34million Profit

[Singleflyer]

Not seeing US financial statements, and I sure they will be difficult to understand but, sales of assets DOES NOT increase operating profits. Selling assets will usually increase cash flow. Assets (planes) and Assets (Cash) are reported on the Balance Sheet, not on the Income Statement. Therefore the sale of the planes does not increase the profits of the company. It is just swaping one asset (Planes) for another asset (cash)

The only possible "profit" to the company from the sale of assets, is when the assets are sold at a greater price than the "book value" of the assets. Therefore if these planes were sold more than the book value of the plane, this would be classified as "Gain on sale of Asset" this is not operating income (it has nothing to doe with an airline operations) and would be listed as non-operating income, or "Other Income."

Therefore I am assuming if these are older planes, there would be little if any gain on the sale of asset, if any.

This is real basic explaination of reading an Income Statement, and Balance sheets, and I am sure US financials are alot more complicated, but the theory is the same

 

[BoeingBoy]

SingleFlyer,

I think you've sorta hit on it. The a/c were 737-200's which probably had a low "book value" pre-bankruptcy since they had been mostly depreciated. Additionally, before and in bankruptcy there were several write-offs due to the declining value of used planes post-911, ending with a final write-off because "carrying cost was greater than value less sales cost." So I'm assuming that the airplanes were carried on the books at basically 0 value.

Thus, whatever they sold for was a "profit" over the value on the books.

Additionally, one of the operating divisions of U Group is the a/c leasing division, so a profit there could show up in the operating profit figures. Since the only figures broken out (on what I've seen) is mainline (U Inc), there's no way to tell yet (if ever) whether the gain was reported as an operational item or not.

Jim

 

[funguy2]

Boeing Boy:

Excellent work! I've been busy lately, so I haven't had the time to dig through the reports the way I have in the past... So either I scanned past that info, or it wasn't part of the press release.

In any case, I certainly understand why AmEx wants to protect itself, but boy, has US Airways put all its eggs in one basket...

If I am reading this right, US Airways must "restrict" cash (i.e. move it from "unrestricted" to "restricted") under certain circumstances...

$975mil unrestricted today
If US Airways unrestricted cash falls to $850mil, and GECAS pulls their financing, then US Airways unrestricted cash balance falls to $775mil... only $75mil above the ATSB loan covenenant. Yikes.

I like my bet that "something" will happen by October. While losing the GECAS financing seems unlikely at this point, and an additional $20mil cash becoming restricted is not the end of the world, it seems to me there is definitely some pressure to maintain the unrestricted cash balance. Of course, with the expected losses, that will be difficult without "something" (i.e. asset sale, bk, additional equity investment, IPO of PSA, who knows, those are just ideas) happening.

SingleFlyer:

You are right of course, about the sale of an asset... Its been explained here before (many times). But many folks on here don't allow the truth of Accounting 101 impede their view of management. I am not saying I agree with how this company is run, but many folks on here don't understand how the books work, and don't care to, unless it supports their theory of "management is screwing me over" (which of course they are, but the asset sale still has nothing to do with profits, it has more to do with further shinkage of the company, or possibly simply disposing of unused assets).

 

[usair_begins_with_u]

but the asset sale still has nothing to do with profits,

Straight from the horses mouth...

http://www.reuters.com/newsArticle.jhtml?t...storyID=5788495

"Fuel hedges and the sale of four aircraft had a positive impact on the results."

So.. unless USAir is lying, they credit the sale of assets having an impact on their POSITIVE results. who is right, you or the USAir acct mgrs?

 

[BoeingBoy]

funguy2,

If an asset is sold for more than its value on the books, isn't that a "profit" on the sale and thus "income" as well as positive cash flow?

Jim

 

[funguy2]

Straight from the horses mouth...

http://www.reuters.com/newsArticle.jhtml?t...storyID=5788495

"Fuel hedges and the sale of four aircraft had a positive impact on the results."

So.. unless USAir is lying, they credit the sale of assets having an impact on their POSITIVE results. who is right, you or the USAir acct mgrs?

You choose now to trust management hook, line, and sinker?

From US Airways Q2 results..

$83 Mil Operating Profit
$3Mil Interest Income
($57Mil) Interest Expense
$5Mil Other Income
$34Mil Net Income...

Now, in the text of the press release, management states that there was a $19Mil gain on hedges...

Lets see

+$19Mil Fuel Hedge Gain
-$X on Asset Sale
=$5Mil Other Income...

This tells me that the company lost $14Mil on The asset sale and/or something else (if there is other "other income")

Based on your quote, I will assume the only other income was the two items, fuel hedge and aircraft sale. Of course, I don't know if that is true.

Its all right here

 

[funguy2]

funguy2,

If an asset is sold for more than its value on the books, isn't that a "profit" on the sale and thus "income" as well as positive cash flow?

Jim

Yes, I beleive that is true, as characterized by SingleFlyer.

However, used aircraft values have plummeted. I don't know the specifics of the transaction or what US Airways had valued the aircraft at to know if they profited or not... However, my guess is that the company lost $14Mil on the deal, as I stated above...

Quite frankly, I don't know what they sold, what price, what the book value was prior. All I know is that math I did, and the generalization that used aircraft can be picked up on the cheap these days, as long as you are ok with B737-300/MD-80 era technology.

 

[BoeingBoy]

funguy2,

Apparently the aircraft were 737-200's - the '03 annual report showed us still owning 5 with 4 leased and they were the only 737's that were shown as leased.

I have no idea what the value was on the books for these aircraft, but assume that it was very low (possibly $0) given the following from the '03 annual report:

(f) During August 2001, US Airways conducted an impairment analysis in accordance with Statement of Financial Accounting Standards No. 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Ofâ€￾ (SFAS 121) on its 36 F-100 aircraft, 16 MD-80 aircraft and 39 B737-200 aircraft as a result of changes to the fleet plan as well as indications of possible material changes to the market values of
these aircraft. The analysis revealed that estimated undiscounted future cash flows generated by these aircraft were less than their carrying values. In accordance with SFAS 121, the carrying values were reduced to fair market value. This analysis resulted in a pretax charge of $403 million. In the aftermath of September 11, 2001, the Company elected to accelerate the retirement of the aforementioned aircraft. All B737-200 aircraft retirements were accelerated to the end of 2001 while the F-100s and MD-80s were scheduled to be retired by April 2002. Based on this, the Company conducted another impairment analysis which revealed that these aircraft were impaired. This culminated in an additional pretax charge of $173 million largely reflecting the further diminution in value of used aircraft arising from the events of September 11, 2001. Management
estimated fair market value using third-party appraisals, published sources and recent sales and leasing transactions. As a result of the events of September 11, 2001, the Company reviewed other aircraft-related
assets which resulted in a pretax charge of $15 million as certain aircraft assets had carrying values in excess of their fair value less costs to sell. Management estimated fair value based on recent sales and leasing
transactions. US Airways also recognized a pretax charge of $26 million in connection with the write-down to lower of cost or market of surplus parts for the F-100, B737-200 and MD-80 fleets. Management estimated
market value based on recent sales activity related to these parts. During the first quarter of 2002, US Airways entered into agreements to sell 97 surplus aircraft and related spare engines and parts, including substantially all its DC-9, MD-80 and B737-200 aircraft. In connection with these agreements, US Airways reduced the carrying values of these assets resulting in a $148 million charge during the fourth quarter of 2001, including a $138 million impairment charge and a charge of $10 million to write down the related spare parts. Additionally, the Company recognized a pretax impairment charge of $22 million in connection with the planned retirement of five B737-200 aircraft due to a third-party’s early return of certain leased B737-200 aircraft, and early retirement of certain other B737-200s during the first quarter of 2001.

I guess I just have trouble believing the company took a loss of 14 million on 4 737-200, which probably wouldn't fetch nerely that much on the market. And given the above, I find it hard to believe their value on the books was 14 million more than what they sold for.

Jim

 

[usair_begins_with_u]

Taken from 8K July 27, 2004

Mainline revenue per available seat mile 11.08c
Mainline cost per available seat mile 11.41c

and some how they turn a profit... simply amazing.

 

[funguy2]

Thanks Boeing Boy... That is great info. I did recall the impairment charges, although I did not have the specifics...

I can believe that UAIR took the loss... w/ 4 aircraft, thats a loss of $3.5mil each...

I can see valuing each aircraft at $5mil and selling it for $1.5mil (or something similar... value $7mil, sell at $3.5mil, you get the point)... That does not seem difficult to me... Especially considering that UAIR is paying some kind of storage and maintenance fees on the aircraft, its probably better to take the loss and get it over with rather than continuing to pay storage fees on aircraft who's value will likely never improve. I don't know what those fees are, but I do know that 737-200's are not increasing in value... America West, Alaska, and Southwest are all retiring their -200 fleets very soon...

Also, keep in mind, it may be like a junk-yard car, at this point, where the value of the peices are greater than the value of the whole thing...

 

[700UW]

US sold most the parked planes to Jetran before Chapter 11 and gave back the remaining in Chapter 11, so there are no storage fees being paid on anything, the planes sold were subleased, no cost to US. They did re-lease all the airbus that were parked and that was one A320 and 5 A319s.

 

[BoeingBoy]

funguy2,

From what I understand, the aircraft were leased out (we do have an a/c leasing/sales arm) and sold to the leasee.

Given the writedown's, I just don't see how the planes could be carried on the books as worth enough to create that sort of loss, but I could certainly be wrong.

Anyway, off to work for another 4 days.

Take care, everyone....

Jim

 

[funguy2]

Taken from 8K July 27, 2004

Mainline revenue per available seat mile 11.08c
Mainline cost per available seat mile 11.41c

and some how they turn a profit... simply amazing.

You are right... It looks like the difference is "Other" Operating Revenue... (If you look at the GAAP reconciliation, it shows that Express and MidAtlantic basically broke even). Anyone know what this encompasses? I assume this is change fees, club memberships, subcontracting MX and gate leases... etc... I know US Airways is handling Independence Air in a few locations... that would be "new" "other" revenue.

Maybe this was discussed in the conference call... maybe I will have to find some time and listen.

 

[funguy2]

funguy2,

From what I understand, the aircraft were leased out (we do have an a/c leasing/sales arm) and sold to the leasee.

Given the writedown's, I just don't see how the planes could be carried on the books as worth enough to create that sort of loss, but I could certainly be wrong.

Anyway, off to work for another 4 days.

Take care, everyone....

Jim

If that is true, then I would think an asset producing revenue would HAVE TO have a book value greater than zero... The book value, I would think, would have to be at least the expected revenue. I don't know this level of detail, however...

Also, any aircraft subleasing would be another "other revenue". Is UAIR doing more of this than previously?

Take care Boeing Boy... nice postings as usual.

 

[funguy2]

I read in another thread that $7mil went to Siegel and Cohen during the quarter... Since Seigel resigned in April, this may be true...

If these settlements were included in normal personel expenses, then there is no change to my analysis...

If the payouts to Seigel and Cohen were an after Operating Income item, it changes the profit/loss on the airplanes slightly...

+$19Mil Fuel Hedge Gain
-$7Mil on Expense to Seigle/Cohen
-$X on Asset Sale
=$5Mil Other Income...

X= $7Mil Loss on 4 airplanes, or $1.75mil on each aircraft... Maybe this is more reasonable...