Lufhthansa and the 747-8

[Ukridge]

I noticed that Lufthansa has booked orders for 20 747-8 (why do they not call it the ‘800?’) with further options for 20 additional aircraft. Engines are to be the same (or at least very similar) to those that will power the 787.
I chatted with an old school chum who is now at BA about this, and he mentions that the fuel savings will be quite substantial – so much so that he opines that it will almost immediately obviate the -400. He admits to dramatic license with this remark, but uses it to stress the economies that will be afforded. Additionally, Lufthansa is taking great credit for ‘pushing’ Boeing on the right size for this aircraft. They wish to seat 400 (in their configuration) and were looking at something between the A380 and the 777/A340 range. Rather interesting niche to fill.
Just how much of an efficiency advantage will this new aircraft really have? Do indeed the newer engines obviate the older versions to the third row? Would United’s competitors not be keen on acquiring it? Additionally, if United’s competitors, both foreign and domestic do acquire such hardware, how can United remain in the race if they bring older horses to the starting line?
Although I do not follow it that closely, it seems that every time I read an article in any of the European press, United’s Mr. Tilton is mentioned in his quest for foreign investment. Is the financial situation really so desperately dire that no funds at all are available for the purchase of modern equipment? Of what benefit (and indeed at what interest rate) would such overseas investment bring? Why is it so critically vital to the further functioning of United? Has the domestic investment community turned off the spigot?
Perhaps could it be that he is shunning investment whilst awaiting permission for a suitor such as Lufthansa to swoop in to the rescue (does it really need to be rescued in the first place?) – A Lufthansa that has made serious investment in fleet renewal and even expansion? From what is written this permission would seem to be a long time in coming. It just seems very hard to read the tea leaves of what United is trying to do. Is putting new seats in a 767 the cutting edge of competitiveness?
Lots of questions here, but the 747-8 looks as if it is a fine aircraft and Lufthansa seems to be gaining a feather in its cap by opting for it. Just wondering if it is going to take off (no pun intended) with our American cousin’s operators as well.
Cheers

 

[FWAAA]

I'm certain that others will disagree, but there simply is no shortage of capital available to airlines in the USA.

UAL just refinanced its exit loans and paid off a third of it.

A group of lenders rounded up several billion for USAir to offer to the Delta creditors.

Just a few days ago, AMR sold half a billion dollars of new common stock to the public.

A group of lenders advanced over a billion dollars to Doug Parker not too long ago so he could buy USAir.

Shortage of capital available to airlines? I'm afraid that Tilton was running off at the mouth.

There was a shortage of government loan guranteed monies available to UAL a couple of years ago as they were turned down again and again for an ATSB loan guarantee. But those days are long gone.

Airplane manufacturers will pull out the stops to arrange financing for just about anyone who wants new airplanes. UAL included.

As for older airplanes somehow causing UAL a competitive disadvantage: Fuel costs have tempered somewhat, reducing the advantage of new fuel efficient airplanes. And customers generally don't know (and don't care) when their 747 was built.

 

[Ukridge]

FWAAA, your always reasoned responses are appreciated. I posted this thread before I read the other one regarding the refinancing and as you point out, it bespeaks well for United not having to go a-beggering in foreign ports for a coin or two. That is why I was trying to understand why Tilton seems to be so eager and determined to see foreign investement. Why is he spending any bandwidth at all on this theme when it seems more than apparent that there is enough money available. I find this very confusing and only understandable if the home fires were burning dimly.
Actually though I disagree with the perception of a new aircraft. As a customer, I like Lufthansa's A340s whereas I will fly BA from Washington if the option is flying on United's 767 that leaves in the morning as that is not a very strong product. For the most part, newer aircraft have seats that are not yet tattered, the seat amenities (screens for instance) are better and for me (who does not need constant tele) better reading lights. Newer generation aircraft seem to be quieter and more comfortable although I will freely admit that these are just my opinions and may not be always the situation - a A380 with 550 passangers will be just a barnyard as a A320 packed to the brim.

 

[ualdriver]

Although I do not follow it that closely, it seems that every time I read an article in any of the European press, United’s Mr. Tilton is mentioned in his quest for foreign investment. Is the financial situation really so desperately dire that no funds at all are available for the purchase of modern equipment?

Our financial situation is not dire at all. I think he just wants to be able to obtain money from wherever he wants. More competition for United's financial business = cheaper money (at least in theory).

I don't think UAL bought anything out of bankruptcy partly because: 1) Money would be cheaper for UA by waiting until it established itself outside of bankruptcy and improved its finacial situation, and 2) I don't think UA management is really interested in spending money on new airplanes right now. When the newly recalled UA pilots go through their indoc, they spend a day over at WHQ and are given presentations by various upper managers. The gist I'm getting from talking to the guys that have gone to these meetings is that we have a relatively young fleet, and if an opportunity presents itself where new aircraft are needed, they will buy them. Until then, they'll just keep what they have, and "grow" the airline by increasing aircraft utilization and/or outsourcing. If I'm not mistaken, I think we have some of the highest utilization rates in the industry right now which is basically all of our mainline "growth" since we've exited bankruptcy.

Of what benefit (and indeed at what interest rate) would such overseas investment bring?
Something lower than they can get by just being able to fish in the U.S. pond.

Why is it so critically vital to the further functioning of United? Has the domestic investment community turned off the spigot?

Nope, I just think Tilton wants "free" money. If an outside "foreign" firm makes an investment in UAL, that's cheaper than borrowing money 🙂

 

[ohcaptainron]

Ok reality check,

UAL has not purchased aircraft for the following reasons: First and most important, the current senior managers Tilton et all, are focused on a merger or sales transaction, including a foreign investment. Some of the reasons are supportable some are not. Tilton has made the argument that capital is not readily available domestically, red herring.

He does make a somewhat convincing argument that industries that have been allowed to consolidate have realized strong synergies. IE KLM/Air France . And that as a result of the combined companies strength, future investment dollars will flow to these stronger companies. Market strengths can be leveraged etc. End of the day a stronger enterprise not subject to the normal ebb and flow of historical airline fortunes. IF US airlines are prevented from participating in what Tilton perceives as global consolidation, conceivably US airlines could be the odd man out. I also think that with so much private equity about and what seems to be a green light from Washington there may never be a better time to attempt a transaction of this kind. Having said all that Tilton and Parker are the only ones embracing the need publicly.

Bottom line, why get in line to purchase with Boeing or Airbus when you are anticipating having to right size a combined additional set of assets, once that is completed, the combined fleets are rationalized then and only then expect to see aircraft orders.

Also keep in mind whatever the publicly stated rationalizations are to buy another company and consolidate the industry in general, the dollar velocity in the executive offices of UAL WILL BE STAGERING!!

 

[UALDC767]

FWAAA, your always reasoned responses are appreciated. I posted this thread before I read the other one regarding the refinancing and as you point out, it bespeaks well for United not having to go a-beggering in foreign ports for a coin or two. That is why I was trying to understand why Tilton seems to be so eager and determined to see foreign investement. Why is he spending any bandwidth at all on this theme when it seems more than apparent that there is enough money available. I find this very confusing and only understandable if the home fires were burning dimly.
Actually though I disagree with the perception of a new aircraft. As a customer, I like Lufthansa's A340s whereas I will fly BA from Washington if the option is flying on United's 767 that leaves in the morning as that is not a very strong product. For the most part, newer aircraft have seats that are not yet tattered, the seat amenities (screens for instance) are better and for me (who does not need constant tele) better reading lights. Newer generation aircraft seem to be quieter and more comfortable although I will freely admit that these are just my opinions and may not be always the situation - a A380 with 550 passangers will be just a barnyard as a A320 packed to the brim.

Ukridge,

My nickname no longer applies, it now should be UALDC767.....and as such have flown 922/923 to LHR quite often

I agree our current 767 product doesn't match up well with the BA 777 morning flight to LHR. But the 767 will be the first aircraft to begin receiving the new First Class and Business Class seats later this fall. united airlines Having seen the First Class seat as well as the new cabin config, I am excited. Selfishly so as our new rest seat will be finally decent enough to get rest in.

So that should make it a more comparable experience to BA at least as far as seats and entertainment go.


DC

 

[FWAAA]

FWAAA, your always reasoned responses are appreciated.

Ukridge, you're too kind.

In my view, the biggest problem experienced by the USA legacy airline industry for the past five and a half years is the surplus of capital available to its members, not the other way around.

Had Congress not appropriated the $5 billion compensation for the September 11 systemwide shutdown and the ATSB loan guarantees and had lenders not been so forthcoming with bankruptcy financing, we might have seen consolidation (and/or a liquidation or two) in 2002 or 2003. IMO, consolidation and/or a liquidation or two would have been a very good thing.

Instead, we saw money shoveled at the legacies in quantities sufficient to allow them to limp along, all the while slashing wages and morale. Only now are some of them finally showing profits, and they aren't all that robust (compared to the latter half of the 1990s). The only consolidation so far is small America West's purchase of small USAir.

The USA legacy industry is long overdue for some consolidation and right-sizing - and IMO, foreign investment isn't a prerequisite for that much needed change.

Others will disagree. Some of them rather forcefully. Maybe they're correct. But I don't think so.

 

[Ukridge]

UALDC767,

Yes, I will have to admit that the BA 777 from Washington in the morning is a nice product. I do however, very much enjoy that there are two options and that they are morning (afternoon for me) flights. Of the 5+ billion humans on this planet, I am among the 500 or so who do not prefer to fly all night (accordning to my body time) and the UA and BA flights offer the possibility to fly during the day and arrive in London in the evening. A much more civilizaed and humane approach to the way we spend our alloted time on this earth. Yet there is a firestorm of protest each time I mention this that takes it for an almost irrefutable fact that everyone prefers to fly all night and then do business during the day. I have sat through many meetings with chaps who would have been better catching your flight in the morning, spent the night in the hotel, and then come to the office instead of the dash from the airport, a quick shower and meal and then into a meeting all the while claiming that they were "well rested" on the flight!
Irrespective of the preference of flying and arrival times, I would think that United would be looking a little farther over the horizon that just new seats. Airlines around the world are ordering more state of the aircraft and though I freely admit no expertise in the matter (other than my personal preferences), one would imagine that United would be keen on the 787 or 747-8.
With this said, BA has a number of grotty old 767s, 757s, and it is said that their A320s are some of the first off the production line. I am not sure of the orders they have booked, but they ply a rather geriatric corps of machines.


FWAAA,
The extent reading on KLM/AF is interesting. They always use the term 'fusion' instead of merger as they say this word has a broader and deeper meaning than just a simple combination of assets. It seems to be progressing full apace. I still though am at a loss to understand why Mr. Tilton would feel that foreign monies would be significantly better - even if it were a simple expansion of the available pool of investments. The only thing that I could guess (and a guess it is as I try to watch what BA is trying to do as well) is that he is a true believer in trying to 'fuse' United into an alliance with Lufthansa that would be the next step of a AF/KLM progression. In other words, as LH acquires Swiss, then casts an eye at SAS and even Alitalia, then the next step would be cross-continent fusions. Perhaps this is his endgame. It would seem he would have a significant row to hoe however, on the political front to make this happen although he does not have the EU sitting over him like a levatine smothering blanket. I am still surpirsed AF was able to pull this off. As a passanger I am a rabid adherant of seamless travel and I feel a global fusion (the next step beyond the simple Alliance and Star aircraft paint scheme)would provide that option.
Cheers