing, Customer Service Agent “buy outsâ€, Mechanic layoffs, and Flight Attendant “buy outs†and retirements, US Airways will shrink its workforce by about 3,200 employees. For example, AFA MEC president Teddy Xidas told the Pittsburgh Tribune Review on April 25 that “500 US Airways flight attendants to go on voluntary furlough this year, in addition to 470 who will be retiring this year.†All of these employees have been replaced by vendors or productivity improvements, but are either still on the payroll with 15 weeks severance pay, they have lump sum payments due, or are awaiting separation. These one-time expenses will actually raise employee costs in the near-term with both furloughed/severed and vendor employee costs now being incurred. In a few months, this expense will begin to moderate and by the end of the year the company will begin to see dramatic savings in this area.
-- US Airways will continue to adjust its fleet plan and reduce aircraft ownership expenses with the removal of aircraft, which all were scheduled for expensive maintenance. In May twelve aircraft will leave the fleet, which include eleven B737s and one A319. Then in June, July, and August, one A319 will leave the fleet per month. In September US Airways will remove three A319s, which will be the last aircraft retired this year.
-- In 2006 the company will remove ten B737s and in 2007 5 B737s from service. All of the mainline fleet reductions have been required by GECAS as a condition of the financiers’ continued support of US Airways’ restructuring.
-- Overall, the return of eleven 2005 B737 aircraft in May aircraft will result in a net reduction of only 14 flights systemwide compared to the February 2005 schedule, and the discontinuation of service to two destinations, as most service will be replaced with regional jets or by increased utilization of the mainline existing fleet. Even with the May 2005 capacity adjustments, systemwide available seat miles (ASMs) are expected to increase between 4 and 6 percent year-over-year.
-- US Airways will realize IT savings from its new contracts and other initiatives such as Pilot Distance Learning on the hub, the Flight Attendant Electronic Trip Trade Board, intense fuel conservation programs, Kiosk and Internet booking initiatives, and non-rev listings on the hub, which will further cut cots.
-- US Airways has negotiated new “fee for service†contracts with Air Wisconsin and Republic/Chautauqua Airlines to lower US Airways’ unit costs. According to Friday’s Dow Jones Newswire report, Republic Airways Holdings Inc. (RJET) said Thursday that its Chautauqua Airlines unit agreed to operate regional jets at a lower cost to US Airways under an amended agreement. Republic Airways, whose units provide connecting flights for major airlines, said the amended agreement also gives US Airways the right to terminate service for up 15 regional jet aircraft under certain circumstances. US Airways, however, can't terminate more than two aircraft in a month, according to Republic Air's filing with the Securities and Exchange Commission. Chautauqua Air also has the right to terminate service for a specific number of aircraft, up to 15, under some circumstances, according to the filing. In addition, the amendments extended the term of the services agreement by one year to March 2013, according to the filing. The amended services agreement also amended Chautauqua's existing code-share agreement with US Airways, the company said.
-- US Airways is currently in discussion with its other affiliate carriers to lower their “fee for service†contracts, but no final deals have been announced. The other affiliate carriers include Mesa, Trans States, Air Midwest, and Colgan. US Airways must either affirm, reject, or negotiate new terms with these carriers before the company can file its business plan, disclosure statement, and plan of reorganization (POR) with the bankruptcy court.
US Airways’ next focus to further lower unit costs is to improve operational efficiency to return its operation to industry leading standards. For April the airline is seeing improved results.
-- On April 26 US Airways reported the Shuttle was busy this weekend, especially in Washington and New York, where a large percentage of customers originated their travel. On Friday, April 22, the LaGuardia markets reached an 89.1 percent load factor, while Washington markets posted an 84.3 percent load factor. On Saturday, Washington customers traveling to Boston filled 99.1 percent of seats available, and the LaGuardia load factor for Shuttle topped 92 percent. Yesterday, the Shuttle’s load factor was once again led by the Washington-Boston market, which operated at 97.5 percent of seat capacity. Sunday’s LaGuardia departures had a 93.8 percent load factor. Shuttle’s departure completion factor also was strong throughout the weekend, with 100 percent completion days on Friday and Saturday, and 73 of the 77 scheduled departures completed on Sunday.
Source: thehub.usairways.com
-- On April 27 US Airways reported its operated 99.9 percent of its flights yesterday, canceling just one flight. US Airways also was above goal with 73.1 percent of all flights departing on time (S:00) and 84.1 percent leaving the gate within five minutes of scheduled departure (S:05). We hit our arrival goal on the nose, with 84 percent of all flights arriving within 14 minutes of scheduled arrival time (S:14). MidAtlantic also had a good day, with 100 percent of its departures completed yesterday. This marks 13 days during the month of April on which MidAtlantic has operated all of its flights.
Source: thehub.usairways.com
-- On April 28 US airways reported it set an operational record for 2005 on Tuesday, with 93.2 percent of our flights leaving the gate within five minutes (S:05) of scheduled departure time. Our hub and focus cities’ employees played a large role in this success, with Charlotte and Pittsburgh operating 100 percent of their departures at S:05. LaGuardia and Philadelphia reported 93.7 percent and 93.6 percent at S:05, respectively. Philadelphia’s performance in this area was the best day on record in 2005 for the station. April 26 also was the fifth time this month that Charlotte had 100 percent S:05 departure performance for first bank flights, and it was the fourth time for Pittsburgh.
Source: thehub.usairways.com
On Tuesday the company will take another big step when it launches its new on time initiative called “All Together On Timeâ€. Soon thereafter the company will introduce an employee incentive program based on “on Time Performance.â€
With all this effort, it’s still unclear if the company can survive because of the uncertainty of energy prices. However, the good news is that energy prices are moderating lead by a steep drop in crude oil prices.
On Friday Crude Oil Futures traded as low as $49.20 per barrel down $2.57 or about 5 percent and then closed down $2.05 at $49.72 per barrel for the June contract. This is the first closing price below $50 per barrel in about two months.
In my opinion, with the Futures price dropping below the key psychological support level of $50 there could be a market sentiment shift to “bearishâ€. Moreover, the security had significant technical damage, which could also lead to lower prices as speculators and technical analysts lock in profits.
Fundamentals seem to support lower prices too, and I believe we could see crude oil futures drop to about $45 per barrel in the not-so-distant future.
See Chart
Note: click onto the chart to expand the presentation.
To ensure the network survives US Airways has entered into discussion with America West Airlines. It’s unclear if a deal will proceed, but last week US Airways’ chairman David Bronner told the AP the two companies have entered into merger discussions. Then on Friday, April 23 America West issued a press release confirming a “potential merger†discussions were talking place.
See Press Release
Meanwhile, US Airways simultaneously issued a curious press release with a different take and said the two companies were holding discussions about a “strategic transaction.â€
See Press Release
What is interesting is that Bronner and America West both indicated the parties were holding merger discussions, but US Airways said the two companies were discussing a “strategic transaction.†Thus, why the different verbiage and what could it mean?
News media reports indicate the companies could merge and if a deal is struck the US Airways brad, identity, paint scheme and word mark would survive and the airline would be run by America West chief executive officer Doug Parker and executive vice president of operations Jeff McClelland from the airline’s Tempe headquarters.
Meanwhile, late last week a report surfaced in the Toronto Star that A Wall Street source said yesterday that Air Canada may be in talks with both U.S. Airways and America West in a deal that may see Air Canada take on international traffic with the U.S. Airways-America West concern handling domestic U.S. traffic. Robert Milton, chairman of ACE Aviation Holdings Inc., the Montreal parent company of Air Canada said, "Consolidation in the North American industry is inevitable. To the extent Air Canada is or isn't part of that is yet to be determined."
See Complete Story
It’s unclear if Air Canada is in active talks with US Airways and America West, but that might explain why US Airways described the M&A talks as a “strategic transaction.â€
Also noteworthy, today the Arizona Republic noted Air Canada's chairman didn't rule out a possible merger for the airline on a conference call, the newspaper reported, but he seemed to be commenting on its role in industry consolidation in general. The discussion was a footnote in a story about the airline's $6 billion order for Boeing jets this week. The airlines are not strangers to each other.
Air Canada and US Airways are both members of the same airline alliance, the Star Alliance, a network of airlines that feed passengers to each other globally.
See Complete Story
Separately, another link between the three companies is the Seabury Group and John Luth who has been used by all three airlines for investment banking during their formal reorganizations; as well as GECAS, who is the largest US Airways and America West creditor. GECAS also helped Air Canada with its bankruptcy financing and holds a large number of the Canadian airline’s aircraft leases.
The Arizona Republic also noted on the America West side there's a Texas Pacific Group (TPG) connection. The private equity firm brought America West out of bankruptcy a decade ago and, together with Air Canada, invested in Continental Airlines to bring it out of bankruptcy in 1993. TPG made an offer to be US Airways’ Debtor-in-possession financier and equity investor during the Arlington-based company’s first bankruptcy, but was outbid by the Retirement Systems of Alabama (RSA).
See Complete Story
According to the Arizona newspaper TPG has cooled its interest in investing in U.S. airlines for now, but that could change.
The newspaper said, TPG still owns a controlling interest in America West and is seen as a key player in any merger. The extent of its role is unclear. Rick Schifter, managing partner of TPG, wouldn't comment at an airline conference in Phoenix this week. But his overall comments on industry consolidation seemed to suggest that the airline is lukewarm on any further investments at this point. He said the industry is "still sucking wind" because the success of low-cost carriers have brought about dramatic change in the rest of the industry. "That gives us some pause as we look at the industry today," he said.
He also said the firm, a legendary bargain hunter, doesn't see a lot of steals out there because there is so much capital chasing few deals. That drives prices up.
He said they continue to keep an eye on the industry, "but we're fairly cautious at this stage."
See Complete Story
It appears from the column above that TPG may not be interested in investing in industry consolidation at this time.
Of particular interest was Schifter's comment that there is so much capital out there that it would drive prices up, which is consistent with US Airways' comments that the airline is holding talks on an equity investment with a number of interested parties.
It appears that US Airways complex bankruptcy emergence and final negotiations on its equity investment(s) and corporate transaction(s) is taking longer than expected. The company had a GECAS deadline of the end of April to file its POR, but it has missed that deadline. Separately, during its last Omnibus hearing US Airways obtained bankruptcy court approval to extend the exclusive period to file the POR until May 31, 2005.
Reuters reported yesterday US Airways has delayed filing a new business plan while it talks to potential investors. An agreement between the carrier and GE, its biggest aircraft lessor and largest creditor, for the company to file a reorganization plan by Saturday will not be met. That deadline has been extended previously and the two are discussing a timeline but no new date has been set. US Airways has until May 31 to file a plan with a Virginia bankruptcy judge without competition from third parties.
See Complete Story
According to Bloomberg News, 'We're in discussions (with US Airways) on the timing of the plan of reorganization,'' Eric Jones, a GE spokesman, said Friday.
See Complete Story
Thus, it appears US Airways and GECAS are in agreement to extend the date to file the POR, but due to complex on-going negotiations, the financier and the airline are unsure of a date to file the POR. It is expected a POR filing date will be announced in the not-so-distant future once final agreements are reached and the parties financial and legal advisors complete the documents.
Finally, in this weeks code-a-phone message recorded yesterday that can be heard at 800-873-2459 (800-US-DAILY), prompt 4, US Airways chief executive Bruce Lakefield said, the company will implement a new corporate theme titled “Never Underestimate the Power of US.†In addition, Lakefield said, “(he is) optimistic about our future and I am even more optimistic in the role you (the employees) will play in the future.â€
Regards,
USA320Pilot
