UA/UA merger?

[ChairPrefRes]

Well if you look at the bankruptcy script as it is being played out with U...It's obvious U lined up a dancing partner to help provide support during and post filing...So if this is any kind of blueprint to assure UAL would emerge from BK as itself (not pieced out) Ual would surely be talking to post emergence investors right now...To see how U could fit into this scenario doesnt seem possible to me...But maybe some unknown entity could step up to the plate and be a possible investor...U is in a very vicarious position right now and is still in grave danger of being parceled off if all the pieces dont come together in it's own plan...So I doubt U would be any kind of player for UAL right now...But a investor group could make a play for both and the danger is the Judge and or judges have to consider any offer...Lot's of high ego players out there...

 

[UAL777flyer]

Argento,

The scenario you described is indeed intriguing, even though I don't agree that's how it will play out. One interesting current fact is that UAL is now virtually the same size in terms of ASM's that it was in 1994! So all that growth of the last 8 years is pretty much gone. That should speak volumes to those who think UAL is too big to fail. Those are the same folks who said the feds would never let Pan Am go out of business. Hogwash. UAL is presently a failing entity that will require massive changes in order to survive and prosper. Unfortunately, too many of our employees are still deeply in denial about how severe our condition is. I'm convinced UA will declare bankruptcy. I just do not believe the unions will agree to concessions equal to what the company says they need to obtain ATSB loan guarantees. Time is also critical. And with a new CEO, I just don't see how it will be done. Especially with another IAM/AMFA election imminent. So, my opinion is a Ch.11 filing sometime in October. I continue to hope that it can be avoided by some miracle, but the realistic side of me says it can't.

As for your UA/US scenario, I would hope it doesn't play out anywhere close to how you proposed. Retrenching into its' international operations would resort UA to a quasi-Pan Am, who had no real true domestic feed for its' large international operation and ultimately failed because of it. Granted, US would be codesharing with UA feeding those international routes, so the comparisons to Pan Am are a bit skewed. But to retrench to merely international operations would mean probably cutting about 65% off the current size of UA. That is a lot of employees out on the street who may or may not be offered employment at an expanded US Airways. I realize that in Ch.11 scenario, the concerns and welfare of employees are rarely a priority. That is why I continue to hope that the unions come to their senses and work out a restructuring plan that does not require bankruptcy.

 

[chipmunn]

The key to the unique corporate transaction is the new US labor contracts and low cost structure. If US can get its final two unions onboard and reduce its costs by $1.2 to $1.3 billion per year, the airline will emerge a strong competitor.

The investor could be the ATSB with up to $2.7 billion in combined funds available as well as TPG. Let's not forget that TPG simultaneously worked with HP & CO, although the two companies never merged.

It's also quit possible the ATSB could force UA into bankruptcy to get rid of the ESOP, union Board members, and governance issue.

The unique corporate combination idea would be to take the high cost portion out of UA, or the inability for a high cost mature carrier to compete with the low cost operators, and download this portion of the route structure onto the new competitive US cost structure. (By the way, thousands of UA employees would be transferred into US).

The revenue umbrella would be the Star and Domestic alliance and with the two airlines operating independently, there would be no antitrust problem with joint pricing, scheduling, and sales functions, thus no asset divestiture or DOJ issue, which the airlines and Greg Taylor clearly understand.

Why do you think Mullin is screaming so loud and doing everything possible to sink US?

However, without ratified restructuring agreements by the US IAM-M and CWA this corporate combination will not occur and instead US would likely be liquidated in short order.

In this case, Mullin and Delta Air Lines would win, big time.

Chip

 

[DLFlyer31]

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On 9/12/2002 11:52:33 PM JFK Fleet Service wrote:

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.

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.
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[/blockquote]

What you're missing is that while AMR,DAL,NWAC,etc may have billions in cash, if they are forced to compete against a BK U, BK UA and all the lowfare airlines, it won't take long before they are BK too. AMR could easily burn through a billion in six months. Then if AMR goes BK, DL/CO wouldn't be too far behind.

You're right that airlines shouldn't seek BK to prevent a competitor from getting a cost advantage. Unfortunately, USAirways is setting that precedent. US could never get its costs in-line to be competitive and up until recently, US never really tried. BK and the ATSB effectively reward USAirways for its years of mismanagement and high-costs, by giving them a nice low cost structure and financing to buy hundreds of RJs. Of course, BK is no reward for the employees of US, but thats another story.

Airlines that did a better job managing themselves are then punished by having to face a low-cost USAirways. This could potentially create the domino effect that is being mentioned.

As for a UA/US merger, it would be messy, but I think in the long-term it may become more likely if US (and UA to a lesser extent) continue to shrink. How many more years of US shrinkage until the UA/US merger is no bigger than the AA/TWA merger??

 

[ohcaptainron]

[blockquote]
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On 9/13/2002 8:42:23 AM argentomaranello wrote:

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.
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I will read the article , however I have not been impressed with this author in the past.

The labor cuts that were released to the press by the outgoing senior management were a parting gift for ATSB consumption and employee angst. Fact is UAL AMR DAL have additional choices beyond BK filing. Unlike US these companies have substancial assets and cash, US did not. That does not diminish the need for the industry to dramatically lower its costs in line with the new revenue realties. UAL and others will have to do this either in or out of a BK. The unions are trying to get the best deal they can in light of this reality, like the IAM and others on your property.
Nothing new here.

Will UAL file? I am sure that every senior executive at AMR DAL etc. is praying they do not. US has created an imbalance in the industry,a large network carrier with much lower costs, so the options are; every network carrier imbrace the cost model of a BK company or remove the imbalance.
Look for other networks to aquire parts of US that work within the context of a larger network, the hubs, while US continues to evolve into a strong east coast regional feeder carrier.

But the larger networks will need to formulate a long term repsonse to the low costs producers, Allowing a BK US to feed UAL might fix UALs short term response but does nothing for the other networks or offer along term solution,other than BK. Lots more regional jets, more code sharing and unfortunatly lower compensation for all.

Arrogance, I won't go there, except to say what you perceive as arrogance by UAL employees has nothing to do with the idea that we are to big to fail mentality, on the contrary, every employee I talk with is painfully aware of that reality. I think the disdain comes from the I just won the lottery entitlement mentality that some US employees had during the last attempt to combine the companies. So while you may hope that the domestic industry universe will revolve around a reconstituted US in Arlington, the more likly scenero will be what its always been, Wolf selling what he can and codesharing what he can't.
Regards

 

[UAL777flyer]

Chip,

No assets transferred? If you transfer the majority of UA's domestic route structure to US, I'd think that a lot of aircraft would have to go with it. Also, where would those planes be maintained? Does our IND Overhaul Base go to US also? These are all assets. So I don't think this unique corporate transaction scenario you're talking about is that cut and dried. With or without bankruptcy, UA will get their costs lowered. I'm convinced Ch.11 is on our horizon. At that point, debt will be shed and costs will be lowered and the inefficiencies of the airline pruned out. I honestly do not feel it will involve a merger or quasi-merger with US Airways.

 

[argentomaranello]

UAL777FLYER: Talk of just this sort of unique combination has been quietly reported in some of the most elite circles in American civil aviation. At the moment, this is much more than just some crackpot internet chatroom idea.

By the way, whoever siad that a fragmentation of UAL (with much of its domestic route structure going to USAir) required a transfer of assets or employees? In bankruptcy, the aircraft leases/EETCs might simply be rejected (and then perhaps acquired by USAir directly from the lessors or EETC holders -- at current market rates) while the employees may be pink slipped away (after their labor contracts are tossed out). A strictly international UAL (a la PanAm) actually makes sense if it could be fed by a domestic USAir codeshare.

 

[chipmunn]

UA777flyer:

Chip said: “There would be no antitrust problem with joint pricing, scheduling, and sales functions, thus no asset divestiture or DOJ issue.â€

UAL777flyer said: “No assets transferred? If you transfer the majority of UA's domestic route structure to US, I'd think that a lot of aircraft would have to go with it.â€

Chip comments: UAL777flyer, I believe you misunderstood my point. My point was with the corporate combination not being a traditional merger, with both companies independent you would not need an asset divestiture to meet antitrust concerns like the previous deal. Another words, US could keep its DCA operation and Shuttle, while UA could keep its IAD operation and AC feed. I agree that a lot of aircraft could be sold off, such as the B-737s, A-320s, and most of the B-757s/B-767s. In addition, I believe a lot of employees could be transferred, although a fragmentation could allow the surviving airline to recall its own employees and not have the integration headache of “unhappy†employee group. Interestingly, that same problem could occur for US employees if the company does not receive restructuring accords from its IAM-M unit and the CWA and the airline is forced to liquidate.

However, Argento brought up and interesting point, after 60-days the bankruptcy code would allow UA to reject aircraft leases and current aircraft could be returned to lessor. US could pick up the EETC’s at market rates to lower its unit cost and not take UA employees, just like UA did with some of the Pan Am assets it acquired in the 80’s like the LHR hub, which could eliminate the employee integration headache.

I agree with you there will likely not be a traditional merger in this environment, but today’s news that the UA unions will not meet the September 16 concession deadline to permit a revised loan guarantee application, probably increases the argument that the company needs to go into bankruptcy to eliminate the ESOP, reconstitute the Board, and eliminate the governance issue.

With US in bankruptcy and its labor issue(s) uncertain and UA likely headed for a reorganization, the only thing certain is that in the future, the landscape will be different for our two company’s, but at this point I believe it’s uncertain how events will unfold.

 

[ohcaptainron]

[blockquote]
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On 9/13/2002 1001 PM argentomaranello wrote:

UAL777FLYER: Talk of just this sort of "unique" combination has been quietly reported in some of the most elite circles in American civil aviation. At the moment, this is much more than just some crackpot internet chatroom idea.
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I love it, some of the most elite circles of American civil aviation, well its your fantacy, I say go for it. You should read what you write it is entertaining.
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By the way, whoever siad that a fragmentation of UAL (with much of its domestic route structure going to USAir) required a transfer of assets or employees? In bankruptcy, the aircraft leases/EETCs might simply be rejected (and then perhaps acquired by USAir directly from the lessors or EETC holders -- at current market rates) while the employees may be pink slipped away (after their labor contracts are tossed out). A strictly international UAL (a la PanAm) actually makes sense if it could be fed by a domestic USAir codeshare.
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Ok,lets assume that for arguments sake, UAL files. Guess what? Suddenly any cost savings advantage that US airways had over a pre-petition UAL goes away. Its likly that US airways will provide the template in cost reductions. Now lets overlay bankrupt US airways costs over a much larger more efficient network like UALs then all of a sudden UAL costs are DRAMATICLY lower than US. If that is reasonable, then US AIRWAYS assets would perform much better in the hands of UAL then visa versa. In addition you have UAL with 5+ Billion in post petition cash and assets, Even without the ATSB loan, cost of capital will be SUBSTANCIALLY lower for UAL further disavantageing US AIWAYS in terms of network costs. So I am afraid that beyond the elite this dog won't hunt.
US airways will find it very difficult to stay at best independent at worst liquidated.
UAL by virtue of the code share will have first right of refusel on the assets that were considered valuable at the time of the merger. The rest would form the basis of a regional feeder, from whence you came.

The court would probally be sympatheic to any UAL offer and frankly no one else would have the financial where with all to make a competing bid. UAL should be able to pick most of what it wants for less than market rates.
Fragmentation, no, since US is bankrupt it does not apply, it is a failed carrier. UAL would offer employement based on reapplication like the last of PAN AM, once of course the remaining furloed employees return.

Unfortunatly Steven has walked you folks right down the aisle, all the way convincing you that US will be a vibrant competitor, time to smell the coffee. In this way he will derive some value from a failed carrier.

If the industry restructures along the lines of the BK model which in my opinion will not happen, we are all right back where we started, you are as dumb as your dumbest competitor, US has no advantage and no options.
So if the thought of domestic dominance allows for restfull sleep then I will humor you.

Going foward will be extreamly difficult for all the employees of this industry, so when you and Munn constantly beat the drum of parochial interest and advantage at the expense of UAL employees, telling the world HOW its going to be with conjector and miss direction, and no real facts its a dis- service to everyone who reads these fourms, I think the US Airways MEC said as much. Sort of arrogant,not unlike how Chip said how it WAS going to be with the merger, remember you get what you pay for here. Good luck to all of us.

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[/blockquote]

 

[chipmunn]

Ohcaptainron:

The parties, the Bush Administration, and the ATSB have discussed this unique corporate transaction. Will it occur? I do not know, but it has and is being discussed.

Chip

 

[ohcaptainron]

[blockquote]
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On 9/14/2002 119 AM chipmunn wrote:

Ohcaptainron:

The parties, the Bush Administration, and the ATSB have discussed this unique corporate transaction. Will it occur? I do not know, but it has and is being discussed.

Chip
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Really CHIP? Prove it, put up or shut up. Saying it does not make it so. You are doing a great dis-service by pumping out this dribble, I will wait patiently for your reply.

 

[Peetah Griffin]

ohcaptainwrong:

Go wait patiently on the UAL message board.

 

[magsau]

I tend to agree with the premise that if UAL does file BK and the cost and governance issues are changed, UAL will have distinct cost advantage due to it's larger route structure. U has always had the largest revenue per mile, but it also has always had the highest cost per mile. With a shrinking mainline at U, even lower the cost somewhat on the employee side are still going to keep the CSM high due to the reduced number of ASM. This is what has happened at UAL. We lost alot of ASM's and all of a sudden at average fares we needed 95%load factors to break even. I believe with some of the cost programs that have been implemented that number has lowered quite abit, but none the less it was proven shrinking to profitability really does not work.

IMO, the only way to really shrink to profit would be to gut all the work rules for the entire airline and begin running a major carrier the way a regional airline might. No retirement so to speak of, No work rules, and the idea that the employee is only temporary, that this will not be a career job. Something to do while in college or in addition to another job. (By the way in the mid to late 60's that is exactly how many of the UA ramp folks got their jobs, college do something jobs.)

I would hope that this is not the case and that UA can get it's house in order. Glenn Tilton (UA CEO) is saying all the right things to the employees that give us hope and it is now time to see his words in action. A unique corporate transaction, I hope not, and IMO Tilton will do everything to keep UA, UA. For those that are upset that the unions did not meet the 13th deadline, you must remember Tilton only took the job on the 2nd and really has no previous airline experience. 9 days is not alot of time for such a large undertaking and with any luck they can come to terms and get the airline moving toward profitability without another shrink and cost increase.

 

[cavalier]

9 days is not alot of time for such a large undertaking and with any luck they can come to terms and get the airline moving toward profitability without another shrink and cost increase.

I hope he can do it too for the sake of UAL employees, but remember that UAL could not find anyone with airline experience to step up to the plate. One of the big reasons was dealing with labor issues. Everyone points to SWA saying they make a good wage and also make a profit, but these same people fail to mention that SWA also has an employee ratio smaller than any of the old time carries. To make UAL or any of the other older carriers as profitable as SWA without harming labor is a challenge not one airline guru has accomplished since deregulation. The industry’s old carriers will eventuality follow U, which will be into the dust or into a viable and profitable entity depending labor corporation. These forces are not driven by mismanagement or labor’s greed, but what the government thought was best for all, deregulation.

 

[argentomaranello]

CAV:

You've hit the nail on the head when you attribute most of the current labor unpleasantness to the long=term aftershocks of deregulation. But simply saying it doesn't identify an effective remedy (unless its re-regulation . . . and that's not gonna happen). The sad reality is that all of the majors are grossly overstaffed (in constrast to the LUV model) and even teh current round of bankruptcy filings isn't likely to change that very much.

As an aside to OHCAPTAIN, I earlier posted (without intending any offense) that the tone of his posts was reminescent of the arrogance and denial, owing to a too big to fail mindset, typical of the employees of large network carriers. He has subsequently mistaken my own posts for those eminating from a rabid and loyal USAir employee (which I am most decidedly not). My own familiarity with these matters stems from years of professional investing in airline debt and equity issues (UAL included) and my formal training in the law. That aside, my point was then, and continues to be, that once in bankruptcy, UAL will have a range of options available to it -- from selling off various of its routes to wiping out its current labor agreements (if reasonable concessions packages can't be negotiated). What I've always found offensive about these discussions. when joined by airline labor, is the sophomoric attitudes placed on display by employees who somehow refuse to grasp the immense risk posed by bankruptcy to their own employment -- they seem to believe, as I've written before, that airline jobs are a form of public entitlement (like work at the post office) and that capital must somehow accomodate them. Nothing could be further from the truth in bankruptcy. Plainly, the entire domestic payroll of UAL is up in the air when and if that carrier files. OHCAPTAIN seems to think that filing will automatically bring down UAL's cost structure, but it won't. Only concrete actions taken inside bankruptcy (many of which will be painful for current UAL employees) will do that. The case for fragmentation of much of domestic UAL into USAir rests on the view (which OHCAPTAIN and others seem presently hard at work vindicating) that the present union-oriented payroll at UAL is so disconnected from reality, and so militant (see Susan Carey's piece in yesterday's WSJ) that no UAL management will be able to extract the needed concessions from those groups. Glenn Tilton appears to have neither the brains nor the airline experience to facilitate any of this (and his recent bouquets to labor may be sending exactly the wrong signals -- merely fortifying UAL labor's militancy). In the end, the easiest, simplest course for UAL management to chart (in bankruptcy) is to acknowledge that its international operation is largely immune from the industry's domestic RASM sensitivity to low fare competition and retreat into it. A hammerlock codeshare with USAir would assure it of needed feed (unlike the old PanAm model) and allow it to continue pandering to the highest seniority components of its existing workforce. Meanwhile, actual transfer of the domestic route structure to USAir needn't be accomplished directly (via a sale or other similar transaction) but could be done indirectly (via foreclosure upon EETCs or rejection of leases); the affected UAL employees, in such a scenario, would be out in the cold. But this isn't a prediction -- its just as assessment of one of the options that is now clearly in sight.

FINALLY -- to USAVIATION.COM -- PLEASE GET RID OF THIS BACKGROUND-TYPE REVERSAL FEATURE ON THESE BOARDS. IT HAS RENDERED WHAT IS ALREADY A VERY DIFFICULT READ (AGATE-TYPE NEVER DID ME ANY GOOD IN THE SPORTS PAGES) NOW VIRTUALLY IMPOSSIBLE. FOR THE SAKE OF THOSE OF US OVER 50, PLEASE USE LARGER TYPE ON A WHITE BACKGROUND.