US' Alliance Partner: United CEO says airline faces critical week

[chipmunn]

[P][A href=http://biz.yahoo.com/rf/021021/airlines_united_1.html][FONT face=Times New Roman size=3]http://biz.yahoo.com/rf/021021/airlines_united_1.html[/FONT][/A][/P]
[P][FONT face=Times New Roman size=3]Chip comments: If UA does not immediately obtain restructuring agreements TA''s or commitments from the five unions to send out the company''s last offer to its membership for ratification, the UA board could decide during its October 23-24 meeting to file for a formal reorganization, which could occur by the end of this weekend.[/FONT][/P]
[P][FONT face=Times New Roman size=3]Chip [/FONT][/P]

 

[chipmunn]

[BR][BR][FONT face=Times New Roman size=3]Mike Boyd on US Airways' alliance partner...[/FONT][BR][BR][SPAN class=BodyFont][FONT face=Arial Black][EM][FONT color=#000080 size=4]A United Airlines Bankruptcy[BR][BIG]The Fallout Will Be Different Than The Academics Predict[/BIG][BR][/FONT][FONT color=#808080]There Is No Precedent To This One[/FONT][/EM][/FONT][BR][BR][FONT size=3][FONT face=Times New Roman][FONT color=#000000]It almost seems that some people really would like to see United go into Chapter 11. They view a UA bankruptcy as some sort of cleansing ritual that will improve the airline industry. Bring labor costs down. Reduce capacity. Bring rationality to the marketplace.[/FONT][BR][BR][FONT color=#000000]Yeech. These folks are latter-day descendants of that Dickens character - the French bimbo who brought her knitting along while she entertained herself watching the guillotine do its thing. It's seems the same with a potential UA bankruptcy. Seeing other people suffer can be fun for some. Knit-one, pearl-two, as they witness thousands of people having their economic lives snuffed out. Since it doesn't affect them, it's a show. Or so they think.[/FONT][BR][BR][FONT color=#000000]Write this down. If United goes Chapter the results will be very different from what these detached-from-reality academics are predicting. Economic gore will splatter in all directions. There will be nasty fallout for the airline industry, the airport industry, and the national economy in general. [/FONT][/FONT][/FONT][/SPAN][BR][BR][SPAN class=BodyFont][FONT size=3][FONT face=Times New Roman][FONT color=#0000ff][STRONG]No, It Won't Be Like Continental's Bankruptcy.[/STRONG][/FONT][FONT color=#000000] Or, for that matter US Airways', either. Those airlines had a plan when they went into Chapter 11. United hasn't had a clear direction for years. The last CEO squandered a couple hundred million on a merger that United later cancelled, and tossed maybe $50 million more into a mis-conceived business jet fiasco. As far as having a vision for United Airlines, Ray Charles could have done better.[/FONT][BR][BR][FONT color=#000000]The new CEO is, apparently, still in a learning curve. There are indications he's hired big-name outside companies to help him determine the extent of United's troubles. He's looking for ways cut more costs. He's engaged in efforts to gain the cooperation of United's (here's that dreaded word) stakeholders. [EM]All of which is exactly what United cannot afford right now.[/EM] It's out of time. If it has to hire outsiders to tell it what's wrong, the Fat Lady can start singing now. If a bankruptcy is filed, it won't be part of a clear plan to manipulate United out of the mess. Instead, it will be a last-ditch attempt to buy time and conserve cash. It will be another reaction. And United got into this mess by reacting. [/FONT][BR][BR][FONT color=#000000]Some people seem to think that Chapter 11 is just an action where United will clean up its balance sheet, bludgeon labor to a bloody and lower-paid pulp, and emerge lean and mean to the benefit of the entire industry. This, too, isn't necessarily so. Just filing bankruptcy does not get more $$ into the till. That's United's biggest problem. Not costs, but revenues. Chapter 11 does nada to bring in more revenues. So, if revenues don't increase, with or without filing Chapter, the fact is that United is dead. Gone. And, please, anybody who says that such an outcome would be good is full of canal water. [/FONT][BR][BR][FONT color=#000080][STRONG]The Outcomes of Bankruptcy[/STRONG][/FONT][BR][BR][FONT color=#000000]Let's look at how the aviation industry would be affected by a UA Chapter 11 filing.[/FONT][BR][BR][FONT color=#000000][STRONG]Aircraft Lessors[/STRONG]. A lot of financial institutions will find their aircraft collateral sinking faster than McCain doing one-liners on Saturday Night Live. United is already parking 747-400s as they come up for D-checks. Maybe a dozen are in the desert already, or on their way. In this environment, it's not very likely that all of these out-of-time behemoths will be picked up by other airlines. United isn't likely to pony up the cash to get them into heavy maintenance, either. The result is that the next time the public sees some of these planes, it will be in a Budweiser display at their local supermarket. The point is that these aircraft are ending their careers years early and their projected residual values are dropping into the tank. Big hits for the financial institutions and lessors who are holding the paper on these machines. Some may be wounded lethally. Outcome: when the industry begins to recover, the cost of financing new aircraft will be much higher, if they can find anybody wanting to take the risk. [/FONT][/FONT][/FONT][BR][BR][IMG height=396 alt=Denver1.gif (15197 bytes) hspace=15 src=http://www.aviationplanning.com/Denver1.gif width=424 align=right vspace=15][FONT face=Times New Roman][FONT size=3][FONT color=#000000][STRONG]Airport Financing.[/STRONG] United is a lynchpin supporting the financing of some airports. The bond houses that have foisted Denver International's bonds have made it clear that it's the health of UA on which that airport depends. United goes into Chapter, reduces flights, delays or halts payments, and Denver International will see its bond rating go into the ceramic fixture. As it stands, all of the airports where United has connecting hubs are projected to see traffic declines through 2004, according to Airports:USA, our annual forecast of enplanements. That alone is damaging. In a Chapter 11 situation, it could be a lot worse. But the damage goes well beyond SFO or DEN. A United bankruptcy would chill interest in virtually all airport financing, making it more expensive for airports across the nation to get the funding they need in the future. [/FONT][BR][BR][FONT color=#000000][STRONG]Regional Airlines.[/STRONG] We can expect to hear the usual suspects in the media trumpet how regional airlines will continue to prosper, even with a United bankruptcy. Wrong. Carriers operating as United Express, such as Skywest and ACA are tethered to the future of United. If it goes into bankruptcy, its regional partners will see their revenues hammered as well. If, as a doomsday scenario, United can't get out of Chapter and goes completely down, it will deal a near-lethal blow to its regional partners as well. You cannot find homes quickly for 40 to 60 CRJs.[/FONT][BR][BR][FONT color=#000000][STRONG]Air Service Levels[/STRONG]. If United cuts service to small or mid-size communities, there is no guarantee that there will be any replacement. The academics tell us that the elimination of capacity will be good. What they don't know is that the elimination will not be uniform, and it will affect cities that are by and large not over-served, and can ill-afford to lose any air service. [/FONT][BR][BR][FONT color=#000000]These are just the economic issues. There are human costs and human victims of a bankruptcy filing. The small vendors who can't make payroll when they find they're just unsecured creditors. Employees out of work (and there will be layoffs.) Small airports and other vendors finding that anything United paid them within 90 days of the filing the court wants back. The list goes on and on.[/FONT][BR][BR][STRONG][FONT color=#000080]Can United Avoid Bankruptcy?[/FONT][FONT color=#000000] [/STRONG]Six weeks ago, yes. Now, after the public has been spooked with all the media stories, maybe not. One thing to think about. Amid all the efforts to turn the airline around, it seems one United stakeholder is rarely mentioned, and clearly not much considered. But it's the one that really holds the future of United. The one that is being alienated. It's the [EM]customer[/EM], and the business travel customer in particular. Instead of seeking ways to increase the value perception of United, its management has instead almost gone out of their way to run these people off. Closing lounges for million-mile passengers, implementing dumb fare rules, assuring no waivers and favors. [/FONT][/FONT][/FONT][BR][BR][FONT face=Times New Roman][FONT size=3][FONT color=#000080][STRONG]The Solution's On The Other Side of The Balance Sheet. [/STRONG][/FONT][FONT color=#000000]What Glenn Tilton should have done by his third day in office was to start crafting a plan to assure that United would be the airline of choice everywhere it flies. A plan that tells employees that as a team, United was going to kick its competitors' tushies by giving passengers the perception of more, not less. Give them an airline that's easy to do business with. One that fully applies the skills and dedication of United's rank and file. Forget the instant-panacea crowd in the media, who oh, so confidently report that it's all labor's fault. That's trendy, shallow, and flat out misleading. Like we noted a few weeks ago, United's solution is [EM]not[/EM] at the bargaining table. It's at the ticket counter and in the cabins of its airplanes. [/FONT][BR][BR][FONT color=#000000]Unless United management starts to understands this, Chapter 11, and maybe worse, is a lead-pipe cinch.[/FONT][/FONT][/FONT][/SPAN]

 

[UAL777flyer]

I wonder if Mike Boyd has any quality sources at UA, because recent comments by Glenn Tilton indicate he is focusing on much of what Boyd mentioned in his article. It may not be getting much press, but that doesn't mean no attention is being paid to it.

 

[chipmunn]

[BR][FONT face=Times New Roman size=3]Mike Boyd said: There are indications he's hired (Tilton) big-name outside companies to help him determine the extent of United's troubles.[/FONT][BR][BR][FONT face=Times New Roman size=3]Chip comments: McKinsey Consulting is running the show.[/FONT][BR][BR][FONT face=Times New Roman size=3]Chip[/FONT]

 

[chipmunn]

[BR][FONT face=Times New Roman size=3]UAL777flyer:[/FONT][BR][BR][FONT face=Times New Roman size=3]UAL777flyer said: [SPAN class=BodyFont]I wonder if Mike Boyd has any quality sources at UA, because recent comments by Glenn Tilton indicate he is focusing on much of what Boyd mentioned in his article. It may not be getting much press, but that doesn't mean no attention is being paid to it.[/SPAN][/FONT][BR][BR][FONT face=Times New Roman size=3]Chip commentrs: Check out the story below. The article has some of the first public positive news about UA's attempt to prevent a bankruptcy filing.[/FONT][BR][BR][A href=http://www.msnbc.com/news/823856.asp?cp1=1][FONT face=Times New Roman size=3]http://www.msnbc.com/news/823856.asp?cp1=1[/FONT][/A][BR][BR][FONT face=Times New Roman size=3]Chip [/FONT]

 

[chipmunn]

[P][FONT face=Times New Roman size=3]Salomon cuts UAL 4th quarter estimate[/FONT][/P]
[P][A href=http://biz.yahoo.com/rc/021021/airlines_ual_research1_1.html][FONT face=Times New Roman size=3]http://biz.yahoo.com/rc/021021/airlines_ual_research1_1.html[/FONT][/A][BR][/P]

 

[chipmunn]

[P][SPAN class=t][FONT face=Times New Roman size=4][STRONG]United Flight Attendants in Separate Talks[/STRONG][/FONT][/SPAN][/P]
[P][FONT face=Times New Roman size=3]United Airlines' unionized flight attendants confirmed on Tuesday that they have broken away from a weakening coalition of the airline's labor groups, and are negotiating independently with United.[/FONT][/P]
[P][A href=http://biz.yahoo.com/rb/021022/airlines_ual_attendants_2.html][FONT face=Times New Roman size=3]http://biz.yahoo.com/rb/021022/airlines_ual_attendants_2.html[/FONT][/A][FONT face=Times New Roman size=3] [/FONT][/P]

 

[chipmunn]

[P][FONT face=Times New Roman size=3]This is the second UAL union that has broken away from the five member labor coaltion. With the AFA joining the IAM how will this effect the collective offer of $5.8 billion in 5.5 years of combined concessions? Moreover, with AFA demanding equity, where the current ESOP structure has the other employees owning 55 percent of the stock,and possibly the ATSB demanding stock in return for the loan guarantee, how will this latest development effect UAL's restructuring process?[/FONT][/P]
[P][FONT face=Times New Roman size=3]Moreover, isn't this a little late for the AFA to begin negotiations, not to mention asking for what could be a signficant demand?[/FONT][/P]
[P][FONT face=Times New Roman size=3]Chip [BR][/FONT][/P]

 

[Bear96]

Chip I am not sure the conclusions drawn the article you are referring to are accurate. Now that the figure of $5.8 million over 5-1/2 years has apparently been agreed to by the Coalition and management, wasn't it the plan all along (once this total figure was agreed to) to have each union negotiate the specifics of their concessions-- i.e., the pay vs. productivity (work rule) details? So maybe it is just that they have arrived at that stage. At least that is how I perceive AFA to be spinning it.

Of course who knows what is really going on behind the scenes right now-- maybe UAL has reconsidered and decided the $5.8M is not enough; more likely AFA, ALPA, et al. are still squabbling about how much of the $5.8M each group will have to swallow; or maybe something else only your secret sources know about has come up-- but I am not sure how accurate it is for Reuters to take today's announcement from AFA (see below) and spin it into UAL is breaking away from the coalition.

Plus you have to consider the source, since the media (and chipmunn) seem to especially enjoy reporting on UAL's financial woes if only to prove their own forecasts right. (Though of course when this is pointed out they immediately respond that of COURSE they wouldn't want to see such a terrible thing and want all the best for the UAL employees, etc.)

Don't get me wrong, I believe a UAL Ch.11 filing in the coming weeks is all but inevitable too. But the difference is I hope I am wrong and won't gleefully be saying See I told you so once it finally is announced like many in the media will be.

Anyway... Back on topic... Here are the actual words from AFA from today's press release (which can be found on www.unitedafa.org):

United Airlines Flight Attendants Have Begun Negotiations To Avoid Bankruptcy


Date: October 22, 2002
Contact: Sara Dela Cruz 847-292-7170 ext. 524
Jeff Zack, 202-744-9568


Reinforce need for negotiated solution to United’s financial crisis

CHICAGO – Representatives of the United Airlines Master Executive Council of the Association of Flight Attendants, AFL-CIO, began meeting with airline management recently in hopes of reaching agreement on changes to the Flight Attendant Contract that will provide United management with the savings it needs from the Flight Attendants to avoid bankruptcy. This is the statement of AFA United MEC President Greg Davidowitch:

“The Flight Attendants understand that it will likely take the participation of all labor groups, creditors, lenders and lessors for the airline to successfully restructure outside of bankruptcy. It is now up to United management to proceed with the fairness and equity needed in these delicate negotiations, recognizing the unique characteristics of each labor group and achieving individual cost savings packages that meet the airline’s needs. All of this must fall within the framework developed by the Union Coalition. The money is there, United must now show its willingness to work with us to get access to it and the other strategic initiatives contained in the Union Coalition Framework.

“Our goal is to provide stability for our company and to fix our airline for the long term. The only way to do that is through a cooperative relationship. To that end, the Flight Attendants have entered into direct negotiations with United. The goal of the talks is to develop a negotiated solution to the airline’s problems outside the bankruptcy process. The Flight Attendants will have the opportunity to vote on any agreement reached by the parties.

“Flight Attendants are not entering these negotiations just for the sake of providing management with concessions. As part of any cost savings package, Flight Attendants must be rewarded with equity and profit sharing for our investment in the airline that will reward us when the airline turns around. In the event United is unable to secure the concessions needed from all constituencies, including lessors, lenders and creditors, and bankruptcy becomes necessary, we are also demanding a guarantee that management will not seek any further concessions if the Flight Attendant membership ratifies a concessionary agreement.

“Flight Attendants are the airline’s front-line employees. This airline has a much better future if we work together to solve our problems. Our new CEO, Glenn Tilton, has shown a desire to work with us. We are hopeful and have every reason to believe that relationship will continue. In the short time since our new CEO has been at the helm of United, we have been able to accomplish what once was considered impossible by working together.

 

[UAL777flyer]

Chip,

I believe you are misinterpreting things. The $5.8 Billion has already been agreed upon. The company is now engaged in separate negotiations with each union for their respective piece to arrive at the total figure. It is nothing that is unexpected. Glenn Tilton told us this last week. So I don't view the AFA's press release as anything alarming. If anything, I noticed a significant rhetoric shift. They're no longer adopting a line-in-the-sand, combative stance. That is indicative of the great relationship (thus far) that Tilton has with the leadership of each union.

 

[Bear96]

To avoid any confusion...

It has been confirmed that Reuters was inaccurate in saying AFA had left the coalition. The UAL MEC office contacted Reuters, and they corrected its original report. The link Chip posted now takes you to the corrected Reuters report which does not say AFA is splitting from the coalition, which the original Reuters story said.

A good lesson for those that fancy themselves as journalists to stick to primary sources as much as possible (in this case, the original AFA press release) or at a minimum to verify with at least two independent sources before drawing doom and gloom conclusions about developments which may or may not have happened. IMHO of course.

 

[motnot]

I believe the $5.8 billion will be inadequate for the ATSB. So all this effort may be in vain.

About a week or so after the unions offered $6 billion over five years ($1.2 billion a year), it was reported that the ATSB wanted another billion ($1.4 billion a year). Now UAL is working on $5.8 billion over 5.5 years ($1.05 billion a year).

They're going in the wrong direction, and further, U just said it needs $400 million more in cuts. So what makes UAL think it can get by with $400 million less in cuts?

UAL got laughed out of the DOT with its first proposal in June. This one's obviously better than that, but there's no way the ATSB will guarantee a loan it will eventually have to eat.

 

[chipmunn]

Usfliboi:[BR][BR]Usfliboi asked: why is this on a usairways discussion board? for that matter all airline news should be, it would all br relative.[BR][BR]Chip answers: I placed this on the US board because UA's future is important to US because of the alliance. US needs UA to be a healthy carrier for each company to grow its revenues, to provide a more secure work place for each companies employees. In addition, at some point the two carriers may elect to deepen their relationship.[BR][BR]Chip

 

[usfliboi]

why is this on a usairways discussion board? for that matter all airline news should be, it would all br relative.

 

[chipmunn]

[P][BR]UAL777flyer and Bear96: [BR][BR][FONT face=Times New Roman size=3]UAL777flyer & Bear96 thanks for correction. I appreciate having correct facts provided [/FONT][FONT face=Times New Roman size=3]especially during these stressful times. It appears that Motnot's comments regarding both the US & US loan guarantee applications may be true per the link below titled Political winds could blow UAL clear of bankruptcy:[/FONT][/P]
[P][A href=http://www.thedeal.com/NASApp/cs/ContentServer?pagename=TheDeal/TDDArticle/TDStandardArticle&c=TDDArticle&cid=1035270055188&Box1=1020131906494&Box2=1019496876560&banner=headers/BANKRUPTCY_FLEET.gif]http://www.thedeal.com/NASApp/cs/ContentServer?pagename=TheDeal/TDDArticle/TDStandardArticle&c=TDDArticle&cid=1035270055188&Box1=1020131906494&Box2=1019496876560&banner=headers/BANKRUPTCY_FLEET.gif[/A][BR][BR][A href=http://www.thedeal.com/NASApp/cs/ContentServer?pagename=TheDeal/TDDArticle/TDStandardArticle&c=TDDArticle&cid=][FONT face=Times New Roman size=3][/A][/FONT][BR][FONT face=Times New Roman size=3]Chip[/FONT][/P]