Merger Question

[USA320Pilot]

Merger Question

Since Dave Siegel's webcast on March 24, US Airways Today has been running answers to questions that were e-mailed by employees, but couldn't be addressed because of time limitations.

Q. Is a merger inevitable?

A. Dave has said many times that consolidation eventually occurs in mature industries. It happened in railroads, in autos and steel, among others. He said he foresees two to three strong hub-and-spoke carriers with broad networks and international service and a lot of low-cost carriers in the biggest cities. He didn't say this was imminent, but when these market forces kick in, he wants US Airways to be in the best position possible with a competitive cost structure.

Regards,

USA320Pilot

 

[NeedForSpeedNFS]

Merger Question

Since Dave Siegel's webcast on March 24, US Airways Today has been running answers to questions that were e-mailed by employees, but couldn't be addressed because of time limitations.

Q. Is a merger inevitable?

A. Dave has said many times that consolidation eventually occurs in mature industries. It happened in railroads, in autos and steel, among others. He said he foresees two to three strong hub-and-spoke carriers with broad networks and international service and a lot of low-cost carriers in the biggest cities. He didn't say this was imminent, but when these market forces kick in, he wants US Airways to be in the best position possible with a competitive cost structure.

Regards,

USA320Pilot

BINGO!!!!!!!!!!! Been saying it all along!!!!!!!!

 

[767jetz]

USA320pilot,

<_< You have been saying for a long time that UA will not be able to resolve it's many issues, and that the prospect for UA emerging from CH11 was slim. At one point you even suggested that a merger between UA and US was inevitable, with US probably being the surviving entity and Bronner putting up the money.

Well incase you haven't been following the recent news, most of the "major issues" you've been citing are being resolved, as I have predicted. Infact, when I refuted your claims and stated that these issues were managable, you accused me of being emotional, in denial, uninformed, and shooting the messenger.

Today, pension relief legislation passed the Senate, the ACA issue in IAD is resolved, 4 of 5 of the municipal bond disputes are resolved, and the 1110 negotiations regarding the remaining A/C leases are concluding.

Do you care to comment on how these developments contradict your previous predictions, and what the implications may be on any future merger of USAirways with any other airline?

767jetz

 

[funguy2]

"Consolidation is inevitable"

Sometimes, companies consolidate by one company being acquired by another... The recently announced merger of Fleet-Boston Bank into Bank of America for example.

Sometimes, companies consolidate by closing the doors and going out of business. After the doors are closed, assets are sold, generally at auction, often with the help of Chapter 7 of the Bankruptcy Code, refered to as Liquidation. Think of Bethlehem Steel as a big example. As is Eastern Airlines (largely liquidated in Chapter 7, although some big parts, like the Latin network, PHL hub and related DC-9 aircraft, and the Shuttle were sold during Chapter 11). A local furniture store or jewelry store as a small example (the one's that actually go out of business, rather than have the perpetual Going Out of Business Sale).

THE POINT: Is consolidation is inevitable, but there is no guarantee it comes in the form of a merger.

 

[USA320Pilot]

767jetz:

United’s battle to survive has gone up and down and as such, my take on United’s chances of emerging have changed.

Let’s put things into perspective.

In regard to the Senate agreeing to pension relief and the bill going to President Bush for his signature, it’s my understanding in conference the two committee’s agreed to change pension calculations from the 30-year treasury bond to a corporate bond rate and to defer 80% of required contributions for two years. At the end of two years company’s will be required to make balloon payments, thus the question is the pensions may be saved, but it could cost the company loan guarantee approval. Why? The airline must account for the balloon payments in their update application and prove it can meet a 7% profit rating in 7 years.

In regard to UCT airport municipal bond payments, United received a reprieve on some debt payments, but the company must make $261 million payment to Denver or reject the gates, facilities, and maintenance operation. Furthermore, Judge Wedoff deferred ruling on the Chicago suit where the company has defaulted on about $600 million of special facility bonds. This could be a smoking gun and the immediate question is why did Wedoff not rule on this part of the litigation but handled the suit filed by Los Angeles, San Francisco, Denver, and the Port Authority for NY and NJ?

If Wedoff rules in favor of Chicago, United could be forced to pay $861 million to keep its Denver and Chicago operations, appeal the decision, or reject the leases and pull out or sell part of the UCT airport facilities/gates, etc.

Obviously, payments of this magnitude will effect the loan guarantee application and must be ruled upon before the company can exit Chapter 11.

The EETC situation is much less clear and maybe we will hear more at the next Omnibus hearing scheduled for April 16. The company has 174 EETCs in jeopardy that are financed by 100 different lenders, including RSA. It’s unclear at this time how this issue will be handled and there are a number of options.

United is working on a phased integration a number of different airlines to replace Atlantic Coast Airlines at Dulles, but there is not a clear picture on how this will play out. Just as the ATSB was concerned about Southwest’s entrance into Philadelphia and its effect on US Airways revenue, I understand the ATSB has a similar concern on how Atlantic Coast Airlines will depress Dulles revenue. United is going to have to reduce its revenue projections and than find additional cost cuts to offset the revenue loss to convince Fitch Rating the airline can obtain the 7% profit rating in 7 years, due to Atlantic Coast flying A320s and RJs at a CASM lower than United.

Probably the biggest concern is that the company lost $300 million in the first two months of the year and the board is concerned about declining industry revenue due to the LCC problem. Furthermore, the company must repay up to $1.5 billion of DIP financing before it can emerge, although its uncertain how much money the company has used from the bankruptcy credit facility. The company is losing $5 million per day after the massive cost cuts, its CASM remains too high and it RASM too low, and its code share revenue with US Airways is uncertain going forward, therefore, I believe its uncertain on whether or not the ATSB will approve the loan guarantee.

If the loan guarantee is rejected then to exit bankruptcy the company may have to seek deeper employee cuts, seek an equity plan sponsor, and/or possibly sell assets to emerge. Potential assets sales could be a major portion of Denver and Chicago operations, which could be used to settle the outstanding municipal bond litigation.

Separately, Richard Branson recently told the BBC a financier could buy Frontier and US Airways and then merge the two companies for less than the cost of the aircraft alone. In other words, presuming US Airways completes its transition to a hybrid LCC/network carrier, the merged company could be in place and obtained virtually for nothing assuming you can deal with the debt and ask for reductions from the debtors.

Regardless, Dave Siegel has indicated that US Airways will be involved in a corporate transaction and CCY reports indicate it will likely be with United, but it’s my hope our company integrates with another carrier.

Regards,

USA320Pilot

 

[U 737 PILOT]

Here we go again !

 

[funguy2]

If Wedoff rules in favor of Chicago, United could be forced to pay $861 million to keep its Denver and Chicago operations, appeal the decision, or reject the leases and pull out or sell part of the UCT airport facilities/gates, etc.

So if I read between the lines here...

You expect that

1. UAL will give up its 1 or 2 major hub operations.
2. US Airways will acquire these by RSA investment.

However, in order to acquire these things, RSA would have to spend at least $450-$900mil, just to settle the debt, not to mention all of the other costs associated with opening a hub, and you expect RSA to invest 2 times to 4 times or even more of its original investment? I think Doc Bronner understands you do not protect your $240mil investment by investing another $900mil.

 

[USA320Pilot]

Funnyguy:

I never said that. With deteriorating fundamentals such as soaring fuel prices, depressed yields and the shift to LCC market power/internet booking, both US Airways' and United's future prospects are uncertain.

Until both airlines resolve certain issues, it's difficult to determine what will happen. Are US Airways, United, and RSA in discussion? Absolutely, but there has to be a lot done for each airline to complete a restructuring for any deal to occur, whether its between the business partners or other companies.

Provided US Airways successfully integrates the "Going Forward Plan" with labor participation to lower its unit costs to LCC levels, quite frankly, I'm optimistic about US Airways and its ability to print money in about 12 to 18 months.

When US Airways becomes profitable, its credit rating would be raised and it would have its access to the capital markets restored, then anything is possible.

Respectfully,

USA320Pilot

 

[funguy2]

Funnyguy:

I never said that. With deteriorating fundamentals such as soaring fuel prices, depressed yields and the shift to LCC market power/internet booking, both US Airways' and United's future prospects are uncertain.

Until both airlines resolve certain issues, it's difficult to determine what will happen. Are US Airways, United, and RSA in discussion? Absolutely, but there has to be a lot done for each airline to complete a restructuring for any deal to occur, whether its between the business partners or other companies.

Provided US Airways successfully integrates the "Going Forward Plan" with labor participation to lower its unit costs to LCC levels, quite frankly, I'm optimistic about US Airways and its ability to print money in about 12 to 18 months.

When US Airways becomes profitable, its credit rating would be raised and it would have its access to the capital markets restored, then anything is possible.

Respectfully,

USA320Pilot

Aren't you the same USA320Pilot who posted the following on another thread about Oronoto's future plans for PIT YESTERDAY?

Posted: Apr 7 2004, 11:03 PM

US Airways will likely pull down the Pittsburgh hub and operate from 10 mainline and 10 express gates in the fall, making the airport a focus city. Expect mainline flying to be transferred to remaining focus/hub cities and possibly point’s westward.

So which is it? Are they moving west or not?

 

[USA320Pilot]

Funnyguy,

The company is going to increase operations to the east and west of Pittsburgh, provided the “Going Forward Planâ€￾ is implemented with labor support.

Regards,

USA320Pilot

 

[robbedagain]

320 Why would US and Frontier Merge? isnt frontier doing well or what? and secondly how could a foreign airline owner get this to happen if there is a foreing ownership at 49%?

 

[Mike W]

I've asked this before and never received an answer, so here it is again. What exactly is the "Going Forward Plan" that USA320Pilot keeps referring to. Did I miss some type of bulletin? I don't recall seeing any posters in our breakroom that tell us what it is. Someone.....Anyone?

 

[USA320Pilot]

Furloughedagain:

A deal between Virgin USA, US Airways, and Frontier would be complex, but Neil Cohen is very bright and he could figure out how to finance such an airline, although this proposal is likely not high on US Airways' radar screen.

According to London's Guardian, "for the past year, Richard Branson has been quietly talking to American venture capital providers who will provide the other 51% of the investment. The launch budget is pencilled in at $200 million," the chronicle reported.

According to Dow Jones News Services on March 23, "US Airways could become a major shareholder in the new low cost start-up Virgin USA," said Virgin Group Chairman Richard Branson.

Apparently, US Airways would be the principal LCC component and Virgin USA would have a few more frills even than JetBlue, but like the other discounters would fly city to city rather than use a regional hub. Therefore, could market forces be brought to bare on this idea, be part of fallback plan, and more reason the company will exit Pittsburgh?

US Airways spokesman David Castelveter told Dow Jones on March 23, "We are not in any discussions with Virgin USA or any other Virgin representatives," however, from this observer's perch, if "Going Forward Plan" negotiations fizzle, we could see the Pittsburgh immediately downsized, the B737s sold, thousands of furloughs, and a corporate combination between the remnants of US Airways, Frontier, and Virgin USA to create a strong nationwide LCC.

Regards,

USA320Pilot

 

[USA320Pilot]

Just one more point...

If United emerges from bankruptcy or needs an equity investor, I still believe US Airways and United will complete a corporate transaction, but US Airways does have other M&A options provided the "Going Forward Plan" is completed with labor participation.

Regards,

USA320Pilot

 

[Bear96]

robbedagain raised a good point.

Why on Earth would relatively healthy Frontier want to merge with U in the mess that it is in now, let alone after the super-secret Going-Forward Plan fizzles?

And why on Earth would Frontier want to make it even MORE complicated by, in addition to U, merge with an airline that DOESN'T EVEN EXIST YET (except in the fertile imaginations of a few-- well, of at least one USAirways pilot, anyway)?

???

Seems like a shaky (to be kind) business strategy for Frontier.