Dave's Gloomy Forecast

[UAL777flyer]

Chip,

I'm still curious: who do you view Jake Brace aligning with?

As an aside, just had the pleasure of meeting Glenn Tilton. He spoke to my department for about an hour. While I'll admit I had reservations about him up until today, after meeting him I came with immensely impressed. His command of industry issues in only 5 weeks on the job was amazing. I'm convinced he's the right kind of leader for UA. And progress IS being made, even if it's not apparent publicly.

 

[chipmunn]

767jetz:

767jetz said: Sounds to me like if UAL can get access to capital without the ATSB, your unique corporate transaction (UCT) within BK will will not come to pass.

Chip comments: 767jetz, as I have said the fragmentation of UA's domestic system into the US new labor contracts was discussed to prevent a UA & US bankruptcy filing. The intent was to rid UA of its high cost domestic operation, which could make the airline profitable without a formal reorganization. From a cost accounting perspective UA's international route network could probably support its high cost operation, but the challenge for all mature airlines is low cost operators and revenue pressures.

Unlike PanAm, the revenue umbrella would have been the domestic alliance/feed, to make this arrangement an effective business plan/model for each carrier.

However, when the US labor groups and other stakeholders failed to reach consensual accords by June 15, reports indicate the parties looked at other options.

At this point the US restructuring is well underway. However, in my opinion, UA is beginning down the restructuring road and management/labor may have three options:

1. Have all parties agree on $1 billion in labor cuts for five years to save the ESOP, if a public investor will agree to loan UA capital. Up to this point, nobody has agreed to loan UA capital or to acquire unencumbered assets. However, with UA's debt structure and losses requiring about $2 billion in capital from July 1 to December 31, this option may be difficult to conclude.

2. Obtain $1.5 billion in annual labor plus $1 billion in annual other stakeholder cuts over 6 years. This would provide $2.5 billion in annual cuts and if the governance is relinquished, this could provide ATSB funding and bankruptcy avoidance.

3. If no agreement is reached the airline will likely be forced to seek bankruptcy protection. The airline would be forced to slash capacity, furlough thousands of employees, and seek greater than $2.5 billion in involuntary employee and other stakeholder cuts. If UA management duplicated the US ATSB loan guarantee application process, the airline filed a dual track application including the bankruptcy option. This would enable UA to obtain a loan of up to $2 billion with $1.8 billion backed by the federal government upon emergence.

If UA is a forced into option 3, US provided it emerges before UA, and other airlines could bid on UA assets inside a formal proceeding. With a successful US bid, the two company's could continue to support one another with the revenue umbrella the Domestic and Star alliance.

Nobody knows for sure how the UA restructuring will unfold and its up to the labor coalition and management to decide its course of action, but will the progress be enough to restructure outside of Chapter 11 or could we know more about a bankruptcy petition on or before October 27?

Regardless, US and UA continue to talk to one another and test the alliance. Today US reported the first signs of the US marketing partnership with UA are becoming evident to customers this week, with reciprocal Club benefits and interline electronic ticketing capability taking effect. Behind the scenes, however, there is much work going on to maximize convenience for passengers who will benefit from the code-sharing and frequent traveler enhancements that will soon become available.

Last week, a team of about 30 people, representing a number of departments at US as well as representatives from UA, Sabre and EDS, gathered for a two-day “table-topâ€￾ session to test a variety of scenarios from the customer’s point of view. “Our objective was to simulate real travel experiences to test our systems and procedures,â€￾ said Dennis Tierney, manager of corporate development and leader of the US partnership team.

Fifteen passenger scenarios were discussed at length. Passenger Johnson, for instance, started his trip in Altoona on US Express, and connected to a US flight carrying a UA flight number from Pittsburgh to Los Angeles. There the customer boarded a UA flight to Tokyo. The team went through all the customer touch-points, from reservations to ticketing to check-in, baggage and frequent flyer program to uncover any open issues.

“We examined case studies with all sorts of variables and kept a running list of those items that need further attention,â€￾ Tierney said. “Assignments were made and priorities established. Our intent is to present a smooth and convenient customer experience when the code-share program begins early next year,â€￾ he said.

Chip

 

[UAL777flyer]

Chip,

I'm curious why you continue to avoid my question regarding Jake Brace. You made a comment several days ago that he could be falling out of favor with Tilton due to who he was aligning himself with. I'm curious who you think he's aligning himself with.