When AA acquired TW, it incurred very little pension liability for the TW employees as most of the employees were entitled to TW retirement benefits specified by the PBGC. However, those TW employees who continue to work for AA will begin accruing from date of hire. For instance a 35 year F/A for TWA would be receiving a pension from the PBGC and would be entitled to a pension from AA for the two plus years s/he worked at AA. Something like $75.00 per month.
UA-CO Merger Rumors Now Surfacing on Wall Street
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DC costs cease at retirement, WT says post retirement costs for UA will be higher than someone with a DB plan due to the recent legislation, that is total crap.
JBG
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JungleClone
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It sure didn't take long for a UA/CO merger thread to deteriorate into a pilot vs. f/a pension pissing contest. Some things never change.
Unions prep for UAL deal
By Julie Johnsson
Crains Chicago Business
Aug. 21, 2006
As UAL Corp. CEO Glenn Tilton beats the drum for airline consolidation, United Airlines unions are girding for a merger.
The Air Line Pilots Assn., which represents United's pilots, told its members in a recent letter that its leadership team is "well into its strategic planning" on merger issues. The Assn. of Flight Attendants has a team of outside advisers on standby, should the airline announce a deal.
And the union representing United's 17,000 customer service agents and ramp workers has assembled a 12-person task force of labor experts, economists and lawyers to study every possible merger combination — and the labor strife each scenario would likely engender.
"We're preparing ourselves for any situation that might come up," says Robert Roach Jr., who handles airline contract negotiations as general vice-president for the International Assn. of Machinists and Aerospace Workers.
The unions' planning reflects widespread belief that sky-high fuel prices and the threat of a recession will force airline mergers — and that United will be a part of the deal-making.
"United's management does want to merge the company; that's very clear," says Michael Boyd, president of Boyd Group, a Colorado-based aviation consulting firm. "The unions should be talking about contingency plans. In an airline merger, employees and consumers lose and the investors win."
A spokesman for Elk Grove Township-based United declines to comment on speculation about a merger.
Each of the unions is readying to navigate the stormy labor issues that accompany a major airline deal: guarding seniority; reconciling different pay scales, pensions and health care benefits at the merging carriers; and ensuring that a rival union doesn't encroach on their turf.
United's unions were caught off guard when UAL attempted a merger with US Airways six years ago — a deal they eventually helped scuttle. With consolidation rumors swirling again, they're determined to be ready.
"We learned that we need to be . . . proactive about the way we're dealing with those potential business decisions," says a spokeswoman for United's flight attendants union.
CHANCE TO RAISE MONEY
Doing a deal would give United an opportunity to raise equity from outside investors, which it badly needs to purchase planes and fully leverage its international network.
What's more, Mr. Tilton is the industry's most vocal advocate for lifting regulatory barriers to big mergers and foreign investment in airlines. "It seems that when Glenn Tilton appears in public, he mentions industry consolidation," Air Line Pilots Assn. officials wrote to members this summer. The union didn't comment on its merger planning.
POTENTIAL PARTNERS
While recent industry chatter has fingered Texas-based Continental Airlines Inc. as a likely merger partner for United, some industry insiders view Atlanta's Delta Air Lines Inc. as likelier. United and Delta's hubs and networks match up nicely, and they came close to merging in the late 1990s.
"Delta is focused on completion of its restructuring plan and emerging from bankruptcy as a stand-alone airline sometime in mid 2007," says a Delta spokesman.
Says a Continental spokeswoman, "We've said repeatedly that our preference is to grow alone and avoid the problems that mergers bring."
Another unifying factor could be James Sprayregen, who served as United's lead counsel through its three-year bankruptcy before leaving in June to head the restructuring practice at New York's Goldman Sachs & Co. Now, at Goldman, he is advising Delta on its bankruptcy proceedings.
Mr. Sprayregen declined to comment.
©2006 by Crain Communications Inc.
*****************************************************
By Julie Johnsson
Crains Chicago Business
Aug. 21, 2006
As UAL Corp. CEO Glenn Tilton beats the drum for airline consolidation, United Airlines unions are girding for a merger.
The Air Line Pilots Assn., which represents United's pilots, told its members in a recent letter that its leadership team is "well into its strategic planning" on merger issues. The Assn. of Flight Attendants has a team of outside advisers on standby, should the airline announce a deal.
And the union representing United's 17,000 customer service agents and ramp workers has assembled a 12-person task force of labor experts, economists and lawyers to study every possible merger combination — and the labor strife each scenario would likely engender.
"We're preparing ourselves for any situation that might come up," says Robert Roach Jr., who handles airline contract negotiations as general vice-president for the International Assn. of Machinists and Aerospace Workers.
The unions' planning reflects widespread belief that sky-high fuel prices and the threat of a recession will force airline mergers — and that United will be a part of the deal-making.
"United's management does want to merge the company; that's very clear," says Michael Boyd, president of Boyd Group, a Colorado-based aviation consulting firm. "The unions should be talking about contingency plans. In an airline merger, employees and consumers lose and the investors win."
A spokesman for Elk Grove Township-based United declines to comment on speculation about a merger.
Each of the unions is readying to navigate the stormy labor issues that accompany a major airline deal: guarding seniority; reconciling different pay scales, pensions and health care benefits at the merging carriers; and ensuring that a rival union doesn't encroach on their turf.
United's unions were caught off guard when UAL attempted a merger with US Airways six years ago — a deal they eventually helped scuttle. With consolidation rumors swirling again, they're determined to be ready.
"We learned that we need to be . . . proactive about the way we're dealing with those potential business decisions," says a spokeswoman for United's flight attendants union.
CHANCE TO RAISE MONEY
Doing a deal would give United an opportunity to raise equity from outside investors, which it badly needs to purchase planes and fully leverage its international network.
What's more, Mr. Tilton is the industry's most vocal advocate for lifting regulatory barriers to big mergers and foreign investment in airlines. "It seems that when Glenn Tilton appears in public, he mentions industry consolidation," Air Line Pilots Assn. officials wrote to members this summer. The union didn't comment on its merger planning.
POTENTIAL PARTNERS
While recent industry chatter has fingered Texas-based Continental Airlines Inc. as a likely merger partner for United, some industry insiders view Atlanta's Delta Air Lines Inc. as likelier. United and Delta's hubs and networks match up nicely, and they came close to merging in the late 1990s.
"Delta is focused on completion of its restructuring plan and emerging from bankruptcy as a stand-alone airline sometime in mid 2007," says a Delta spokesman.
Says a Continental spokeswoman, "We've said repeatedly that our preference is to grow alone and avoid the problems that mergers bring."
Another unifying factor could be James Sprayregen, who served as United's lead counsel through its three-year bankruptcy before leaving in June to head the restructuring practice at New York's Goldman Sachs & Co. Now, at Goldman, he is advising Delta on its bankruptcy proceedings.
Mr. Sprayregen declined to comment.
©2006 by Crain Communications Inc.
*****************************************************
NewHampshire Black Bears
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"HOLY ####" .
Imagine If the ....."consummation".... turned out to be UA/DL, that would mean....DL's #1 "Tub Thumper"..World Traveler, and one of UA's "foxy Lady" F/A's..(FLY), would be on he "same team" !!
Fly.
You would DEFINITELY need to carry pepper spray with you, because "sure as hel* ",........."The Stalker"(WT) 😛h34r: 😛h34r:, will start showing up on your flights, on an Highly Irregular basis !!
NH/BB's
Imagine If the ....."consummation".... turned out to be UA/DL, that would mean....DL's #1 "Tub Thumper"..World Traveler, and one of UA's "foxy Lady" F/A's..(FLY), would be on he "same team" !!
Fly.
You would DEFINITELY need to carry pepper spray with you, because "sure as hel* ",........."The Stalker"(WT) 😛h34r: 😛h34r:, will start showing up on your flights, on an Highly Irregular basis !!
NH/BB's
JungleClone
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Considering how the UA/US deal caught the unions with their pants down while they were otherwise focused on hitting the post-ESOP lottery, it's not surprising to see them preparing for any and all possibilities. It shouldn't necessarily be viewed as tipping off an imminent deal. It's merely covering their bases so as not to look foolish to the membership again.
WorldTraveler
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Jbg,
Reread FWAAA’s comments. Even if AA, CO, DL, and NW have higher pension related costs, it doesn’t change the fact that DL and NW were able to delay their restructuring until a time when they wouldn’t have pension termination as the only option to get out of bankruptcy. And you can bet that keeping those pension plans will carry a huge amount of good will for their employees. And if interest rates do go back up, it’s highly possible that those 4 airlines could indeed have lower pension costs.
Even though pension liabilities will be known by DL and NW, they still will have liabilities on their books. Any increased liabilities when compared with their peers will tend to make them less attractive acquisition targets, all other things being equal.
Of course, all other things aren’t equal as evidenced by the most recent quarter’s financial results. The number crunching of industry financials from the second quarter is completed and here is the operating profit margin ranking as reported by an airline industry analyst. At the top end, we have WN w/ a 16%+ margin followed by US, AS, NW, DL, AA, B6, CO, HP, and UA. Yes, UA is at the bottom of the list. On the next slide, we have the quarter over quarter change in stock price. You guessed it; UAUA is at the bottom of the list with a -20% change in price. Next is quarter over quarter change in expenses with CO at the top of the list at 11% followed by HP, B6, US, AS, WN, AA, UA, NW, and - look who did the best job of cost control – DL. Now we get to labor costs as a percent of revenue. US is lowest at 17%, followed by HP, DL, NW, CO, AS, UA, B6, AA, and WN with the highest labor costs as a percent of revenue at 32%.
Hear these comments about CO and UA from this analyst:
“We wish we could continue with our enthusiasm for Continental and its shares, going forward… We like CO last fall because we envisioned a strong performance by our economy… Sadly this is all so “yesterdayâ€. All of that extra capacity that CO has been producing will likely put pressure on yields and what we liked so much about the airline late last year now has us concerned going forward.â€
And for UA:
“United’s 2nd quarter financial operating performance was a disappointment…. We see an industry-lagging giant, propped up by a general turnaround in the industry’s fortune, and serious issues going forward if the economy cools…. Wall Street is equally unimpressed. UA saw only mediocre revenue growth while costs crept moderately higher. With or without fuel costs, United is the least cost-competitive airline in the industry.â€
Now tell me which two airlines are going to get hitched? And tell me who is going to shovel money over to them to make it happen?
Reread FWAAA’s comments. Even if AA, CO, DL, and NW have higher pension related costs, it doesn’t change the fact that DL and NW were able to delay their restructuring until a time when they wouldn’t have pension termination as the only option to get out of bankruptcy. And you can bet that keeping those pension plans will carry a huge amount of good will for their employees. And if interest rates do go back up, it’s highly possible that those 4 airlines could indeed have lower pension costs.
Even though pension liabilities will be known by DL and NW, they still will have liabilities on their books. Any increased liabilities when compared with their peers will tend to make them less attractive acquisition targets, all other things being equal.
Of course, all other things aren’t equal as evidenced by the most recent quarter’s financial results. The number crunching of industry financials from the second quarter is completed and here is the operating profit margin ranking as reported by an airline industry analyst. At the top end, we have WN w/ a 16%+ margin followed by US, AS, NW, DL, AA, B6, CO, HP, and UA. Yes, UA is at the bottom of the list. On the next slide, we have the quarter over quarter change in stock price. You guessed it; UAUA is at the bottom of the list with a -20% change in price. Next is quarter over quarter change in expenses with CO at the top of the list at 11% followed by HP, B6, US, AS, WN, AA, UA, NW, and - look who did the best job of cost control – DL. Now we get to labor costs as a percent of revenue. US is lowest at 17%, followed by HP, DL, NW, CO, AS, UA, B6, AA, and WN with the highest labor costs as a percent of revenue at 32%.
Hear these comments about CO and UA from this analyst:
“We wish we could continue with our enthusiasm for Continental and its shares, going forward… We like CO last fall because we envisioned a strong performance by our economy… Sadly this is all so “yesterdayâ€. All of that extra capacity that CO has been producing will likely put pressure on yields and what we liked so much about the airline late last year now has us concerned going forward.â€
And for UA:
“United’s 2nd quarter financial operating performance was a disappointment…. We see an industry-lagging giant, propped up by a general turnaround in the industry’s fortune, and serious issues going forward if the economy cools…. Wall Street is equally unimpressed. UA saw only mediocre revenue growth while costs crept moderately higher. With or without fuel costs, United is the least cost-competitive airline in the industry.â€
Now tell me which two airlines are going to get hitched? And tell me who is going to shovel money over to them to make it happen?
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But isn't Delta ending the pilot's DB plan, and hasn't Delta frozen the other employees' DB plan? And then combined with ...
Wouldn't these low labor costs tend to offset any "goodwill" that might still exist among Delta's employees?
The reported numbers don't agree with this analyst's statement. And since you didn't provide the numbers, allow me to do so (taken from each carrier's press release detailing 2Q 2006 results) --
2Q 2006 Y-O-Y Mainline Revenue Growth: UA 15.3%, DL 4.9%
2Q 2006 Y-O-Y Total Operating Revenue Growth: UA 15.6%, DL 9.6%
2Q 2006 Consolidated CASM (less fuel & special/one-time items) --
Actual: UA 8.14¢, DL 8.42¢
Y-O-Y Change: UA 0.0%, DL 5.5%
Doesn't paint quite as rosy a picture of Delta, does it? So if United's revenue growth was "mediocre" while its costs "crept moderately higher", what does that say about Delta's 2nd quarter results? And BTW, who was the analyst?
I don't claim to know which airlines, if any, will merge or be the acquirer or acquiree. But it is common knowledge that there is plenty of money available to finance any airline consolidation that might occur. Arguably Continental, and perhaps even United, are now in better shape than America West was in prior to its merger with US Airways, and certainly both Continental and United are in far better condition now than US Airways was in at that time. So if the merger of HP and US could attract financing of nearly $2 billion, a hypothetical merger of CO and UA could do at least as well. And let's also remember that CO and UA both have much larger cash holdings (UA alone having more than $5 billion) than did HP and US combined before their merger, most likely significantly reducing the amount of outside financing that might be needed to underwrite a potential CO-UA combination. So I don't believe that any necessary financing would be difficult to find IF (and that's a big IF) CO and UA decide to merge. And thus Delta would not be needed to ride to CO's and/or UA's "rescue."
RowUnderDCA
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This is the reasoning that I suscribe to. Mainly that those with money copy past success. Airlines don't have money, but others do.
WorldTraveler
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Cosmo,
There’s no difficulty in recognizing that DL has low labor costs BECAUSE it is efficient, not because it still has pension plans. DL has long had labor costs that were far better than the industry even their people were paid more simply because DL has had above average productivity from its employees. I'm sure being largely nonunion has alot to do with it.
And FROZEN and TERMINATED are two entirely different things. Frozen means you won’t accumulate any more… Terminated means you won’t get what you earned.
You can read page after page of documents on DL’s BK website regarding why DL is terminating the pilot plan and not the non-pilot plan but it all boils down to one thing: the pilot plan has a lump sum feature that drained the plan through early retirements and will continue to drain it as long as DL continues to contribute to the plan. ALPA agreed to a retirement plan that gave huge checks to a few guys now at the expense of a sustainable plan for everyone. But the PBGC will factor in those lump sum distributions when calculating its liability to the pilots so it not only reduces what pilots will get in the future but also offsets the PBGC’s claim against DL.
The statistics I quoted are from a quarter over quarter analysis. Since DL’s restructuring program really kicked into high gear in Dec 06, it is to be expected that DL’s revenue growth didn’t accelerate until then. Also, year over year comparisons are much less meaningful with respect to costs because fuel has continued to increase throughout the past year (or at least has not come off its post-Katrina highs). Cost comparisons on a recent basis are more meaningful.
You can manipulate consolidated vs. mainline comparisons all you want but it doesn’t change the fact that UA ended up dead last among US airlines when looking at operating profit margin. UA is using its storied assets more poorly than any other airline and is incurring larger costs than anyone to generate their revenue. It’s just that simple. If it wasn’t, then UA would have reported a much larger profit.
Comparing the HP merger with anything today is meaningless. US was on the verge of liquidation. There are a lot of people who stepped into the game to protect their investment in US and profit from the forced opportunity that a merger would provide. No other two US airlines are being forced to merge making the standards much higher for lenders to loan money.
Also, despite US’ strong profits, they still have not merged the airline, they are still shrinking their domestic footprint and facing LFC incursion in their markets, and they have significant labor unrest because of the poverty wages their people make in order to produce industry leading profits and bonuses for executives. US is far from being a long-term success. Anyone can generate the kind of numbers US has generated for a year or two but they are far from being a viable long-term airline - exactly why Doug Parker wants to talk mergers and cash out before the inevitable becomes apparent.
And there is a finite amount of money in the world. When there are competing options for investment, money goes where the best chance of returns lie. It doesn’t rest with UA based on its performance that is essentially the same relative to the industry for six years now. And it doesn’t lie with CO which is quickly losing its title of being one of the industry’s financial darlings.
There’s no difficulty in recognizing that DL has low labor costs BECAUSE it is efficient, not because it still has pension plans. DL has long had labor costs that were far better than the industry even their people were paid more simply because DL has had above average productivity from its employees. I'm sure being largely nonunion has alot to do with it.
And FROZEN and TERMINATED are two entirely different things. Frozen means you won’t accumulate any more… Terminated means you won’t get what you earned.
You can read page after page of documents on DL’s BK website regarding why DL is terminating the pilot plan and not the non-pilot plan but it all boils down to one thing: the pilot plan has a lump sum feature that drained the plan through early retirements and will continue to drain it as long as DL continues to contribute to the plan. ALPA agreed to a retirement plan that gave huge checks to a few guys now at the expense of a sustainable plan for everyone. But the PBGC will factor in those lump sum distributions when calculating its liability to the pilots so it not only reduces what pilots will get in the future but also offsets the PBGC’s claim against DL.
The statistics I quoted are from a quarter over quarter analysis. Since DL’s restructuring program really kicked into high gear in Dec 06, it is to be expected that DL’s revenue growth didn’t accelerate until then. Also, year over year comparisons are much less meaningful with respect to costs because fuel has continued to increase throughout the past year (or at least has not come off its post-Katrina highs). Cost comparisons on a recent basis are more meaningful.
You can manipulate consolidated vs. mainline comparisons all you want but it doesn’t change the fact that UA ended up dead last among US airlines when looking at operating profit margin. UA is using its storied assets more poorly than any other airline and is incurring larger costs than anyone to generate their revenue. It’s just that simple. If it wasn’t, then UA would have reported a much larger profit.
Comparing the HP merger with anything today is meaningless. US was on the verge of liquidation. There are a lot of people who stepped into the game to protect their investment in US and profit from the forced opportunity that a merger would provide. No other two US airlines are being forced to merge making the standards much higher for lenders to loan money.
Also, despite US’ strong profits, they still have not merged the airline, they are still shrinking their domestic footprint and facing LFC incursion in their markets, and they have significant labor unrest because of the poverty wages their people make in order to produce industry leading profits and bonuses for executives. US is far from being a long-term success. Anyone can generate the kind of numbers US has generated for a year or two but they are far from being a viable long-term airline - exactly why Doug Parker wants to talk mergers and cash out before the inevitable becomes apparent.
And there is a finite amount of money in the world. When there are competing options for investment, money goes where the best chance of returns lie. It doesn’t rest with UA based on its performance that is essentially the same relative to the industry for six years now. And it doesn’t lie with CO which is quickly losing its title of being one of the industry’s financial darlings.
Cosmo
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That's simply nonsense! Year-over-year comparisons are most certainly meaningful, if for no other reason than to take seasonality into account. And especially in the case of insolvent Delta, where you've been regaling us with unending tales of the carrier's cost-reduction prowess, you apparently are flumoxed by the reality that Delta's costs not only haven't dropped as much as you've tried to make us believe (at least through the second quarter of this year) but they haven't dropped at all from the second quarter of 2005 and, indeed, have grown instead. That's the only explanation I can think of to explain why you ignored the data that I provided which inconveniently contradicted your postings and showed that Delta's consolidated CASM, on an ex-fuel/ex-special items basis, actually grew by 5.5% over the previous year. This comparison is not meaningless just because it doesn't support your vision of insolvent Delta's current standing in the airline industry.
YAWN! Yes, we all know that insolvent Delta had a higher operating profit margin than United did in the second quarter, probably because you've been mentioning it ad nauseum in virtually every post you've made during the past month or so, not only here but on other message boards as well. OK, we get it! And it's not as if United doesn't realize that it needs to make further non-labor cost reductions, and thus it has (perhaps belatedly) begun to do so.
Are you seriously trying to suggest that a hypothetical CO/UA merger would be less able to attract financing than the HP/US merger was able to do, especially given the much better financial condition of CO and UA today compared with that of HP and US approximately one year ago? Moreover, your idea that a "forced" merger would more easily and more cheaply attract financing than an "elective" merger makes no sense whatsoever. Remember, the reason that the HP/US merger was "forced" was because the two carriers, especially US, were in such poor financial condition in the first place. Do you really think that fact generated more favorable financing for them?
"A finite amount of money in the world?" Really? You're kidding, right?
Seriously, while you're correct in the strictest sense, there is so much money sloshing around in our $13 trillion economy that a CO/UA merger could easily find whatever financing it needs. You seem to believe that only the absolute "best" return will be financied, which couldn't be further from the truth. You only need to look at United's ability to attract $3 billion in Chapter 11 exit financing and, again, the ability of HP/US to attract nearly $2 billion in exit/merger financing (both within just the past year) to see the reality of the situation. You can ignore this reality if you want, but that doesn't make it any less real.
JungleClone
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WorldTraveler,
Just because the pension plans were terminated does not mean employees won't get a pension. The only way they would not get a pension benefit was if the PBGC became insolvent and unable to pay out its obligations. While that is entirely possible, it has not happened yet. And the PBGC guarantees pension benefits up to about $44,500. So the jury is still out on whether or not most employees will actually lose any of their pension benefit. Of course, for those occupations (pilots and senior managers/execs) that earn significantly higher than the average airline wage, they will most definately lose pension benefits.
Just because the pension plans were terminated does not mean employees won't get a pension. The only way they would not get a pension benefit was if the PBGC became insolvent and unable to pay out its obligations. While that is entirely possible, it has not happened yet. And the PBGC guarantees pension benefits up to about $44,500. So the jury is still out on whether or not most employees will actually lose any of their pension benefit. Of course, for those occupations (pilots and senior managers/execs) that earn significantly higher than the average airline wage, they will most definately lose pension benefits.
