ATSB Loan & Alliance Information

[chipmunn]

The US ATSB Conditional Loan Guarantee approval is predicated on obtaining a 7 percent profit margin in 7 years. The business plan requires $1.2 to $1.3 billion in cost cuts and $500 to $600 million in additional revenue to meet the $1.8 billion bottom line improvement required to obtain the loan guarantee.
US hoped to obtain voluntary agreements with all stakeholders to restructure the airline, but was unable to do so with all labor groups and aircraft lessors. In response, US filed for a formal reorganization where the future is much less clear.
The bankuptcy court has scheduled a September 10 hearing on the company's motion to alter or void collective bargaining agreements by those unions who have not reached a restructuring agreement. It is considered likely aircraft lessors will not provide voluntary market rate lease agreements without required labor cuts necessary to obtain a loan guarantee.
Another words, why should lessors take voluntary haircuts unless it believed US can emerge from bankruptcy?
Also noteworthy, US chief executive officer told employees at recent road shows he expects bidders to emerge who will attempt to buy assets or the entire airline through the bankruptcy court and the parties may not be labor friendly.
Meanwhile, there were two important alliance developments that could affect revenue projections and loan guarantee approval for both the US & UA applications.
First, the DOT has extended the review of the US-UA alliance, which can take another 150 days to decide whether or not to allow these two airlines to code share. The DOT decision is a business plan key component to obtain the loan guarantee.
DL-NW-CO, the number three, four, & five U.S. airlines, would like to join forces in a code share alliance and for all three members to join the DL SkyTeam alliance.
If both deals proceed, the U.S. hub and spoke domestic market share balance of power would be:
DL-NW-CO - 35.26 percent
US-UA - 23.42 percent
AMR - 19.02 percent
If only the US-UA deal is approved, the U.S. hub and spoke domestic market share balance of power would be:
US-UA - 23.42 percent
NW-CO - 20.54 percent
AA - 19.02 percent
DL - 14.72 percent
Chip

 

[chipmunn]

I have just learned the DOT extended the UA-US code share review for only 30 days, but could have extended the review for 150 days.

DOT doctrine provides for a 30 to 180 day code share review to evalute the proposals effect on consumer interests and competition.

The DL-NW-CO have not yet submitted thier plan to the DOT, but said they will do so shortly. Once submitted to the DOT, the alliance proposal will have the same 30 to 180 day review period as the US-UA agreement.

Also noteworthy, it is possible for the DOT to simultaneously rule on the US-UA & DL-NW-CO code share alliance proposals.

I expect to AA, UA, & US to file objections with the DOT on the proposed trilateral DL-NW-CO alliance based on antitrust issues. The trilateral alliance would control an enormous amount of the U.S. market with over 35 percent of the market share and will have a common airport monopoly in New York with the EWR & JFK hubs.

To put the DL-NW-CO alliance into perspective, this agreement would make this combination almost twice as large as AA & TW combined and more than twice as large as UA as a stand-alone airline.

Chip

 

[Lilninj]

I sure like that second set of numbers better. DL, NW, CO should not be allowed to codeshare. That is absolutely against public interest. However, the US-UA codeshare is in the public interest in two ways. First it has very little overlap compared to other airline combinations. It will provide communities that do not have one carrier service to many more locations, and give the smallest communities access to the country rather than just one big city. Second, as both carriers are threatened with going out of business, it is better to allow them to reach new passengers to survive and save air service elsewhere. That is the same reason that was given to allow the AA-TW buyout. No difference whatsoever now except that both of us are in trouble. I was surprised by the extension. Did they give a reason for their thinking? I hope this wasn't driven by the democrats like the denial of our merger. Circumstances are very different than they were when that deal was proposed. But, they should probably only approve it if the carriers were in fact in danger of being grounded. I know we're all losing big money, but I don't hear DL, NW, or CO talking about a BK. Things can't be as bad for them right now. Perhaps if things get worse for them, it would have to get new consideration but certainly not to the extent that they would be nearly as large as they propose.

In football, a score of 35 to 23 is not considered to be a close game, especially if the total score was limited to 100.

 

[DLFlyer31]

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On 8/24/2002 8:15:06 PM

Second, as both carriers are threatened with going out of business, it is better to allow them to reach new passengers to survive and save air service elsewhere. That is the same reason that was given to allow the AA-TW buyout.
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So what you're saying is that the gov't should actively encourage and reward poorly run airlines like UA and US????[] []

 

[Retired1]

DLFlyer31---- It didnt bother me when AA bought TWA. Did it bother you?

 

[Lilninj]

Did it bother anyone else that the AA-TW approval came in just 36 hours of submitting it while at the same time the US-UA proposal had been there for a year still with no decision? Of course that bothered me. Politics politics politics.

 

[a320av8r]

"Did they give a reason for their thinking? I hope this wasn't driven by the democrats like the denial of our merger"
The decision was made after George 2.0 took office and republicans are still in control (for now).

 

[ITRADE]

There may have been some "politicing" on the AA/TW deal, but to compare it to the UA/US deal is not valid.

Except for JFK-STL and maybe a couple other JFK routes, there was not a single route pair where AA and TW were the only two carriers. So, in a traditional merger analysis, you did not have market concentration issues to deal with. Furthermore, unlike UA/US, there were no sham corporations set up to fly certain routes which UA would have been forced to divest itself of. Finally, STL may have some clout; but certainly not the political clout and interest of DCA/PHL/NYC/BOS. Given that most congressmen east of the Mississippi use DCA as their departure point, the UA?US deal was certainly going to draw fire.

 

[Lilninj]

I base that on the press conference the then anti-trust chief gave about that approval. He said that they overlapped over 40% but due to the bankruptcy at TWA and the likelihood of all that service being lost forever, he would not seek an injuction to stop the merger. I don't pretend to know their whole systems and where they do and do not overlap. I go off of credible persons who know those answers. He of course did know the facts. His office had confirmed before then that the US UA overlap was minimal except in a few markets, no percentage given publicly that I'm aware of. So, that is why I complain about how that whole mess was handled. IMO UA should have been able to buy US and AA should have been able to buy TWA but not just one of those deals. Plus, the AA deal came in just 36 hours prior to his news conference. And he said "extensive review", how could they have an extensive review in just 36 hours after his review of UA US was over a year long by then with no decision. Pure politics, and I hope politics don't kill US Airways now.

Lilninj

 

[USFlyer]

The major overlap between TW and AA was to the Caribbean, I believe. In those markets it may have been 40 percent. But when analyzing the entire networks of both carriers, there is no way they overlapped 40 percent.

 

[ITRADE]

I would strongly disagree with a 40% overlap.

UA/AA would have a 40% overlap - at ORD.

 

[Blueskies/400 UpperDeck]

Wait..let me see if I get this straight. It appears that everthing is hunky dori if UAL or AA is twice the size of others. However, if the shoe is on the other foot, there's a problem? IF, the U/UAL codeshare is approved and the Tripartite is NOT. You will see the legal battle from hell. And the ground for weak airlines may turn to dust.

 

[Oliver Stone''s Apprentice]

One big difference between US and TW right now is that TW was intent on liquidation without reorganization, where US is trying to reorganize without liquidation.

The other big difference is that TW's total domestic market share was somewhere around 4%, which is far lower than what US has now. Combined, AA and TW came to 19%.

 

[UAL777flyer]

DLflyer,

Poorly run UA and US? I won't disagree with you there. But does that list also include Ron Allen's illustrious 7.5 cent plan that nearly ruined Delta? My point is that this industry is like a game of monopoly. Stick around long enough and at some point everyone feels the pain and at other points everyone enjoys the cash flow, and variations in between. The cyclical nature of this industry catches up to everyone. Delta isn't immune. I would imagine that Delta won't be able to hold off the unions forever. Should that happen, the landscape definately changes.

 

[magsau]

I wonder if anyone at the DOT will look at the DL,NW,CO codeshare and see the link to KLM. NW has strong ties to KLM that is rumored to be a takeover candidate by BA. BA being part of the oneworld alliance would tie in AA. So in short order the 2 o'clock flight from ATL-MOB would wear the titles of DL,NW,CO,BA,AA,KLM and of course AHHHFRANNNS.[]