737nCH11:
Chip said: "You asked to many questions and I am tired as well. I''ll answer your questions tomorrow night."
737nCH11 said: Sorry to pee in your cornflakes again, but you never responded to a previous post which quoted a UAL spokesman as saying "that the differences in the annual report and the government court filing merely reflected different measuring techniques and not a sharp deterioration in the airline''s pension plans."
Chip comments: 737, I’m sorry I have not responded fast enough for you, but I spent the day with my kids working on their programs, coaching, and attending a soccer camp tonight. I normally post late at night and this is the first opportunity I have had to answer all of your questions, which are a lot.
737nCH11 asked: My sources at UAL ALPA, and UAL CEO Glen Tilton have stated that UAL is coming out of CH11 in either Q4 03 or Q1 04. Are you going to stand here and tell me that you know more than they do?
Chip answers: No.
737nCH11 asked: Do you really think that they would be making such bold statements if they didn''t intend to do it?
Chip answers: My sources say the company will likely not emerge in either Q4 03 or Q104. Furthermore, what else is Tilton going to say…UA is going to liquidate. Tilton must make these type of comments to prevent a further reduction in passenger confidence. If the consumer believes UA could liquidate then the failure of the airline could become a self-fulfilling prophecy. Furthermore, Tilton needs the support of UA’s front line employees and he must provide the appearance UA will survive or UA’s performance will suffer, further complicating an already difficult reorganization.
737nCH11 asked: If CEO Tilton has stated repeatedly that he has no wish to fragment the airline, why do you contiuously quote from a Dave Bronner interview that is several months old?
Chip answers: Because Bronner holds a significant amount of UA EETC’s. There are multiple reports within US that UA is playing hardball with aircraft lessors and Bronner is not budging because he knows he can transfer these assets to US and then code share with UA. Bronner is simply protecting his hedging his investment.
737nCH11 asked: You say that you only post about UAL because they are tied to USAirways. Why not post on the AMR board because Eagle is competing with the USAirways shuttle? Why not post on the Southwest board because they drove USAirways out of BWI? Why not post on the JetBlue board because CEO David Neeleman has publically hinted at his interest of moving in on USAirways at PHL?
Chip answers: Because US does not code share with either of those companies, US has not held multiple merger talks with those companies, US has not held UCT discussions with those companies, the US chairman of the board has not said he is interested in buying assets from those companies in three different public interviews, and Siegel has not discussed buying assets from those companies.
737nCH11 asked: To lend credence to your arguments, can you please cite examples where you have posted positive comments?
Chip answers: I’m not going to go back and research posts, but I have said I do not believe UA will liquidate and I have said UA has made some progress in cutting costs, has increased revenue with the domestic alliance, and renegotiated some UAX agreements.
737nCH11 asked: If UAL sells USAirways any assets, then what will they be? Please name them.
Chip answers: First off, I do not believe US would buy any UA assets. I believe RSA could buy the assets and then transfer them to US. For example, if UA and RSA do not reach agreement on lease renegotiations and UA is forced to reject the EETC’s, Bronner, who controls the US Board, could simply transfer the aircraft he owns from UA to US. In addition, I believe US could get domestic gates at LAX, SFO, DEN, ORD, NYC, and maybe some South American routes. I do not believe US would be interested in the Pacific, however, Siegel did send an email to a colleague of mine discussing US pilots flying over the Pacific.
737nCH11 asked: The Atlantic? Once again, passenger loads are returning to pre-war levels. Will UAL sell you their Atlantic operations? USAirways already serves some European destinations. Are these profitable for you? How will you make money where UAL can''t? I believe you would find some mighty stiff resistance for the LHR slots (as well as NRT in Japan). Don''t the governments of these countries have a say in who gets these slots? In my opinion, if anyone got LHR it would be Delta. They have the feed at ATL to support such an endeavor.
Chip answers: I have not heard any mention of US being interested in UA European routes, but that does not mean that will not occur. However, Siegel has publicly said he was interested in acquiring UA’s IAD hub if the airline was forced to divest of this operation. Furthermore, let’s not forget Greg Taylor told the bankruptcy court the creditor’s committee asked UA to divest of its IAD, DEN, and LAX hubs, as well as its Pacific operation. Also noteworthy, there still is the motion in front of the court where LAX, SFO, DEN, ORD, and NYC are asking the court for relief and either UA must pay its leases or have its gates repossessed. Last year US’ European cities, which were eight on are now ten, made a $72 million profit. Furthermore, the Caribbean is the number one profit margin in 2003 followed by Europe, although its to early to say if this will continue for the remainder of the year, but I believe Europe will be profitable again on an annualized basis.
With US Airways recently opening its new state-of-the art PHL international terminal, Siegel has said US will grow the PHL international operation.
In regard to LHR, I believe Delta will not get this key asset because they offer more flights to Europe than all of the U.S. airline’s combined. I believe CO would do whatever is necessary to acquire LHR because with EWR, they could be the first company to make LHR to NYC work, with enormous connection opportunities, plus the new AirTrain service from EWR to Manhattan would make an easy commute .
737nCH11 asked: Latin America? This has always been a tough market. Carriers are scaling back service. Will UAL sell you it''s Latin American operation? How will you make money where they can''t? With the UAL/U codeshare why is there a need for USAirways to even attempt to start South American service? Don''t they get feed and provide feed to UAL''s South American flights? Don''t forget about Varig. With USAirways joining the Star Alliance you will also get feed from them.
Chip answers: Maybe. US just opened a sales office in Buenos Aires even though the company has no South American operations, however, dependent upon EETC negotiations between the US chairman of the board and UA, US could get the equipment to fly in this region. Furthermore, in a briefing I attended held by former UA and the US executive vice president of marketing Tom LaGow, LaGow said that US should be operating in the Caribbean, Latin American, and South America because it has the only north0south route network This traffic pattern creates a natural Hispanic traffic flow from NYC, to CLT, to MIA, and further South.
737nCH11 asked: Domestic? Is UAL going to hand you key pieces of it''s route structure? How will this happen? CEO Tilton has stated that he would like to keep the airline as is, while USAirways is currently transitioning to regional jets. Is USAirways going to fly transcons with these rjs? If they are then I guarantee that you will see a mass exodus of passengers fleeing USAirways. Chip, take off the rose colored glasses for a second and look around. USAirways is shrinking (politically correct term: rightsizing). The only thing left for Seigle to do is change the name of your airline to Allegheny, and you''re right back to where the company was in the 1970s. USAirways is dropping SNA? That doesn''t sound like the carrier that you were predicting would take over UAL''s west coast hubs. Even if you can''t see the trend, I can. USAirways is content flying short haul with regional jets. This is the way that it''s supposed to be. I always considered U as a small carrier trying to big-dog it. They are finding their niche again, and seem content to feed their northeast U.S. traffic to Star.
Chip answers: 737, it’s clear you do not understand the US restructuring. US is not shrinking and in fact is increasing its stage length. The company will have a stagnant stand alone business plan, barring a corporate transaction, but the closure of SNA is good for the business entity. The airline closed SNA because of its high passenger processing fee, the ability to furlough 24 employees, use contractor employees, eliminate SNA lease expense/landing fees, and redistribute the flying to international markets that make more money. Within the past week the company announced major BOS to the Caribbean service, as well as LGA to SJU, and more flights from PHL & CLT to the Caribbean. The aircraft used for the SNA service, which was two flights per day from PHL, will be redeployed to expand international flying.
Furthermore, US Airways is not transitioning to RJ’s, there adding them to the restructured fleet where the airline reduced its post September 11 fleet from 311 to 279 aircraft, or a 32 jet reduction. The company is adding a significant number of RJ’s to the network that will provide feed, provide a bonafide LCC competitor (the MDA EMB-170/175) that only needs a 50% break even load factor to be profitable.
The US RJ business plan calls for these jets to replace turboprops, open up new long-thin markets, and operate in markets that cold not support 120-seat aircraft.
In regard to your comment of "U as a small carrier trying to big-dog it", US operates to more European cities than UA and flies to more Caribbean destinations than any other US carrier.
737nCH11 asked: Dave Bronner holds leases on UAL aircraft? O.K. UAL is currently slugging it out with bigger people than him (Please find the picture of Wellington Webb tearing up UAL''s letter. Classic). In this environment, I don''t think he has much of a leg to stand on. What''s he going to do? Threaten UAL. They''ll simply take their ball and go home, as I''m sure they know that there are better deals to be had. If UAL walks, then what is old Dave gonna do with his airplanes? Give them to USAirways? That''s smart. In this revenue environment let''s add capacity for capacity''s sake. Brilliant! UAL has stated that they plan on breaking some aircraft leases if they can''t get better deals. They plan on making up for it by increasing aircraft utilization. Where is the threat here?
Chip answers: Yep, that’s exactly what Bronner could do and why he said he was interested in acquiring UA assets if they made sense for his company, US Airways.
737nCH11 asked: What if UAL violates the terms of it''s DIP financing? Do you think the lenders are going to pull the plug? My experience has been that the lenders are pretty lenient with companies who have made significant progress getting their houses in order, so I don''t think that UAL will be forced to liquidate if they do violate. Besides it takes a majority vote by the lenders to demand their money back. By the way, didn''t USAirways violate some of their terms?
Chip answers: A major point in UA’s favor is that the used aircraft market is saturated, therefore, J.P. Morgan, CIT Group, Citigroup, and Bank One would have less interest in repossessing aircraft. However, with UA unable to obtain the loan guarantee, exit financing, an equity plan sponsor, the requirement to repay the DIP loan, and sever pension problems, these financiers may decide they can transfer the assets to AA, NW, DL, or US and force the liquidation of the airline. Furthermore, maybe somebody like Carl Icahn could enter the picture like he did at TWA and rape the company of its assets.
737nCH11 asked: IAD?
Chip answers: Maybe, Siegel said it in an interview.
Chip concludes: 737, boy you sure ramble and I’m tired of answering your questions. Again, I believe a UCT could occur with an aircraft transfer to US. Why? Because it was told to me by a Wall Street source who had direct knowledge of the discussions between the parties. Furthermore, I believe US may be the best suitor for UA if the company is forced to fragment because of the alliance and Bronner owning UA aircraft. Furthermore, Siegel has discussed acquiring UA assets, and the US chairman of the board publicly has publicly statied his interest in acquiring UA assets if it made sense for US. Furthermore, it appears the UA ALPA MEC believes the same thing could occur since they hanged their Merger and Fragmentation seniority language from the pre-nuptial clause in ERP I & II to ALPA Merger Policy in the new contract. Why would that be?
Best regards,
Chip
