Ual Lobby‘s For Industry Consolidation

[Pacemaker]

Chip, I believe you have a history of making too much of what could be off-the-cuff remarks like the recent ones by Tilton & Siegel. The fact that both made vague references in the same week to consolidation does not necessarily indicate a coordinated, premeditated lobbying effort, yet you attempt to get great mileage out of their talks. Within the past few weeks 2 respected analyists, Ray Niedl and Sam Buttrick, both expressed the view that US Airways was downsizing itself into the postion of a mere holding company with a minimal mainline airline operation - a view which obviously mitigates against the UCT theory, yet in all your posts these sort of contrary references go uncited.

I am not saying you might not be on to something, but I think that in this chaotic and rapidly-changing industry anyone can take a couple of sound bytes of his choice and pretty much make a case for anthing he wants to say or believe.

 

[USA320Pilot]

Cosmo:

We can go back and forth debating this issue, but I believe we can both agree that both companies lobbied for consolidation last week in their speeches. In addition, I now believe some form of a corporate combination that leads to a full blown merger will be required for both company's to survive long-term -- as a means of obtaining a competitive cost structure.

Furthermore, I believe Siegel's offer to maintain current Pittsburgh flying is a delay tactic until more is known about United's business plan/POR, which is now due to be filed with the bankruptcy court in early March. In fact, if a deal were announced with United, Siegel would possess enormous leverage with the very real threat to leave Pittsburgh, if the government does not provide the company with cost relief.

Most observers recognize network carriers must level the playing field to compete with LCC's, which I believe is a necessity for both US Airways and United survive. For the most part, only management can truly effect the CASM. They can do this by increasing stage lengths (for US Airways reallocating flying to the Caribbean); flying larger aircraft with more seats, and economies of scale, e.g. mergers or some sort of corporate combination like Air France and KLM.

Thus, out of these three options, which is the easiest to do? Merge -- all things being equal.

If United can solve its major issues (pension plan, municipal bond litigation, EETCs, & Dulles/ACA/Mesa), then I believe United has three major advantages to be the surviving airline in the pending corporate combination. United still has the ability to unilaterally reject leases, they have more/worldwide market identity, and there would be less capital required to integrate operations.

With US Airways out of bankruptcy and only able to reject Pittsburgh leases, United could unilaterally dispose of surplus assets. In addition, some assets could be sold like gates (Boston, LaGuardia, and Newark for example), aircraft, and facilities, to raise luqidity.

If United can deal with the pension issue (which would be done with either legislative relief or DB Plan termination and DC Plan substitution) and the other items listed above, then I believe an argument could be made that United could be awarded the loan guarantee.

In conclusion, if all of the issues above are satisfactorily addressed, then it would not surprise me to see RSA (or maybe a another party like TPG) become United's equity plan sponsor, provide United with additional exit financing, and then merge United and US Airways, with United the survivor due to the three advantages listed above.

The key here is that United and US Airways have a business tool called Chapter 11 that can be used to unilaterally reject financial agreements and create significant economies of scale, which could lower the combined CASM to a level that would permit sustained profitability in the face of skyrocketing LCC growth.

Regards,

Chip

 

[USA320Pilot]

Pacemaker:

Pacemaker said: “I am not saying you might not be on to something, but I think that in this chaotic and rapidly-changing industry anyone can take a couple of sound bytes of his choice and pretty much make a case for anything he wants to say or believe.â€￾

Chip comments: Pacemaker, part of your comment is well taken in that the industry is changing so rapidly that what is true this week may be different next week. In fact, US Airways management may have known about the Southwest Philadelphia expansion through its confidential discussions with the State of Pennsylvania. The rocketing LCC growth is an enormous concern for both United and US Airways, thus I believe the only way United and US Airways can lower unit costs to compete with the LCC's is for some type of a deal that leads to a merger, which would change the integration requirement from the UCT, because the UCT does not provide economies of scale.

Pacemaker, we are headed for a deal and we will know more before the spring – once United solves some of its key issues.

Regards,

Chip

 

[N628AU]

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,

Do you find it interesting that Chip has not replied to your comment, or my similar comment made earlier? I find he does not reply to anyone who can blow a hole in any of his theories. The fact Chip wants to twist a very general comment and apply it to US and US specifically is his typical modus operandi.

 

[USA320Pilot]

Cosmo asked: “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.â€

N628AU said: “Do you find it interesting that Chip has not replied to your comment, or my similar comment made earlier? I find he does not reply to anyone who can blow a hole in any of his theories. The fact ip wants to twist a very general comment and apply it to US and US specifically is his typical modus operandi.â€

Chip comments: With all due respect, I disagree with your comments because I take information in and offer a thought provoking argument. If I offer an opinion, I normally say “I believe†or “In my opinion.†In regard to Cosmo’s question, all employees have to be careful when they publicly speak, especially if it can be discussed by the news media. In addition, speeches are usually written by the Communication Department, thus their points are made with intention. Regardless, Stanley’s comments were important enough that Dow Jones reported on them.

Finally, there is strong reason to believe the only reason the companies have not tried some form of a corporate transaction since March 2002 is that the business partners were not in a position to complete a deal, one way or another.

Regards,

Chip

 

[USA320Pilot]

How do agreements like the one in the story hyperlinked below effect companies like US Airways' and United's ability to compete with LCC's and increase their need to reduce unit costs?

See Story

Regards,

Chip

 

[USA320Pilot]

I find it interesting that many of United's more prolific posters have read my recent comments, but did not post a response.

The key for United to survive will be for the company to find a solution to its enormous challenges (four problems listed above) and then there could be an equity plan sponsor who could provide exit financing.

If US Airways' chairman of the board David Bronner and RSA continue their interest, Bronner could demand United ALPA terminate their pension without a legislative solution, like he did with US Airways, before he provides United with exit financing.

Regardless, it appears the companies strategy is to merge, either completely over over the long-term, as a mean to lower unit costs, and to permit United to provide an application to the ATSB that would meet the 7% profit margin in 7 years.

Regards,

Chip

 

[Cosmo]

In regard to Cosmo’s question, all employees have to be careful when they publicly speak, especially if it can be discussed by the news media. In addition, speeches are usually written by the Communication Department, thus their points are made with intention. Regardless, Stanley’s comments were important enough that Dow Jones reported on them.

Chip:

While there is some truth to the above, I still disagree with the way you took the generalized statements of Seigel and the United manager regarding the possibility of consolidation in the airline industry and then jumped to the conclusion that both men were talking about a United/US Airways combination of some sort. While you are certainly entitled to believe that's what both men were discussing, it's still just your opinion. The problem then arises when you follow your opinion with phrases that make it sound like a fact, such as the following from your first post in this thread:

"At this point it’s unclear how the two companies would integrate ..."

or this one:

"Regardless, if the companies pursue an integration option similar to Air France and KLM, then when economics permit, the work forces could be combined and other integration steps completed to have a true merger."

or perhaps this one:

"With both companies publicly lobbying the government to permit some form of consolidation with informed sources stating the companies are now having high level face-to-face meetings, are we finally on the verge of the airlines announcing a unique corporate transaction (UCT), a UCT derivative, or a merger that is financed by the ATSB and RSA?"

or finally this one:

"Again, its unclear how the proposed corporate combination would proceed ..."

So Chip, the problem isn't your opinions, the problem is when you phrase your opinions in ways that make them sound like facts.

 

[767jetz]

Finally, there is strong reason to believe the only reason the companies have not tried some form of a corporate transaction since March 2002 is that the business partners were not in a position to complete a deal, one way or another.

Regards,

Chip

Wait a minute! If there is strong reason to believe that neither US or UA were in a position to complete a deal one way or another since March 2002, then why were you saying all along that a UCT was inevitable since March 2002?

Could it be that your reliable sources were wrong all along?

Seems like another inconsistency to me. Hmmmmmm...

 

[Cosmo]

Regardless, it appears the companies strategy is to merge

Chip:

This is just your opinion; you have NO solid evidence to support that statement. And I don't consider whispers from "informed sources" or rumors about senior-level meetings at United's HQ to be solid evidence.

This is precisely what I was talking about in my previous post.

 

[767jetz]

The key for United to survive will be for the company to find a solution to its enormous challenges (four problems listed above) and then there could be an equity plan sponsor who could provide exit financing.

First of all, while agree that UA needs to resolve some challenges, incuding pension funding, I completely disagree with your conclusions.

My sources tell me that UA is confident that these challenges are managable and will be resolved. UA is also not interested in an equity plan sponsor and is doing everything possible to avoid that.

UA has the ability to further lower it's cost, and will do so well into 2004. While a combination of US and UA may be advantageous to UA and may be a necessity to USAir's survival, Tilton does not think it is the best course of action for UA. What would be in UA's best interest is to expand it's codeshare, emerge from BK, wait a couple of years for US to shrink and solve some of it's internal problems, and then possibly further combine the 2 companies in years to come.

 

[USA320Pilot]

Cosmo & 767jetz:

I wish I could tell you more or what my sources have said, but I cannot destroy their confidence in me.

The U.S. airline industry is rapidly changing and dependent upon what happens with United's reorganization and its significant issues, these events will determine the type and final form of the corporate transaction.

For example, unless United can successfully meet its four key obstacles, the airline will not receive exit financing and thus the Chicago-based airline may have to fragment to emerge.

If United can find a successful resolution to all of its major obstacles, then an investor (e.g. RSA or TPG) may step up and take a majority stake in United and merge it into US Airways, because the Chicago-based company could more easily reduce the combined business entities CASM by rejecting lease agreements.

Regardless, we will see a deal one way or another once United's reorganization becomes more clear.

It's interesting times...

Regards,

Chip

 

[USA320Pilot]

United adds former US Airways and Delta Marketing Executive to its staff.

See Story

Hummm...

Regards,

Chip

 

[ohcaptainron]

CHIP says :I wish I could tell you more or what my sources have said, but I cannot destroy their confidence in me.

**** I can tell you my source, Glen Tilton. He says US AIRWAYS while very valuable to UAL and STAR has costs that are way to high, LUV smells blood and has signaled in a very demonstative way it plans on making a very serious move into the bread and butter markets of US AIRWAYS.

With CASM in the 11 cents per mile for US AIRWAYS vs 6.5 cents for LUV the attractivness that UAL once may have had for PHL and its high yields are a thing of the past. Think Southwest effect. UALs own costs will moderate to the 8 cent level sometime next year, combining a very high cost operation with UAL currently does not make any sense to parapharse his remarks. And would certanly work to comprimise the good work that UAL has already accomplished.

If Seigle is successful with further cost cutting and right sizeing US AIRWAYS into a business model that works, that is competative with LUV, Jet BLue, and is profitable, then it is possible UAL would be very interested, until that time no deal, most of the benifits of a merger are currently being realized via the code share, and any additional costs that might be saved in a acquistion of US by UAL are far outweighed by the costs of trying to do the deal, says Mr. Tilton.

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CHip says:

If United can find a successful resolution to all of its major obstacles, then an investor (e.g. RSA or TPG) may step up and take a majority stake in United and merge it into US Airways, because the Chicago-based company could more easily reduce the combined business entities CASM by rejecting lease agreements.

**** Just so we are clear, my source Mr. Glen Tilton CEO of UAL CORP. says that all of the issues facing UAL are on track for UAL to emerge from BK in the spring of 04. While difficult in his view, manageable. The POR is ontrack and compliant with ATSB and creditors committies, Exit financing will not be a problem, strong interest by prime lenders and suppliers( think AIRBUS/AXA amoung others) Also he did mention that an exit plan that would involve the likes of the folks in AL. would be a lender of last resort and that they or any lender(pirate) like them are NOT being considered.
The pension issues will need to be resolved but the proposed legislation reform and possible IRS waivers look encouraging.
"A MERGER OR AQUISTION of US AIRWAYS BY UAL IS NOT IN THE CURRENT INTEREST OF UNITED AIRLINES". GLEN TILTON

So Chip, while I always say anything is possible within the realm of all possibilities, your prognostication is and continues to be self serving and misquided. Would UAL buy US AIRWAYS or some portion therofe, possibly but only after UAL has its own house in order, also UAL wil not make any move until the dirty work that Seigel finds himself having to do to save what he can gets done. In my mind if that can happen in the next 12-18 months we will probally revisit the issue, until then not likly.
Good luck to all of us.

Ron

 

[ual06]

Yes, the magical Ho, Ho, Ho season of Christmas is not far away.

But for one thing , Chip, just a few days ago you wrote that US would be the survivor of a merger between US and UAL. Today you write UAL will be the survivor.

For months you have espoused your UCT theory. Today you write:

", because the UCT does not provide economies of scale."

Also today you write:

" The key here is that United and US Airways have a business tool called
Chapter 11 that can be used to unilaterally reject financial agreements and create significant economies of scale, which could Lower combined CASM to a level that would permit sustained profitability in the face of skyrocketing LCC"

Jest, I had not heard that US went back into Chapter 11.

Also, today, you wrote:

" If US Airways' chairman of the board David Bronner and RSA continue their interest, Bronner could demand United ALPA terminate their pension without a legislative solution, like he did with US Airways, before he provides United with exit financing."

What interest????? Where in the world has "US Airways' chairman of the board David Bronner and RSA" ever been included in any exit plan ???????????????? You have repeatedly said "There is no exit plan."

Dream, Dream, Dream - Chip you need to get some rest.