Financial Analysis

[zonecontroller]

Bear96
4. I am having trouble seeing the connection between #3 and #4. Are you saying that the ATSB will not look at the new numbers UA is providing and objectively act on that data, but will instead somehow hold some sort of grudge for something that happened a couple of years ago (kinda like the way you do) and reject UA's 2004 ATSB application because they didn't like the numbers UA provided in 2002? If so I don't think I agree with that.

Jet fuel Prices in 2002 averaged $0.70 / gallon
Today they are aproaching $1.25 / gallon

Fuel Cost and Consumption

 

[Bear96]

Bear96
4. I am having trouble seeing the connection between #3 and #4. Are you saying that the ATSB will not look at the new numbers UA is providing and objectively act on that data, but will instead somehow hold some sort of grudge for something that happened a couple of years ago (kinda like the way you do) and reject UA's 2004 ATSB application because they didn't like the numbers UA provided in 2002? If so I don't think I agree with that.

Jet fuel Prices in 2002 averaged $0.70 / gallon
Today they are aproaching $1.25 / gallon

Fuel Cost and Consumption

Fascinating (not really), but irrelevant, or I am missing your point.

Are you saying in the current (2004) UA ATSB application, UA is somehow claiming fuel prices today are what they were in 2002?

Again, help me connect the dots...

 

[usfliboi]

You know what happens when you assume. I call "foul" when I see it. You can call it "causing trouble" if you want to.

Yes, UA is in BK and may never come out. Maybe you are mixing me up with other UAL employee posters but I have never made any bones about UA's condition-- we are in bad shape, no doubt about it.

However at the moment my future as a UAL employee is looking rosier than yours as a U employee, both in terms of who has given what in terms of concessions, and who is closer to having their employer simply shut the doors and liquidate. So lets not pretend that just because things are bad at UA (and, again, they certainly are), that somehow means things are rosy at U.

But I am not sure what that has to do with USAir320Pilot's incessant distortions and never-ending message that "UA = bad; U = good?"

First , your on the u board. Things boring over on your side? He is posting his thoughts and iinsights on our board. You come over to insight and im not talking information. Both are in trouble no doubt. The one thing we have going for us is bronner and his backing. Money he has put out and potentially could invest if things do begin to turn . Ual at this moment doesnt have that type of backing and may or may not get it. I think we both have enough problems and maybe your insight would help your fellow employees more than ours?

 

[ClueByFour]

Uhh, Bronner is not an advantage.

Bronner only jumped into U because he was going to take a bath on the EETC paper he held on various U aircraft. You can take it to the bank that if Citigroup and Chase had been willing to finance U in the same way they are offering to finance UA that U would have taken in in a heartbeat.

Bronner, being the savior that he is, has threatened to liquidate the company during Chapter 11, and several times since (most notably being the last time he was quoted after meeting with the pilots and FAs). He's retained Morgan Stanley to shop U parts around. And he just paid the ATSB off in such a way that he can now sell assets at will.

But you and mergerman can go on thinking that he's a good thing. The company would have been much better off in ithe long term if Bonderman and Company at TPG has won the bid....

 

[Bear96]

First , your on the u board. Things boring over on your side? He is posting his thoughts and iinsights on our board. You come over to insight and im not talking information. Both are in trouble no doubt. The one thing we have going for us is bronner and his backing. Money he has put out and potentially could invest if things do begin to turn . Ual at this moment doesnt have that type of backing and may or may not get it. I think we both have enough problems and maybe your insight would help your fellow employees more than ours?

Yes things are boring on the UA board. It is not "my" or "your" board; I can post wherever I want. As I have said before, if you want to start a board where only U employees can post, have at it.

And if Bronner is the "one thing going for you," you are in more trouble than even I imagined!

 

[ktflyhome]

Pay no attention, Bear 96, post wherever you want to. Some people on here get very possessive and self righteous.

 

[sfb]

Just to try to add some validity to the comparison of Delta's losses and UAIR's cash losses... The net profit or net loss reported by a company often has limited correlation with the company's cash flow, positive or negative. Several expense items in a profit-and-loss statement have no direct cash cost; the entry for "depreciation and amortization" is probably the clearest example. While the actual expenditure for the purchase (as opposed to leases) of a large capital item like a jetliner is made at a specific time (and affects the company's cash balance then), the capital expense is written off over years or decades since items like aircraft, equipment, improvements, etc. can lose value over time.

If you look at DAL's fourth quarter numbers, they posted an operating loss of $366 million (far larger than UAIR) and a loss before taxes of $512 million. But they had some significant non-cash operating costs -- like $307 million in depreciation and amortization and $232 million in "restructuring, asset writedowns, pension settlements and related items." These taken together more than balance the operating loss and indicate that DAL was probably close to break-even for cash flow for the quarter. With their recent first quarter earnings warning of a loss in the range of $400 million, it appears that they will be negative on cash flow in the range of $100 million (assuming comparable depreciation & amortization and no other restructuring costs for the quarter). All that said, DAL's loss is over a far larger network and the company has both greater cash reserves and more substantial saleable/mortgageable assets.

As for UAL; I haven't looked at the financials closely. I will say that trouble at UAL bodes poorly for US Airways. In the event of a liquidation, US Airways loses the incremental revenue from its codeshare agreement and the broadened reach west of the Mississippi (not to mention to Asia and South America) that United has brought to the alliance. It would be far more difficult for US to compete alone against AA or the DL/NW/CO alliance.

While Bronner does indeed have the financial resources to make strategic purchases, and while he has said (though not recently) that he might be willing to help finance such purchases, it seems clear to me that the noises being made since the beginning of the year point to the exact opposite strategy from Bronner. Why would he push for assets to be sold (especially now, when what buyers exist likely sense a bargain can be had) and then turn around in several months and make large purchases like parts or all of a hypothetically in-play UAL? If his intent is to make purchases in the future, why would he want to sell pieces of the company which can generate profits -- like Piedmont/Alleghent, PSA, Midatlantic, or Shuttle assets? It seems incredible that he would advocate burning the furniture now and then be willing to buy even more expensive furniture (UAL assets) in four months.

 

[funguy2]

Ok... This I believe this topic was started in response to an comment I made in another thread where I asserted that US Airways was losing $2.5mil/day. That was erroneous, but I will correct it here. I post this information using some common sense. I am no CPA, but take it for what its worth. Also, I am trying to remove the carrier vs carrier arguement completely.

US Airways Unrestricted Cash:
$1290mil 3/31/03
$925mil 3/13/04
$365mil lost from 3/31/03 to 3/13/04, or roughly $1.05mil/day. (over 348 days)

$700mil unrestricted cash required by new ATSB loan covanent. That means US Airways has $225mil to burn before reaching this covenant... at $1.05mil/day, thats 214 days from 3/13/04, or roughly 10/13/04.

So, that means, assuming nothing major happens between now and 10/13/04, that will be US Airways' next major cash crunch. The things which could change this:

~ US Airways reduces loss of unrestricted cash
~ Asset sale
~ "Going Concern" clause removed by auditors (unlikely if US Airways continues to lose $1mil/day)

Now, if US Airways had a "plan" to change its cash position, it would certainly need to start implementing it today. Any schedule changes (i.e. rolling hub concept), furloughs, concessions, or fare structure changes would need to be completed very soon to be effective by summer. I see little public information stating that this may happen.

So, again, if nothing changes, I suspect US Airways will begin publicly airing their cash crisis after Labor Day, when bookings fall off a cliff, yet in advance of the "deadline" I noted above.

It will be interesting to see if US Airways opts to sell assets (which has become a lot easier with ATSB approval and some offers in hand) or try to renegotiate the ATSB again. It is obviously in the company's best interests to retain as many assets as possible.

Lastly, just as an informational note, US Airways had $602mil in cash (probably unrestricted, the press release was not specific) at the end of Second Quarter 2002 (3 months prior to bankruptcy). In the SEC filing 8K for the bankruptcy, they noted unrestricted cash "in excess of $500mil". So let's say $500-600mil. So, $700mil is not that far off...

So, in my estimation, US Airways needs a BIG summer or some MAJOR changes, and soon. Otherwise another bankruptcy could be as soon as late 2004. And I don't think more employee concessions will be enough. This summer should be extremely interesting for US Airways.

Note: I used $1.05mil/day as it is more representative of the whole year, to try and reduce seasonality. If you believe USA320Pilots $1.6-$2.0mil/day number then obviously the next cash crunch will be even sooner, like early June.

 

[avek00]

However at the moment my future as a UAL employee is looking rosier than yours as a U employee, both in terms of who has given what in terms of concessions, and who is closer to having their employer simply shut the doors and liquidate.

Says who? Last time I checked, US was the one that successfully obtained an ATSB guarantee and emerged from bankruptcy, not UA. While I believe that neither US nor UA will last for much longer (no more than 12 months) in their current avatars, the fact that US is a solvent entity will place the company in a FAR more favorable position vis-a-vis endgame financial and labor terms than an airline trying to sell/merge/radically revamp itself in the midst of bankruptcy proceedings.

I can't drink the UA Kool-Aid on this one - having US as your employer might be bad, but having UA as your employer is far worse from an overall job security standpoint.

 

[sfb]

For what it's worth...

I believe that the unrestricted cash balance number of $1,290 million (actually $1,287 million) was as of 12/31/2003; the unrestricted cash at emergence was $1,268 million. That said, it's hard to extrapolate cash flow numbers forward in the airline industry, given seasonality and other effects. UAIR actually had cash of $1,383 million as of 9/30/2003. It's also important to remember that the cash number of $925 million is *after* paying down $250 million of the loans, so the net cash burn from operations for 12/31/03-3/12/04 works out to be (1287-(925+250)) = $112 million, or just over $1.5 million per day. Barring any shocks, increases in fuel expense, or revenue hits due to increased competition, that cash burn number should diminish from here what with spring break traffic and the seasonal uptick of the second quarter (historically strong for the airlines).

The company's ability to sell assets (though only 25% of the proceeds would go to the unrestricted cash balance while the rest would pay down the loans) along with the revenue environment this summer should get the company through the 3rd quarter, even absent significant changes on the cost side. If the company can reduce costs sufficiently, then it will likely make it through the winter; otherwise, I think the crunch would probably come in the January-February timeframe,

 

[Fly]

avek00 Posted on Mar 15 2004, 06:45 PM



You MUST be kidding. I can also assure you...we will NEVER work for US Air. It isn't going to happen, ever.

 

[avek00]

avek00 Posted on Mar 15 2004, 06:45 PM



You MUST be kidding. I can also assure you...we will NEVER work for US Air. It isn't going to happen, ever.

1. Unfortunately for UAers, I'm NOT joking - even a weak solvent company has that much better of a chance at survival/decent endgame than one mired in bankruptcy proceedings. While solvent firms attempting to merge are focused on obtaining premiums for their shareholders (and ideally, rewarding employment terms for their employees), insolvent firms struggle to sell their assets at a decent fraction of their actual value while praying that at least some of the employees get hired on by the buyers.

2. Who the heck said you'll be working for US? I didn't -- frankly, I don't see any potential acquirer of UA assets hiring more than a (possibly temporary) UA skeleton staff, if for no other reason than to avoid having resentful ex-UAers import a chip on their shoulder and United's self-destructive corporate culture to their new employer.

 

[Fly]

Looks like things are a little more imminent over in Arlington. But what are we really doing here anyway? Comparing which one has the crappier company, that's what! Calgon, take me away!

Wall Street Journal

When US Airways Group emerged from bankruptcy-court protection nearly a year ago, it was armed with $1.9 billion in annual cost savings and $1.24 billion in new financing. Although the company was stepping out of Chapter 11 during the war with Iraq and the expansion by discount airlines, Chief Executive David Siegel boasted, "We're a survivor."

Today, the nation's seventh-largest airline is scrambling for its survival -- again. The first of the big carriers to seek protection from creditors following the 2001 terrorist attacks and the subsequent industry nose dive, US Airways made assumptions about itself and the industry that haven't materialized. For instance, it counted on a modest industry rebound, a return to 80-cent-a-gallon fuel and the failure of some of its larger competitors to match or beat the cost savings it gained in bankruptcy.

"It became pretty obvious the original plan wasn't going to work," says David Bronner, CEO of the airline's largest investor, Retirement Systems of Alabama, and nonexecutive chairman of US Airways. The company hasn't earned a dime from operations since it left court protection. "We've got to put something together fast," he says. "Red ink means problems."

The smart money has been confounded before by US Airways. Hedge-fund managers Michael Steinhardt and Julian Robertson came to grief a decade apart over their big stakes in the company. Investor Warren Buffett ultimately made money on his big US Airways bet, but not before writing off 75% of its value and calling it a "mistake." British Airways, which bought a big chunk in the early 1990s as part of a marketing tie-up, ended up writing down its investment and dumping its marketing partner three years later.

Ordinary common shareholders have fared poorly, too. US Airways' old stock was canceled when it emerged from Chapter 11, and new shares in the reorganized company have underperformed. The stock, which briefly shot up to $32 soon after it started trading in August on the over-the-counter market, moved to the Nasdaq Stock Market in October, where the share price has been languishing in the $5 range for the past few months.

Mr. Bronner, whose $24 billion pension fund has $315 million tied up in the airline and owns 37% of the equity, says US Airways' current stock price is "terrible." "When I buy a junk stock, I expect management -- and labor, in this case -- to come up with a solution and get us in the black and make progress," he says. "I'm not happy at all."

Today, US Airways' market capitalization is just $268.5 million, a fraction of the value of go-go discounter JetBlue Airways, which is valued at $2.8 billion. Goldman Sachs analysts, in a report last week, wrote of US Airways' three-year "downward spiral." Its higher costs forced it to slash capacity more severely after the Sept. 11, 2001, attacks, putting upward pressure on its unit costs, they said. That in turn created bigger losses and more shrinkage. Meanwhile, the capacity cuts have made its network less relevant and attractive, while competitors, sensing weakness, have piled into its markets.

Standard & Poor's, which recently downgraded US Airways' corporate credit rating to single-B-minus from single-B, believes an acquisition by another airline may be the best solution for the company, if it can get through its immediate troubles. Mr. Siegel himself reignited the merger idea in a Feb. 25 speech to a Washington-area civic group, when he said it is "inevitable ... that the airline industry will eventually consolidate." He later told workers consolidation isn't "imminent," but warned that the company won't survive unless it gets its costs down because discounters now control domestic pricing.

The CEO won't comment on whether US Airways has been approached by a potential buyer. He says his focus is on fixing the company on a stand-alone basis, "so we're a more attractive partner" when the "necessary, logical and inevitable" consolidation occurs.

In their report, the Goldman analysts gave the acquisition scenario a 25% probability, but only after an extended recovery by US Airways and the other big carriers. UAL's United Airline tried to buy US Airways in 2000, but the Justice Department nixed the plan. A United-US Airways match-up still makes sense, the analysts wrote. But UAL itself is in Chapter 11, and none of the big airlines will be financially strong enough to consider mergers for several years, they said.

Meantime, competitors are buzzing that US Airways is headed back into Chapter 11. If it does, a new cast of shareholders could be as badly burned as their predecessors. In an interview, Mr. Siegel declines to provide his earlier assurance that he doesn't see another bankruptcy filing "in any kind of relevant time horizon." Instead, he says the company has good liquidity but needs to get its costs down quickly while it still has cash and a customer base.

But feeding the bankruptcy rumors are these harsh facts: US Airways this summer could breach important covenants attached to a $1 billion loan largely backed by the government; it has hired Morgan Stanley to help it peddle assets if necessary, although Mr. Siegel says that "is not our first choice"; and the company is in danger of losing regional-jet financing from General Electric.

"Everything is on the table," says Mr. Bronner, the nonexecutive chairman. "I've got to get into the black. If we're dying from a thousand cuts, we can't get into a war with Southwest and win," referring to rival Southwest Airlines. Mr. Bronner maintains that the carrier must resolve its problems in the next 90 days, although he says he doesn't expect US Airways will "go from ugly duckling to swan" overnight.

Although it cut its sky-high expenses during its reorganization, US Airways remains a high-cost producer, spending nearly 10 cents to fly a seat a mile, excluding fuel, compared with six cents a mile for the discounters. Now Mr. Siegel wants to lower costs by at least 25% more; he has warned that much of those savings are going to have to come from workers, in the form of wage and benefit reductions and higher productivity.

But US Airways employees already served up more than $1 billion in annual cost savings in two rounds of concessions during Chapter 11. Pressure for further cuts could spark "a showdown with labor that turns ugly," says S&P analyst Philip Baggaley. Recently Mr. Bronner met with leaders of the unions representing pilots and flight attendants to soften them up for more givebacks. "If you want to save yourselves," he says he told them, "you can't act like old-line unions. You have to help us get up to a level of productivity so we can compete and grow."

Pilots responded favorably, and agreed to negotiate. Flight attendants were cooler, saying they want a complete business plan and a proposal about their role before they will talk. A third big union, the machinists, is slated to meet with company executives this week despite being at war with US Airways over its plans to outsource heavy maintenance of some planes. Mr. Siegel says he "absolutely" believes he can get a deal with labor in 90 days. "If they don't want to do it in 90 days, we'll look at alternatives," he says.

The triage now under way revolves around talks with the federal board that provided $900 million of guarantees to back the $1 billion bankruptcy-exit loan. US Airways is hoping to restructure the deal so it can stay in compliance with covenants that will be measured on June 30. "We'll do anything to comply with the loan," says Mr. Siegel. That could involve paying down some of the principal early with cash on hand or with proceeds from assets sales. The loan board declined to comment.

The company also has approached GE's GE Capital Aviation Services unit about cutting the number of regional jets it has on order to ease its cash-flow burden and reduce GE's exposure to the airline. GE is providing much of the lease financing for 170 small jets. A spokesman for GE declines to comment on its discussions with the airline.

Meanwhile, Mr. Siegel is trying to fashion a revised business plan that will pair labor concessions with increased efficiency and improved marketing, so the carrier can offer more flights out of its core East Coast cities and continue building service to Europe and the Caribbean. Part of the plan includes urgent efforts in Philadelphia, US Airways' largest hub, which is coming under assault by low-fare king Southwest.

Southwest will touch down there in early May with 14 daily flights to six cities. Budget carrier Frontier Airlines also plans to start serving Philadelphia from Denver and Los Angeles later that month. Bracing for this competition, US Airways is boosting its schedule and will start matching the newcomers' much lower fares. It also hopes to leverage its big-airline attributes -- assigned seating, first-class cabins, international routes, more destinations and a robust frequent-flier plan -- to hang onto its customers.

S&P's Mr. Baggaley says flooding the market with capacity is a classic defense tactic by hub-and-spoke airlines, aimed at minimizing market-share loss. For US Airways, it is akin to putting a finger in the dike while it tries to pare costs. Longer term, he says, "the best approach is to fix it and sell it. But they're doing it under battlefield conditions."

 

[funguy2]

1. Unfortunately for UAers, I'm NOT joking - even a weak solvent company has that much better of a chance at survival/decent endgame than one mired in bankruptcy proceedings. While solvent firms attempting to merge are focused on obtaining premiums for their shareholders (and ideally, rewarding employment terms for their employees), insolvent firms struggle to sell their assets at a decent fraction of their actual value while praying that at least some of the employees get hired on by the buyers.

Even though US Airways is "solvent", two analyses above showed that US Airways could be in bankruptcy again soon (within a year), and its second bk in 3 years (assuming the one of the scenarios above occurs, which are theoretical). Furthermore, US Airways is making moves to sell assets, the same assets which are critical to its "Going Forward Plan". Specifically they have gathered offers, and amended loan covenants to allow movement on those offers. Financing on the EMBRAER order seems likely to dry up based on deteriorating credit conditions. Hardly sounds solvent to me.

While UAL is no "bankruptcy darling" the revenue their system creates, the power of their hub markets, and significant overseas flying makes UAL more likely to survive in my opinion. UAL has not publicly concidered closing a hub, they instead are making moves to defend their hubs (Ted, ACA replacement). UAL has not offered any "division" or operating unit up for sale. UAL is not racing through bankruptcy in order to meet a deadline, rather its taking the time they say they need. They do not have a "rogue" Chairman operating seemingly independently of the CEO. UA's worldwide network also acts as a diversification tool, where US Airways is largely "stuck" on the East Coast, and with whatever happens there.

While I'm no fan of UAL's bankruptcy proceedings (for example, I think Ted is a joke), they at least seem more in control than US Airways.

 

[WorldTraveler]

Check Delta's latest annual report and you will see that they have not burned cash on an annual basis since 2001 because they have taken on debt in order to finance their obligations as they come up. United and USAirways do not have access to the capital markets so operating losses are far more likely to deplete cash.