UA/UA merger?

[Busdrvr]

[blockquote]
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On 9/24/2002 11:49:40 PM argentomaranello wrote:

Some kind of taxpayer funded subsidy program may be the only salvation.
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[/blockquote]

Not at all! All the industry needs if for the government to quit taking away 25% of the average ticket. When you tax ANYTHING at that rate, you kill it! Only in Wash do they think not taking away your stuff is a subsidy.

 

[Speedbird]

Tax relief is just another form of subsidy. All the airlines would do is divert money away from the US Treasury (and place the money in their own spending sieves), instead of giving it to Uncle Sam, only to have him cut a check and give it back to said industry anyway. You can argue the semantics on why they're different, but it has the same net effect.

This industry wants to be saved from itself by the government again. The problem is there are still too many airplanes, and too many employees (IOW too many airlines)chasing too few customers. Its like a family member helping a drug abuser by giving them a weekly allowance for their crack addiction.

I am strenuously against the idea of more government help or aid while the vast majority of this industry remains bloated, inefficient, and out of touch with market forces which would make it change for the better; if only management & workers would take their medicine and make the necessary changes. However, the pervasive sense of entitlement and denial built up by years of mistrust and abuse by both parties will never let such a thing happen.

Any aid by the government, without major structural changes and improvements, will only perpetuate the chronic problems this dysfunctional industry harbors, and never truly fix what ails it.

 

[KCFlyer]

Good points speedbird. If an airline is charging a customer $200 for a ticket, which includes all the taxes, surcharges, PFC's etc. amounting to 25% of the ticket price and Uncle Sam decides to eliminate them, why do I feel like the airfare would still remain at a total of $200 and not drop to $150?

 

[UAL777flyer]

I agree with Argento. The numbers that come out each month show no signs of bottoming out. Where they eventually stop, nobody knows. But this is going beyond the mere need to slash costs. And it will affect all carriers in varying degrees. US and UA have a prime opportunity to restructure themselves and iron out inefficiencies to try to become players in this industry for the long-term. Combine a UA Ch.11 filing with war in Iraq and the implications would be devastating. As an industry, the worst is ahead of us.

 

[chipmunn]

Mercer Sees Need for Government-Facilitated Aviation Industry Restructuring

NEW YORK--(BUSINESS WIRE)--Sept. 25, 2002--With hearings on the state of the U.S. airline industry continuing this week on Capitol Hill, Mercer Management Consulting has released a report indicating that the financial troubles of the country's major airlines are likely to last a long while, despite various steps that these network carriers have been taking to become more competitive in a market environment that clearly favors low-fare airlines.

Many of the factors contributing to the duress of the network carriers are neither temporary nor cyclical, but rather represent changing customer preferences and competitive forces that will continue to impact the airline industry over the next economic upswing, the Mercer report states. It notes that the network carriers can't begin to match the cost structure of low-fare airlines and further observes that network carriers will have to overhaul their current business designs to have any hope of returning to profitability and remaining relevant players in the industry over the next decade.

But even that in itself will not be enough, Mercer's airline industry consultants caution. We see that the financial viability of many of the large network carriers in the United States is at great risk, to the point where a government-facilitated industry restructuring may be required for the industry to avoid serious degradation, their report warns.

Among the potential measures that the government could introduce, which would provide cost relief while giving major carriers greater operational flexibility, are the following:

Tax Reform: Carriers would benefit from relief from high transportation excise taxes, and from the spending of currently earmarked tax proceeds on aviation industry infrastructure.

Labor Reform: Labor contracts are in need of renegotiation to balance negotiating leverage, as labor currently has quasi-monopoly power with regard to the airlines. The government could amend the Labor Act to allow alternative collective bargaining arrangements--e.g., federal baselining of labor rates and contract provisions.

Consolidation: Anti-trust regulations could be relaxed so that airlines can enter into agreements to consolidate and rationalize industry capacity. The government would benefit the industry by allowing greater schedule coordination among airlines and by allowing desired mergers and acquisitions to go forward.

Security and Insurance: Given that new anti-terrorism measures are a serious drain on the industry's already precarious finances, the government could provide relief in this area by: federalizing all aspects of security, not just bag and passenger screening; spending available capital investment to upgrade airport/ATM/aircraft infrastructure; continuing to underwrite security and insurance costs in support of national security objectives; and developing federally sponsored programs for security policies and standards.

According to Mercer's airline experts, only after such steps have been taken will major U.S. airlines be able to make the significant changes in their cost structures and capacity needed to return the industry to its former competitiveness and to ensure its continued vital role in the national economy.

For more information about this Mercer report or to arrange an interview with one of its authors (Peter Walsh or Andrew Watterson), contact Chris Schmidt by phone at 781-674-3552 or by e-mail at chris.schmidt@mercermc.com.

 

[KCFlyer]

[P]
[BLOCKQUOTE][BR]----------------[BR]On 9/25/2002 2:52:27 PM chipmunn wrote:
[P]Tax Reform: Carriers would benefit from relief from high transportation excise taxes, and from the spending of currently earmarked tax proceeds on aviation industry infrastructure. [/P]
[P]Aren't the customers paying the bulk of these taxes? I do agree with them on spending the taxes already paid for aviation going to aviation[BR][BR]Labor Reform: Labor contracts are in need of renegotiation to balance negotiating leverage, as labor currently has quasi-monopoly power with regard to the airlines. The government could amend the Labor Act to allow alternative collective bargaining arrangements--e.g., federal baselining of labor rates and contract provisions. [/P]
[P]Is that a pig I see flying over there??? Quick show of hands - who (outside of government employees) wants the government baselining your pay rates and contract provisions? [BR][BR]Consolidation: Anti-trust regulations could be relaxed so that airlines can enter into agreements to consolidate and rationalize industry capacity. The government would benefit the industry by allowing greater schedule coordination among airlines and by allowing desired mergers and acquisitions to go forward. [/P]
[P]Let them consolodate. Just don't let them get rid of debt burden via Chapter 11 to facilitate the consolidation. Doing so only puts the airlines that are doing better in a tougher situation, forcing them to either consolidate or file bankruptcy themselves.[BR][BR]Security and Insurance: Given that new anti-terrorism measures are a serious drain on the industry's already precarious finances, the government could provide relief in this area by: federalizing all aspects of security, not just bag and passenger screening; spending available capital investment to upgrade airport/ATM/aircraft infrastructure; continuing to underwrite security and insurance costs in support of national security objectives; and developing federally sponsored programs for security policies and standards.[BR][/P]
[P]I can't agrue with that one.[/P]
[P][BR]According to Mercer's airline experts, only after such steps have been taken will major U.S. airlines be able to make the significant changes in their cost structures and capacity needed to return the industry to its former competitiveness and to ensure its continued vital role in the national economy.[/P]
[P]Makes it all seem so easy, doesn't it? [BR][BR]----------------[/P][/BLOCKQUOTE]
[P][/P]

 

[UAL777flyer]

When politicians (Congress) get involved, anything can happen. But rarely do they do anything that's in the best interests of the industry, so I'm not holding my breath on this one.

 

[Busdrvr]

[blockquote]
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On 9/25/2002 11:43:57 AM KCFlyer wrote:

Good points speedbird. If an airline is charging a customer $200 for a ticket, which includes all the taxes, surcharges, PFC's etc. amounting to 25% of the ticket price and Uncle Sam decides to eliminate them, why do I feel like the airfare would still remain at a total of $200 and not drop to $150?
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[/blockquote]

It would likely drop to a level between 150 and 200 and more folks would fly at the lower level, sucking up the excess capacity and possibly allow boeing to start turning out more new enviromentally friendly fuel efficient A/C . KC, What is a fair price to fly coast to coast at 500 MPH in safety and comfort (not SWA), in a 50 million or more dollar A/C?

 

[N628AU]

The problem is that the government has tons of cash in the Aviation Trust Fund, but refuses to use it for it's intended purpose. Instead, it goes to offset other spending in the General Fund that do not have sufficient resources for themselves. Kind of like what they have done with Social Security surplusses for years. As much as Algore drives me up the wall, can anyone say lockbox?

 

[argentomaranello]

Having contributed to the movement of this string somewhat off-tpoic (its now weighing the merits of government intervention for the purpose of a Soviet-style centrally-directed restructure of the industry), I see it as my duty to attempt to move it back.

Reports now indicate that the UAL union coalition may be about to propose to UAL management something less than had been sought by way of a wage concession package -- something less than $6 billion total over six years versus the ATSB blessed goal of $9 billion. Presumably, the coalition would make up the shortfall by proposing the elimination of most of UAL management (which may actually be a meritorious idea since the airline is actually run from the union halls anyway). Now here's the fascinating part: seems that the unions hadn't been able to agree upon an equitable arrangement for sharing this greatly reduced concessionary goal in any event, so they went over to AFL-CIO headquarters and sought out Rich Trumka, the former head of the Mineworkers who now functions as Secretary-Treasurer of the group. Kinda like the ancient Israeli women who took the baby to King Salomon!! Boy, does this speak volumes about where these folks' heads are at! Hopefully, King Salomon -- I mean Trumka -- split the baby and told the IAM that its people had to take meaningful cuts for this to work . . . but knowing union politicians, I suspect that refused to do the dirty work and maybe sent the coalition on to, say Jesse Jackson for some meditation (first) and then some lessons from Operation Push.

The point is that these guys are fighting over the oars in a lifeboat; and as I had suggested, the very fact of such workforce reality denial and internal discord is likely to condemn the great carrier (UAL) to the ignomy of a Ch.11 filing, and then possibly even to the partial fragmentation that has been posited here as the basis for a USAir acquisition of much of UAL's domestic route network.

 

[UAL777flyer]

I can't argue with that logic. I'm disappointed. I don't understand how UA's unions could toil for weeks over a restructuring plan and then not be able to agree on how much each group contributes. Sounds like the same story to me. Some coalition.

 

[diogenes]

Public policy is another aspect here. There are zillions of taxpayer $$'s tied up in runways, ATC, terminals, etc. all over this land. Public policy once dictated all communities would share in the 20th century, and subsidized service to the smaller communities. Discount carriers are not coming to all of the Smallvilles anytime soon, if ever. A few here, there, and yonder at best. It does not fit their business model to do so. So now a dilemna is amongst us way sooner than I ever imagined. Network carriers that serve Smallville can no longer afford to do so, as a large, and increasing bulk of their riders are being carved out in large metropolitan areas by discount carriers. I can't see compelling any carrier as to where they can and can't fly, and I can't see handing over $$'s on a regular basis to bail out network carriers. I don't know the solution, but am interested in hearing from anyone who knows a lot more about this than I do. Please be a little more creative than just cutting labor; my counterpart at WN made more than I before U concessions, and is now making a lot more. Productivity is a big issue; is a network carrier structurally less productive than the WN model?

 

[Cosmo]

Argento:

I believe that your (and Chip's) argument that US Airways will likely acquire much of United's domestic system (given US' new, lower cost structure and UA's current problems that could result in a bankruptcy filing soon) is logically flawed. It rests upon the combination of two assumptions that are extraordinarily unlikely to occur together in the real world.

First, it assumes that UA employees would not accept contractual changes similar (or even identical) to those adopted by US' employees as a last-ditch action to save UA from being fragmented. Frankly, if faced with such a dire situation, I personally believe that the UA employees would bite the bullet and do what was needed. Of course, that's just my opinion. Yet if they do it, end of story, no fragmentation of UA. But OK, fair enough -- it is certainly possible that UA's employees actually might NOT do what would be needed to avoid UA's demise if the price tag was deemed to be too large.

But then your argument makes a second (at least implicit) assumption that also must occur -- that a substantial portion of UA's employees, having rejected US wage levels at UA, will now accept such wages from US (minus seniority, ESOP shares, BOD seats, etc.) to work at the former UA operations to be acquired by US. This defies all logic.

Now, I don't recall if you have explicitly said as much, but your argument requires the use of large numbers of former UA employees to make the US acquisition work. Why? Let's conservatively assume that only 50,000 of UA's current 84,000 (or so) employees are needed to run its domestic operation, and only about two-thirds of those (say, 35,000 in round numbers) are needed for the part that US would acquire. Even if US recalled all of its currently furloughed employees (12,000 or so, right?), that would still leave US with the predicament of finding over 20,000 additional employees to run the newly-acquired operation. Where else would they come from? Virtually no former UA employees would accept a job under these conditions -- if they wouldn't do it at UA, why would they do it at US?

That's not to say there aren't a large number of potential new US employees out there, between furloughees and others just waiting for the opportunity to work in the glamorous airline industry. But US would not just need to hire these 20,000+ new employees, it would also need to train them (at least to some extent), confirm the holding of FAA licenses where appropriate (pilots, AMTs and dispatchers, and maybe others), and place them where needed around the country.

And US will need to do all of this in a way that there is a seamless transition, literally from one day to the next. Because if there is not a seamless transition, at least from the traveling public's standpoint, the value of the acquisition will be greatly diminished very quickly as other carriers take advantage of the ensuing operational problems that the new US would be experiencing to siphon off passengers to their own networks.

IMHO, such a unique corporate transaction does not take likely employee reactions (or psychology) into account, and thus it would be nothing short of a logistical nightmare as US tried to overcome the likely departure of thousands of former UA employees that ran the acquired operations. And this is only from the perspective of staffing issues. What if some of the aircraft lessors and trade vendors don't want to play ball? I'll let someone else discuss that aspect of the situation.

BTW, I'm not an employee of UA (or US, for that matter), and I don't even play one on TV! So there is no argument that I'm trying to protect my job, or that I'm in denial about the future.

 

[insp89]

Chip,, The -Mercer Report-that you posted sounds like nothing more than good old fashioned REGULATION...

 

[Winglet]

It isn't about efficiency . . . . it's about TOO MUCH CAPACITY. Even if all the carriers came down to Regional compensation, there would still be TOO MUCH CAPACITY. There is too much supply resulting in too low of ticket prices. Even if all the airlines were ALL Southwest clones, we couldn't sell all the seats.