What parts of UAL will end up with USAir?

[RowUnderDCA]

[blockquote]
----------------
On 2/25/2003 4:49:46 PM AirwAr wrote:

Does anyone think US would like a STL hub? In the post UA liquidation scenario, I see AA moving a lot of capacity to ORD. Growing ORD quickly would help to discourage others from squatting there. An option for increasing capacity may be to return retired aircraft to service. However, in an era when there is nearly limitless capacity available in ORD for AA to grow, I would bet that AA would move the capacity from the STL hub. If AA left STL open, would US be interested?
----------------
[/blockquote]

I think that idea is intriguing. Let the other carriers do the merry go round with aircraft, employees and money. U should look for less complicated opportunities for growth. With the help of the US DOT, U could push AA to grow at ORD. Hook up with AmWest, if DEN is too problematic?

 

[chipmunn]

Clue:

Clue said: "US will never move into DEN. The airline has run from low cost competition for years. F9 would eat US' lunch. LUV already did this to U at LAX, SFO, and everywhere else along the east coast. Let's not forget PSA just yet."

Chip comments: Clue, it wont eat the lunch of the 70-seat EMB-170 and 76-seat EMB-175, which are basically mainline 100-seat jets being flown at the lowest industry RJ costs, per the AA Eagle contracts. Trust me, DEN is on the radar screen.

Furthermore, US now has the lowest mature carrier labor expense, which unfortunately is about to go down another $75 million per year when the U.S. invades Iraq.

But, there's this pension thing...

Chip

 

[ClueByFour]

[blockquote]
----------------
On 2/25/2003 6:23:55 PM chipmunn wrote:

Chip comments: Clue, it wont eat the lunch of the 70-seat EMB-170 and 76-seat EMB-175, which are basically mainline 100-seat jets being flown at the lowest industry RJ costs, per the AA Eagle contracts. Trust me, DEN is on the radar screen.
[/blockquote]

I'd be interested to see a comparison as to what it costs U post-concessions to move those 100 people on any equipment versus what it costs F9 to do the fame.

Or LUV. F9 is only an issue at DEN, assuming Herb does not come running back when/if UA folds in DEN (I doubt this, due to the fact that a 20 minute turn is tough if that 20 minutes is nestled in between 40 minutes of taxi time....)

 

[Bear96]

Just to provide a little balance on the UA situation, since Chip would never post an article like this one as it is not domm and gloom...


At United Airlines, Banker Reports Financial Progress
$100 Million of Loan Untapped

By Keith L. Alexander
Washington Post Staff Writer
Wednesday, February 26, 2003; Page E02

United Airlines' efforts to improve its finances have moved more rapidly than its bankers expected just two months ago, a banking executive familiar with the airline's financing said yesterday.

As a result, the executive said, United has not even used $100 million of the financing it arranged before filing for bankruptcy protection.

When United filed for bankruptcy reorganization in December, the airline secured $1 billion in financing from four lenders: J.P. Morgan Chase & Co., Citibank, Bank One Corp. and CIT Group Inc. At that time, the banks allowed United to draw half the loan, enabling its operations to continue uninterrupted.

To date, United has tapped only $400 million of the $500 million offered by the four banks. It has, however, drawn on a separate $300 million loan from Bank One.

The banking executive said the airline had no immediate need for the remaining $100 million. "They're ahead of schedule in terms of their cash flow. They have more cash than they originally planned at this point in time," he said, speaking on the condition of anonymity.

United spokesman Jeff Green said the airline has not used the remaining $100 million because "we haven't had a need to." He declined to further detail the company's finances.

To get the remaining $500 million, United has to significantly cut its costs by this summer and maintain a certain level of cash flow. The banking executive said he was optimistic about those efforts but added that United might not need the additional $500 million. "They've made good progress with their cost structure, and I think they're on track to satisfy all of the obligations that the banks had here," he said.

Last month the airline secured temporary wage reductions from its workers, saving it about $70 million a month through May. It is trying to secure long-term concessions, including $2.56 billion a year in pay, benefits and work-rule changes.

United and the unions have agreed to negotiate until at least March 17. After that, the airline can ask U.S. Bankruptcy Court Judge Eugene R. Wedoff to impose the concessions.

Last month Wedoff imposed a temporary 13 percent pay cut on United machinists, after the group refused to join the airline's other employees in accepting temporary concessions.

United is seeking $314 million a year in cuts from its 24,000 flight attendants. That's about $160 million more than the airline originally asked for in December. Jeff Zack, a spokesman for the union, said the group did not support United's cuts. "They're not getting it," he said. "They didn't provide us with any rationale as to why the flight attendants would be asked to pay significantly more."

United pilots began negotiations yesterday. The airline is trying to secure $1.11 billion in cuts from its pilots through 2008. The pilots union declined to comment on the status of those talks.

© 2003 The Washington Post Company

 

[chipmunn]

Bear96:

This is not an issue of "doom and gloom", but one of discssing facts, opinions, and constructive dialogue.

However, since you brought up the DCA Post article, the author wrote, "To date, United has tapped only $400 million of the $500 million offered by the four banks. It has, however, drawn on a separate $300 million loan from Bank One. The banking executive said the airline had no immediate need for the remaining $100 million.

What reduces liquidity more? Drawing a separate $300 million loan or or using the remaining $100 million in DIP financing, when you are burning $10 million per day with war less than 2 weeks away?

By the way, although I post a lot I'm not always available to post on the internet.

Chip

 

[funguy2]

Chip:

I think you may have missed my IAD point, so I will try again. U is already a leading airline in the DC area because of its operation at DCA. I don't think too many airlines would be too terribly excited about a hub at IAD. But, I think that a great deal of U frequent flyers probably use U on short hauls from DCA, and use UAL on long-hauls/international from IAD instead of U's (or others) connecting service. For them, the marriage of frequent flyer programs is powerful. Should UAL liquidate, and the perimeter rule at DCA remain intact, I think U needs to pick up some of the long-haul/international IAD/UAL remnants. I would envision more a long-haul focus city, with service to LAX/SFO/SEA/LHR/CDG/FRA(Star), the other hubs, and maybe a few other destinations for good measure (NYC/BOS/ORD). This would strengthen U's market presence in DC/No VA, and in my opinion would be a great move.

I think to confuse the opportunity with what happened at BWI is short-sighted. U tried to run 2 hubs too close to each other (PHL/BWI), one of which got a major attack from a low-fare carrier. I am not suggesting a full fledged hub at IAD... just a long-haul focus city to complement the short-haul focus city at DCA. I think IAD would become a short-haul low-fare market similar to BWI for somebody else... probably AirTran setting up shop to run low-fare trips to FLA,BOS,Midwest. I think the two could even co-exist in this case.

I think ACA would not have the extensive operation at IAD that is has today if UAL goes away. I don't think there is an airline out there that would want to buy this feed. Those resources would be allocated somewhere else, but I am not going to speculate about which commuters do what... I just will say it will stay a commuter (although without UAL, ACA could buy 15 737's and have a nice independent East Coast hub at IAD like a couple airlines of the '80's, but I just don't think there is enough demand for such a scenario).

Clue by Four:

I think U could make a go at DEN. Frontier is not really that low-cost. Yes, they have lower costs than UAL... But they do not have the costs of JetBlue, LUV, or AirTran. With U's new cost structure in place, and some financing from RSA, it is not hard to see this occuring. I do think that ORD is too valuable, though, and its value will be reflected in a bankrupcy court auction. I am making the assumption that LUV does not take this opportunity to enter the DEN market.

Also, I don't think the new U will be the same company that Herb could run over at every turn. It will be somewhat more competitive.

RowUnderDCA:

Having said that "This ain't your father's US Airways", I still don't think they will want to try to open a hub in a city with significant LUV presence, especially after what has happened in Cal, BWI and Fla. And I think the idea of getting the DOT involved to transition a hub from AA to U seems a bit out-there... especially given AA's competitive responses of the past. While its not the same USAirways of old, I'm not convinced that U will be able to push LUV around. U would be better off to leave the STL battle to AA.

Should AA decide to downsize STL, I would envision the outcome to be similar to what occured at BNA, but larger. AA would leave the STL-CMH/ABQ/PHX/ORF type stuff to be picked up by LUV (and if AA down-sized, I would expect LUV to expand), but AA would maintain a big presence and retain STL-LGA/BOS/DCA/LAX/SFO/hubs and maybe FLA. They (AA and LUV) have learned to co-exist at BNA. They could probably learn to do the same at STL.

IMO.

 

[Cosmo]

[blockquote]
----------------
On 2/26/2003 2:01:32 PM chipmunn wrote:

What reduces liquidity more? Drawing a separate $300 million loan or or using the remaining $100 million in DIP financing, when you are burning $10 million per day with war less than 2 weeks away?
----------------
[/blockquote]
Chip:

Once again, you are attempting to state as fact something that you don't really know. The $10 million daily cash burn rate was projected over 2 months ago prior to the implementation of UA's "temporary" wage reductions (worth $70 million per month or about $2.3 million per day) and the changes in UA's walk-up fares in about half of the carrier's markets which have been reported to have been somewhat revenue positive. So while I won't claim to know what UA's cash burn rate is at the moment, it's clear that you don't know either.

You have a tendency to take any real or perceived negative information about UA and repeat it over and over again ad nauseum without taking into account subsequent information released by UA or a third party (such as a brokerage) or, on occasion, somebody pointing out an error on your part. Frankly, calling this tendency "spin" is being charitable.

And BTW, since you "know" when the war will start, I assume that Dubya and Donald Rumsfeld have been added to your long list of secret sources.

 

[Cosmo]

funguy2:

I agree with your observation that IAD would be an excellent long-haul complement to US' current short-haul focus city at DCA. US has a large number of frequent flyers in the Washington area and the carrier would pick up quite a few more if it replaced much of UA's current long-haul service from IAD. I would simply add that most of those destinations, in addition to those you named, would in all likelihood be viable for US because the flights really have little UA feed currently other than some ACA flights, thus depending mostly on local traffic. So nonstop service from IAD to places like DEN, PHX, LAS, SAN, SJC and PDX would probably be successful for US.

Internationally, in addition to LHR (if US retains the rights), CDG and FRA, remember that MUC is also a Star hub (Lufthansa). And I would even strongly recommend that IAD-BRU be retained because it is a relatively high-yield niche market with a lot of government (U.S., E.C. and Belgium) and military (U.S. and NATO) traffic. Due to this characteristic, the route can be successful where PHL-BRU wasn't. Plus US could code-share on flights by other Star carriers operating at IAD (because of Washington's strong international O&D traffic) such as SAS, Austrian, BMI and ANA.

Of course, this is all predicated on UA's demise which, as I have stated previously, is IMHO too soon to call. But it's fun to play "what if?".

 

[Cosmo]

Chip:

I read the Business Week article, too. To be fair, I would give the same criticism to the unsourced comment in that article as I gave to your previously-unsourced comment. By quoting the $10 million daily cash burn figure, I believe that neither you nor Business Week have taken into account more recent information that doesn't comport with your respective views of UA's problems. IMHO, that's intellectually dishonest.

 

[argentomaranello]

COSMO:

You replied to Chip that "Once again, you are attempting to state as fact something that you don't really know . . . while I won't claim to know what UA's cash burn rate is at the moment, it's clear that you don't know either . . . You have a tendency to take any real or perceived negative information about UA and repeat it over and over again . . . calling this tendency "spin" is being charitable."

Now, long ago you established yourself as quite an intellegent and insightful fellow in these matters, so it is with some reluctance that I rise to Chip's defense, and point out to you that you seem to be engaging in a bit of "shoot-the-messenger." UAL's problems have been well documented for months; and all the while its financial condition has weakened -- and materially so. In fact, quite a respectable body of financial opinion has now concluded that UAL's current condition is so fragile that the airline's failure may well be imminent. Yet UAL's labor unions continue to joust with UAL management (as if UAL management was its enemy), refusing to confront reality. The whole point of this thread was speculation about the fate of UAL assets in a post-UAL world -- which appears reasonably certain now to many of us.

 

[funguy2]

Cosmo:

Those were some excellent points about the IAD service. I am not sure, should UAL liquidate, that U stays in Star. I would think if the CO/NW/DL arrangement gets messy, that Star might try to steal DL, since they have better coverage of the USA and the powerful JFK and ATL hubs. Those are much more compatible to Star than a modified U. Of course, that depends on what you assume U is able to get from UAL. If you assume U gets a new ORD hub (I do not make this assumption), then maybe U does stay in Star.

You are right about the fact that all this is speculation and guessing. However, I would assume every airline board room is thinking in these terms as a just-in-case, what if scenario. AirTran did this with U's BWI pullout, and look how quickly they moved in... of course, AMR, CO, NWAC, etc don't usually move that fast. A UAL liquidation could force them to.

 

[chipmunn]

Cosmo:

Cosmo said: "So while I won't claim to know what UA's cash burn rate is at the moment, it's clear that you don't know either."

Chip answers: Cosmo, you're correct I do not specifically and I should have posted reference to the quote stating UA's cash burn rate, but I thought I would shorten the post because Bear96 has crticized me for cut and pasting comments.

However, since you seem to prefer cut and paste comments Business Week said UA was burning $10 million per day in its online edition last Friday.

Here's the column:

BusinessWeek Online
The Dogfight for Control of United
Friday February 21, 8:38 am ET

Can beleaguered UAL Corp.'s United Airlines be saved from going out of business altogether?

Ever since the carrier entered bankruptcy in December, CEO Glenn F. Tilton has been under attack by skeptics who say his recovery strategy isn't viable. As the airline burns through $10 million a day, United needs a new flight plan fast.

Cosmo, can you tell me what's the "perceived negative information" about UA in the Business Week comment above?

Chip

 

[PITbull]

Cosmo writes:
And Argento, with regard to your statement that UA has some great problems facing it, I would simply make two comments:

1.) You are absolutely right, especially concerning some employees still being in denial about UA's current financial condition; and

2.) US' labor unions were acting the same way about 6 months ago, especially the "jousting" with management -- in fact, that's still going on with the US pilots.


[/blockquote]

COS,

When you refer to 1)"some employees still being in denial about UA's current financial condition", you need to ask how much is that "self induced" cash burn. Pilots are the highest paid in the Industry, how else do you get concessions that obviously must be forced as no one readily steps up to the gilloteen just because. And NO airline can do this by having a major "cash" position.

2) You say that US Labor unions were acting the same way 6 months ago. especially with the "union busting" with mangement, and still going on with the US pilots.

Quite the opposite of what you say. I know this for a fact. Pilots in the summer had no retorhic of "union busting". Only a few AFA union Presidents took note of this. The rest of U labor was in denial. Only because of Round #2 and the recent pension issue has Labor "opened their eyes". Especially watching all the other Majors starting to implement the same "plan".

You can't be serious when you imply that all this is all created by a soft revenue climate. SW and Jet Blue are not sharing this concept. THIS IS ALL ABOUT LABOR AND LABOR COSTS. Everyone of these majors has a "do or die; off the cliff into oblivion" scenerio, UNLESS, of course, Labor concedes...THEN and only then will they be able to "come into the light".

On this point, you have not been paying keen attention to the covertness of the "plan", but only keeping pace with the obvious. IMO.

 

[Cosmo]

One more thing, Argento. You never responded to my comments Monday regarding your idea to use UA's Airbus fleet to take over that carrier's ORD and DEN hubs. I am interested in any comments that you might have. Thanks.

 

[Cosmo]

Argento:

Thanks for the compliment -- I've enjoyed reading many of your well-thought-out posts as well, even though I sometimes didn't agree with your position.

As to your comment that my responses to Chip amount to "shooting the messenger", I can only say that I respectfully disagree. Although Chip seems to take an inordinate amount of delight in posting any negative news article about UA that he can find, I have never chastised him for doing so. But since he rarely, if ever, posts any positive news about UA (and I will grant you that there isn't a lot of that these days) such as today's Washington Post article (noting that UA's financial condition might not be quite as bad as many have assumed), despite often referring to UA as "US' code-share partner", it's clear that Chip has an agenda that seems to eagerly look forward to UA's demise.

And that's OK. As you point out, Chip certainly isn't alone in suggesting that UA will not be around for much longer. And he has as much right to post his opinions about UA's future (or anything else) as you, me or anybody else.

But IMHO what's not OK is ignoring facts that might be inconvenient to one's pre-conceived notions, which is something that I believe Chip does with regularity. For instance, somebody as "in touch" with the airline industry as Chip claims to be clearly should understand that a January cash burn projection made just after UA declared bankruptcy (more than 2 months ago in mid-December) would be reduced by subsequent employee salary decreases and reported positive revenue results stemming from some fare changes. And yet he continues to use an outdated cash burn number as if it were an up-to-date fact. I simply pointed out that, like me and everyone else who is not privy to UA's financial data, Chip has no real way of knowing what UA's true cash burn number is today.

Similarly, Chip has a habit of making a claim that something is a fact, but he sometimes offers no source at all or indicates that the source must be kept secret. Indeed, just last week Chip boasted in another thread that he had high-level secret contacts in (IIRC) ALPA, FAA, DOT, Congress and US Airways. To me, this reeks of the discredited technique used by Senator Joseph McCarthy in the 1950s (to paraphrase, "I have sources but I can't reveal them.") to pass off opinion as fact and IMHO it just doesn't pass the "smell" test.

The bottom line is that I believe Chip frequently tends to slant his posts in such a way that out-of-date or opinionated information comes across as fact. I, along with some other posters, only point out in response that sometimes reality is (or could be) different from the way Chip views things and/or wants others to view things.

And Argento, with regard to your statement that UA has some great problems facing it, I would simply make two comments:

1.) You are absolutely right, especially concerning some employees still being in denial about UA's current financial condition; and

2.) US' labor unions were acting the same way about 6 months ago, especially the "jousting" with management -- in fact, that's still going on with the US pilots.

So if US has made it this far, maybe UA's prospects are not that dire. Who knows?