United lines up jet deals
Bankrupt airline plans for partners to acquire smaller, regional planes
By Ann Imse, Rocky Mountain News
January 4, 2003
Bankrupt United Airlines quietly has lined up the purchase of hundreds of skinny new regional jets by its United Express partners, part of a move that could transform the experience of flying United.
If the airline goes ahead with the full plan, it could be selling tickets on 425 of the 50-seat Bombardier jets within a few years. That's approaching the size of United's current fleet of large planes.
Under the plan, millions of passengers would find themselves on miniature jets more cramped than a Boeing 737 - but arriving at their destinations hours sooner.
The change is part of a United strategy to vastly expand its route network, without spending a dime on its own planes or flight crews.
On the regional jet deal alone, United has shifted a capital investment of up to $8 billion to its partners.
If the strategy is carried out, despite the Chapter 11 filing, United will be able to offer passengers many more destinations. But often, even though they'll have a United ticket, they'll be flying on another airline.
That network of other airlines now includes three United Express carriers, 13 foreign airlines and US Airways, which is just beginning its joint ticket-sale arrangement with United.
United has said it can earn as much money selling tickets on its partners' planes as it does flying its own aircraft. United's highly paid staff pilots had long opposed the strategy for fear it would mean a loss of jobs.
But pilots now hope it will funnel more passengers from smaller cities onto the United mainline jets they fly, said one senior pilot.
For passengers, the greatest change will come when they board one of the United Express Bombardier CRJ-200 jets. Travelers who have flown the 50-seat jets found them narrow, low-ceilinged over the seats, with little room for stretching. They have just four seats across with a narrow aisle in the middle, and typically carry only one flight attendant.
But since they cost 52 percent less to run than the large jets, they can fly profitably on lightly traveled routes, United says. That opens up nonstops at 530 mph where none existed previously.
Analyst Michael Linenberg of Merrill Lynch recently flew a regional jet between Des Moines, Iowa, and Newark, N.J., a trip that previously required changing planes in Chicago.
I'd rather fly the 737, he said. But flying nonstop on the swift regional jet cut his trip time from six hours to 2 ½. That's a big difference. I'll take that over changing in Chicago in winter.
Linenberg said the expansion plan plays to United's competitive advantage - its vast network of 13,000 city pairs connected through hubs like Denver. A Denver-Birmingham, Ala., flight might attract five passengers a day flying between the two cities, but 70 who want to connect in Denver to United's other destinations, he said.
With no cash or credit of its own, United has arranged for the vast expansion of its current fleet of 125 regional jets by persuading its three United Express subcontractors to acquire them. United pays the Express carriers a fee to provide both planes and crews, who are paid less than United staff. United decides where to fly, sells the tickets and takes the financial risk and reward.
The expansion plan is proving to be highly risky for the United Express carriers, who are taking on enormous investments for a now-bankrupt airline.
According to interviews and corporate documents, the three carriers have placed firm orders for 131 regional jets, most in the coming year, and options for at least 169 more. All are for 50-seat Bombardier CRJ-200 jets. That would bring the total to 256 to 425 small jets.
United has said in court filings that it also wants to acquire a number of slightly larger regional jets, with 70 seats.
A fleet of more than 400 regional jets would come close to the size of United's regular fleet of Boeings and Airbuses. United currently flies 557 full-sized jets, but pilots have agreed to allow that to drop to 496, said analyst Linenberg.
United pilots already have agreed to allow United to run as many as 293 regional jets, including 50 that replace turboprops, Linenberg says.
That could rise in the renegotiation of the pilots' contract.
United passengers also will be offered many more flights on the small jets on United's new partner, US Airways. It has approval from its pilots' union to expand its regional fleet from 70 to 465 jets within a few years, Linenberg said.
For the United Express carriers, the deals started low-risk, with United guaranteeing them a base level of long-term revenue. But the risk jumped when United went into bankruptcy court, where it can tear up contracts without being sued.
United already has told the three United Express carriers they'll have to cut their fees by $80 million or risk losing their contracts with United. That could leave the United Express carriers with huge fleets of jets that no one wants to use.
Upping the pressure, United has already asked two unnamed companies to prepare competing bids to take over the United Express business from the three who have it now.
Atlantic Coast showed its hand - and its nerves - on the issue last week. It asked the bankruptcy judge to order United to stick to its contract to pay for use of 47 regional jets that Atlantic Coast is acquiring on United's behalf almost weekly in 2003.
Given the magnitude of the deal - $940 million - Atlantic Coast argued that a late decision by United to cancel the contract could threaten Atlantic Coast's very viability. The judge has not ruled.
But SkyWest spokesman Phil Gee was much more confident. SkyWest also is adding regional jets for its Delta routes out of Salt Lake City, and Delta might need the planes if United doesn't, he said. In addition, SkyWest/United Express is the only airline serving many of the small cities of the West, and he believes SkyWest would continue to do so.
We still plan on taking delivery of them, Gee said. We're pretty confident they'll be used somewhere, if not by United.
United has said it will fly the regional jets on routes where small jets can make a profit and large ones can't. But any more precise route information is a closely held secret.
We don't even know (where we'll be flying) until right before delivery, said the SkyWest spokesman. Last fall, before filing for bankruptcy protection, United told Denver International Airport it planned to boost the number of regional jets flying here from 29 to 60.
Meanwhile, United also has said it is planning to create a separate, low-cost airline that will fly its smaller Boeings and Airbuses.
Bankrupt airline plans for partners to acquire smaller, regional planes
By Ann Imse, Rocky Mountain News
January 4, 2003
Bankrupt United Airlines quietly has lined up the purchase of hundreds of skinny new regional jets by its United Express partners, part of a move that could transform the experience of flying United.
If the airline goes ahead with the full plan, it could be selling tickets on 425 of the 50-seat Bombardier jets within a few years. That's approaching the size of United's current fleet of large planes.
Under the plan, millions of passengers would find themselves on miniature jets more cramped than a Boeing 737 - but arriving at their destinations hours sooner.
The change is part of a United strategy to vastly expand its route network, without spending a dime on its own planes or flight crews.
On the regional jet deal alone, United has shifted a capital investment of up to $8 billion to its partners.
If the strategy is carried out, despite the Chapter 11 filing, United will be able to offer passengers many more destinations. But often, even though they'll have a United ticket, they'll be flying on another airline.
That network of other airlines now includes three United Express carriers, 13 foreign airlines and US Airways, which is just beginning its joint ticket-sale arrangement with United.
United has said it can earn as much money selling tickets on its partners' planes as it does flying its own aircraft. United's highly paid staff pilots had long opposed the strategy for fear it would mean a loss of jobs.
But pilots now hope it will funnel more passengers from smaller cities onto the United mainline jets they fly, said one senior pilot.
For passengers, the greatest change will come when they board one of the United Express Bombardier CRJ-200 jets. Travelers who have flown the 50-seat jets found them narrow, low-ceilinged over the seats, with little room for stretching. They have just four seats across with a narrow aisle in the middle, and typically carry only one flight attendant.
But since they cost 52 percent less to run than the large jets, they can fly profitably on lightly traveled routes, United says. That opens up nonstops at 530 mph where none existed previously.
Analyst Michael Linenberg of Merrill Lynch recently flew a regional jet between Des Moines, Iowa, and Newark, N.J., a trip that previously required changing planes in Chicago.
I'd rather fly the 737, he said. But flying nonstop on the swift regional jet cut his trip time from six hours to 2 ½. That's a big difference. I'll take that over changing in Chicago in winter.
Linenberg said the expansion plan plays to United's competitive advantage - its vast network of 13,000 city pairs connected through hubs like Denver. A Denver-Birmingham, Ala., flight might attract five passengers a day flying between the two cities, but 70 who want to connect in Denver to United's other destinations, he said.
With no cash or credit of its own, United has arranged for the vast expansion of its current fleet of 125 regional jets by persuading its three United Express subcontractors to acquire them. United pays the Express carriers a fee to provide both planes and crews, who are paid less than United staff. United decides where to fly, sells the tickets and takes the financial risk and reward.
The expansion plan is proving to be highly risky for the United Express carriers, who are taking on enormous investments for a now-bankrupt airline.
According to interviews and corporate documents, the three carriers have placed firm orders for 131 regional jets, most in the coming year, and options for at least 169 more. All are for 50-seat Bombardier CRJ-200 jets. That would bring the total to 256 to 425 small jets.
United has said in court filings that it also wants to acquire a number of slightly larger regional jets, with 70 seats.
A fleet of more than 400 regional jets would come close to the size of United's regular fleet of Boeings and Airbuses. United currently flies 557 full-sized jets, but pilots have agreed to allow that to drop to 496, said analyst Linenberg.
United pilots already have agreed to allow United to run as many as 293 regional jets, including 50 that replace turboprops, Linenberg says.
That could rise in the renegotiation of the pilots' contract.
United passengers also will be offered many more flights on the small jets on United's new partner, US Airways. It has approval from its pilots' union to expand its regional fleet from 70 to 465 jets within a few years, Linenberg said.
For the United Express carriers, the deals started low-risk, with United guaranteeing them a base level of long-term revenue. But the risk jumped when United went into bankruptcy court, where it can tear up contracts without being sued.
United already has told the three United Express carriers they'll have to cut their fees by $80 million or risk losing their contracts with United. That could leave the United Express carriers with huge fleets of jets that no one wants to use.
Upping the pressure, United has already asked two unnamed companies to prepare competing bids to take over the United Express business from the three who have it now.
Atlantic Coast showed its hand - and its nerves - on the issue last week. It asked the bankruptcy judge to order United to stick to its contract to pay for use of 47 regional jets that Atlantic Coast is acquiring on United's behalf almost weekly in 2003.
Given the magnitude of the deal - $940 million - Atlantic Coast argued that a late decision by United to cancel the contract could threaten Atlantic Coast's very viability. The judge has not ruled.
But SkyWest spokesman Phil Gee was much more confident. SkyWest also is adding regional jets for its Delta routes out of Salt Lake City, and Delta might need the planes if United doesn't, he said. In addition, SkyWest/United Express is the only airline serving many of the small cities of the West, and he believes SkyWest would continue to do so.
We still plan on taking delivery of them, Gee said. We're pretty confident they'll be used somewhere, if not by United.
United has said it will fly the regional jets on routes where small jets can make a profit and large ones can't. But any more precise route information is a closely held secret.
We don't even know (where we'll be flying) until right before delivery, said the SkyWest spokesman. Last fall, before filing for bankruptcy protection, United told Denver International Airport it planned to boost the number of regional jets flying here from 29 to 60.
Meanwhile, United also has said it is planning to create a separate, low-cost airline that will fly its smaller Boeings and Airbuses.
