767jetz:
I do not like the financial situation that either US or UA find them self in. Plan and simple it sucks, but I try to provide information that is 100 percent accurate and balanced.
I firmly believe the business opportunity that presented itself in 1995 and 2000 (September 11 not withstanding) would have prevented the current crisis; however, today's story in the New York Times, presented below, provides an accurate account of what I have been alluding to on this message board.
As one leading airline observer told me today, This is getting interesting, but I believe UAL is heading down a very bad path. If ATSB rejects them (instead of some form of conditional approval), they are in big trouble and liquidation probabilities would rise dramatically.
In my opinion, the UA labor cuts are insufficient to obtain the loan guarantee; however, that does not mean the board will deny the application. UA has a very powerful congressional delegation, who convinced the Bush Administration to approve the previous merger, which is now lead by Dennis Hastert who is strongly lobbying the Bush Administration to approve the loan guarantee. But, the entire industry and their congressional delegations are lobbying the board to disapprove UA's application, as a means to remove excess industry capacity to restore pricing power.
Again, I wish you no harm and I am hopeful UA and US survive this mess because our futures are now dependent upon one another.
Here's the New York Times story:
United Tilts With Rivals on Adequacy of Loan Aid
NEW YORK (New York Times) - With the fate of United Airlines before a federal loan guarantee board, competitors of the company are challenging whether the $5.8 billion in lower wages and other concessions United says it has extracted from its employees are enough to keep the airline afloat, even with the government-backed loans.
But the company and its unions rebutted that notion yesterday, saying employees were making sacrifices that would be immediately felt and would help the airline become more competitive.
The effort by United's competitors illustrates the highly risky game that is being played out as United maneuvers to avoid a Chapter 11 bankruptcy filing and win $1.8 billion in loan guarantees from the federal panel, the Air Transportation Stabilization Board.
UAL, the parent company of United Airlines, is facing a critical week. On Wednesday, the machinists vote on a tentative deal that would grant $1.5 billion in concessions. In the meantime, a $375 million payment on loans backed by aircraft is scheduled on Dec. 2. If UAL cannot make or extend the payment, and does not soon receive the loan guarantees, it will be forced to seek bankruptcy court protection from creditors.
Competitors are circulating analyses in Washington that take apart United's latest deals with its pilots, flight attendants and machinists, arguing that in some cases United will be paying its employees more than it did at the beginning of the year, even with the cutbacks.
Over the weekend, officials from United and the unions took strong exception to the analyses — some of which have been sent by the airline's competitors to Congress, the Bush administration and the loan guarantee board in hopes of dissuading the board from approving the loans. United's side says the documents are incorrect and mischaracterize the airline's cost structure. We have been stunned at how far other carriers are willing to go to sabotage United's application, said Paul Whiteford, chairman of the pilots' union at United. We invite anyone who doubts the extraordinary employee sacrifices at United to spend an afternoon with a group of our pilots.
For months, United's competitors, including Delta and Continental, have argued that the government should not prop up an airline they say was poorly managed before the September 2001 attacks.
An analysis by one competitor that is making the rounds on Capitol Hill contends that labor costs for United's pilots will in fact rise 16 percent over the next six years because pension costs more than offset the savings from the wage concessions. The analysis argued further that when compared with what pilots earned in October 2000, before their most recent contract, hourly rates are as much as 17.7 percent higher even after the concessions, based on the type of aircraft each pilot flies.
Both the union, the Air Line Pilots Association, and the company disagreed strongly with these calculations, saying that even including pension costs, the airline's total labor expense would drop.
And officials of the pilots said that pension expenses would still rise even if pilots accepted far sharper pay cuts, because assumptions about pension expenses are made years in advance of when retirees are paid.
Moreover, they said, United plans to retire many of its largest planes, the Boeing 747-400's, for which pilots are paid the most to fly — meaning that average hourly rates will drop sharply once that occurs.
Another competitor of United's, in documents submitted to the loan guarantee board, argues that the airline's high-cost contracts with its ramp agents and machinists are to blame for its costs, not the impact of terrorist acts, as United has argued.
United's current financial condition is largely the result of its labor agreements, which saddled United with high labor costs — not the Sept. 11 terrorist attacks, the analysis said.
Frederic F. Brace III, UAL's chief financial officer, acknowledged that the airline had based its previous labor contracts, negotiated in 2000, on the assumption that business travel would remain strong. But he said in an interview yesterday that United's revenue had dropped precipitously in the past year, from an annual rate of about $18 billion before the attacks, to about $13 billion now, and that the attacks had hurt the airline far more than its labor contracts.
A competitor's analysis also contended that a contract provision calling for ramp agents and machinists to be paid $498 million, plus interest, in retroactive pay over the next two years will drain $65 million a quarter for the next eight quarters. It adds, 25 percent of United's loan guarantee request would go to fund retroactive pay increases to just one group of United employees, not to improve United's financial or operational condition.
But the International Association of Machinists, representing mechanics and other ground workers, said the raises were promised by United to employees who had worked since 1994 without a pay raise. Joe Tiberi, a spokesman for the union, termed the analysis ridiculous, adding, The concessions are real.
Mr. Brace noted that the loss of four days a year in vacation, which the machinists promised to give the airline under their concessions agreement, means that the pay cuts of 6 to 7 percent, depending on job classification, actually yield a savings to the airline of 8 to 9 percent. The pay cuts begin to be restored at the end of 2004. Mr. Brace offered to pledge to put the loan guarantees into a separate fund that would not be used for these increases.
Mr. Brace said he was distressed at the level of rancor that had developed between United and its competitors over the company's application for loan guarantees.
I don't have any problem with anyone expressing their opinion, Mr. Brace said. But when they try to spin data, I think it's over the edge.
Mr. Brace said that when wages and benefits are taken into account, United's pilots earn less than their counterparts at some leading airlines and that its machinists' compensation rates are among the industry's lowest.
The comparison that they are making and the implication they are trying to project is one that in our case the facts don't support, he said.
