Should U be looking for another code-share partner

[chipmunn]

Schwanker, Hacker and Taylor have been discussing the removal of more than one-third of UA's domestic system with Wall Street and Administration officials since last spring, that's the significance.

Chip

 

[chipmunn]

Itrade:

I'm not sure what specific aircraft assets US would desire. There are many issues such as specific lease terms, fleet compatibility, maintenance cycles, etc. I'm sure US would look at all of these issues before deciding what is best for the company.

In regard to the hubs, as it was explained to me, ORD has a significant O&D presence and separates the two domestic route networks into what the Marketing Department's (of both airlines) refer to as Chicago West and Chicago East. ORD could be a critical link to provide US a stong East-West passenger flow pattern, and the much needed midwest hub, which is a very important strategic asset for a comprehensive US domestic route network.

The US East Coast hub pattern represents a triangle with PHL, PIT, & CLT.

The UA West Coast hub pattern represents a similar triangular hub pattern with LAX, SFO, & DEN. I suspect, although I do not know for sure, what we are talking about is primarily the transfer of gates and airport facilities.

The key is to drive down unit cost and preserve combined incremental revenue between the business partners. The combined network strength would continue to drive revenue gains by maintaining a nationwide network for both companies, which would have the best domestic hub pattern while simultaneously maintaining the customer base.

Furthermore, there would be additional revenue drivers for both airlines by increasing city presence, connectivity, and reallocation opportunities.

Will it occur? Who knows, but what we do know is a corporate transaction has been continually discussed between the parties since 1995. Will a deal eventually be completed? I do not know, but again it continues to be discussed between senior management and in my opinion, a potential transaction, is the only thing keeping Stephen Wolf onboard as the Chairman.

Meanwhile, it's important to note "things constantly change" and as such corporate plans continually evolve to meet market demands.

Chip

 

[chipmunn]

Analyst: rivals to gain from a United shutdown

'Survivability' key in assessing airline industry

NEW YORK (CBS.MW) -- You know times are tough for the airline industry when Wall Street's sell-side analysts start envisioning a "best-case" scenario that involves the shutdown of No. 2 carrier United Airlines.

But that's what J.P. Morgan analyst Jamie Baker sees in store, boiling the investment case for airlines down to "survivabilility."

A United spokesman defended the restructuring actions taken by the carrier, currently operating under Chapter 11 federal bankruptcy protection from creditors.

In recent trading Thursday, the sector's stocks were mostly lower -- with the benchmark index drifting near the lowest levels of the year. See full story.

"At current share levels, it is survivability that matters, not profits, in our view," Baker said in a Thursday note to clients.

For the industry as whole, Baker sees the most favorable scenario as involving the shutdown of United, a subsidiary of UAL Corp., because an "outside shock" that forced such a development could help address capacity issues.

Even if there are few cash-poor buyers for United assets in the event of a shutdown, American Airlines would benefit greatly, Baker noted. AMR Corp. owns American, the leading carrier ahead of United.

According to Baker's models of the impact of a retroactive redistribution of United's business for 2002, Continental Airlines would have earned $2 a share, Northwest Airlines would have broken even and American would have dramatically pared its losses to $2 a share, not $12.97.

Mapping out the possible operational impact, Baker said American could pick up United's Pacific routes and a foothold at Chicago's O'Hare International.

For its part, Delta Air Lines could end up with United's Heathrow slots and also pick up Boeing 777 jets. Northwest would stand to gain the least, he said.

The ramifications for management and labor relations are also potentially significant, with an easing of cost-cut pressures should the carrier's financial performance improve. That could postpone needed changes, he said.

In his research note, Baker made clear that he hasn't attempted to project when United might possibly go under.

Any government assistance in that event would, he said, prolong the issues confronting the airline industry, not remedy the larger problems.

"Everybody is entitled to their own opinion," said United spokesman Jeff Green.

"We believe that the changes we're proposing in our plan for transformation are necessary and are the changes that will allow us to emerge from Chapter 11 a stronger and more competitive airline," he said.

Baker couldn't immediately be reached for comment.

In recent dealings, UAL traded at $1.07, down 3 cents, while AMR lost 5 cents to $2.87.

First-quarter fears

How the current quarter shapes up for the airlines is going to depend on March's performance, Baker noted. With war fears already mounting and a report Thursday in the Washington Times indicating that next month as a likely starting date for a campaign against Iraq, the outlook is not a good one.

"The real question is March, which typically generates 38 percent of the quarter's revenue -- and which this year seems likely to be characterized by war," he wrote. That could produce almost half of the year's losses in the first quarter, up to $2.4 billion -- even wider than last year's quarter.

In total, Baker expects industry losses this year to hit $5.3 billion.

While that would be narrower than 2002's $6.9 billion in red ink, he wrote that a potential military campaign against Iraq is going to make predicting financial performance even more difficult.

 

[LGA Fleet Service]

[blockquote]
----------------
On 2/20/2003 11:35:40 AM DCAflyer wrote:

Happens all the time, Fleet! Besides, haven't you ever heard of commuting?

----------------
[/blockquote]


Commuting is great for the crews, what about the other work groups?

I have a hard time envisioning an ATO agent or a Res agent in a crash pad in ORD.


As Chip said, the remainder of this year will be an interesting one.

Luck to us all.

 

[Light Years]

Really? I've seen all sorts of employees either move or commute. And yes, there are people at Airways that live in our major areas but would jump at the chance to live somewher other than Pennsylvania or the Carolinas.
As for UAL employees, I have to agree with PineyBob, having experienced them as a pax, a non-rev, and as a former United Express employee.

 

[DCAflyer]

LGA fleetservice said:

Commuting is great for the crews, what about the other work groups?

I have a hard time envisioning an ATO agent or a Res agent in a crash pad in ORD.

DCAflyer responds:

Since your original question was "exactly how would these newly acquired assets be staffed" I assumed you meant crews, i.e., pilots and flight attendants." Be that as it may, I am sure that U would not have any problem finding and training a ground workforce in ORD, IAD, DEN, SFO, or anywhere else, for that matter.

 

[DCAflyer]

LGA fleetservice asked:

Will a laid off PIT/PHL/CLT employee who gets recall to ORD or DEN willingly uproot their families to move to an area of the country with a higher cost of living?

DCAflyer responds:

Happens all the time, Fleet! Besides, haven't you ever heard of commuting?

LGA fleetservice opined:

As far as the UAL employee attitude goes, I think you are way off base with that one.
I've flown United many a time as both a nonrev and a full fare passenger and have never recieved anything but courteous and profesional service from every employee I've had dealings with.

DCAflyer responds:

I guess your experience with UAL was superior to mine, PineyBob's, and a couple of dozen friends of mine. So we'll just have to agree to disagree on this issue!

 

[LGA Fleet Service]

[blockquote]
----------------
On 2/20/2003 7:18:57 AM PineyBob wrote:


Are there not 1,827 pilots on furlough? What about the other workgroups? US had 49,000 employees and 33,000 now. That leaves about 14,000 folks who may wish to return to the industry.

----------------
[/blockquote]


May wish to return being the key word there.

Will a laid off PIT/PHL/CLT employee who gets recall to ORD or DEN willingly uproot their families to move to an area of the country with a higher cost of living?

Where in all probability they dont have the family support structure?


As far as the UAL employee attitude goes, I think you are way off base with that one.
I've flown United many a time as both a nonrev and a full fare passenger and have never recieved anything but courteous and profesional service from every employee I've had dealings with.

 

[chipmunn]

Cosmo:

I agree that US has problems, but the US restructuring is scheduled to be completed in 39 days and US is sitting on a $1 billion loan guarantee, $240 million equity investment, and its principal financier is telling the press he would buy UA assets "if it would be beneficial to US Airways."

On the other hand, UA is asking the court and its lenders for financial relief because the company apparently will not meet its lending terms, the airline has been turned down for a $1 billion federal loan guarantee, and the Chicago-based carrier has not begun it restructuring. In fact, UA asked the court to extend the period it has to renegotiate aircraft leases and plans atleast 18 months in bankruptcy.

Moreover, what is even more telling is one of the four UA DIP financiers, J.P Morgan, had its equity analyst tell CBS.MW that for the airline industry as whole the most favorable scenario involves the shutdown of UA.

In regard to a US pilot strike, the pension cannot be terminated until March 31, the day US gets access to its new liquidity. Then if ALPA's S.1113 position is agreed upon, then the fist day ALPA could strike would be April 1, the day after US obtains its financing.

What would happen to US with its balance sheet repaired and then a pilot job action? I do not know, do you?

Finally, I believe another key here is the Star alliance. In fact, in the AWST article above Siegel said US Airways will apply this spring to become a member of the Star Alliance, currently anchored by United and Lufthansa. US Airways' strength in the eastern U.S. makes it "a very strong natural fit" with Star, he said.

Chip

 

[Cosmo]

Aviation Week & Space Technology
February 10, 2003

4Q Is Tough Sledding At United, US Airways
DAVID BOND/WASHINGTON

United Airlines, early in its Chapter 11 reorganization, and US Airways, which thinks it still is on track to emerge from it by April, reported heavy 2002 losses and made clear, in numbers and deeds, that solving labor-cost problems remains the key to their survival.

The alliance partners, last among the big U.S. network airlines to issue financial results, had little but bad news for their stakeholders. United logged net losses of $1.5 billion in the fourth quarter of 2002 and $3.2 billion for the year, compared with $308 million in the fourth quarter of 2001 and $2.1 billion for the full year. US Airways, with less than half United's revenues, lost $794 million in the fourth quarter and $1.65 billion for the year. But unlike United's, these results improved on 2001, when US Airways lost $1.2 billion in the quarter and $2.1 billion for the year.

One big difference is that United's results included only a few weeks in Chapter 11 and thus reflected none of bankruptcy protection's cost-saving benefits. US Airways entered Chapter 11 in August, so parts of its cost-reduction program were in effect for the fourth quarter.

In that context, some of the just-issued financial data should give US Airways pause. Although its labor costs as a percentage of total costs were nearly six percentage points lower in the fourth quarter than for the year, its labor productivity--measured in available seat miles divided by labor costs--showed no gain. And labor costs as a percentage of revenue remained high.

United's productivity was better but its labor cost percentages were worse. And American--seeking labor concessions in an attempt to stay out of Chapter 11--had better productivity than United.

Although US Airways has secured union agreements covering all pay and work-rule concessions it thinks it needs, it had to act unilaterally on the last big labor hurdle to emerging from bankruptcy. On Jan. 30, the airline told the Pension Benefit Guaranty Corp. (PBGC) of its intention to terminate the pilots' defined benefit pension plan, as of Mar. 31, and substitute a defined contribution plan into which it will pay $850 million over the next seven years.

The carrier tried but failed to get administrative approval from the PBGC and legislation from Congress to stretch out payment of the roughly $3 billion it would have taken to keep the old plan going, and it said it will continue to seek legislative help if Congress deals with pension funding issues this year. Lacking that, and if its proposal is approved by the PBGC and the bankruptcy court, the PBGC will administer the current plan.

Other US Airways labor concessions have turned what used to be competitive disadvantages into advantages, CEO David Siegel said Feb. 5 at a conference of securities analysts. Pay is "effectively frozen" for six years, with low increases and no snapbacks. If war or a terrorist attack puts the carrier back in the red, it can defer 5% of pay for as much as 18 months, for as many times as this happens. The US Airways pilot scope clause, which used to be one of the most restrictive, is now one of the most flexible, and the airline and its affiliates will be able to fly as many as 465 regional jets, including RJs with more than 70 seats.

In addition to increasing code-share service with United, Siegel said US Airways will apply this spring to become a member of the Star Alliance, currently anchored by United and Lufthansa. US Airways' strength in the eastern U.S. makes it "a very strong natural fit" with Star, he said.

©February 10, 2003, The McGraw-Hill Companies Inc.

You see, Chip, despite your unceasing (and unsourced) efforts to "spin" United's current problems into a "US Airways takes over United" scenario, it's just as easy to find articles that put US Airways in a bad light.

BTW, (according to a table attached to the article) I find it interesting that UA's 4th Quarter 2002 operating margin was -28.7% while US' comparable figure was -37.4%. This occurred while US already had some of its cost reductions in place.

Incidentally, Chip, what is the likelihood of the US pilots actually striking over the pension issue, and what do you believe your airline's future would look like if that happens?

Perhaps UNITED should be looking for a new partner!

 

[chipmunn]

The timing of today's CBW.NW article titled "Analyst: rivals to gain from a United shutdown" continues the growing trend of more Wall Street talk discussing the total liquidation of UA.

This article points to three interesting aspects regarding a "interesting corporate transaction" between UA & US.

First, Jamie Baker believes most airlines do not have the financial capability to acquire UA assets, whereas the US principal owner has publicly said if UA were to sell assets, he would consider backing the purchase of some "if it would be beneficial to US Airways".

Second, a sale of UA's assets to US may be the only way for UA to survive. The Chicago-based carrier could obtain much needed capital, the deal could permit the restructuring to go forward, and would help keep traffic within the domestic alliance "revenue umbrella" to permit UA to meet its stringent DIP financing revenue and cash flow targets.

Third, let's not forget J.P.Morgan is one of the four UA DIP financiers and now their equity analyst said he envisions a "best-case" (industry) scenario involves the shutdown of UA. Coincidental or could J.P. Morgan force a deal to permit continued funding?

Chip

 

[chipmunn]

Cosmo:

Chip comments: Merrill Lynch analyst Michael Linnenberg is now also discussing a UA shutdown as a means of curing industry ills. There seems to be Wall Street momentum growing towards encouraging a full blown UA liquidation, versus an "interesting corporate transaction". Today Dow Jones published the following article:

Potential United Shutdown Might Help Rival Airlines

NEW YORK (Dow Jones) - Air fares might be on fire sale and the drumbeat of war might be getting louder, but there's hope for the airline industry in the eyes of at least some pundits: If UAL Corp.'s United Airlines shuts down, most other airlines stand to benefit.

http://biz.yahoo.com/djus/030220/1349000765_1.html

 

[Cosmo]

[blockquote]
----------------
On 2/20/2003 12:12:48 PM chipmunn wrote:

First, Jamie Baker believes most airlines do not have the financial capability to acquire UA assets, whereas the US principal owner has publicly said if UA were to sell assets, he would consider backing the purchase of some "if it would be beneficial to US Airways".
----------------
[/blockquote]
What fund manager in his/her right mind would put 10-15% of a retirement fund's assets into the airline industry? If Bronner follows through on his quoted intention of possibly spending up to $3 billion on UA assets, he almost certainly would be sued for dereliction of his fiduciary responsibility to Alabama state employees and retirees that depend on the RSA. And what makes you believe that, even with this funding, US would be the high bidder on desirable UA assets?

[blockquote]
----------------
On 2/20/2003 12:12:48 PM chipmunn wrote:

Second, a sale of UA's assets to US may be the only way for UA to survive. The Chicago-based carrier could obtain much needed capital, the deal could permit the restructuring to go forward, and would help keep traffic within the domestic alliance "revenue umbrella" to permit UA to meet its stringent DIP financing revenue and cash flow targets.
----------------
[/blockquote]
Please elaborate on how UA could meet the current DIP revenue and cash flow targets if all (or a substantial portion) of UA's domestic revenue-generating capability is removed from its operation.

And one more thing -- the 30% of UA's operation that its Powerpoint presentation suggests will be placed in the LCC (and that you continue to believe will be acquired by US) assumes that to be competitive an ASM cost level very close to Southwest's ASM cost and significantly below US' bankruptcy-revised ASM cost would be required. Are US employees ready for another round of salary concessions?

Oh, and let's not forget the US pilots' plan to shut down US if the pension issue is not resolved to their satisfaction!

 

[chipmunn]

Cosmo, what's your point and why be so defensive? My comments today have been predominantly directed at what has been said in the news media.

Regardless, as I said before, what I find interesting is that today three independent news sources, the USA Today, CBS.MW, and Dow Jones, all wrote a column regarding the downsizing and potential liquidation of UA.

Is this a coincidence, or are the "tea leaves" indicating this idea is a means to fix the industry wide economic problem, with war in the Middle East about to break out?

Why do we have all of this independent news activity, as well as independent analyst comments, simultaneously today?

Why are the commentators discussing a potential liquidation of UA because they envision a "best-case" scenario (for the industry) that involves the shutdown of the Chicago-based airline?

Is this a coincidence or maybe rumblings of something else?

Chip

 

[Cosmo]

[blockquote]
----------------
On 2/20/2003 3:09:23 PM chipmunn wrote:

Cosmo, what's your point and why be so defensive?
----------------
[/blockquote]
I'm really not being defensive -- after all, I don't work for United, or any other airline for that matter.

My point is that you continually "spin" virtually any news about UA's bankruptcy proceeding into your unsubstantiated "interesting corporate transaction" where US will take over much, if not all, of UA. I'm simply pointing out that your "spin" is not the only interpretation of the news. Moreover, I'm also making it clear that the current position of US is not nearly as strong (at least not yet) as you claim it is.