UA-CO Merger Rumors Now Surfacing on Wall Street

[jbguppy]

Two things to clean up....

the 767-200's CAL has are not old...the only started recieving them I believe in the late 1990's if not later, brand new from the factory.

and we at UAL have no 5 yr furloughees on the street, unless by their choice (bypass). Yes they may have been out that long but they don't accrue longevity while on furlough. So someone furloughed in 2002 at 2nd yr pay will be recalled at 2nd yr pay when they come back (all should be offered by early 2007)

DC

DC,
I stand corrected on the 767 issue, had no idea Boeing was making the 200 in the late 90's as I thought CAL was taking some of the first 767-400's by that time frame.

As far as our furloughees, I am not talking about longevity for pay. The 844 were furloughed in October of 2001 up to March 2002, that is pretty much 5 years next month?? (so yes we do have people who have been on the street for 5 years and have not by passed) I am sure we will go down to the bottom and be headed back up with no bypass option but ML by next summer.

I expect us to go through that process rather quickly...don't you?

JBG

 

[767jetz]

Hey jetz,
agreee on a lot of your points, but seniority and career expectations are not that similiar.

jb,

I guess I was speaking in general terms. Compared to USAir who brought nothing but REALLY old farts and small airplanes and short routes, CAL brings much to the table.

Yes we have more widebodies, but we are significantly bigger too (#2 versus #5or6?).

And as UALDC737 points out, most furloughs will have been offered a recall by 2007. Things don't line up perfectly, but they never do, and IMO this is as close as it can get.

 

[UALDC767]

DC,
I stand corrected on the 767 issue, had no idea Boeing was making the 200 in the late 90's as I thought CAL was taking some of the first 767-400's by that time frame.

As far as our furloughees, I am not talking about longevity for pay. The 844 were furloughed in October of 2001 up to March 2002, that is pretty much 5 years next month?? (so yes we do have people who have been on the street for 5 years and have not by passed) I am sure we will go down to the bottom and be headed back up with no bypass option but ML by next summer.

I expect us to go through that process rather quickly...don't you?

JBG

JBG,

I think we have a lil miscommunication....

by 5 yr furloughees I mean those with 5 yr seniority, not length of time on the street. Certainly familiar with the furlough issue as when the merry go round stopped I missed it by one week's worth of seniority!!!!

As far as how quick the rebound up the list goes....yes I would imagine a lot of people will decide not to come back after 5 yrs gone...possible new hires in 2008?

CAL did take some of the first -400's but that is a much larger plane than the -200 for some of the international routes.

 

[WorldTraveler]

NO WT, wrong as usual. The reason we didn't want the PBGC to take the pension was because we didn't want to lose accruing the additional 20+ years that most expected to work at UAL. DOH! Who in their right mind would want to stop accruing pension? Not us. And certainly not the Delta folks who have also lost the accrual.

But you have a replacement plan. Is not as good as what you had before?

And you still haven't answered how the PBGC would be spending less on UA's pensions because of taking them over. They aren't paying out as much as UA promised.. thus the shortfall. it's gotta come from somewhere. And it comes from less than full seniority, less than full retirement age people.

any 767 model is still available for sale if you want to order it.

 

[Fly]

OK, I'm seeing where you didn't understand the PBGC takeover of the pensions. For those of us on the bottom end of pay (basically, everyone except management and pilots), will receive just about the same pension as we had before. For the pilots, a totally different animal because of the A and B plans. The PBGC is giving us back the pension we would have received had we only flown for 20 years (or whatever amount a particular person had vested), but we stopped accruing from the time of takeover. The freezing of pensions at Delta are doing the exact same thing. They will retain what they have already earned but no more accrual. It will not be paid out until we hit retirement age, unless we were to specify differently which would make a big difference....just like the Delta pensions.

For the remaining years of service, we still have a 401K with company match (somewhat of a match).

My question for you is: what do you think the difference is between freezing a pension like they have at Delta and the PBGC freezing ours at the takeover of it? According to my sources (actual Delta flight attendants), there is no difference. If a 40 year old DL f/a has 20 years of service, although she may continue to work until 65, her pension accrual is locked in at 20 years. Same as UAL's. Neither group will be penalized for taking it early unless that person actually did request it earlier than 65 years of age.

Now let's talk about the potential UAL/CAL merger. Did you see this article yet? I'd post the whole article but it's by subscription only. You know how that is, right?

Continental-United merger talk in the air

Analysts see advantages, but Cleveland could suffer

Peter Krouse
Plain Dealer Reporter
Tuesday, September 05, 2006

The airline industry is ripe for consolidation, and one possible scenario has Continental Airlines merging with United Airlines.

At least that's the public speculation.

But does it make sense? And if it comes to pass, what would become of Continental's hub in Cleveland?

A merger between Continental and United "makes as much sense as any and more than most," says Michael Roach, an industry analyst and former founding president of America West Airlines.

It's a generally held belief, Roach said, that there are too many so-called legacy airlines still in business and that they're operating too many hubs. Legacy airlines are the large carriers that essentially predate deregulation and include Continental, United, U.S. Airways, American Airlines, Northwest Airlines and Delta Air Lines.

A merger involving Continental makes sense, in part, because other combinations don't, Roach said. United and American won't fly because both are too big and have the only meaningful presence in Chicago.

And Northwest-United doesn't make sense because of their overlapping Pacific routes.

On the other hand, Continental and United appear to complement each other well from a route standpoint. Continental is strong in the South and into Latin America, while United has a powerful presence in the West and throughout Asia.

Neither Continental nor United would comment on the speculation. "We have repeatedly said that our preference is to grow alone and avoid some of the challenges of merging with other carriers," Continental spokeswoman Mary Clark said.

Still, talk of a Continental-United merger has "been kind of out there," said Helane Becker, an analyst with the Benchmark Co. in New York City, in part because United chairman Glenn Tilton has made it no secret that he believes the industry needs to consolidate.

So might the two airlines be discussing such a move now?

 

[WorldTraveler]

No, let's talk about the pension issue. You have yet to tell me how the PBGC expects to reduce the difference between the benefits UA promised and what they will deliver. And they are doing that to every plan they take over, including UA's FA plan.

As has been said before, alot of analysts like the idea of merger talk because it drives up stock prices but it hardly makes it happen.

Perhaps you missed the fact that just about every airline that reported traffic results reported a hit from the thwarted terrorist threat. In fact, CO is using that as the excuse for its diminished revenue performance. It will be interesting to see how DL and NW report their August performance since we'll get that ahead of the rest of the industry. interestingly, DL's capacity was better matched to capacity than any other airline (they had one of the smallest LF declines).

Why is Aug 2006 revenue important? Because it is exactly what I said could happen at any time - an interruption of the strong revenue growth that has swept most of the industry. Considering that UA and CO were already at the bottom of the performance list going into the terrorist threat, they stood to look the worst coming through it. Troubled airlines never make good merger partners.

 

[Fly]

Quick answer for simple minds. The PBGC is an insurance company. If your house burns down today, they don't pay you what it could possibly be worth in 25 years. You get exactly the amount of the policy. Well, the f/a's get the policy amount when they turn 65. If they decide to take their retirement money earlier, they take a loss. (think cash value account) The PBGC is not happy about paying out all this money (think Florida and hurricanes) so they are running to the government to try to change the pension rules. Those of us already under the PBGC pension guarantee are covered unless they were to go out of business completely. Hey, that's it. Perhaps Delta froze the f/a's pensions to give the PBGC time to say they aren't taking anymore people.

I know it's hard for you to hold in your LOVE for Delta, and you just want to let out all your pleasure in them in one giant burst of happiness BUT stop the party until they at least emerge. Geez :down:

If I were a betting person, I'd guess UAL will be doing enormously better than DL 5 years down the road. No, wait, I have a better bet. 5 years down the road you'll have a cheerleading outfit on with Delta's name on it. That's my bet. Will you get the little saddle shoes to match?

 

[Cosmo]

And you still haven't answered how the PBGC would be spending less on UA's pensions because of taking them over. They aren't paying out as much as UA promised.. thus the shortfall. it's gotta come from somewhere. And it comes from less than full seniority, less than full retirement age people.

WT:

Let me come at this from a different angle than Fly has been doing (and doing a good job of it, too, even if you don't seem to "get it" ).

You appear to be forgetting about the PBGC's guarantee to pay $6.6 billion (or nearly 70 percent) of the $9.8 billion shortfall in United's pension plans. Most of the shortfall that is not guaranteed will disproportionately hurt the pilots (due in part to the age 60 retirement rule) and some of the mid/upper management folks, not the flight attendants. And when the $7.0 billion that was in the pension plans is added to the $6.6 billion PBGC guarantee of the shortfall, United employees and retirees will ultimately receive $13.6 billion (or 81 percent) of the $16.8 billion they were originally promised. You can read more about it in the following two PBGC press releases: #1 and #2. As press release #2 makes clear, United's flights attendants are covered for annual pension benefits earned through 2005 of up to approximately $45,600 if they retire at age 65 (less if they retire earlier, more if they retire later).

The real issue isn't that the United flight attendants will lose a significant portion of the retirement benefits that they earned through 2005 (because, with a few possible exceptions, they won't), but rather that the PBGC's own deficit has increased greatly by taking over the underfunded pension plans of numerous steel companies and airlines in the past decade or two.

 

[Bulscu]

Troubled airlines never make good merger partners.

I'm thinking you'd better make the point with GENERAL ELECTRIC CORPORATION...



you know, they're the ones along with a few others than own the MAJORITY, they're often referred to as The Major Creditors, of the US Airline Industry.....oh yeah, including Delta.

 

[superG]

Quick answer for simple minds. The PBGC is an insurance company. If your house burns down today, they don't pay you what it could possibly be worth in 25 years. You get exactly the amount of the policy. Well, the f/a's get the policy amount when they turn 65. If they decide to take their retirement money earlier, they take a loss. (think cash value account) The PBGC is not happy about paying out all this money (think Florida and hurricanes) so they are running to the government to try to change the pension rules. Those of us already under the PBGC pension guarantee are covered unless they were to go out of business completely. Hey, that's it. Perhaps Delta froze the f/a's pensions to give the PBGC time to say they aren't taking anymore people.

I know it's hard for you to hold in your LOVE for Delta, and you just want to let out all your pleasure in them in one giant burst of happiness BUT stop the party until they at least emerge. Geez :down:

If I were a betting person, I'd guess UAL will be doing enormously better than DL 5 years down the road. No, wait, I have a better bet. 5 years down the road you'll have a cheerleading outfit on with Delta's name on it. That's my bet. Will you get the little saddle shoes to match?

As a DL ground retiree, I fail to see the validity of your pension argument. We had a defined benefit plan, which all of us were under, those that are retired get it, those that are not, get what they accrued under the old, plus the new. If DL should eventually dump the plan, the pay out still will be more than UA as payout as determined by the date of cessation of the plan, which is increased every year by the PBGC.

 

[Cosmo]

If DL should eventually dump the plan, the pay out still will be more than UA as payout as determined by the date of cessation of the plan, which is increased every year by the PBGC.

While you are correct that the PBGC does increase the maximum allowable payout each year (or at least it has in recent years), the flaw in your logic is that your Defined Benefit pension plan is frozen and you are not accruing any more benefits to yield a greater payout when you retire. So from your standpoint, the increased maximum payout is meaningless unless you are one of the lucky few whose benefits earned prior to the plan being frozen exceed the current cap. If you are not one of those lucky few, then as a practical matter, your situation is the same as Fly's.

 

[jbguppy]

JBG,

I think we have a lil miscommunication....

by 5 yr furloughees I mean those with 5 yr seniority, not length of time on the street. Certainly familiar with the furlough issue as when the merry go round stopped I missed it by one week's worth of seniority!!!!

As far as how quick the rebound up the list goes....yes I would imagine a lot of people will decide not to come back after 5 yrs gone...possible new hires in 2008?

CAL did take some of the first -400's but that is a much larger plane than the -200 for some of the international routes.

DC,
Yes indeed we are miscommunicating, since your were "cleaning up" my post - I was telling you that I meant 5 years off the property.

As far as furloughs I am also pretty familiar with it as well. I know that new hire has been re-built and the program will look a lot like the recall program for over 5 years absence with some obvious additional requirements.

We agree that the trip back up the list will be likely a quick one,

Best,

JBG

 

[Borescope]

We agree that the trip back up the list will be likely a quick one,

Meaning, a lot of retirements in the next year??? .................or expansion and new hires???

 

[Bizman]

Meaning, a lot of retirements in the next year??? .................or expansion and new hires???

It appears that if a merger occurs betweeen CO & UA the trip up the senority list will be stunted at UAL. CO has been expanding and HIRING for the last couple of years while UAl has been stagnate. How can career expectation be better at UAL than CO for a pilot that is furloughed? Sure, if they were to remain separate companies there would be advancments at CO and recalls at UAL (because of retirements at both). But "if" a merge occurs, the furloughed guys will be the last to hit the senority list.

 

[WorldTraveler]

I’m sorry to belabor the point but neither Fly or Cosmo have explained where the difference exists between what UA funded in its pension plan and what the PBGC will pay. Yes, the biggest hit comes from the pilots but EVERY UA pension plan will take a hit between UA’s funding and PBGC’s benefits. Every UA employee takes a hit.

The reason DL ground employees and FAs don’t take a hit on a freeze is because benefits are still paid under the original plan, not under rPBGC guidelines. A freeze does indeed protect pension benefits better than a termination.

As for the GE comment, GE doesn’t want to own any airlines. They and other creditors are doing what they have to do to help the industry restructure. The government in its white paper that was put out around the time they denied UA’s loan request said that bankruptcy was the best tool the airlines should use to restructure themselves. In this cycle, 4 airlines went down that path. There was too much restructuring for usual merger activity to exist. After DL and NW emerge, the usual rules of business survival return. Consolidation will occur as Tilton desperately wants. And GE will facilitate that consolidation is they believe it improves their ability to recover their assets.

Given UA’s performance, I still believe UA will be the acquiree instead of the acquirer. The most recent traffic statistics for August show that UA had the biggest load factor drop among US network carriers. Given that UA has had small profits only by running very high loads, the impact on UA’s bottom load will be felt. CO is also saying their revenue performance took a hit in August. When the two airlines that reported the lowest operating profit margins for the previous quarter now show signs of faltering, it makes both of them even more vulnerable. And while I have been harsh on UA for years, CO’s recent downturn is not in keeping with what most people have expected. CO is having a real hard time keeping its track record going. Two bottom performing companies hardly look like good merger partners.