The Future Of Ual?

[767jetz]

avek00,

As iflyjetz points out, your information is not based on facts.

JP Morgan and Citigroup are most certainly NOT demanding ATSB approval. The bottom line is that an ATSB loan guarantee is a risk free investment for the banks, therefore UA benefits from the low interest rate which reflects the risk.

Absent the ATSB guarantee, JP & Citi will still loan the money, but most likely at a higher rate. (again, to reflect the risk) Remember, they practically fought with each other to get our business. Now that they have an intricated knowledge of our plan and future potential, rumor has it that they are more than impressed, and more than happy to put their money on the line.

In fact, (more rumors here) one of the problems UA is having with the ATSB is that things look so good going forward, they think that giving the guarantee may be unneccessary.

 

[nwa_dc10]

It will never happen because our government IS big business. George Bush is a CEO's wet dream.

Lest we forget that Bill Clinton signed NAFTA.

 

[atabuy]

To play Devil's Advocate, how do you stop jobs from going overseas??? If IBM can get a computer programmer in India to do the same job for $10k a year that someone in Silicon Valley does for $100k a year, sooner or later, IBM will not be competitive with other companies overseas.

46Driver
I can't say I have the answers either, but the path we are heading down seems to be a very bad one.
High paying jobs lost to other countries undermines our tax base. Which in turn affects services and employment in the federal and state gov. ( More jobs lost.)
If the Gov. keeps increasing the deficit, inflation will eat up our buying power and our standard of living will slowly decrese.

Since we seem to be the only country who is acting as the disciplinarian of the world, maybe we should start charging for our services. Let's say Iraq will owe us 2 billion when things get settled there. Haiti will owe us also and any other country that asks our help to maintain order.

Every child should serve in the armed services without special treatment to the wealthy or high placed officials. Especially imagrants entering our country, who recieve the rights of Americans who have paid the highest price for our freedoms. This might stop some of the politicians who place our kids in harms way.

Maybe if politics was more about the people instead of party lines, we could accomplish more. No riders attached to bills. No special interest. Give people the chance to vote on issues the incumbents talk about when they want to be elected, instead of putting them in office and they go back on their promises.
They would need a good plan to do what they want done. Not just say they would cut taxes, for example, but would show how they would do it and what we would give up.

Just a few thoughts. Thanks for responding. You are right.

 

[Dizel8]

iflyjetz,

Just curious, since we are like the proverbial mushrooms.

If UAL can emerge without the loan, then why did your CFO say that emergence hinges on getting the ATSB guarantee? If UAL is so well poised, withdraw the application!

JP Morgan and CITIgroup is in it for the money, obviously, they stand to make fortunes on the new IPO of UAL stock. If they can play politics, as it seems they are, they will. If what you say is true, that they have alluded they are impressed with UAL, they may simply be doing this, to sow seeds with the ATSB, in the hopes of influencing them to approve.

Of course, you know this way better than I, but I think, that while JP and Citi will loan UAL money, it will be at a very high rate, which really is saying, that UAL, absent a guarantee, is still a big gamble.

This is not a slam against UAL, have to many friends there, but it is merely speculating in politics and money.

 

[iflyjetz]

iflyjetz,

Just curious, since we are like the proverbial mushrooms.

If UAL can emerge without the loan, then why did your CFO say that emergence hinges on getting the ATSB guarantee? If UAL is so well poised, withdraw the application!

JP Morgan and CITIgroup is in it for the money, obviously, they stand to make fortunes on the new IPO of UAL stock. If they can play politics, as it seems they are, they will. If what you say is true, that they have alluded they are impressed with UAL, they may simply be doing this, to sow seeds with the ATSB, in the hopes of influencing them to approve.

Of course, you know this way better than I, but I think, that while JP and Citi will loan UAL money, it will be at a very high rate, which really is saying, that UAL, absent a guarantee, is still a big gamble.

This is not a slam against UAL, have to many friends there, but it is merely speculating in politics and money.

Dizel8,
Think of the ATSB loan guarantee (it's not a loan, just a gov't guarantee of repayment in case of default) in the same manner as an VA loan to buy a house. For those that qualify for an VA loan, the interest rate is lower than a conventional loan.
If you qualified for a lower interest VA loan, would you take a conventional loan or would you wait until all of the VA paperwork was completed? I think most would go for the VA loan.
Let's not be confused about the importance of a loan for UAL to emerge from chap 11. While UAL has over $2 B cash on hand, it owes somewhere around $700 M in DIP financing. Without a loan, UAL would not have a lot of extra cash on hand to emerge. (I think the barebones min that UAL needed on hand to just ENTER chap 11 was around $900 M).
The rate that JPM and C charge on ATSB backed loans will be less than any additional loans due to the significantly diminished risk involved. This makes an ATSB guaranteed loan highly desirable. I don't know what the interest rate would/will be on an ATSB guaranteed vs non-ATSB guaranteed loan; that's something that's been hammered out by UAL and JPM/C management. The fact that not one, but two banks are willing to loan UAL money indicates to me that there was some competition on the loan terms offered.

The bottom line here is that UAL needs a loan to emerge from chap 11. There is interest from two banking houses for UAL's business. The question is not whether UAL will get a loan, but what the terms of the loan will be.

Given that UAL has announced replacement carriers for Atlantic Coast, I think that UAL is in the final phases of emergence from chap 11.

 

[WorldTraveler]

Thank you, Avek00, for helping UA's now ever-happy employees remember that it may be too late to undo too many years of bad management and bad employee relations. UAL has said that they've run the airline better in the past year or so than they have at anytime since deregulation. Too bad it took a near death experience for UA employees and UAL management to realize that the airlines are businesses that must be run well. Unfortunately, too much of UAL's mindset mirrors the entitlement mindset that drove Pan Am into the ground.

In addition to the pension issues addressed above (and it is still very uncertain whether airlines will get any special breaks), UA has two big issues to address: the example US Airways has left for them and the growing low cost carrier competition across UA's network. US has been a very bad example of what gov't help can do. US' business model is broken, just like it is at the rest of the network carriers. There aren't too many analysts who are convinced that UA's business plan needs to be rescued since there is no evidence that it works at UA or at any of the other 5 biggies. As a taxpayer, I'm not interested in tying up money in an industry that can't figure out a money making business model. I certainly don't think the LCC's are capable of providing a true air transportation system like the network carriers do but 6 is too many when it comes to network carriers, especially when they all have the same business model. And the longer the network carriers take to get their model right provides more time for low cost carriers to grow, minizing the need for network carriers. AA and UA have incurred some pretty healthy attacks against their networks this week and the prime transcontinental markets will likely continue to be picked off by the small and nimble guys. Dulles is especially vulnerable and UA will almost singularly bare the brunt of it. That kind of continued low cost carrier growth has got to give the ATSB pause for concern when they decide whether UAL's revenue plan is as overly optimistic as US's once was.

 

[767jetz]

Unfortunately, too much of UAL's mindset mirrors the entitlement mindset that drove Pan Am into the ground.

In addition to the pension issues addressed above (and it is still very uncertain whether airlines will get any special breaks),...

There aren't too many analysts who are convinced that UA's business plan needs to be rescued since there is no evidence that it works at UA or at any of the other 5 biggies.

#1: Not sure what you mean by entitlement mindset. If you mean being paid commensurate with your experience, the skill you provide to the operation, and the sacrifices and personal investment you've made in the company, then I don't think you'll be hearing any apolgies from anyone on this property. On a whole our labor costs are rock bottom, and far below what we are worth.

#2: You obviously have not been following the news on the pension issue very closely. Just today it was reported that congress will probably not back down from much of the pension bill, and the White House has signaled that it probably will NOT veto a bill that includes special provisions for airlines and the steel industry.

#3: Luckily it is not the analysts who need to be convinced or even informed of UA's business plan. It is the banks we are concerned with. And the 2 largest financial institutions in North America (J.P. Morgan & CitiGroup) are both convinced of UA's future viability and have confidence in our business plan and our management.

 

[767jetz]

One more thing:

Come this summer, When UA emerges and is back on the road to recovery, it will be Delta, NWA, and AA who will be struggling to keep up.

 

[boeing787]

and the LCC's. Can't wait to start picking them off.

 

[N230UA]

One more thing:

Come this summer, When UA emerges and is back on the road to recovery, it will be Delta, NWA, and AA who will be struggling to keep up.

While I am a rabid UAL supporter, this is not entirely correct.

Without having to enter Ch 11, AA was able to renegotiate pilot pay rates significantly lower than UA.

An AA 767 pilot makes the less than UA 757 pilot.

An AA 757 pilot makes more than a UA 737/A320, but less than a UA 757.

An AA 777 pilot makes only more than a UA 767, but less than a UA 777.

Unbelievable.

 

[46Driver]

and the LCC's. Can't wait to start picking them off.

Well, you already tried to have MESA buy ACA and kill us. Try, try again......

 

[iflyjetz]

Well, you already tried to have MESA buy ACA and kill us. Try, try again......

46Driver,
That was to save you from yourselves. Good luck on the Independence Air venture. Any guesses on how long it'll take to spool up after being cut loose from UAL? It looks like you'll be cut loose soon. Again, good luck.

 

[767jetz]

While I am a rabid UAL supporter, this is not entirely correct.

Without having to enter Ch 11, AA was able to renegotiate pilot pay rates significantly lower than UA.

N230UA,

First of all, thanks for the support of UA. We all do really appretiate it during these tough times.

Just some further info regarding AA's costs. I have several friends who fly there. Their pay rates are below ours for now, but as you know, labor costs also include many other factors besides hourly rates. I don't know every detail of their contract, but our current work rules are far more productive than theirs. Once Pref-Bidding is implemented it will be even more so. They still have many quality of life benefits such as reserves being able to list "sick if needed", or their higher duty rigs, etc.

Additionally, their initial paycut lasts only 1 year. Later this year they get back a large chunk of it putting their hourly rates on par or even ahead of UA's. Each year after they have smaller incremental raises bringing them further ahead of us, and their contract is 5 years long. In comparison, our contract is 6 years long, with absolutely no raise for 3 years, and then only very small cost of living adjustments (appx. 1%-3%) the last 3 years. So as we emerge from BK and start recovering, with costs even decreasing due to things like Pref-Bidding, AA's costs will start creaping up again.

IMO, Delta is in for a long battle with the pilots. I have friends there too, and none of them are interested in 30% + pay cuts. Personally I hope the Delta pilots hold firm. Someone has to stand up for this profession, and nobody should take that kind of hit without a gun to their head (BK).

As for NWA pilots, that's another battle that will not be easily won by management.

So, from a labor point of view I wish my fellow pilots great success in giving the needed help to their companies without selling off the farm. But from a business point of view I still firmly believe that come July UA will have a huge advantage over its competitors.

 

[WorldTraveler]

767Jetz,
I have UAL's 2003 annual report next to me as I type. The fact that UAL had operational losses or $1.4B in 2003 followed by a $200 million operational loss in Jan does not bode well that UAL is capable of making money. Entitlement comes when you expect the US government to guarantee a loan in the midst of those kinds of losses.

Yes, I have been following the pension bills. It is certain that the funding formulae for all pensions will change. It is not at all certain that the airline and steel specific provisions will pass. There are many Americans who don't have access to pensions at all and their representatives are hard-pressed to make a case for bailing out the network airline's pensions. We won't know until the vote is taken, will we?

UAL's future is still far from certain but it is totally dependent on government action - something that many people in this country are not very interested in providing.

 

[767jetz]

Yes, I have been following the pension bills. It is certain that the funding formulae for all pensions will change. It is not at all certain that the airline and steel specific provisions will pass.

Sorry, but I beg to differ. Here is a recent update:

ROCKY MOUNTAIN NEWS
March 10th, 2004

"President Bush will drop objections to a provision in an $80 billion pension-relief bill that would allow airlines and steelmakers to defer billions more in retirement-plan contributions, Sen. Max Baucus said."

"The Bush administration won't take a stand against the provisions because the main part of the bill gives pension relief to industries struggling to generate jobs, said Mark Ugoretz, president of the ERISA Industry Committee. Bush, a Republican up for re-election in November, has been criticized by Democratic challenger John Kerry for not doing enough to spur employment."

"Lawmakers will avoid a veto by restricting the pension-deferment option to steel companies and airlines, said Lynn Dudley, senior counsel for the American Benefits Council, which lobbies on pension issues for companies such as AT&T Corp. and General Motors Corp. The measure in its current form would allow any company to apply for the deferment."
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As for entitlement, Congress created the ATSB for exactly the purpose UA is using it. To STABILIZE the company until the effects of the terrorist attacks,war, and the resultant slump in the economy have passed. NOT to restructure it. For your information, that was the intent when it was passed by Congress. The restructuring of airlines specifically to the detriment of labor is something certain pro-business/anti-organized-labor politicians in the Bush administration have pushed for.

For your further information, having UA's 2003 annual report does not mean you have access to UA's 2004 and beyond business plan. Using what even the banks consider very conservative projections, UA will pay the loans back in a matter of years (while maintaining the current pension plans), and will be very profitable shortly after emerging. (unlike USAir.)

I'm sorry if these facts are counter to what you feel "should" happen, but the 2 biggest financial institutions in North America (JP Morgan & CitiGroup), who have intimate knowledge of UA's POR, have indicated their support and confidence.