The Last Flight?

[Ukridge]

Good heavens? Looking at the FT times today I see plentiful mention that United has now spoken to the public press concerning its plight. I am sure this same article has appeared already in many of your business pages and if my humble reading skills have served me well, the company seems to be portending that we only speak of them in the past tense. Mention was made of 750M 'operating losses' (!) for the years ahead irrespective of cost gains made from labour agreements and that they would "burn cash until it were depleted."
So, the cards have indeed been played. Your once great carrier has announced that it is going out of business and in doing so, admits that they posses not a single business plan that would carry them forward. Even in light of other of the world's flagship carriers that are finally seeing smoother air, it appears if United is quitting the pitch. In a fashion that is constant through the sordid history of mankind - "it was something else that was the fault." Some external factor such as the Internet that the brightest and the best simply could not envision having an impact on the business operation. They were caught unawares and yet it is beyond their control.
So, now we get down to the messy details. When will the last flight be scheduled and how much advance notice will we, the customer corps be given before London is drawn down? Will we soon see an announcement made as the the termination date (seems to be pretty simple arithmetic - if you plan on losing money till the cash runs out and knowing your loss rate....) and alternate plans within the Star?
I mourn for you good folk of United, I truly do. As for one who believes there really is nothing new under the sun, I would say that yes, circumstances change a bit, but it is the response that is more important. Well, United's management did not even seem to try now did they? And now, they are with a rather shocking directness, they announce the shuttering of the doors.
Many of you probably remember the Monty Python skit in the cheese shop where the cheese tender eventually tells John Cleese, that yes, I have been deliberately wasting your time. Looking at this mournful bleating from your firm's spokesman (woman?), I see very much the same thing.
A sad day for all.

Not so cheerful Ukridge

 

[Borescope]

Uk,
It takes a lot to kill off an airline. I don't think the doom and gloom you read was anything more than an attempt to sell more newspapers at this time.

 

[uafa21]

This wa also the front page story in the Denver Post. The management of this company being Tilton or before Tilton has ahd ample time to get things right. They can't. The BK Judge keeps giving the company more time. I believe he is just as much at fault.

We gave two years ago. The company still continues to lose money. Money they now don't have. Why are flights that are known money losers still flying? Don't we have accountants and computers and informantion to know where profit is being generated and loses are cutting the bottom line?

In a bk situation the company has had a chance to get rid of debt, leases, and unneeded expenditures. What has mansagement done?

 

[Ukridge]

Borescpoe - One would think that this is just a bit past the point of selling newsprint is it not? A lovely on Page 3 I can understand, but an annoucement such as this from a business concern is a bit more sobering.

Uafa21 - Yes, money continues to be lost. The concept of "it takes a lot to kill off an airline" only has some merit. Perhaps with Alitalia that is true, but once a firm no longer has any cash on hand it loses friends quickly. I am just one person with an observation, but if this is how business is conducted in the FCs, then it certainly is a bit too sporting for my blood.

 

[ualdriver]

The news of our death has been greatly exaggerated.........

 

[Cosmo]

Good heavens? Looking at the FT times today I see plentiful mention that United has now spoken to the public press concerning its plight. I am sure this same article has appeared already in many of your business pages and if my humble reading skills have served me well, the company seems to be portending that we only speak of them in the past tense. Mention was made of 750M 'operating losses' (!) for the years ahead irrespective of cost gains made from labour agreements and that they would "burn cash until it were depleted."

Ukridge:

It seems your "esteemed" FT (or at least a few of their reporters) should have actually read the document that United filed with the bankruptcy court yesterday before going to press with their article. Had they done so (as I have), they would have realized that the projected 2005 loss of $725 million -- note the correct figure -- was WITHOUT any of its proposed $2 billion in labor, pension and other cost savings. The same is true regarding the "cash burn" comment. You can read a copy of the long (100+ pages) but detailed document that was filed with the SEC here by clicking on the "8K" filing dated 12/15/04 in whichever download format you prefer. And BTW, there was absolutely no press release from United indicating that it was imminently going out of business.

I'm not trying to minimize United's problems, and the carrier certainly has its work cut out for it to emerge from Chapter 11 by mid-2005 as it hopes. But before you start avoiding United's flights, perhaps it's worth considering that the FT article was sloppily researched, more than a little hyperbolic and possibly, just possibly, done as a favor to BA and its oneworld alliance partner American, United's primary transatlantic competitors at LHR. I'm shocked, absolutely shocked I must say, that the FT would stoop to such shenanigans!

 

[Ukridge]

Cosmo - Welcome back! Yours has been a voice that has been sorely missed on this forum. I read the print edition and so I went back to carefully parse the phraseolgy employed. By jove you may have hit upon something. To say that the article potrays the situation in a grim fashion would be a severe understatement and would do injustice to the word 'grim.' It made it sound very much so (and I will look on their web page to see if the print article differs from the electronic) as if the company spokeman was basically writing off the project. You are correct in maintaining that United did not publish any statement themselves, but the FT took spoken company statements and weaved them in such a manner to make it look quite the torn garment. Sly reporting - very sly. I will query my colleagues as to how many had the same impresion.
Did not mean to jump the gun on this, but it REALLY looked bleak in print.
I am also SHOCKED, SHOCKED I tell you, that any news reporting agency would be partial in its reporting. How could this be?

 

[WorldTraveler]

I’ll back my welcome back to Cosmo as well.

While FT doesn’t let me peruse their pages to read their article, it does sound like they were a bit overly dramatic.

Even with the labor and pension cuts UA is requesting, the outlook for United is not good based on the information UA provided in the documents. A turnaround to the point of being even close to off of life support is at least in the beyond 2007 timeframe. I don’t know what kind of revenue dilution UA has baked into its plan but it is obvious that there is much more downside coming. UA is still very vulnerable to low cost carrier incursion particularly in its SFO and IAD transcon markets which represent a sizable chunk of revenue. Quite frankly, if UA cannot emerge from bankruptcy within the next 6 months creditors will begin to find other airlines with whom their assets can be placed. The aviation market is rebounding around the world and UA still has some of the best routes and aircraft in the industry; when they are yours to control, that’s great but when someone else has a claim on them it’s not such a good thing. UAL’s position with its creditors right now could best be described as acrimonious; even if UAL wins the current battle over creditors’ attempts to repossess aircraft, either the costs will go up or the aircraft will have to be given up longer term. There is nothing in the law that requires a business to accept lower lease values for its assets in the long term.

Even with labor cuts and pension abrogation, there are still a number of dicey issues that could easily go against UAL including the PBGC’s claim that UAL pay up to $800 million of pension payments which are due now – before any decision is made regarding terminating the remainder of UA’s pension liabilities.

Perhaps more concerning should be the lack of confidence many UA employees have in the company’s future now. Let’s face it: terminating pension benefits dramatically reduces the incentive employees have in keeping their company alive.

 

[laura62]

So, the cards have indeed been played. Your once great carrier has announced that it is going out of business

[post="229336"][/post]​

Missed that "announcement"-perhaps the deck is missing a few cards. :down:

 

[casual rat]

I think the deck has been missing a few cards for quite some time. If this were 'strip poker', the company would be violated....by the rocket scientists in charge...go fig!

 

[Cosmo]

I’ll back my welcome back to Cosmo as well.

WorldTraveler:

Thanks -- to both you and Ukridge! I've been pretty busy lately, so I've only been able to do some occasional lurking. :disguise:

Even with the labor and pension cuts UA is requesting, the outlook for United is not good based on the information UA provided in the documents. A turnaround to the point of being even close to off of life support is at least in the beyond 2007 timeframe.

With all due respect, that's simply not true. If you look at the middle paragraph on page 21 of the filing, United notes that its most recent forecast of operating results without its proposed labor cost reductions shows an operating loss of $725 million in 2005, an operating profit of $26 million in 2006, and an operating profit of $677 million in 2007. But if you factor in the carrier's proposed labor cost reductions of $725 million annually, the forecast results improve to breakeven in 2005, an operating profit of $751 million in 2006, and an operating profit of $1.402 billion in 2007. These aren't necessarily stellar results, especially in 2005, but they're not too bad either given United's recent financial history.

Similarly, Exhibit 35 on page 89 of the filing shows that United's "proposed CBA [Collective Bargaining Agreement] modifications", which appear to include the proposed changes in labor rates and pension benefits, improve the carrier's free cash flow (using the DIP lenders' definition as spelled out in footnote 199 on page 88) from -$1.38 billion to +$160 million in 2005, from -$1.263 billion to +$421 million in 2006, and from -$1.349 billion to +$781 million in 2007. These are significant turnarounds of more than $1.5 billion each year.

Now, I don't have access to the assumptions that support these forecasts, so I have no independent way to judge whether United is likely to meet, exceed or fall short of their projections for these three years. But by the same token, you can't claim that the carrier will still be on "life support" until at least 2008 based on these numbers, either.

 

[WorldTraveler]

Cosmo,
Did you have a look at the yield chart? can't remember the exact page but it's fairly near the front of the document. There is a very noticeable downward trend in the graph which would not appear to have reached the bottom of the curve based on previous down cycles. Also, nearly every airline has missed their revenue targets since 9/11 and there is not a soul in the industry that is willing to predict that yields have bottomed out. In other words, I think UAL is willing to say that the labor and pension cuts will get them what they need but there is absolutely evidence to prove that they are right.

It simply comes down to the reality that airlines in bankruptcy have a much harder time dealing with the continued degradation of the revenue environment than airlines that are solvent. Being able to control your destiny and adapt to the changing environment on one's own greatly improves the odds of survival.

 

[Cosmo]

Cosmo,
Did you have a look at the yield chart?

Yes.

... can't remember the exact page but it's fairly near the front of the document.

Exhibit 4 on page 8.

There is a very noticeable downward trend in the graph which would not appear to have reached the bottom of the curve based on previous down cycles. Also, nearly every airline has missed their revenue targets since 9/11 and there is not a soul in the industry that is willing to predict that yields have bottomed out.

But Exhibit 4 only hints at the whole story. Did you notice that the domestic yields and the system yields shown on that chart have been converging in recent months? The reason is that international yields have been rising, most dramatically in the Pacific. According to Air Transport Association data shown on page 8 of yesterday's edition (12/15/04) of Aviation Daily (and available on the ATA's own web site), Pacific yields have grown by an average of more than 13% monthly for the first 10 months of this year. Is it any wonder that United is adding as much capacity as it can across the Pacific this year (ORD-KIX, ORD-PVG, SFO-PEK and HNL-NRT) and next (SFO-NGO)? This is reflected in Exhibit 45 on page 108 where United shows that it is raising its international mainline capacity from 35% to 41% of its mainline system total, and more importantly, increasing its international mainline revenues from 46% to 55% of its mainline system total. So while domestic yields are indeed continuing to fall, United is decreasing its exposure to that segment of the market as fast as it can.

In other words, I think UAL is willing to say that the labor and pension cuts will get them what they need but there is absolutely evidence to prove that they are right.

I find it curious that when Delta made its prospects look as bleak as possible a few months ago, you labeled it a great strategic move to get the labor cost reductions that it wanted. And yet now, when United makes its prospects look as bleak as possible to get the labor cost reductions that it wants, you state that "the outlook for United is not good based on the information UA provided in the documents." Why have you come to different conclusions about seemingly identical labor strategies?

 

[casual rat]

It's the same topic, used over and over. Cortez burned his ships to get what he wanted, the question remains: Do I want to commit suicide or not? Suicide being staying in this industry....If you want to stay, you're going to compromise with the will of the Industry. If you have other needs, best o' luck to ya! Go out there and get it!

 

[N230UA]

Ooh. Checkmate Cosmo.

Kramer man, keep it up. I always enjoy reading your eloquent, fact-based, and information-laden posts!