Deal Completed By Next Week?

[FWAAA]

I certainly am not a financial person but in todays times 500 mil is nothing.  It is a vast sum of money to me but to many entities it is nothing.  Bill Gates and Warren would spend that much on a house.  So far we have lined up 100 mil from a commuter outfit.  And if we beg enough we might find someone to put up the 500 mil for the merger.  There are billions and billions of investment dollars out there, in my view they are not fighting for US.

[post="268301"][/post]​

True, half a billion is chump change these days . . . unless you're a bankrupt legacy airline, that is. Then $500 million might as well be $500 trillion, since bankrupt airlines don't have Mr Gates nor Mr Buffett handing them bags of money. Yes, there are hundreds of investors with billions of investment dollars, but none of them is anxious to throw it away, and that's exactly what investing in USAir or a combined HP-US entity would be. You don't get to be a billionaire by pissing away money on loser companies.

Beg? Begging ain't gonna do it. Business plan with reasonable chance of producing superior profits would do it. But US hasn't got one of those.

 

[AAviator]

Bet we'll be even more stunned at how fast the combined entity burns through it.

[post="268120"][/post]​

Wasn't it "stunning" to learn hoiw much money RSA has? Look where that got 'em.

 

[javaboy]

I certainly am not a financial person but in todays times 500 mil is nothing. It is a vast sum of money to me but to many entities it is nothing. Bill Gates and Warren would spend that much on a house. So far we have lined up 100 mil from a commuter outfit. And if we beg enough we might find someone to put up the 500 mil for the merger. There are billions and billions of investment dollars out there, in my view they are not fighting for US.

[post="268301"][/post]​

Airline Market cap % of airline 500M would buy
AMR 1.77B 28%
DAL 387M 100%
UAL 115M 100%
UAIRQ 41M 100%
CAL 818M 61%
NWAC 370M 100%
JBLU 2.14B 23%
LUV 11.62B 04%

or if you will with 500M you could take any of the 100% private,
or if you will you could buy USAIR, AND UNITED combined
or if you will you could buy UNITED and NORTHWEST combined

interesting.
of course you could just as easily put another column of fleet
and see that for roughly what 410 planes (LUV) it you have 11.62b
yet for say AMR 600+ planes 1/10 the value?

:unsure:

 

[madders]

I certainly am not a financial person but in todays times 500 mil is nothing. It is a vast sum of money to me but to many entities it is nothing. Bill Gates and Warren would spend that much on a house. So far we have lined up 100 mil from a commuter outfit. And if we beg enough we might find someone to put up the 500 mil for the merger. There are billions and billions of investment dollars out there, in my view they are not fighting for US.

[post="268301"][/post]​

I belive 500mil is what AA bought TWA for.

I believe thats the going rate for BK airline ..I think U is a better investment..
good routes , shuttle,international,caribbean not to mention cargo..much more than TWA
offered to AA

 

[luvn737s]

While I suppose the strategy is to "sell" the merger this way, I am still unable to comprehend how anyone with more than a few functioning brain cells could believe it is a good investment. The concept of instantly creating a nationwide LCC similar in scope to SWA certainly sounds appealing, but the reality doesn't match the concept being pitched. Southwest has a single fleet type. The combined HP/US would have at least four type families (not including the regionals!), and the Airbus narrowbody fleets have different engine types. Integrating the two workforces may well make the AMR purchase of TWA look amicable. Standardizing policies, products, procedures, etc. between the two airlines will be expensive.

Southwest has a market cap of $12 billion because (1) they have been profitable for the last 32 years, (2) they possess assets worth a bit over $13 billion with roughly $4.8 billion in liabilities, (3) management has shown that they are able to control costs while maintaining good employee relations, and (4) their business model has been proven to work in good times and bad.

America West has made a profit in one year of the past five. US Airways' only profit in the last five years came as a result of discharging its liabilities in the first bankruptcy. The combined entity would still owe roughly a billion dollars on ATSB-guaranteed loans. What specifically would be "different" about a combined HP/US that would allow it to make a profit? About the only things they have in common are some of the lowest pay rates among the network carriers -- and neither is profitable! America West's first quarter profit came largely on mark-to-market gains on fuel hedges for future quarters.

It would take a heck of a lot more than a whizzy PowerPoint presentation to convince me that this dog would hunt. For some reason, I think a lot of potential investors tend to ignore how deftly airline labor unions tend to throw a monkey wrench into the integration machine.
I personally am stunned that any money manager would be dumb enough to throw any appreciable sum of money at this merger. I can easily understand why AWAC and Republic put money into US Airways; AWAC needed an exit strategy and bargaining chip with UAL, while Republic stood to gain the MDA business and a slew of slots (and their commitment to the reorganization plan was nebulous at best). GE's motivation is obvious, but it is interesting to me that GE is unwilling to directly risk any of its own funds so far. I suppose Bronner could try to save face, since the value of RSA's investment in the first reorganization was basically wiped out as a result of the second bankruptcy.

I still do not see, however, how combining a bankrupt non-LCC with a struggling sort-of-LCC creates this "nationwide LCC" to rival Southwest. It just does not add up, even if you drop half a billion into this hare-brained scheme.

[post="268180"][/post]​

What does HP lack to be (more) profitable? Access to high-rasm traffic. What does U lack to be profitable? Lower total costs across the board, which good credit could provide. How does it impact WN? It ties up gates at PHL and PIT and provides a competitor who can compete on-price with WN as HP has done for years. If HPU can squeeze tremendous productivity and shed a great deal of it's high-cost RJ feed, I think it has a chance. But it must not be underfunded. The time horizon to get it to gel will be at least 4 years and alot of money is going to go over the spillway in that time.

It may force WN to have to grab a ladder, the low hanging fruit will be GONE!

 

[Twicebaked]

PIT?! :blink:

Why must they keep teasing the poor city, come on US you've burned PIT one too many times, STAY AWAY! :down:

[post="267631"][/post]​

Us Airways operation is already in PIT and is quite large. AWA's I would imagine is not. PHL and/or CLT would be a waste of money since PIT already exists. I am refering to OCC, Inflight Admin, not the base itself.

 

[usair_begins_with_u]

If I had $500 Million, the last place I'd run to invest is the airlines. I'd start building high-rise apt buildings on Florida’s south Atlantic coast. What is the ROI model that can lure this kind of investment capital? Are these people expecting oil to go back to $25 a barrel? What a gamble. I think one airline; WN has been consistently profitable since deregulation, so the industry track record is not that strong. Right now, wages in the industry are about as low as they will ever get. Point to point ULC carriers (I will now coin the phrase Ultra Low Cost) will always be able to skim from the larger network carriers. The industry will consolidate, prices will go up, and the cycle will repeat. Without regulation, air travel will never yield above normal profits in the long run. They couldn't do it consistently with all the fancy demand forecasting and revenue management systems the majors spent many millions on. The airline industry is plagued with dynamics that quickly lead to destructive competition: low differentiation, low switching costs, highly perishable product, high exit barriers, high start up costs, very low marginal costs. Nothing will change these dynamics. You can decrease the number of competitors, but there is no evidence to suggest that co-opetition will keep profits high enough in the long run. Air travel is such a structurally dog eat dog industry.

Thanks to the dawn of the Internet age, air travel has become such a commodity that no one in their right mind should expect to make above normal profits in the long run. The expense of merger and size of the debt burdens adds up to too much risk for even the most optimistic forecasts, given the all the investment alternatives.

 

[RowUnderDCA]

I Are these people expecting oil to go back to $25 a barrel? What a gamble.

[post="269056"][/post]​

I think they mentioned hedge funds as potential investors. Could it be that folks are looking for hedges on the oil investments? So, a little bit of airline stock, bought cheap, with lowered costs and little fuel hedging could hedge an oil futures investment?????? I'm just guessing that you might be right.

 

[sfb]

What does HP lack to be (more) profitable? Access to high-rasm traffic.

Why do they not have high-RASM traffic? Because they compete with WN in many markets and they are unable to offer a product which compels passengers to pay a RASM premium. If the combined HP/US continues to compete with WN in many markets, how do they then achieve higher RASM?

What does U lack to be profitable? Lower total costs across the board, which good credit could provide.

Better credit isn't going to impact US Airways or the combined entity enough to reach profitability. And it doesn't solve the problem of all the high-cost regional feed going against the LCC's, nor does it address the high-cost ways in which the US business is run. When you break down the various components of CASM, WN's largest advantage (even more than fuel) comes from the fact that their "other" expenses are 1.34 cents/mile (and this appears to include a category UAIRQ terms "selling expenses"). The comparable number for US is a whopping 3.05 cents/mile -- a difference of 1.71 cents.

How does it impact WN? It ties up gates at PHL and PIT

Ties up gates at PIT? US only has long-term leases on ten gates. The airport will be more than happy to take gates away from US and give them to WN as needed.

The gate leases at PHL all expire in June, 2006. The city will not enter into exclusive-use leases again, and it's extremely likely that they will force some of the airlines to move around. It would not be surprising if they moved Delta or Northwest (or both) out of Terminal E or if they moved United from Terminal D into A, B, or C.

and provides a competitor who can compete on-price with WN as HP has done for years.

And HP has only made a profit in one of the past five years competing "on-price" with WN. In large part, they manage to scrape by through charging somewhat higher prices in markets where they do not compete with Southwest. AWA's unrestricted PHX-DCA fare of $449-499 is not exactly inexpensive.

If HPU can squeeze tremendous productivity and shed a great deal of it's high-cost RJ feed, I think it has a chance.

Well, the problem is, US seems to have locked itself into agreements with AWAC and Republic for plenty of high-cost regional feed, and America West can't ditch its contract with Mesa through the bankruptcy court. I agree, though, that productivity and less high-cost regional feed would help. I remain skeptical that HP's management team has some sort of magic productivity plan; key to their low costs are low wages.

But it must not be underfunded. The time horizon to get it to gel will be at least 4 years and alot of money is going to go over the spillway in that time.

I agree with you 100% on this. But airline mergers are expensive and neither US nor HP comes into this with much cash. The reorganization investment made by some set of investors will have to provide some sort of cash cushion against what are likely to be continuing losses AND fund the expenses of an integration. I think it could be done with perhaps a couple of billion. Even AWA has been burning through cash -- about $165 million in the past year (granted, $86 million of this was for repaying the ATSB loan).

It may force WN to have to grab a ladder, the low hanging fruit will be GONE!

If HP continues to price the same way they do at present, there will still be plenty of low-hanging fruit. HP's LCC strategy isn't much different than Delta's SimpliFares.

 

[BoeingBoy]

US Airways and America West appear on verge of merger

Jim

 

[luvn737s]

Why do they not have high-RASM traffic? Because they compete with WN in many markets and they are unable to offer a product which compels passengers to pay a RASM premium. If the combined HP/US continues to compete with WN in many markets, how do they then achieve higher RASM?

No, they don't have high-rasm traffic because they operate out of low-casm hubs, regardless of WN. Air Tran and Frontier have higher RASM because of their hubs, primarily. There will be many routes where HPU won't overlap with WN, but even where they do, the CASM gap with WN will diminish.

Better credit isn't going to impact US Airways or the combined entity enough to reach profitability.

How do you think you get a fuel hedge without credit?

The gate leases at PHL all expire in June, 2006. The city will not enter into exclusive-use leases again, and it's extremely likely that they will force some of the airlines to move around.

Oh, really? To accomodate WN. As it has done, where else??

And HP has only made a profit in one of the past five years competing "on-price" with WN. In large part, they manage to scrape by through charging somewhat higher prices in markets where they do not compete with Southwest.

I think you would be surprised by HP's yield management.

AWA's unrestricted PHX-DCA fare of $449-499 is not exactly inexpensive.

Nor should it be. WN doesn't go there (although they claim they do) so why dilute yield.


If HP continues to price the same way they do at present, there will still be plenty of low-hanging fruit. HP's LCC strategy isn't much different than Delta's SimpliFares.

Delta still has higher labor costs, structural inefficiencies and far lower fleet utilization, so aside from the unrestricted fares, I don't see any comparison between HP and DL.

[post="269069"][/post]​

 

[BoeingBoy]

Talks on possible US Airways, America West merger continue

"The airline's creditors committee, an important player in the current US Airways bankruptcy case, received little guidance at the Washington, D.C., meeting. But a source familiar with the discussion was left with the impression that a merger announcement is not imminent."

Jim

 

[USA320Pilot]

I believe the formal merger announcement is imminent.

Regards,

USA320Pilot

 

[BoeingBoy]

Merger stake weighed

Shareholder of AmWest emerges as player in deal

"Boston-based PAR Capital Management, which was America West's largest shareholder two years ago and still has a stake in the Tempe airline and other carriers, is seriously weighing a sizable investment in the deal, according to people close to the talks. The talks are going full throttle in Washington, D.C."

"While the pieces appear to be falling into place for a merger, the parties' most recent goal of a Monday announcement appears to be slipping because there are still so many moving parts, sources familiar with the talks say. "

Jim

 

[USA320Pilot]

As I said before, there are multiple investors willing to provide equity and you will be stunned by the formal announcement.

Regards,

USA320Pilot