UA/UA merger?

[UAL777flyer]

Chip,

I disagree with your assertion that a merger of UA/US using the ATSB and Ch. 11 would be the best course of action. To continue to take your employees for granted on a quest to get bigger via merger would indicate that Tilton isn't very serious about turning UA into a more labor-friendly airline with a positive culture. I wouldn't say that your theory is impossible, but I think you'd have more luck getting support for selling air conditioners to eskimos.

 

[UAL777flyer]

Avek,

Your point is well taken, but it is just that kind of take-for-granted attitude towards employees that has greatly contributed to UA's problems. Force a merger on employees via Ch.11 and the ATSB and you will have a disgruntled and unmotivated workforce for a VERY long time. Things may appear differently to outsiders, but trust me when I tell you that this airline has very heavily entrenched problems with its workforce that had better be addressed or nothing of substance will change at UA. That translates into big problems, especially in a recessionary economy that has no end in sight. And nobody can predict with anything close to certainty what the revenue environment will look like once the economy rebounds.

 

[avek00]

I know that is probably going to sound a bit cruel, but consider: once UAL has the labor cost reductions and has eliminated employee ownership through a formal reorganization, employee attitudes will become largely irrelevant. It's important at the moment because Tilton needs to get some $$$ back. Not to mention that the employee reps. on the BOD can get him kicked out if they so desire. But once the two aformentioned aims are accomplished, labor relations won't be as critical at UA as its needs to be right now...

 

[motnot]

Chip wrote: That is an awesome picture, which by the way could occur.

motnot's comments: Chip, you are delusional. Sure, that could occur, and as the saying goes, monkeys might fly out of my butt. I know you'd love to get your mitts on the stick of a 777, but I'll give you 100-1 odds that one of those birds does not fly in U colors in the next 3 years.

I hope you don't pilot under the influence of whatever you're smoking today ...

 

[Winglet]

Unfortunately, the most likely scenario is that U goes chapter 7 and the biz is split among the remaining viable carriers. There is a lot of excess capacity in the industry now and for the foreseeable future.

 

[Art at ISP]

I hate to say it, but nothing would surprise me the way things are going now...

I would imagine there are a number of surprises in store for us as this story unfolds.

I just hope it all works out, and wish all my friends at US the best--because you are the best!

 

[REACC1]

If it happens, may the livery be painted gray side up!!!

 

[argentomaranello]

This string has (obviously and appropriately) attracted a good deal of interest from members of UAL's employee group. The curious thing is the chilling parallel between the currently expressed attitudes of UAL people in contrast to those of USAir folks (three or four months ago) -- they are identical!! From management baiting to denial of present airline economics, the attitudes are the same!!

As to a USAir/UAL combination, please don't automatically assume that such an arrangement would in any shape or form resemble a traditional airline merger. Issues relating to employee morale, central though they were to late Goodwin/Wolf deal, probably are irrelevant. In fact, UAL itself could well be irrelevant!! Without USAir style labor concessions in place (and without much in the way of lessor concessions in prospect either), a bankrupt UAL could simply elect to retreat into its international operations (Pacific, Latin America and transAtlantic), fragmenting virtually its entire, uncompetitive domestic operation (largely to USAir) for international feed via the USAir codeshare. Under such a radical scenario, domestic UAL would be folded into USAir and operated under USAir's labor agreements (whether the ex-UAL people like it or not). The consequences of such an arrangement range from saving the UAL route network (in fact strengthing it via the addition of USAir) to setting off a domino-like chain reaction of bankruptcy filings by AMR, DAL, NWAC and probably CAL in the scramble to match USAir's pattern-setting cost structure. No, don't look for anything like a classic merger. Rather, look for USAir's acquisition and assimilation of domestic UAL.

 

[chipmunn]

Argento:

Bingo! I never said merger, in fact, how about a unique corporate transaction?

Chip

 

[isthisok]

Now Y'All are getting the big picture! You and Argento have described the inevitable in terms I could not. By the way all this discussion could be moot if Bonehead Georgie goes into Bagdhad without the international community's backing. Fuel prices will get so high that we couldn't afford to put an RJ in the sky. Good luck to us all.

 

[JFK Fleet Service]

[P]
[BLOCKQUOTE][BR]----------------[BR]
[P] Setting off a domino-like chain reaction of bankruptcy filings by AMR, DAL, NWAC and probably CAL in the scramble to match USAir's pattern-setting cost structure.[/P]----------------[/BLOCKQUOTE]
[P] I would have to think that should that indeed come to pass, the bankruptcy laws would be changed much like they were after Frank Lorenzo and his end run around contracts in the 80's.[/P]
[P]Changed to a degree that an airline that files for bankruptcy will have no choice but to liquidate.[/P]
[P]Main Entry: bank·rupt·cy[BR]Pronunciation: 'ba[ng]-()kr&p(t)-sE[BR]Function: noun[BR]Inflected Form(s): plural -cies [BR]Date: 1700[BR]1 : the quality or state of being bankrupt [BR]2 : utter failure or impoverishment [BR][/P]
[P] [/P]
[P]Now when AMR, DAL, NWAC and CAL show up in Wilmington Delaware seeking to declare bankruptcy with several billion in cash, several billion in aircraft assets and other physical assets I would have to think a judge is going to look askance at those requests.[/P]
[P]For that matter, whats to stop jetblue or Southwest from declaring bankruptcy? They cant allow the competition to gain such an advantage no matter how much success they are having in the current market environment.[/P]
[P]If you are legitimately bankrupt, you have every right to seek protection, however I feel that declaring bankruptcy while still solvent is disingenuous.[/P]
[P]Especially if it is for no other reason than to prevent a competitor from gaining an advantage in cost structure.That is not the idea behind seeking the protection of the courts.[/P]
[P]What do you think leasing companies would do in that situation? They have basically rented a piece of equipment to the airline at tremendous expense to themselves, but now the airline can turn around and say We feel that is too much to pay, we'll pay this much or you can have it back. or We dont want these anymore, sorry.[/P]
[P]What do you think would happen to future aircraft orders and leases? Ironclad leases containing bankruptcy proof language? Don't laugh, if all of the big 6 try and declare bankruptcy I'd expect to see such measures from Boeing, Airbus, GECAS and ILFC as well as all other leasing entities.[/P]
[P] [/P]
[P] [/P]

 

[wings396]

At this point in the game I don't care what airlines name is on my paycheck, as long as I get one....

 

[ohcaptainron]

[blockquote]
----------------
On 9/12/2002 9:51:38 PM argentomaranello wrote:

This string has (obviously and appropriately) attracted a good deal of interest from members of UAL's employee group. The curious thing is the chilling parallel between the currently expressed attitudes of UAL people in contrast to those of USAir folks (three or four months ago) -- they are identical!! From management baiting to denial of present airline economics, the attitudes are the same!!

As to a USAir/UAL combination, please don't automatically assume that such an arrangement would in any shape or form resemble a traditional airline "merger." Issues relating to employee morale, central though they were to late Goodwin/Wolf deal, probably are irrelevant. In fact, UAL itself could well be irrelevant!! Without USAir style labor concessions in place (and without much in the way of lessor concessions in prospect either), a bankrupt UAL could simply elect to retreat into its international operations (Pacific, Latin America and transAtlantic), fragmenting virtually its entire, uncompetitive domestic operation (largely to USAir) for international feed via the USAir codeshare. Under such a radical scenario, domestic UAL would be folded into USAir and operated under USAir's labor agreements (whether the ex-UAL people like it or not). The consequences of such an arrangement range from "saving" the UAL route network (in fact strengthing it via the addition of USAir) to setting off a domino-like chain reaction of bankruptcy filings by AMR, DAL, NWAC and probably CAL in the scramble to match USAir's pattern-setting cost structure. No, don't look for anything like a classic merger. Rather, look for USAir's acquisition and assimilation of domestic UAL.
----------------
[/blockquote]

Anything is possible within the realm of all possibilities, grasshopper.
What is more likly to happen in my opinion is that the SHRUB will decide he can't live without invading Iraq, which will cause major shocks in the oil patch and financial world, resulting in absolute panic in the airline industry. Those that are not in BK will be, wages will be lowered dramaticaly, hopefully not to US airwas level but close, UAL will have adequate liquidity, with the new labor rates and restructured costs, AMR DAL CO ad nauesem will be right behind. Unsustainable business models. The bar will be lowered. There will be talk of reregulation, subsidies, etc. Now if the bar is lowered across the board where will US Airways fit in, Aquiring UAL domestic, I think not. Will the lack of liquidity drive a Chapter 7 for U? Who knows. But the notion that US will have a decided cost advantage in the long run is not realistic. The die has been cast lower cost business models going foward are going to be the rule, unfortunatly US airways will not be a long term benifactor in its current form. Consolidation is inevidable, resistance is futile, until the next economic upturn. No doubt UAL amoung others will end up with some US airways employees and assets, hence the prenup language in the current and any future agreement. Hopefully we will survive as an industry. Best of luck to all involved.

 

[argentomaranello]

OHCAPTAINIRON -- Read Susan Carey's story in today's WSJ. She reports that UAL's unions categorically refuse to consider concessions on the order of those proposed by management (which don't go nearly as far as those actually being implemented at USAir). Perhaps you are right that the ecomonic shocks created by an invasion of Iraq will shake the UAL unions to their senses. But I doubt it. First, don't expect an Iraq adventure to last longer than a couple of weeks. And its impact on global oil prices will be most likely to strip them of their current war premium. That's right, expect $22 oil on the first sounds of canon fire.

Moreover, much of your post suggests the traditional and unmistakeable arrogance of UAL employees indulging themselves in a too big to fail mentality. If that is not so, I appologize, but if it is indeed correct, look realistically at UAL today -- not what it was twenty years ago. And don't forget that Southwest was once just a fly on an elephant's ass and that Continental, ten years ago and sans its labor cost reductions, was hopelessly screwed up. Don't dismissively reject the possibility that the domestic portion of your airline will be operated in the future from Arlington, not from Chicago.

 

[argentomaranello]

You've taken an entirely too narrow view of bankruptcy, JFK. These laws have always been available to what are essentially going concerns where the need is really for restructuring rather than total liquidation. In fact, that is clearly the core idea behind Chapter 11, distinguished from Chapter 7.

I've written in the past that the long term challenge for civil aviation is the need for massive adjustment to the modern, unregulated era. For twenty-five years, this condition has imposed persistent, unrelenting downward pressure on the industry's wage structure, which, in turn has tended to radicalize its organized labor. Attitudes of entitlement have begotten confrontation which have, too frequently, poisoned the industry's employee relations. Because of the weakened economy and the after effects of 911, the industry is at a point where these essential labor cost adjustments can no longer await the leisurely pace of RLA contract bargaining; like them or not, American civil aviation now has no choice other than the imposition of significant employee cost reductions. And bankruptcy is the best available tool for the job.

What would you have the airlines do? Simply go out of business en masse and inflict that kind of chaos on the economy?

As to USAir and UAL, I'll repeat that what appears in the cards is not a garden variety airline merger. I look for a wholesale USAir takeover of much of domestic UAL; and then watch out! The cost imbalance that such an arrangement will inflict on the balance of the industry WILL require a response from the remaining majors; and unless organized labor somehow comes to its senses quickly, this will require serial bankruptcy filings by just about everyone else.

By the way, don't shed a tear for aircraft equipment financers. Default is a risk priced into whatever rates are charged. Reductions in prevailing interest rates of the sort that our markets have witnessed over the last ten years have produced massive windfalls for these boys, as their own costs of capital have undoubtedly been halved while they have continued to demand the ancient contract rates. Their situation is less defensable than that of labor in this current economic climate.