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10:33:01 AM EDT - Tuesday, May 6, 2003 Markets close in 5 hours and 26 minutes.
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US Airways Frontrunner For Picking Up ACAI Capacity
May 05, 2003 (Airline Financial News/PBI Media via COMTEX) -- US Airways
may be interested in recruiting the services of regional carrier Atlantic Coast
Airlines [ACAI] if United Airlines [UAL] is forced to liquidate under Chapter 7,
according to two financial analysts. However, they are divided about whether
American Airlines [AMR] also would want to pick up extra regional capacity from
Atlantic Coast.
If United is tipped into liquidation, displaced capacity at Atlantic Coast would
be utilized in the market, with US Airways and American Airlines being the two
most obvious sources of demand, according to Jim Higgins of Credit Suisse First
Boston. He noted on April 28 that US Airways'' restructuring plan incorporates an
unknown number of regional jets, but can add over 400. At this time, the carrier
has about 150 jets committed or in operation. Higgins does not believe US
Airways will operate 400 RJs, but Atlantic Coast''s 79 or so RJs would provide an
opportunity for a relatively quick influx of regional jet capacity for US
Airways, although at operating margins he strongly believes would be
single-digit rather than the 12-13 percent that have prevailed.
United''s chances of avoiding liquidation increased when the International
Association of Machinists ratified labor concessions on April 30 and flight
attendants ratified concessions the day before that will save the carrier more
than $1 billion a year for six years.
Higgins went on to say that the less widely known candidate for displaced
Atlantic Coast capacity would be American Airlines, which has significant scope
relief in its new pilots contract to add RJs. As a means of helping the carrier
maintain revenue competitiveness, American''s pilots have granted it the right to
fly more than 600 50-seat regional jets (or 110 percent of its narrowbody fleet)
at its wholly owned American Eagle and contract regional carriers, versus a
current base of about 165 RJs.
While Higgins does not believe that American would need anything close to that
higher number, he sees American adding perhaps 160-200 RJs. Currently the number
of regional aircraft (including turboprops) that American flies is about 35
percent of its mainline fleet size, versus about 51 percent and 62 percent at
Continental Airlines [CAL] and Delta Air Lines [DAL], respectively. American
also has gotten the right to fly 70-seat RJs, but they must be moved to flying
by American pilots at proportionate wage rates to the 50-seaters and therefore
appear unlikely to be possible sources of growth for free-standing operators,
according to Higgins.
He said he has no specific information that either US Airways or American
intends to tap Atlantic Coast for flying, but he sees such a move as reasonably
possible. In any event, he is most interested in those two carriers''
contribution to reduced downside risk for Atlantic Coast, in the form of
potential takers of its capacity, should United liquidate.
Jamie Baker of JP Morgan agrees that US Airways may be interested in gaining
regional airline capacity by using Atlantic Coast. But he does not believe that
other major carriers - including American Airlines - would want the extra
regional capacity that would become available.
In an April 23 analysis, he looked at specific major airlines that might
be
partners for both Atlantic Coast and SkyWest Airlines [SKYW], another regional
carrier that flies for both United and Delta. With the possible exception of US
Airways, he essentially throws cold water on the prospects of finding new major
partners.
With their major partners seeking significant cost reductions, a strategy for
Atlantic Coast and SkyWest would be to seek new growth opportunities elsewhere,
Baker pointed out. SkyWest has publicly acknowledged meaningful negotiations
with alternative partners. That sounds like a good idea, but only on the
surface, according to Baker. He lists the following large potential customers
for Atlantic Coast and SkyWest and gives an assessment of the likely prospects:
Continental Airlines. Not likely. Continental currently owns 53 percent of its
regional partner, ExpressJet [XJT]. With Continental''s financing flexibility
otherwise exhausted, Baker does not believe it would take on a new regional
partner and risk jeopardizing the value of ExpressJet. Furthermore, XJT is
guaranteed to remain Continental''s exclusive RJ provider in its hubs until 2007.
Northwest Airlines [NWAC]. Not likely. Northwest is currently contributing stock
of its wholly owned subsidiary, Pinnacle, to its pilot pension fund. Like
Continental, Northwest seems unlikely to risk jeopardizing the value of Pinnacle
by taking on Atlantic Coast or SkyWest.
American Airlines. Not likely. American remains focused solely on its continued
restructuring and ability to avoid Chapter 11. He does not believe American is
in any financial shape to take on an additional regional partner, and a recent
23 percent reduction in mainline pilot pay otherwise reduces the marginal appeal
of regional aircraft. Furthermore, American''s revised pilot contract transfers
70-seat RJs in operation (and on order) from the Eagle to mainline.
US Airways. A distinct maybe. US Airways is hungry for RJs, without question.
However, its current pilot contract forbids partnering with non-union carriers.
SkyWest is a non-union carrier. While there may be some hope for Atlantic Coast
at US Airways, the same should not be assumed for SkyWest.
Delta Air Lines. Not likely. Delta''s regional program, DCI, is the industry''s
largest and may serve as a significant source of financing for the airline at a
later date. In addition, Delta recently signed up Chautauqua in both Florida and
Ohio. If Atlantic Coast or SkyWest were aggressively seeking incremental Delta
opportunities, Baker asks why Delta would award the service to Chautauqua. The
answer, he said, is that Chautauqua''s bid was lower. The leverage that
accompanies Delta''s portfolio of five regional airlines limits the likelihood of
SkyWest extracting favorable terms.
Baker went on to say it is exceedingly unlikely that alternatives to United or
Delta would match the otherwise lofty departure rates that SkyWest and, to a
lesser extent, Atlantic Coast, currently receive. In short, he does not believe
investors should be misled by the prospects for new partners, particularly if
new partners pay market rates.
[Copyright 2003 PBI Media, LLC. All rights reserved.]
Airline Financial News, Vol. 21, No. 18 [Copyright 2003 PBI Media, LLC. All
rights reserved.]
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10:33:01 AM EDT - Tuesday, May 6, 2003 Markets close in 5 hours and 26 minutes.
News
Latest News
PR Newswire
Business Wire
Recent IPO Filings
Late IPO Filings
+ Pre-Announce
- Pre-Announce
Recent IPO Pricing
US Airways Frontrunner For Picking Up ACAI Capacity
May 05, 2003 (Airline Financial News/PBI Media via COMTEX) -- US Airways
may be interested in recruiting the services of regional carrier Atlantic Coast
Airlines [ACAI] if United Airlines [UAL] is forced to liquidate under Chapter 7,
according to two financial analysts. However, they are divided about whether
American Airlines [AMR] also would want to pick up extra regional capacity from
Atlantic Coast.
If United is tipped into liquidation, displaced capacity at Atlantic Coast would
be utilized in the market, with US Airways and American Airlines being the two
most obvious sources of demand, according to Jim Higgins of Credit Suisse First
Boston. He noted on April 28 that US Airways'' restructuring plan incorporates an
unknown number of regional jets, but can add over 400. At this time, the carrier
has about 150 jets committed or in operation. Higgins does not believe US
Airways will operate 400 RJs, but Atlantic Coast''s 79 or so RJs would provide an
opportunity for a relatively quick influx of regional jet capacity for US
Airways, although at operating margins he strongly believes would be
single-digit rather than the 12-13 percent that have prevailed.
United''s chances of avoiding liquidation increased when the International
Association of Machinists ratified labor concessions on April 30 and flight
attendants ratified concessions the day before that will save the carrier more
than $1 billion a year for six years.
Higgins went on to say that the less widely known candidate for displaced
Atlantic Coast capacity would be American Airlines, which has significant scope
relief in its new pilots contract to add RJs. As a means of helping the carrier
maintain revenue competitiveness, American''s pilots have granted it the right to
fly more than 600 50-seat regional jets (or 110 percent of its narrowbody fleet)
at its wholly owned American Eagle and contract regional carriers, versus a
current base of about 165 RJs.
While Higgins does not believe that American would need anything close to that
higher number, he sees American adding perhaps 160-200 RJs. Currently the number
of regional aircraft (including turboprops) that American flies is about 35
percent of its mainline fleet size, versus about 51 percent and 62 percent at
Continental Airlines [CAL] and Delta Air Lines [DAL], respectively. American
also has gotten the right to fly 70-seat RJs, but they must be moved to flying
by American pilots at proportionate wage rates to the 50-seaters and therefore
appear unlikely to be possible sources of growth for free-standing operators,
according to Higgins.
He said he has no specific information that either US Airways or American
intends to tap Atlantic Coast for flying, but he sees such a move as reasonably
possible. In any event, he is most interested in those two carriers''
contribution to reduced downside risk for Atlantic Coast, in the form of
potential takers of its capacity, should United liquidate.
Jamie Baker of JP Morgan agrees that US Airways may be interested in gaining
regional airline capacity by using Atlantic Coast. But he does not believe that
other major carriers - including American Airlines - would want the extra
regional capacity that would become available.
In an April 23 analysis, he looked at specific major airlines that might
be
partners for both Atlantic Coast and SkyWest Airlines [SKYW], another regional
carrier that flies for both United and Delta. With the possible exception of US
Airways, he essentially throws cold water on the prospects of finding new major
partners.
With their major partners seeking significant cost reductions, a strategy for
Atlantic Coast and SkyWest would be to seek new growth opportunities elsewhere,
Baker pointed out. SkyWest has publicly acknowledged meaningful negotiations
with alternative partners. That sounds like a good idea, but only on the
surface, according to Baker. He lists the following large potential customers
for Atlantic Coast and SkyWest and gives an assessment of the likely prospects:
Continental Airlines. Not likely. Continental currently owns 53 percent of its
regional partner, ExpressJet [XJT]. With Continental''s financing flexibility
otherwise exhausted, Baker does not believe it would take on a new regional
partner and risk jeopardizing the value of ExpressJet. Furthermore, XJT is
guaranteed to remain Continental''s exclusive RJ provider in its hubs until 2007.
Northwest Airlines [NWAC]. Not likely. Northwest is currently contributing stock
of its wholly owned subsidiary, Pinnacle, to its pilot pension fund. Like
Continental, Northwest seems unlikely to risk jeopardizing the value of Pinnacle
by taking on Atlantic Coast or SkyWest.
American Airlines. Not likely. American remains focused solely on its continued
restructuring and ability to avoid Chapter 11. He does not believe American is
in any financial shape to take on an additional regional partner, and a recent
23 percent reduction in mainline pilot pay otherwise reduces the marginal appeal
of regional aircraft. Furthermore, American''s revised pilot contract transfers
70-seat RJs in operation (and on order) from the Eagle to mainline.
US Airways. A distinct maybe. US Airways is hungry for RJs, without question.
However, its current pilot contract forbids partnering with non-union carriers.
SkyWest is a non-union carrier. While there may be some hope for Atlantic Coast
at US Airways, the same should not be assumed for SkyWest.
Delta Air Lines. Not likely. Delta''s regional program, DCI, is the industry''s
largest and may serve as a significant source of financing for the airline at a
later date. In addition, Delta recently signed up Chautauqua in both Florida and
Ohio. If Atlantic Coast or SkyWest were aggressively seeking incremental Delta
opportunities, Baker asks why Delta would award the service to Chautauqua. The
answer, he said, is that Chautauqua''s bid was lower. The leverage that
accompanies Delta''s portfolio of five regional airlines limits the likelihood of
SkyWest extracting favorable terms.
Baker went on to say it is exceedingly unlikely that alternatives to United or
Delta would match the otherwise lofty departure rates that SkyWest and, to a
lesser extent, Atlantic Coast, currently receive. In short, he does not believe
investors should be misled by the prospects for new partners, particularly if
new partners pay market rates.
[Copyright 2003 PBI Media, LLC. All rights reserved.]
Airline Financial News, Vol. 21, No. 18 [Copyright 2003 PBI Media, LLC. All
rights reserved.]
