UA/UA merger?

[N628AU]

[blockquote]
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On 9/22/2002 7:41:00 PM oldiebutgoody wrote:


When I see numbers like SW flying 25% more planes for more hours per day than U with only a third of the mechanics, I know our system must change.

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[/blockquote]

This has a couple of points that need to be addressed. WN contracts heavy maintenance, and is either looking seriously or is actually bringing some work in house. The issue here is quality, and it is something U heavy does very well. Also, I wonder how much work in component repair is done in house vs. vendor repair at WN. One thing the Airbus experience, coupled with the tight financial straights the company in has taught us, is that the more we can control ourselves the better. While it may keep us appearing to be bloated on the workforce end, it pays in spades when we can get fast turnarounds on critical components to keep the fleet flying. This is especially critical as spares are cut in the current fleet plans. Most have no idea how much work is deferred and the resulting inefficienies from the parts we need being at the vendor. Southwest also does not operate ETOPS, which is more maintenance intensive. A lot of stuff can be MEL'd domestically, but results in ETOPS penalties. Granted, there is still some fat, and that will probably never leave, but just comparing number of mechanics to to fleet sizes is misleading.

 

[Busdrvr]

[BLOCKQUOTE][BR]----------------[BR]On 9/22/2002 846 PM N628AU wrote: [BR][BR]This has a couple of points that need to be addressed. WN contracts heavy maintenance, and is either looking seriously or is actually bringing some work in house. The issue here is quality, and it is something U heavy does very well. Also, I wonder how much work in component repair is done in house vs. vendor repair at WN. [BR]----------------[BR][/BLOCKQUOTE][BR][BR]OUTSIDE MX RULES!!![BR][BR][A href=http://seattlepi.nwsource.com/local/tram23.shtml]http://seattlepi.nwsource.com/local/tram23.shtml[/A][BR][BR]

 

[chipmunn]

For the past couple of days I have sat back and watched this thread unfold, and I have had my opinion reinforced that if UA fails or is fragmented it could be largely due to employee attitude. What’s interesting is how UA employees have dominated a thread on the US board, and if a “unique corporate transaction†could not occur, why are the UA employees so emotional?

Argento's comments are accurate. The industry is in turmoil, different modeling scenarios are occuring, NW looks to be a big player, and UA and US may need each other to survive.

I believe the major problem at UA, whether Greenwald, Goodwin, Creighton, or Tilton is the CEO, is governance. ESOP’s seldom if ever work and especially in the airline industry where unions have the ability to shut down the corporation or make the operation come to a stand still.

For example, in the summer of 2000 the UA pilots used a slow down and the threat to not support the last merger attempt to extract an industry leading contract, which has been by and large given to other employee groups, and then did not support the vehicle to pay for these rich contracts, the merger.

Now with US extracting concessions from its employees, UA has the highest industry labor expense and unit costs. How has the ESOP helped?

In the recent interview with Gordon Bethune published by Bloomberg the CO CEO was adamant that employee-ownership is one thing that has led United towards ruin: The inmates have taken over the asylum and broken into the pharmacy, he said.

With the company faced with $875 million in debt and $70 million in back IAM wages both due in the fourth quarter, as well as another $500 million in payments due in the first quarter of 2003, the company is facing a liquidity crisis. Reports indicate with the industry-experiencing month over month revenue declines, UA’s daily cash burn rate is $4 to $5 million per day. Moreover, informed people said the cash burn rate could accelerate to $10 million per day, now that the industry is in the slow travel season.

But, with the government reportedly concerned about the UA governance issue, are the UA employees willing to give up the ESOP to obtain $1.8 billion in federal loan guarantees to prevent a bankruptcy filing?

The ATSB is unlikely to grant a UA loan guarantee unless the company files bankruptcy, eliminates ESOP shares, reconstitutes the Board, and eliminates the current governance structure.

Will the UA employees provide the enormous wage and benefit cuts as well as the productivity improvements necessary to secure the loan guarantee?

In my mind it does not appear this will occur, thus the Bush Administration will be left with a difficult decision. How do we fix the airline industry and the UA problem? Moreover, what would happen to UA if US is acquired in whole or in parts by another carrier such as NW?

If this occurs Argento's scenario for UA would occur and we would not have to argue whether or not the code share plans would be good or bad.

During the past six months I have never said the word “merger†and I don’t believe this is the preferred option, but that could change. I have used the term “unique corporate transactionâ€, which is the concept Argento clearly articulated.

The operational problem for UA is the same for AA, DL, NW, CO, & US. How can the domestic system compete with low cost airlines now controlling 20 percent of the industry ASMs that is expected to double to 40 percent? UA tried Shuttle by United, DL tried Delta Express (and is about to launch another product likely high density B757s to compete), and US tried MetroJet that all failed.

How can UA or any other airline compete with the low cost airlines when for example JetBlue can fly from IAD to OAK for $14,546 and it costs UA $23,690? The aircraft operating expense is the same, the only difference is employee costs primarily in productivity, benefits, and retirement; and to a lesser extent wages.

US and its employees clearly understand this issue after six mentally “torturous†months to obtain the restructuring agreements. Now US has the lowest mature airline labor expense, six percent below CAL, when expressed as a percentage of revenue. A difficult choice for the unions? Absolutely, in fact it is really painful for every employee at US, but the simple fact is there are quality people willing to work for less throughout the industry.

Therefore, what Goodwin, Creighton, and maybe now Tilton have tried to do is either increase revenue to cover these enormous costs, e.g. through the failed UA-US merger, or to cut costs through voluntary concessionaire agreements or a corporate transaction. But almost unimaginably, during a time when the company asks for concessions the UA IAM and AFA negotiate wage increases, which is like throwing fuel on an inferno.

In fact, the fire is raging out of control so fast that news media and airline reports said that Bethune, Reid, Anderson, and Brenneman refused to interview for the UA CEO job. Meanwhile, Tilton was hired three weeks after he was first contacted by UA’s headhunters and went to work at WHQ almost simultaneously with the ATSB demand that the company would need to provide deeper, broader, and longer cuts from all stakeholders. What’s wrong with this picture?

In my opinion, the ATSB may demand the employees give up the ESOP before the government will authorize the loan guarantee, either before or during bankruptcy. Simply put the financial results and management turnover, indicate the ESOP is a “noose†around management’s throat and is not working. In addition, the Administration may have decided industry consolidation may be the best way to deal with the current industry crisis, which except for some only seniority minded individuals, UA-US combination makes enormous business sense.

The idea off fragmenting US’s domestic system onto the new US labor contracts to lower unit costs to a competitive level, with the Domestic/Star alliance the revenue umbrella, would differentiate this “unique corporate transaction†from the Pan Am business model. This idea makes significant business sense outside of bankruptcy, but I agree with UAL777flyer that inside of bankruptcy Tilton could cancel union contracts with the S.1113 process and obtain competitve labor agreeements. However, Tilton would also have to cancel the ESOP as well to gain the control necessary to implement the difficult changes. This is not easy, but would be especially difficult for a brand new CEO with no airline labor relation experience.

However, Argento is right in that if the UA employees fight these changes, this mentality could actually lead the UA Board decide a bankruptcy filing is the best option. Then once inside a courts jurisdiction all bets are off and fragmentation of UA or for that matter US could occur through Omnibus Hearing process with other suitors making offers for all or parts of the airline.

What many employees in this industry fail to understand or choose not to understand is that the business entity must have sustained profitability and unless it does so, nothing else matters, but I will reiterate my comment again.

There are different and unique discussions going on within the Bush Administration (Card), the Treasury Department (Montgomery & O’Neil at the ATSB), DOT (Mineta), WHQ, and CCY about a corporate transaction. Will it occur? Nobody knows for sure, but the motivation to do something other than a merger is one option that exists at both UA & US. However, with all the moving parts and different options available, nobody truly knows what will occur.

But, in the case of US with the TPG exclusivity agreement expiring and the second Omnibus Hearing on Thursday, there could be more news shed on the subject that could effect US as well as UA.

Stay tuned...

Regards,

Chip

 

[Black Wind]

[P]
[BLOCKQUOTE]
[P][BR] [STRONG] US Airways d/b/a United Express.Hows that for a unique corporate transaction?[/STRONG]

 

[DCAflyer]

Blackwind said: US Airways d/b/a United Express.Hows that for a unique corporate transaction?

DCAflyer says:

Oh, so very clever! Did you stay up all night thinking of that one?

 

[Busdrvr]

On 9/23/2002 3:17:26 AM chipmunn wrote:

UA tried Shuttle by United, DL tried Delta Express (and is about to launch another product likely high density B757s to compete), and US tried MetroJet that all failed.

Shuttle DID NOT FAIL! It took MARKET SHARE FROM SWA. It scared Herb so much he made is war video and convinced his pilots to accept a 5 YEAR PAY FREEZE! Shuttle will likely come back to UAL

How can UA or any other airline compete with the low cost airlines when for example JetBlue can fly from IAD to OAK for $14,546 and it costs UA $23,690? The aircraft operating expense is the same, the only difference is employee costs primarily in productivity, benefits, and retirement; and to a lesser extent wages.

That article you are quoting had as many inaccuracies as many of the chip's corner articles. Yes, Jet Blue is Cheaper, but the A/C operating expenses are NOT the same. Jetblu is reporting the Teaser lease rates and purchase prices (spend some time in Jetblues annual report and it indicates they WILL have to pay more for leases and purchases BY CONTRACT) on the books, and they are currently not expenses almost any MX. The article was also WAY of on Jet Blue's wage rates for pilots.


As for why we are so imotional, would you defend yourself if lies were spread about by you? This is a public board, some of it may make the media.

 

[KCFlyer]

[BR]On another note BD - I don't know what Parkers office looks like, but having seen Herb's office, the walls were decorated not with Harley and Wild Turkey memorablia, but had more of a war motif.... On the outside he may have been a good old bourbon swilling comedian, but at work, he definately saw this business as a full time war. And his enemy was apparently not his employee groups but every other airline out there.

 

[KCFlyer]

Busdriver - I believe that Herb himself has said that he cared more about the profitablity on a route than the market share. If someone wants to carry more people in a market and still show a loss, while SWA carries fewer, but at a profit, then let them cherish the title - market share leader.

 

[argentomaranello]

BLACK WIND: It has always been too easy on these boards for a particularly partisan devotee of a specific carrier (apparently UAL in your case) to ignore the great utility of these internet services (the ability to instantly and frequently exchange ideas, testing them in real time in the process) in order to engage in sophomorics. This board isn't a lockerroom watercooler and nobody hereabouts should be attempting to belittle or demonize either of these two great airlines. The challenges now facing domestic civil aviation are without historic parallel; USAir has taken some concrete steps to address them but UAL continues to be muddled and its management (and unions) apparently conflicted about its own set of responses. The notion of a unique corporate transaction between the two airlines is one of several outcomes potential in all of this.

 

[UAL777flyer]

Chip,

The UA unions have one chance to collectively find a mutually acceptable solution to UA's problems and avoid bankruptcy (and the inevitable loss of their equity ownership and BOD seats that would follow). The delays in the union coalition giving their proposal to senior management is starting to lead me to believe that there is difficulty reaching a consensus on what must be done to fix UA's problems. I hope I'm wrong, but that's how I read the tea leaves. I've heard whispers that the IAM and ALPA are in disagreement on quite a few issues. Based on UA's labor history, this is not surprising. So, while I'm cautiously optimistic that the unions will reach agreement on a plan that will, indeed, work, the realistic side of me says that the prospect of that happening is very, very unlikely. Therefore, I still hold the opinion that UA will file for bankruptcy next month, at which point, all bets are off.

As to the continually-talked-about unique transaction that might take place between UA and US, it's a tough call. The business aspect makes it a great strategic move that probably should be explored fully. As difficult as it is to believe, the timing might finally be right to do it at the lowest possible costs (not just in dollars). And competitively, a combined UA/US with a lower cost structure would dominate the industry and throw other airlines (AA, CO, DL, NW) into immediate and significant turmoil beyond their current levels.

However, that being said, I'm not sure how you reconcile the employee aspect of such a transaction. To simply disregard the feelings of employees would be foolish in my opinion. Is there a way to pull off a transaction in such a way that labor would realize it is the best course of action? Yes, I think so. But it would take the mother of all sales jobs to convince labor (especially UA's unions) that it was a prudent action to undertake. Every business is in business to make money for their shareholders and themselves. But I think that a business that does that while steamrolling their employees is foolish. At some point, the feelings of your employees must enter into the picture. Especially in a customer service-oriented industry. The roots of UA labor's hesitation toward such deals is a direct result of the lack of leadership at the company for the last several deals, as well as the deep sense of entitlement that exists.

All things being equal, I do not support combining UA and US. However, all things certainly aren't equal. The industry will continue to change. How it ultimately shakes out is anybody's guess. But if UA does end up declaring bankruptcy, pursuing some sort of deeper relationship with US Airways may become the best course of action. The achilles heel for UA will continue to be the governance of the company. It simply must change. Bankruptcy affords the company that opportunity. But the unions have their last chance at saving their equity investment and retaining their seats on the BOD. We'll soon see how serious their proposal is in keeping it that way.

 

[Winglet]

Jetblue is also on a mx holiday. Their expenses will go up considerably in the future.

 

[diogenes]

When under the gun, ALPA/IAM at U made the required concessions. I'd guess when push comes to shove, they will at UA, as well. They have a lot more to lose than we did. And I guarantee you UA ALPA/IAM went to school on the U bk. I have listened closely to expensive bankruptcy attorneys and labor economists. My advise to my UA brethren - STAY OUT OF BANKRUPTCY! Management then acquires the doomsday weapon against labor.

The labor wing of UA's BOD had virtual veto power on the new CEO. Would it not have been nice for ALPA/IAM to have had that at U when the Wolf came calling? Tilton is acceptable to labor; not a bad thing.

ATSB is rife with politics. The airlines were flat told there was 20% too much capacity, and labor was 20% overpaid, and there would be NO loan guarantees without labor taking a big hit. Geez, imagine Republicans acting like Republicans! I guess no one has shown them WN's payscale. I literally had a congressman, in the nicest way possible, call me a liar on that one. Fortunately, I had a copy of WN's payscale, and presented it to him. Anyway, in regards to ATSB, it is what it is, and we have to live with it.

U would have been in trouble anyway, and maybe UA. Save for 911, I don't think DL, AA, CO or NW would have been dire straits. And if the ridership doesn't come back, we're all SOL. But, management is taking advantage of 911 and the current political situation and hammering labor. And no less a luminary than the Hon. Gangwhal said so.

 

[motnot]

Did anyone notice that the title of this thread says UA/UA merger? I swear it didn't when this thing started ...

 

[chipmunn]

UAL777flyer:

First, I would like to thank you for participating on the US board. I thoroughly enjoy and look forward to your bright and informed posts. I always learn something from you and I appreciate you sharing your insight.

Your last post was particularly good and there are two points I would like to address.

First, I believe the inability for the UA unions to put together a deal is a bad signal. Having lived through the union infighting for the past six months and certain employee groups believing others should take more of a cut, I believe it is unlikely the UA labor coalition will come to an agreement. If they do, the cuts will need to be approved by management, the rank-and-file, and the ATSB.

Today Jamie Baker, airline analyst at JP Morgan said, The notion that labor will somehow come together on some consensus ignores the long-standing tension between the labor groups. It's not only labor against management, it's labor against labor. As time drags on, it only brings United closer to the cash crunch it faces in the fourth quarter.

I believe both you and Argento are correct with your labor views. In a customer service business, especially the airline business, where the UA employees killed the 2000 M&A attempt, labor views are extremely important. However, in bankruptcy when faced with significant downsizing or liquidation Argento's comments about labor views being irrelevant are also true because as you said all bets are off.

Your comment/question when you said, To simply disregard the feelings of employees would be foolish in my opinion. Is there a way to pull off a transaction in such a way that labor would realize it is the best course of action? Yes, I think so. But it would take the mother of all sales jobs to convince labor (especially UA's unions) that it was a prudent action to undertake, is intriguing.

I believe the ideal man to lead a combined business entity is Dave Siegel. I have gotten to know the man extremely well and I believe he has the ability to create rapport and sell the deal. Interestingly, although Glenn Tilton does not have airline experience, he does have business experience and the same rapport and sales skills as Siegel.

Could this be the CEO team to finally pull this marriage together and sell a deal, in some form or another? If it occurs, I am convinced Siegel is an airline man and he gave back all of his stock options, his $750,000 signing bonus, and $150,000 in annual pay to run the company. At 40 years old, I have a gut feeling he is not in this to run a regional airline or why would he have made this enormous financial sacrifice?

UAL777flyer, thanks again for your contribution to the US board.

Chip

 

[Taipan]

Chip now this latest post I could see as possible, not probable, yet possible