www.cwa.net 3/19/04
Airline industry analyst sheds some light on recent moves and pronouncements by US Airways executives...
Goldman Sachs Global Investment Research has issued a report of US Airways' financial condition addressing several major topics of interest to employees: the potential for bankruptcy, the sale of certain US Airways assets, the sale or merger of the airline, and concession bargaining. Here are some of their conclusions:
Goldman Sachs does not foresee an imminent bankruptcy at US Airways.
"As a percentage of revenues, US Airways has less debt and greater cash as compared with other legacy carriers.. Cash burn rates are diminishing, and as long as industry revenue trends remain favorable, we believe that the company can survive until at least the next recession."
"Other than greater leverage with labor, we see little benefits to a second bankruptcy; combined with political considerations in an election year, we doubt that the government loan board or the company's creditors have much appetite to force US Airways into bankruptcy again, despite [loan] covenant violations." [Note: Goldman Sachs was right about this as indicated by the recent ATSB loan restructuring.]
They do not believe management really intends to sell Mainline assets.
"We suspect that proposed asset sales were primarily a threat to get labor back to the table, which seems to be working, as pilots have recently resumed talks."
"First, the assets themselves simply are not worth much. We estimate that the shuttle could fetch something in the $100-$150 million range, and that US Airways Express would be worth even less."
"Second, in making the company smaller, asset sales would further exacerbate the key revenue challenges coming from diseconomies of scale and, in turn, could accelerate the company’s cash burn."
They believe management's goal is to reduce costs in order to sell the airline.
"Management's most likely goal is to stabilize the company's financials and sell before the next downturn."
"All the reasons US Airways looked attractive to United in 2000 are present today, though US Airways' franchise value has deteriorated."
"Unfortunately, no legacy carrier is likely to be financially strong enough to consider mergers for several years. "No airline would want to make its workforce endure more wrenching changes anytime soon."
"Philadelphia, despite Southwest's entry remains an attractive hub city, but Charlotte and Pittsburgh lack the local revenue base to support an effective hub operation.."
Management is focusing on labor costs but overlooking other cost problems.
"Although US Airways' labor costs are an oft-cited source of its cost disadvantage, we note an equally large gap on non-labor cost items."
"The overhead costs of operating a large network carrier have a high fixed component, and US Airways' smaller network and steep capacity cuts cause these fixed costs to be spread over fewer flights."
"Management insists that every aspect of the company's operations is under review, but the non-labor cost problem is more complex and amorphous, and we have heard no clear strategy for limiting the non-labor gap."
Southwest threat in PHL is not a dire as management makes it out to be.
"We point out that all of Southwest's initial Philadelphia routes are already served by low-cost carriers, minimizing the incremental impact to US airways."
"We imagine that southwest has substantial Philadelphia ambitions should US Airways falter, but its moves thus far are more of a blow to other low-cost carriers than to US Airways."
"Southwest has historically added flights to make money rather than to hurt the competition, and US Airways is more likely to react strongly to Southwest's plans in Philadelphia than it did in Baltimore"
We seem to be bombarded weekly with leaked news stories and interviews by our executives describing all sorts of drastic business and financial strategies they may be considering. For that reason it is useful to have a competent, neutral business analysis like Goldman Sachs to sort out fact from spin.
When Goldman Sachs says, "We suspect that [US Airways] proposed asset sales were primarily a threat to get labor back to the table," it is clear that at least some in the business world take the statements of our executives with a grain of salt.
At the same time, any airline industry investment analyst addresses the concerns of investors and creditors, not the concerns of employees. They do not address, for example, the devastating impact of furloughs and facilities shutdowns on employees when an airline is sold or merged.
Airline industry analyst sheds some light on recent moves and pronouncements by US Airways executives...
Goldman Sachs Global Investment Research has issued a report of US Airways' financial condition addressing several major topics of interest to employees: the potential for bankruptcy, the sale of certain US Airways assets, the sale or merger of the airline, and concession bargaining. Here are some of their conclusions:
Goldman Sachs does not foresee an imminent bankruptcy at US Airways.
"As a percentage of revenues, US Airways has less debt and greater cash as compared with other legacy carriers.. Cash burn rates are diminishing, and as long as industry revenue trends remain favorable, we believe that the company can survive until at least the next recession."
"Other than greater leverage with labor, we see little benefits to a second bankruptcy; combined with political considerations in an election year, we doubt that the government loan board or the company's creditors have much appetite to force US Airways into bankruptcy again, despite [loan] covenant violations." [Note: Goldman Sachs was right about this as indicated by the recent ATSB loan restructuring.]
They do not believe management really intends to sell Mainline assets.
"We suspect that proposed asset sales were primarily a threat to get labor back to the table, which seems to be working, as pilots have recently resumed talks."
"First, the assets themselves simply are not worth much. We estimate that the shuttle could fetch something in the $100-$150 million range, and that US Airways Express would be worth even less."
"Second, in making the company smaller, asset sales would further exacerbate the key revenue challenges coming from diseconomies of scale and, in turn, could accelerate the company’s cash burn."
They believe management's goal is to reduce costs in order to sell the airline.
"Management's most likely goal is to stabilize the company's financials and sell before the next downturn."
"All the reasons US Airways looked attractive to United in 2000 are present today, though US Airways' franchise value has deteriorated."
"Unfortunately, no legacy carrier is likely to be financially strong enough to consider mergers for several years. "No airline would want to make its workforce endure more wrenching changes anytime soon."
"Philadelphia, despite Southwest's entry remains an attractive hub city, but Charlotte and Pittsburgh lack the local revenue base to support an effective hub operation.."
Management is focusing on labor costs but overlooking other cost problems.
"Although US Airways' labor costs are an oft-cited source of its cost disadvantage, we note an equally large gap on non-labor cost items."
"The overhead costs of operating a large network carrier have a high fixed component, and US Airways' smaller network and steep capacity cuts cause these fixed costs to be spread over fewer flights."
"Management insists that every aspect of the company's operations is under review, but the non-labor cost problem is more complex and amorphous, and we have heard no clear strategy for limiting the non-labor gap."
Southwest threat in PHL is not a dire as management makes it out to be.
"We point out that all of Southwest's initial Philadelphia routes are already served by low-cost carriers, minimizing the incremental impact to US airways."
"We imagine that southwest has substantial Philadelphia ambitions should US Airways falter, but its moves thus far are more of a blow to other low-cost carriers than to US Airways."
"Southwest has historically added flights to make money rather than to hurt the competition, and US Airways is more likely to react strongly to Southwest's plans in Philadelphia than it did in Baltimore"
We seem to be bombarded weekly with leaked news stories and interviews by our executives describing all sorts of drastic business and financial strategies they may be considering. For that reason it is useful to have a competent, neutral business analysis like Goldman Sachs to sort out fact from spin.
When Goldman Sachs says, "We suspect that [US Airways] proposed asset sales were primarily a threat to get labor back to the table," it is clear that at least some in the business world take the statements of our executives with a grain of salt.
At the same time, any airline industry investment analyst addresses the concerns of investors and creditors, not the concerns of employees. They do not address, for example, the devastating impact of furloughs and facilities shutdowns on employees when an airline is sold or merged.
