UA/UA merger?

[Bob Owens]

Argento;
Lets look at the facts. Since deregulation the average airfare has gone down 37% (this figure is from 1998, the airlines are practically giving the tickets away now). Despite the 37% (minimum) reduction in fares the airline industry made around $50,000,000,000. Thats including the $9,000,000,000 loss of 2001.
So how did the airlines manage this feat where profits soared while cents per RPM plummetted? Three ways, increased fuel efficiency,increased productivity and decreased real wages. When adjusted for inflation workers across the board are making less today than they were two decades ago.

to Oldie;
What misinformation have I posted? If you have been around this industry for the last twenty years or so then you have seen us go thruogh bad times before. Patco, the Gulf War. Look at the numbers, they are there for all to see on the ATA's Financial Metrics page.
This industry has grown tremendously over the last twenty years. The stockholders are rewarded better than ever and customers fly for less but the workers earn less. What all this is about is providing cheap but profitable travel for the public at the expense of the workers.
Last year I attended a IRRA conference where a Bush spokesman said that the administration felt that cheap air travel was essential and that workers had to realize that they could not expect high wages. Sens MCCain and Lotts bill S-1327 puts stockholders ROI ahead of workers salaries, basically transferring all the risk to the employee. Management will no longer be responsible for the performance of the company, the workers will. The Government and the Airline Industry have a long sordid history together, from the Spoils Conference of the early years to the present. The government has made it clear whose side they are on from PATCO, to Lorenzo, to EAL, to the 97 APA strike/PEB, to the NWA PEB, to the UAL PEB, from Elizabeth Doles statement that airline workers are paid too much. We can either resist or fight back. Perhaps you are content to roll over like you've done for the last twenty years but I've got twenty more years left in this industry, I cant.

 

[argentomaranello]

The stockholders are rewarded better than ever and customers fly for less but the workers earn less.

BOB OWENS: Your views in all of this are, of course your own and are to be respected as such. I suspect that OLDIE has made the leap of characterizing those views as attempt to state facts, which, if true, do indeed constitute misinformation of a sort.

The problem with your understanding of airline profitability is thats its just plain wrong. What was it that Warren Buffett said? . . . Airline investors would have been better served if someone would have shot down thw Wright Brothers' first flight at Kitty Hawk. He was referencing the sad truth that (in the early 0s, when he made the statement) the sum of all profits and losses in commercial aviation produces a significant net loss. And, despite the salad days of the late '90s, the situation has only worsened since then. Your contention that airline shareholders have somehow benefited at the expense of airline labor is laughable. Other than investors in LUV and JBLU, no long term holder of airshares has made any money (indeed, the losses have ben staggering). Did you notice what happened to AMR shares on Friday? (A loss of nearly 20% in a single day, to a level that AMR has not traded at since 1987, I believe).

Again I will say that if ideas and attitudes like yours are the norm among the UAL rank and file, its obvious that no UAL management (even a truly competant one, which is most assuredly not in place in Chicago today) would be able to lower labor costs sufficiently (even inside Ch.11) to assure survival of those parts of the great carrier that are most at risk (that part of the domestic route network exposed to LUV and JBLU competition). Perversely, its the very intractability implicit in your views that may make a fragmentation of UAL's domestic operation inevitable.

 

[chipmunn]

GP:

GP said: Chip, you need to do more research on ESOP if you're going to make statements like this. A ch 11 filing will not get rid of the employee BOD seats. I am not saying their is no way that it could happen, but it s not nearly as simple as you, and many folks seem to think.

Chip comments: GP, the ATSB could require it.

Chip

 

[UAL777flyer]

Chip,

The scenario you're talking about is clearly a boon for US Airways, while being an absolute nightmare for the employees of UA. I have a HUGE problem with the ATSB dictating that UA should file for Ch.11 if it wants to get loan guarantees, should that happen. If there is a means for UA to successfully restructure outside of Ch.11, it should be explored fully. However, I'm still of the opinion that Ch.11 is inevitable for UA because there simply isn't much time to negotiate mutually acceptable concession agreements. Can it be done? Certainly. But based upon certain union leadership comments to date, I'm not optimistic. The IAM is facing another imminent IAM/AMFA election. How much are they willing to give to UA, given that situation?

I believe that the employees of UA are becoming more aware each day of what can happen to them in a Ch.11 scenario. That's why Thursday should be interesting, when the unions present Mr.Tilton with their restructuring proposals. I sincerely hope that it's a solid package and not some politically driven fluff.

Forgive any naivete on my part, but I'm curious why UA would benefit from fragmenting its domestic system over to US in a bankruptcy scenario? Should UA file Ch.11, they will shed debt and lower their costs considerably. They'll basically travel the same road as US. Granted, the airline will get much smaller. That's inevitable. But what do they gain from transferring their domestic system to US when they'll have the same lower cost structure and lowered debt burdens that US would have, as well as a significant competitive advantage over AA, DL, NW, etc? Seems to me that keeping the domestic network of UA intact makes a whole lot more sense than fragmenting it over to US. The codeshare benefits would be there anyway, so why divest the domestic system? I just don't see the advantages for UA in doing this. I also don't see Tilton going this route. He is committed to turning UA around AND re-engaging employees and valuing their contribution. Doing what you propose would render his control of UA completely ineffective, as he'd have no support, trust or credibility with the workforce. He'd become the 2nd coming of Goodwin!

So, while I admit that your scenario is possible, I consider it highly unlikely, as it is laden with numerous optimistic assumptions. Of course, in this business, often times what appears to be impossible becomes reality, so you may very well be right in the end. But considering what your scenario would mean for me, my company and my fellow co-workers, I pray that you are wrong.

 

[chipmunn]

BigJ:

BigJ asked: So how do you envision any deal being constructed between the parties?

Chip answers: BigJ, if an agreement is reached I believe the parties would structure the deal to meet antitrust obligations and integrate the networks into what the parties call Chicago West and Chicago East. You could see the DEN hub, LAX & SFO gates, and most of the ORD gates and slots transferred to US. In addition, I believe the B-737s, A-320s, and most of the B-767s/B-757s would be sold as well. It would not surprise me if Greg Taylor, with his in-depth knowledge of both airlines, is currently working on the specifics of this type of an agreement.

UA would keep its Narita, LHR, JFK, MIA, & IAD operations mostly intact, but would share facilities with US at some of these common locations.

This would allow both airlines to remain independent, create a cost-effective structure, and eliminate antitrust issues. For example, the two company's could keep the DCA & IAD operations separate, without an antitrust divestiture required by the government to the competition. This would allow the UAL long-haul and ACA operations to continue and US keep its entire DCA operation in place. If the companies remain independent and do not have joint pricing, scheduling, or sales functions, this plan would avoid a Justice Department objection, which both airline legal advisors clearly understand after the failed merger.

BigJ asked: How do you think Alpa's policy would apply to an integration?

Chip answers: US might want to employ pilots current and qualified to increase the speed of the ramp up, similar to the agreement with AMR & UAL on January 9, 2001 for the US B-757s, MD-80s, and F-100s. In this case, we would have current ALPA Merger and Fragmentation policy.

BigJ asked: Does this mean you'll be flying a UAL, er U 777 instead of a 400?

Chip answers: If this scenario is consummated, UA would likely keep its B-777s and B-747s. US would not obtain the large equipment that would be kept at UA, who would then focus on Flag operations in the Pacific Rim, Latin America, and Europe.

BigJ asked: Who are the MSP employees?

Chip answers: Management Salary Plan employees.

What most employees need to recognize, is that mature airlines have to adjust to today's economic and competitive reality. Argento's comments about union attitudes are valid.

The simple fact is the cost pressures facing the nations largest airlines have to be dealt with. The recent WSJ article discussing just one single route on which UA and JetBlue compete –IAD to OAK, clearly illustrates the economic advantage of splitting UA up, selling off most if its domestic network, and placing into the new US business model. In the case of UA & JetBlue, while each flies an Airbus A320, with the same number of crewmembers, their operating costs are vastly different. It costs UA $23,690 to operate one way, while the figure is $14,546 for JetBlue.

This one route comparison, clearly illustrate the problems facing all mature airlines and with aggressive low-cost expansion, this problem is only going to get worse for the major airlines.

If this deal would occur, UA would shed itself of its major cost problem, while keeping the revenue intact with the Star/Domestic alliance, and UA & US would put significant pressure on AA, DL, NW, & CO, which could lead to a domino bankruptcy effect for those carriers.

Will it occur? Who knows, but I have been told it has been discussed.

Chip

 

[cavalier]

Perversely, its the very intractability implicit in your views that may make a fragmentation of UAL's domestic operation inevitable.

In other words: Old Vinny the shop steward, his days are numbered

 

[cavalier]

Mr. Bob Owens

Why don't you hire yourself out as an independent negotiator since you have been around this industry for a long time. You can figure out how to let labor make a ton of money with new contracts every other year. Of course at the same time make sure the companies are making tons of profits so labor can always reap huge wage and benefit increases biannually. Am I being vicious here, not at all. You are telling us what to do, now tell us how to do it.

 

[Bob Owens]

Well first of all I do not work for United.
I stand behind what I've said. Customers have benifited from reduced fares and there has been the opportunity to make money in airline stocks. Those who bought and sold at the right time made out well. Airline stocks are volatile and that brings risk as well as potential for the stockholder.This opportunity did not exist before deregulation where profits were consistant, consistant and low. If an investor had bought AA stock in 87(the year you picked for illustration) and sold in 98, I'm sure he would be happy with his return. This is why I thought that UALs ESOP was a bad idea, they had to hold the stock until they leave the company.

The problem with being flexible and agreeing to concessions is that once in place the contract cant be changed unless both parties agree to it. The exeption being of course that the company can claim bankruptcy as a means of getting out of it but the workers have no option other than quiting and going somewhere else. A hard thing to do in an industry where seniority is so important. Historically this industry seems to make rapid, extreme turnarounds. In the early 90s the airlines won long term concessionary contracts as they went on to record profits. Meanwhile the real wage of workers plummeted. The airlines refused to reopen the contracts. Thus they lost the good will of the workforce. For the mechanics of USAIR to agree to 6.5 or more years of concessions could mean that they are falling into the exact same trap as ten years ago, the bait is different but the trap is the same, if not worse.

 

[ohcaptainron]

[P]UAL 777[BR]EDITED BY MODERATOR. Your reason and logic is ignored by this individual, I suggest you do the same to him, as his MEC and fellow employees have done.[BR][BR]UAL will restructure, I am optimistic outside the BK process, here is why. First of all as you may know prior to[BR]9-11, the MEC had a deal on the table with a an outside investor to take the company private, the MEC ultimitly decided against it, politics mostly. Some felt it was too expensive. But it envisioned a plan that would allocate costs in line with revenue especially in the area of low cost carrier competition . If the union groups do not present a plan that meets ATSB targets then look for a dusting off of this plan. Remember market cap 250m. Pilots alone have in excess of 2Billion in B-plan , Plus another 7B in other employee plans. If employees are going to make significant sacrifices anyway, why not do it for ourselves? There is no doubt if UAL files someone like the pirate investment co. down in TEXAS that is providing DIP for us airwas is going to make alote of money. Why not UAL itself?[BR]Will the ATSB reject? I do not think it is likly. Would start a domino effect through out the industry. AMR DAL would like to restructure outside the court, Really would not have much choice if UAL goes that route. If we file Could UAL pilots then provide DIP for say another 25%? Take it private reduce post petition costs, then say five years from now bring it public and sell 50 plus percent? very possible would happen as part of a prepetition, don't really need the ATSB at that point do we? With 5.5 Billion in cash and assets UAL would be a powerhouse that it once was. With dramically lower labor costs and restructured debt UAL could price and be profitable in todays new revenue reality. for the near term UAL would leverage the code share with US and eventually would use US regional jets to feed our new east coast hubs of PHL, CLT, BOS. UAL would take over the shuttle and the carribean as US continued its downsizing into a regional code share carrier.[BR]US would not be fragemented however, from a pilots perspective, US is a failed carrier and would not be entitled to a fragmentation consideration. US employees would be given preferred hiring status.[BR]Is this scenero as likly as chippers? More so, I do know its being talked about at the elite levels of American I mean UNITED civil aviation! Cheers [BR][BR]PS Do not let Chip and his temple of doom bother you.He has a clear agenda of self preservation, it is likly IAM on that property will turn down the lastest agreement, then its likly ATSB would have to give UAL the loan, bad politics you know.[/P]
[P] [/P]
[P][STRONG]ohcaptainron, check your private mail/e-mail[/STRONG][BR][/P]

 

[bigJ]

Chip,
You come across so serious about this, are you just very good at sarcasm?
Okay, the only way in h*** UAL would ever sell it's hubs (you said LAX, SFO, DEN and ORD!!!) would be in Chapt 11/7. Without BK employees would never let that happen, corporate governance and all. The way to possibly neutralize that is with a BK filing....well with a BK filing and the resultant much lower cost structure, why would UAL want to sell assets to U? Perhaps U would sell all mainline assests to UAL and the only U planes would be RJ's. That seems a little more likely!
Even if people are talking about it, you always present these plans in a calm and almost defensive ways. If this stuff is true, they (MGT & GOVT) are out to screw labor big time, and yet you don't seem to mind. Who's side are you on...and if people think there are not sides, they are fools. Sides can cooperate but don't forget the nature of capitalism.

 

[argentomaranello]

This last reply takes the cake!! Repeat after me: A Chapter 11 filing does NOT, all by itself, lower any costs. That only occurs when a determined management, following a filing, embarks upon a course of rejecting all the non-competitive contracts in sight (leases, EETCs, suppliers and, most importantly, labor). The question has always been whether UAL management, given that it hostage to the whimsy of its own organized labor, would move on labor costs at all -- and would UAL's unions be receptive. CHIP has consistently asserted that the union-dominated governance structure at UAL must go for that great airline to make any real progress, but as I had previously noted, the kind of restructuring that would rid UAL of the ESOP can't become effective until the airline actually EMERGES from bankruptcy, making it infinitely more difficult for UAL to deal with its labor cost issues while in Chapter 11. OHCAPTAINRON actually has a point in that how the UAL problem is resolved will likely determine the fate of AMR and DAL as well. But it could (and its only a possibility, Captain) result in the spin or fragmentation of much of domestic UAL into codeshare partner USAir.

 

[oldiebutgoody]

[blockquote]
----------------
On 9/16/2002 251 PM Bob Owens wrote:

Well first of all I do not work for United.
I stand behind what I've said. Customers have benifited from reduced fares and there has been the opportunity to make money in airline stocks. Those who bought and sold at the right time made out well. Airline stocks are volatile and that brings risk as well as potential for the stockholder.This opportunity did not exist before deregulation where profits were consistant, consistant and low. If an investor had bought AA stock in 87(the year you picked for illustration) and sold in 98, I'm sure he would be happy with his return. This is why I thought that UALs ESOP was a bad idea, they had to hold the stock until they leave the company.

The problem with being flexible and agreeing to concessions is that once in place the contract cant be changed unless both parties agree to it. The exeption being of course that the company can claim bankruptcy as a means of getting out of it but the workers have no option other than quiting and going somewhere else. A hard thing to do in an industry where seniority is so important. Historically this industry seems to make rapid, extreme turnarounds. In the early 90s the airlines won long term concessionary contracts as they went on to record profits. Meanwhile the real wage of workers plummeted. The airlines refused to reopen the contracts. Thus they lost the good will of the workforce. For the mechanics of USAIR to agree to 6.5 or more years of concessions could mean that they are falling into the exact same trap as ten years ago, the bait is different but the trap is the same, if not worse.
----------------
[/blockquote]
Yea, we know. You work for AMR. And some believe you are a union rep as well. What you really need is a reality check, and I'll bet you'll get one soon. Carty said that American was losing more than any other airline in the world, and I'll bet he puts some kind of restructuring into high gear real soon. You gotta face facts. This gravy train you call the airline industry has changed forever after 9/11, and no amount of whining on other companies' foruums is going to change that. It won't really matter whether the pressure is from U mechanics accepting lower wages or the fact that more mechs are on the street, the pressure on management to lower costs WILL affect YOU.

 

[oldiebutgoody]

[blockquote]
----------------
On 9/16/2002 9:25:08 PM argentomaranello wrote:

This last reply takes the cake!! Repeat after me: "A Chapter 11 filing does NOT, all by itself, lower any costs." That only occurs when a determined management, following a filing, embarks upon a course of "rejecting" all the non-competitive contracts in sight (leases, EETCs, suppliers and, most importantly, labor). The question has always been whether UAL management, given that it hostage to the whimsy of its own organized labor, would move on labor costs at all -- and would UAL's unions be receptive. CHIP has consistently asserted that the union-dominated governance structure at UAL must go for that great airline to make any real progress, but as I had previously noted, the kind of restructuring that would rid UAL of the ESOP can't become effective until the airline actually EMERGES from bankruptcy, making it infinitely more difficult for UAL to deal with its labor cost issues while in Chapter 11. OHCAPTAINRON actually has a point in that how the UAL "problem" is resolved will likely determine the fate of AMR and DAL as well. But it could (and its only a possibility, Captain) result in the spin or fragmentation of much of domestic UAL into codeshare partner USAir.
----------------
[/blockquote]
I have to agree wholeheartedly. It seems that the ESOP idea of employees owning their own companies has been proven to be a huge failure. I believe that UAL will declare chap 11 just to get out from under this boat anchor of a business plan. AMR and DAL are trying EVERYTHING they can think of to derail U and will likely try with UAL, in efforts to improve their own bottom line at U/UAL's expense. This industry is clearly a mess; I think some kind of original thinking needs to be introduced to prevent it from collapsing and giving OBL his next major victory.

 

[chipmunn]

The airline industry is in an unparalleled financial crisis with a 10 percent loss of annual revenue, a sluggish economy, the loss of the high-yield passenger; alternative short-haul ground transportation options, and low cost carrier competition. At a time of falling revenues costs are increasing with security burdens, rising war risk insurance premiums, rich labor contracts, and high-energy prices.

However, the unrelenting cost pressure by low fare competitors on mature hub and spoke carriers has to be dealt with. Do I like this? Absolutely not, but the problem for UA and US and for that matter the other four hub and spoke major airlines is the Southwest, Jetblue, and AirTrans of the world.

Susan Carey accurately described the major problem, which will only get worse for those airlines who fail to adjust. In Carey’s column she compared operating costs between IAD and OAK for United and JetBlue. Each airline flies an A320 on the route, but their operating costs are vastly different. “It costs United $23,690 to operate one way, while the figure is $14,546 for JetBlue,â€￾ Carey said.

With this huge disparity in costs, how can United or any mature airline compete with JetBlue?

However, I would like to ask some rhetorical questions as food for thought.

Why did UA and US ask the DOT to not disclose their code share details?

Why did the ACAA ask for a docket review, backed by AA and DL, to force public disclosure and the DOT rejected the claim keeping the proceedings confidential?

Why did UA hire a CEO with no airline experience?

Why was Tilton contacted by the UA search committee only three weeks prior to assuming his new position?

Why did four quality airline executives refuse to be considered for the UAL CEO position?

Why has UA not pushed hard to obtain all stakeholder concessions, in light of the ATSB presumably requiring a whopping $2.5 billion in cost cuts?

Provided US emerges, UA needs a way to domestically compete against the issues discussed above and one BOD option could be the divestiture of its domestic system onto the new US cost structure.

Will it occur? Who knows, but I understand the fragmentation of the UA domestic system into US as a potential corporate transaction, has been discussed at the highest levels of each company and the federal government.

I believe the real UA question is, will the UA unions, vendors, creditors, and lessors immediately provide meaningful cuts to obtain the loan guarantee and will this be enough to satisfy the ATSB?

If not, the ATSB could place the ESOP/governance issue squarely in its cross-hairs and the Bush Administration may decide now is the time to force industry consolidation to help the industry properly match capacity match demand, reduce costs, and promote fiscal discipline.

Chip

 

[bigJ]

Argento....For the sake of eating cake...please give me a simple answer--what's your best guess regarding the chances of UAL filing Bk and costs not being dramatically lowered?
If the odds are low, once again why would UAL benefit from shifting any assets to U?