Ual Lobby‘s For Industry Consolidation

[USA320Pilot]

Robbedagain:

Robbed asks: "IN YOUR OPINION, WOULD A UAL AND US TYPE OF MERGER LIKE KLM AND AIR FRANCE BE THE BEST WAY TO ACTUALLY HELP BOTH OF THE CASH STRIPPED CARRIERS US AND UA? AND WHAT KIND OF EFFECT WOULD YOU THINK IT WOULD HAVE ON STATIONS LIKE ABE AND AVP WHERE IT IS MAINLINE EXPRESS?"

Chip answers: As I have said, UA & US have been discussing a deeper relationship, but because the industry is changing so quickly is likely the discussions change.

Neither US Airways nor United have the credit rating or finances to obtain the capital to acquire the other.

Both companies have cost structures that are uncompetitive and they are/were the only network carriers of the top six to become insolvent.

From Siegel's comment that he senses "that increased cooperation, coordination, and potentially consolidation between and among network airlines" indicates he is thinking of something other than a merger in the near-term.

Moreover, regardless of what Clue states, Stanley was talking about network airline failures because they have unsustainable business models because their CASM is too high, especially United and US Airways.

The S curve economics between US Airways and United are compelling, but any deal must remove costs, therefore, moving forward a UCT or derivative would be less likely because the CASM would remain too high in the new environment where LCC's will control pricing.

Thus, if an investor will not provide the financing to execute a merger, an AF-KLM type of deal may the best option.

In regard to smaller stations, they would see consolidation as well and the Mainline/Express stations would likely see them self continue in their present mode because their costs are lower.

Regards,

Chip

 

[USA320Pilot]

Clue:

Clue said: Let's talk about Chicago versus Pittsburgh. You make two large assumptions here: that more solvent carriers would not outbid U on any UA assets in ORD (and it would happen that way in the event of any UCT before UA exits Chapter 11) and that the LCCs would not immediately seize the chance to enter ORD.

Chip comments: You must have missed my multiple comments that the funding would jointly come fro RSA , the ATSB, or a stock swap. By the way, what carrier has the money to outbid Bronner, if he decides to execute a transaction?

Clue said: “Finally, let's keep in mind that in the likely event that UA indeed receives ATSB financing and exits Chaper 11, they are far more likely to be buying U than vice-versaâ€￾

Chip answers: Clue, with what? The loan guarantee needs to repay up to $1.5 billion in DIP financing.

Clue, the parties are talking about a deeper relationship and this week in prepared comments both discussed the need for a corporate combination. Just like other M&A activity, the intent is to drive down unit costs and increase revenues, which may be the only way to survive.

Regards,

Chip

 

[robbedagain]

Thanks Chip. Also, may be you could help me out in this: one of my co-workers told me the other day that he believed even if there was a merger with ual, it could
not happen until ual exits ch.11. How would something like that happen?

 

[AKA_trvlr64]

AKA_trvlr64,

I enjoy reading Chip's UCT commentary. This is a free board and everyone is allowed to express their ideas. If you don't like what is being written, then you don't have to read the postings. Chip adds much to this board.

HELLO?! Have you ever heard of sarcasm??? <_<

And the line about the internet is for porn is from a very very funny Broadway musical called Avenue Q. Maybe some of you have heard of it. And those that haven't need to get away from the computer and go enjoy it.

 

[ClueByFour]

Chip comments: You must have missed my multiple comments that the funding would jointly come fro RSA , the ATSB, or a stock swap. By the way, what carrier has the money to outbid Bronner, if he decides to execute a transaction?

Clue said: “Finally, let's keep in mind that in the likely event that UA indeed receives ATSB financing and exits Chaper 11, they are far more likely to be buying U than vice-versaâ€￾

Chip answers: Clue, with what? The loan guarantee needs to repay up to $1.5 billion in DIP financing.

Clue opines: See the aforementioned reasoning about any RSA funding. You then point out that UA would need to repay 1.5 billion with the ATSB funding. Any stock swap (or ATSB plays) before exiting bankruptcy on UA's part would need to pass the secured and unsecured creditors comittee. Which begs the question: which scenario is better for UA's creditors: buying into at least some of the US business plan (which has fallen apart from a cost standpoint--see Dave's begging for most cost-out and from a revenue standpoint--see LUV moving into US' most profitable market), or drving some more costs out of UA while still under Chapter 11, and having an airline with the best route structure in the world emerge with must lower costs and plenty of experience with fending off LCCs (see the Bay area, ORD) and much less exposure (due to their international route structure).

I don't see Bronner going so far as to step up to the plate to fund US' ongoing survival in the form of necessary maintenance, facilities for RJs, etc. Bearing that in mind, why exactly again does he want UA (bearing in mind that he gets all of his investment back if US liquidates tomorrow)?

Any number of carriers can outbid US without Bronner. CO will most certainly try even with Bronner in the picture (and presumably with the support of either commercial credit or even Texas Pacific if the stakes were high enough). Neeleman could make a huge move here as well, as his credit is apparently good everywhere.

The other major problem with any UCT scenario involving US as the surviving entity is trust on the part of the ATSB, Bronner, or the tooth fairy in placing more money in the hands of the current management. In less than a year since emerging from Chapter 11, they have managed to lose market share, revenue, struggle operationally, and piss off every labor group on the property. Ask yourself--would any sane money manager be putting money into a scenario like this?

US has not even put it's own house in order. I'm going to reserve any further thoughts of any corporate transaction (absent a liquidation/fragmentation of US to other carriers) until that happens.

 

[FrugalFlyerv2.0]

Chip comments: You must have missed my multiple comments that the funding would jointly come fro RSA , the ATSB, or a stock swap. By the way, what carrier has the money to outbid Bronner, if he decides to execute a transaction?

Chip,
I agree with you that Bronner does have the money for a UCT, but:

Bronner can make better / wiser investments for the RSA than sinking millions more into another airline.

However, should Bronner decide that RSA wants to continue to invest in the airline industry, what's preventing Bronner from buying a stake in UAL, then transferring certain assets of U (say the Shuttle and/or PHL and or DCA/LGA) into his UAL operation and ditching U? Would this not be a better investment for RSA? Afterall, this scenario would: 1) increase UALs presence on the east coast - and along with UALs routes across the Pacific and Atlantic and into South America it would (theoretically) make UAL an even better airline 2) more importantly lead to the demise of US (one less competitor) for UAL and RSAs new investment

Who could outbid Bronner for UAL assets? How about Ichan? How about SW, jetBlue, and even DL, AA, NW/CO? Sure RSA has $25 billion, but how much is Bronner willing to spend on another airline?

Chip the UCT you propose is interesting, but it seems to me that it could happen only on the assumptions that 1) UAL will be selling assets and 2) only RSA will be interested in purchasing them.

 

[USA320Pilot]

Robbedagain asked: “may be you could help me out in this: one of my co-workers told me the other day that he believed even if there was a merger with ual, it could not happen until ual exits ch.11. How would something like that happen?

Chip answers: The United unsecured creditors committee asked the company to sell its Dulles, Denver, & Los Angeles hubs; as well as its Pacific operation, according to United senior vice president of planning Greg Taylor in court testimony. If the creditors and the court decide it’s best to sell parts or all of the airline, then the transaction could proceed. The most recent example of an entire airline sold while in Chapter 11 was TWA to AMR.

Frugal said: “Chip the UCT you propose is interesting, but it seems to me that it could happen only on the assumptions that 1) UAL will be selling assets and 2) only RSA will be interested in purchasing them.â€

Chip comments: Agreed, but the advantage US Airways has over the other carriers is that the assets and revenue could be kept within the domestic alliance, which would improve United’s business plan, POR, and loan guarantee application.

Chip concludes: Dave Siegel’s curious comments to the Washington Aero Club that there needs to “increased cooperation, coordination, and potentially consolidation†are suspect. Now that United has publicly spoken that “most feasible solution to the situation is consolidation in the domestic airline industryâ€, it’s clear both airlines are considering some sort of a corporate transaction.

Why? In my opinion, because fundamentals are deteriorating at an enormous rate with revenues declining and costs still too high in comparison to the LCC’s. Therefore, in management’s view, the only way to survive is to dramatically cut costs and the only way to do so is through consolidation through mergers.

However, for US Airways and United economics may not permit this to occur, thus the airlines may be looking for some other type of integration that may require antitrust immunity.

Regardless, something big is being discussed between the business partners and how this ultimately ends up is unclear at this time.

Regards,

Chip

 

[T-bone]

Thus, the Bush Administration will have a personal interest in the success of both United and US Airways and will want to protect the taxpayers money. Furthermore, the OMB loan guarantee guidelines give the ATSB broad shaping powers, which could influence discussions between interested parties.

sort of corporate combination?"

Me thinks so…

Regards,

Chip

No the bush administration is after only 1 thing $$$$$. If or if not we survive is not a priority to them. Same with United. We could both wash away and start ups would be standing in line-----nothing lost.
No the only loyalty this administration has is to------

 

[Cosmo]

The United unsecured creditors committee asked the company to sell its Dulles, Denver, & Los Angeles hubs; as well as its Pacific operation, according to United senior vice president of planning Greg Taylor in court testimony.

Chip:

As I've told you before, you've left a very important word out of the above 9-month old comment from Greg Taylor. The unsecured creditors asked United to ANALYZE the sale of the hubs and Pacific operation, and I'm not aware that that analysis has been made public yet. In any event, it's not the same thing as you said.

 

[T-bone]

Chip:

As I've told you before, you've left a very important word out of the above 9-month old comment from Greg Taylor. The unsecured creditors asked United to ANALYZE the sale of the hubs and Pacific operation, and I'm not aware that that analysis has been made public yet. In any event, it's not the same thing as you said.

chip could it be another-------------

 

[Cosmo]

Frugal said: “Chip the UCT you propose is interesting, but it seems to me that it could happen only on the assumptions that 1) UAL will be selling assets and 2) only RSA will be interested in purchasing them.â€￾

Chip comments: Agreed, but the advantage US Airways has over the other carriers is that the assets and revenue could be kept within the domestic alliance, which would improve United’s business plan, POR, and loan guarantee application.

Chip:

You've been pushing this rationale (i.e., that a sale to US Airways would keep the United assets and revenues within the domestic alliance) for the UCT for several months now. But such a sale would reduce United to virtually nothing!

Your most recent version of the UCT would have United sell its entire domestic operation, including SJU and Hawaii (and probably Canada since those operations are so similar to domestic), plus the international operations at IAD and MIA. This would leave United with a grand total of only 35 daily international departures from just five U.S. cities (plus a few intra-Asia flights). With the domestic feed of its international flights then subject to the whims of US Airways, for all practical purposes United would cease to exist as a viable independent entity.

You certainly have the right to argue in favor of United's elimination as a U.S. carrier, which is effectively what your UCT does. But you really should stop describing it as United's salvation when it will, in reality, be just the opposite.

 

[Cosmo]

Now that United has publicly spoken that “most feasible solution to the situation is consolidation in the domestic airline industryâ€￾, it’s clear both airlines are considering some sort of a corporate transaction.

Chip:

Isn't this a stretch, even for you?

The United manager was discussing the industry in general, and his Chapter 7 and consolidation references could easily have been about those carriers that have not yet reduced their costs through the Chapter 11 process. It was you that made the inferrence that he was talking about a combination of United and US Airways, so it's your opinion and nothing more than that. Moreover, do you seriously believe that United is going to have a major policy announcement made by a mid-level manager rather than by their CEO, Glen Tilton? That doesn't pass the "smell" test.

And BTW, I can only imagine that after you saw the Dow Jones article about this guy's speech, you were practically hyperventilating as you typed the first three posts in this thread.

 

[Cosmo]

In my opinion, because fundamentals are deteriorating at an enormous rate with revenues declining and costs still too high in comparison to the LCC’s.

Chip:

On the revenue side, this describes US Airways but not United, whose operating revenues increased by 2.1% and whose RASM increased by 12.1% in the third quarter. Moreover, United's Pacific revenues are coming back very strongly.

And while your cost comment is accurate for both carriers, United already has a CASM that is about a penny lower than US Airways' CASM. Plus United has a greater degree of flexibility to lower its costs further since it can still take advantage of the cost-reducing benefits of being in bankruptcy.

So while I can understand why US Airways might need United to ensure its survival, please tell us again why United needs US Airways in order to survive.

 

[usramperTPA]

Chip,

I'm not an employee, just a lowly US1. So I am only going to repeat what many of your fellow employees say to you over and over again.

ENOUGH IS ENOUGH!!! Stop with the postings on UTC/ITC already. Don't you have better things to do with yourself than to constantly repeat YOUR specualtions? Let the moderators of this website post the news articles about US and UA and let the members read them without your input.

Use the internet what is was designed for..................PORN..............you might be a bit happier!!

AKA,

The last time any of us checked, this is a free society, and this website is an OPEN forum. If you don't like what someone is writing, don't read it! It's that simple. Why don't you go to the WN boards and start telling them to stop posting about how they are going to kick our butts in PHL? Everybody on this site has a right to RAMBLE about whatever they like, be it informed, or just speculation.

 

[AKA_trvlr64]

usramperTPA,


Again you don't read the following postings either. It was SARCASM!!

And personally, I am hoping for the day US does merge into UA and this can all end. US has drastically decreased it's appeal to all of your flying public, from the lowly US1's to the nothing US4's.

And if you don't get it again....................SARCASM!!!


<_<


It's funny how Chip seems to be the ONLY person within US that talks about UTC/ITC. Why is he the only person? Answer that?

And as far as WN, I could care less. I don't fly them and never have and never will. I'm trapped in PIT. So I could care less if they start attacking US in PHL. I hope they succeed.