UA Board will not approve a split up of the Airline.

[chipmunn]

Bear96:

Bear96 said: And about the $2B in DIP financing. I think it is more like $1.5B. And of that, only half has already been paid out to UAL ($700 or $800 million). The other half is contingent upon UAL basically becoming technically cash-flow positive in a matter of several weeks.

Chip comments: Bear, you're correct. In fact, today's USA Today feature article on UA said "UAL must demonstrate to four big banks that lent UAL $800 million to operate that it can repay them later — and that it deserves an additional $700 million in months ahead. United this month must meet the first of monthly cash-flow targets. Although it's expected to hit February's goal, future months set progressively higher targets that will be harder to achieve."

With the company still losing $20 million per day, I disagree with PITBulls comments. Liquidation is a very real and possible threat maybe as early as Memorial Day.

Bear96 said: The co. has 120 days to present a plan before creditors can force asset liquidation.

Chip comments: Bear, this may be the biggest problem of all. With the Board, Management, and Labor fighting, there is about two months left until the airline is scheduled to submit its POR to the court on April 8. The clock is ticking and UA appears to not have an exit strategy in place.

Meanwhile, UA got some pretty negative press today in the USA Today, Crain's Business News, and Fortune magazine where there were a number of interesting comments.

Today the USA Today wrote, "Whether the nation's second-largest airline lives or liquidates could be decided in the next eight weeks. Almost two months after filing for bankruptcy reorganization, United Airlines' parent, UAL, faces a tangle of critical decisions about its future that it must make soon if it is to have any hope of survival. But United is a managerial Rubik's Cube whose problems are interlocking and solutions confounding."

In the article Mo Garfinkle, an aviation consultant who once advised United: "It is a task so difficult, so enormous, it will be miraculous if they achieve it all."

Crain's wrote, if war erupts in Iraq, one of the first casualties undoubtedly will be United Airlines. The double-whammy of skittish passengers and soaring oil prices threatens to push an already-teetering United into liquidation, says Sanford “Sandyâ€￾ Rederer, president of Virginia-based consultancy Aviation Planning & Finance.

Bear, you're right...the clock is ticking and what is sad is I believe UA's present situation did not have to occur.

Chip

 

[Bear96]

Chip,

It seems we are of the same opinion concerning UA's dim future.

However, I would be interested in hearing your spin on U's 4Q numbers. Specifically, how can an airline that has supposedly cut its costs so much through multiple rounds of employee give-backs, and that has enjoyed other protections from creditors while in Ch.11, still have lost $800M in one quarter?

It would seem that proportionally, U is doing even worse than UA. U is less than half the size of UA now but has lost half as much money. Yet you still continue to assert that things will suddenly become rosey for U upon emergence from Ch.11 next month, even though there is a good chance that the bombs will be dropping on Baghdad by then.

How can this be? What are you seeing that I am not?

And how could it possibly be a good thing for U and UA to link up even more than they are now? It would be like Enron merging with AOL in hopes that together they could pull out of the red ink.

Even as one who could enjoy NRSA benefits on a UA/U alliance, I would be hesitant to make future travel plans on it.

 

[PITbull]

Bear,

Check out the post regarding U year end report results.

We lost almost $800 Million just this past quarter..almost $1 Billion while in BK. Just through Bankruptcy and Labor concessions alone, U brought their available seat mile down 3.1% for this quarter, excluding fuel. It continues to read that we rank in the top tier of consumer indexes in terms of operational performance.(end quote)

Talk about staggering losses...we are targeted for emergence from B on March 31. U has targeted projected profits of approx $127 million for 2004 and with over $8 Billion in operating revenues for 2004. This time with much leaner operating costs. We hurdled it; so will UA. It's part of the "plan". So don't let the numbers scare you.

It ain't over til its over.

 

[PITbull]

Read between your own lines bear.

Chip will come out again implying his same retorhic as above.

 

[chipmunn]

Bear96 and PITbull :

The major difference between the UA and US full year and fourth quarter financial results going forward is the reorganization/business plan.

US entered bankruptcy with a three part plan to improve financial performance: increase liquidity (ATSB loan guarantee, two DIP financing plans - RSA & GECAS, and equity investment), cut cots ($1.9 billion per year with $1.04 billion from labor), and to improve revenue (RJ agreement, Star, and Domestic alliance).

The company has reached an agreement with Airbus to restructure aircraft deliveries. The importance of this agreement is not so much the delivery schedule, but instead gaining key creditor support because GECAS is the chairman of the unsecured creditors committee and holds a total of three of thirteen creditors committee voting positions.

In comparison UA has a very stringent DIP financing plan with four institutions where it appears the company could violate the terms of the agreement in a few months.

On the cost side of the business plan, UA has tremendous upheaval with the board, management, and labor in disagreement. In fact, today's edition of the USA Today in an article titled Pilots Chief: United may face 'hostile' workforce, the newspaper said, If United parent UAL uses bankruptcy court rather than negotiation to force new contracts on employees, "The company is going to have a very hostile workforce," said Paul Whiteford, a United captain and a member of UAL's board, in an interview Monday.

The USA Today continued, "If we can't resolve this through negotiation, it will become a litigation issue," Whiteford said.

How can this be good?

From a revenue perspective UA has so far only negotiated the domestic code share alliance to boost revenues going forward.

In regard to the US numbers, revenue continues to be depressed due to the sluggish economy, threat of war, alternative short haul options, deep discounting, which is expected to reduce revenue by $10 million per month. In addition, the fourth and first quarters are always the worst due to seasonal traffic patterns; however, US will exit bankruptcy just in time for the heavy travel season. With its north-south network US’ best two quarters are the second and then third quarter, with traffic dropping off after Labor Day.

US is just beginning to see the benefits of its cost reductions with the airline still paying severance pay to furloughed employees, the recent agreements to reduce facility expense (e.g. CCY consolidation, TPA hangar closure and agreement with Hillsborough County, MCO REZ facility closing last month, CTO closures, airport lease reduction in MCO, MHT, SEA, etc.), and lowered aircraft rental fees.

These non-labor cost reductions total $800 million per year and are just starting to kick in.

If history can be used as a guide, fuel prices will begin to subside when war breaks out. The old trading adage of “buy the rumor sell the newsâ€￾ is likely to occur, but this cost reduction will likely be offset by a revenue falloff.

Another cost that will subside is bankruptcy advisor expense, which should end in Q2.

US recorded a $176 million charge for bankruptcy expenses and $392 million impairment charge on its Boeing aircraft. These two one-time charges for a total of $568 million alone reduced the $794 million net loss to a $226 million loss, much lower than the total reported net loss.

On a positive note, revenues were up 3.1 percent to $1.6 billion as its traffic fell 1.5 percent, far less than the 8.8 percent drop in capacity.

However, most surprising was the 7.7 percent increase in revenue to 10.3 cents, which is likely due to US pulling out of highly competitive markets.

Although the fourth quarter numbers were disappointing, they have been expected; however, interestingly the company recognized a $742 million charge to stockholders' equity in connection with its increased minimum pension liability. My question is why did a company in bankruptcy make that pension payment, to a plan they have petitioned to terminate?

In court papers, the company estimates that in 2003 it will lose just $225 million by increasing revenue by 3.4 percent and chopping expenses by 17 percent.

In 2004, the company expects a $127 million profit, spurred by a 13 percent revenue jump. The airline anticipates that the industry will rebound and that its marketing alliance with United Airlines will pay off, as will an expanded use of regional jets in small and mid-sized cities.

By 2006, the company projects a profit of $394 million.

What's important to note is the court believes these numbers to be accurate, after discussions with the creditors committee, or the Plan of Reorganization and Disclosure Statement would not have been approved by the judge to be mailed to the creditors last Friday, January 31.

It is very important for US Airways to exit bankruptcy by March 31 so it can get its hands on the $1.24 billion in added liquidity. This financing will give the airline time to increase RJ feed, implement both alliances, take advantage of the cost reductions, and complete a corporate transaction to return to profitability in 2004.

I agree with Ray Neidl, Blaylock & Partners airline analysts who yesterday told Bloomberg News, "What they (US) look like when they come out of bankruptcy at the end of March will be the key thing going forward." Neidl suggested that the carrier's cost per seat for each mile flow should be between 8 cents and 9 cents. "They have a pretty good business plan in place," Neidl said.

US is not out of the woods and the pending corporate transaction discussed by Bronner will improve its prospects.

US Airways liqudity appears to be sufficent to fly until it exits from bankruptcy on March 31.

The airline said it ended the year with total restricted and unrestricted cash of $1.15 billion, including $633 million in unrestricted cash, cash equivalents and short-term investments. This cash balance includes $300 million drawn on the company's $500 million Debtor-in-Possession (DIP) facility.

In many respects the Arlington-based airline appears to have a brighter future than UA, whose employees are just beginning to feel the pain experienced by US employees.

Chip

 

[Daveflier]

Chip-

What is your current take on the pension dilemma as it relates to the unrest among the rank and file and possible jeopardization of emergence from Chap. 11, given the public wide disparity in positions?

 

[chipmunn]

Daveflier:

There is a lot activity going on behind-the-scenes with regard to the pilot pension issue with some very creative ideas. I believe at this point it's best to not publicly comment.

Chip

 

[767jetz]

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

The USA Today continued, "If we can't resolve this through negotiation, it will become a litigation issue," Whiteford said.

How can this be good?

Chip

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

Didn't your MEC recently imply a strike or even possibly a tragic accident if your pension issue wasn't resolved?

How can this be good?

Ever think that posturing is posturing, whether it happens at U or UA?

 

[chipmunn]

767jetz:

I've been in this industry long enough to understand posturing, however, there are some positive signs regarding the pension issue...we'll see how this turns out. But, what's your point?

By the way, for what it's worth...Mike Boyd of the Boyd Group, an airline consultant in Evergreen, Colorado told the Pittsburgh Tribune-Review, "Judging by their track record over the last six months, they've (US) gained a lot of credibility. I have no reason to doubt" that the airline will be profitable by 2004. "They're probably factoring in that the economy won't dip again, and that outlook might change if there's a long-term military conflict in the Middle East. But it certainly makes sense the way things are going at this moment," Boyd said. "US Airways has a solid, workable plan," he said. "All United has done so far is generate a lot of publicity."

Chip

 

[PITbull]

Chip,

You say you have "no doubt U will be profitable in 2004".

That's the understatement of the year. Don't you think this co. has projected this profit knowing damn well that our chances of going to war are majorly great? Don't you think they factored this in? You imply above that the co. hasn't factored that in with regard to the projected profits for 2004, unless I am misunderstanding your implication...

Give UA a chance. They havn't even begun for what's in store for their labor groups. FEAR is the key to everyones plan. When all is said and done, they will be probably looking better than U.

 

[Biffeman]

Sounds like someone drank koolaide served by Dave.

 

[apofurlough]

[blockquote]
----------------
On 2/4/2003 8:40:10 AM chipmunn wrote:

In 2004, the company expects a $127 million profit, spurred by a 13 percent revenue jump. The airline anticipates that the industry will rebound and that its marketing alliance with United Airlines will pay off, as will an expanded use of regional jets in small and mid-sized cities.




Chip

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

Chip my question to you is - what happens when UA liqudates as you predict? Where is the code-share revenue?

 

[chipmunn]

PITbull:

PITbull said: You say you have "no doubt U will be profitable in 2004".

Chip comments: PIT, I didn't say that. Mike Boyd did and I simply posted his comments.

Chip

 

[chipmunn]

Apofurlough:

Apofurlough asked: Chip my question to you is - what happens when UA liqudates as you predict? Where is the code-share revenue?

Chip comments: If UA liquidates or is forced to sell assets to fund its operations, I think you will be surprised at what will occur and how this revenue will be recovered.

Chip

 

[chipmunn]

United Unveils Part of Transformation Plan

CHICAGO (Reuters) - Bankrupt United Airlines on Wednesday revealed some of its plans for transforming itself, including intentions to launch a completely separate low-cost unit with cheaper fares for leisure travelers.

United is sticking by its plan for a low-cost "airline within an airline," first discussed a few months ago, even though its unions have criticized the notion of a legally separate division.

The so-called "transformation plan" being unveiled is separate from a plan of reorganization, which will be needed to emerge from bankruptcy protection. That will come later in the process, United said on a telephone hotline to employees.

Elk Grove Village, Illinois-based United, a unit of UAL Corp. (NYSE:UAL - News), filed for bankruptcy in December, the largest airline ever to do so. It followed smaller US Airways Group's (OTC BB:UAWGQ.OB - News) chapter 11 filing in August.

Public information about the plan has been scarce as United begins negotiations with aircraft lessors, suppliers and workers about concessions to turn the carrier around.

Details of the "transformation plan" were presented to unions on Tuesday. UAL's board of directors glimpsed it last week and issued a statement in support.

Included in the plan are continued mainline jet service, a new low-cost carrier that is an entirely separate entity with a single fleet, continued use of United Express regional service with 70-seat regional jets, and alliances, the airline said on the hotline to employees.

TOTALLY OPPOSED

Paul Whiteford, head of the United branch of the Air Line Pilots Association, said in an interview Wednesday that he remains totally opposed to a separate legal entity that could be spun off, with separate pay scales and seniority lists.

"It was a PowerPoint presentation," Whiteford said of the union briefing Tuesday. "It's hard to describe it as a business plan--there aren't fiscal targets for labor to negotiate."

Whiteford said that, if United insists on creating a separate entity, a judge will ultimately decide how to proceed since ALPA will not go along with the proposal.

The International Association of Machinists, meanwhile, said it continues to negotiate with the airline and will not release a position on the low-cost carrier plans.

United said its transformation plan -- created under new Chief Executive Glenn Tilton -- was designed to meet four different criteria. It must transform the airline, meet the changing needs of travelers, build a cost-competitive airline, and reengage investors.

UAL's common stock was trading Wednesday at 94 cents a share after being above $100 in the late 1990s. The company's chief financial officer has said in court the shares are likely to be worthless at the end of the bankruptcy process.

United said its network is "central to the plan for transformation's success."

"The goal with the main (air)line is to meet the needs of the core business traveler while maintaining the lowest costs among the network carriers," it said. "The company is in discussions with its unions on wage and work rule changes, renegotiating its aircraft lease and mortgages and restructuring its fleet, with the goal of saving $500 million."

LOW-COST CARRIER FOR LEISURE TRAVELERS

United said it faces low-cost competition in 70 percent of its markets. It had its own shuttle service on the West Coast, but shut it down after the Sept. 11, 2001, attacks slashed the demand for travel nationwide.

The company is currently discussing the structure and size of the low-cost carrier, but said it has proposed a completely separate entity with its own management, uniform fleet, separate workforce and access to capital.

"While it would remain separate in these key areas, it would be fully integrated into United's hubs and network, as well as its frequent flyer program and brand," it said.

Joseph Schwieterman, a transportation expert at DePaul University in Chicago, said he was less skeptical than other analysts about the low-cost carrier's viability.

"It will lessen the pressure on making draconian changes throughout the airline," Schwieterman said. "It will allow United to compete for travelers who want rock bottom prices, while protecting its premium product for business fliers."

United also said it is falling behind the competition in regional service to smaller communities and that it needs 70-seat regional jets to beef up that sector.

"The 70-seat jet falls nicely into the fleet, filling a significant hole between the 50-seat (regional jets) and the 100-seat airliner," said Doug Hacker, UAL's chief strategic officer.