N513AU:
Chip said: In addition, the ATSB requires a 7 percent profit margin with 7 years, which has to be audited by Fitch Rating. Can you explain to me how the company can obtain the loan guarantee per the OMB guidelines in light of the deteriorating fundamentals above?
N513AU said: Chip, do you have that damn phrase memorized. I think every post you have includes it. We are aware of the conditions of the loan guaruntee. ISN'T THAT WHY I JUST TOOK A MASSIVE PAY CUT? I thought the reason why we needed to vote yes was to get the loan. Now I guess it was just a ploy all along.
Chip answers: N513AU, yes the reason we took a pay cut was to meet a portion of the requirement to obtain the federal loan guarantee. The applicants business plan meet the target of a $1.8 to $1.9 billion bottom line change, with $1.2 to $1.3 billion in cost cuts and $600 million in additional revenue.
The additional projected revenue was $600 million per year, with $300 million from additional RJs and $300 million from the UA domestic/Star alliance.
However, the problem is that revenue is not meeting projections for a number of fundamental reasons and the code share revenue may be offset by the DL, NW, & CO alliance, if approved.
In fact, just today Newsweek reported that ailines lost $2.2 billion in the third quarter. Moreover, David Swierenga, chief economist for the Air Transport Association said, It has never been this bad,†he says. And it’s likely to get worse. Swierenga predicts the airlines could lose $3 billion or more in the fourth quarter-and $9 billion or more for the year. “Obviously, the industry is in precarious health,†he says.
Therefore, to ensure the loan guarantee is approved management told 341 meeting attendees last Tuesday it would seek an additional $200 to $300 million in cuts primarily from aircraft lessors.
The good news is that the airline already has achieved $1.3 billion in annual savings and management has promised not to seek additional contract concessions from labor, but more furloughs are expected to deal with the industry wide problem of over capacity and to further reduce expenses to obtain the loan guarantee.
Chip