UAL to maybe buy CAL

[LCC_#1]

In your dreams "Mr. Cryptic." When UA emerges it will be much stronger than CO, from a route stucture/asset perspective, a labor perspective, and a debt perspective.

If there are any M&A inverstors out there, the money will be on UA and Tilton.

P.S. This doesn't mean I think there will be any M&A activity in UA's near future. But IF it happens, Tilton and UA will call the shots.

Sleep soundly my friend...

767

Just curious as I've been too busy with our merger..what was the total a/c number at UA pre chapter 11 and predicted number after?

Do you think IF there were to be a financial player...say GE...that they, like was done at U, would require a downsizing of ac as part of a financial deal with another carrier? Seems any marriage between two big carriers would only continue the current overcapacity. I know we had to put down around 60 ac. Intellectual thoughts?

 

[767jetz]

767

Just curious as I've been too busy with our merger..what was the total a/c number at UA pre chapter 11 and predicted number after?

Do you think IF there were to be a financial player...say GE...that they, like was done at U, would require a downsizing of ac as part of a financial deal with another carrier? Seems any marriage between two big carriers would only continue the current overcapacity. I know we had to put down around 60 ac. Intellectual thoughts?

I don't have the a/c numbers, but most of the reduction was in the 737 fleet and older airplanes like the 767-200.

I think that IF (big if) someone were to invest in consolidating 2 airlines there would be some reductions, but mostly proportional to the overlap.

With load factors at record highs I don't think overcapacity is the problem. I think it is overcapacity of cheap seats that is the problem. And with fares slowly rising and fuel costs slowly retreating it makes for a better environment.

If UA were to purchase/combine with CO, there would be a small reduction in capacity. But with little overlap it would not be huge. And with NW and DL both in BK, there will be reductions in overall capacity anyway.

Theoretically, if 2 airlines are "right sized" to begin with and don't overlap, then combining them would only bring more efficiencies and reduce costs with minimal problems.

 

[LCC_#1]

I don't have the a/c numbers, but most of the reduction was in the 737 fleet and older airplanes like the 767-200.

I think that IF (big if) someone were to invest in consolidating 2 airlines there would be some reductions, but mostly proportional to the overlap.

With load factors at record highs I don't think overcapacity is the problem. I think it is overcapacity of cheap seats that is the problem. And with fares slowly rising and fuel costs slowly retreating it makes for a better environment.

If UA were to purchase/combine with CO, there would be a small reduction in capacity. But with little overlap it would not be huge. And with NW and DL both in BK, there will be reductions in overall capacity anyway.

Theoretically, if 2 airlines are "right sized" to begin with and don't overlap, then combining them would only bring more efficiencies and reduce costs with minimal problems.

Thanks for the info and good luck.

 

[WorldTraveler]

You folks act like assets can just be tossed aside with no regard to the underlying owners. Particularly, AA can't just waltz in and dump a boat load of NW's airplanes because they don't like them. Airbus is one of NW's largest creditors and will have a significant controlling stake in the reorganized NW.

You also fail to recognize that there has never been a successful hostile takeover in the airline industry. Airlines merge because they want to. If NW doesn't want to combine w/ AA, it won't happen. Not only does NW have an obligation to protect its assets but there are huge financial repercussions if NW ends up dumping a significant portion of its workforce as part of a major domestic downsizing - which is exactly what AA will require to make a deal work. With AA's reputation for mergers, no one wants to merge with them and none of the legacies are sick enough that they will be forced to sell themselves at courthouse prices in order to satisfy creditors.


If CO and UA merge (which I do consider more than a little likely), then DL and NW will make quick inroads to each other since neither is really capable of standing on their own amdist two super carriers (AA being the other one - they are capable of picking up Alaska or the new US without even thinking hard about it).

I know you folks seem to think DL is doomed for annhilation but DL is doing more to look like a long term survivor than NW is or even the new US. If DL and NW can come up with a merger plan that will maximize value to both sets of creditors, they could merge as they come out of bankruptcy but it is far more likely that they will reorganize independently and then come together after BK. Remember that DL is the airline that has $2B in deptor in possession financing and has been able to raise more money by selling assets like their 762 fleet; NW has nothing of value they can sell and has no DIP financing. DL is expanding its international and domestic network by reallocating resources while NW is cutting key routes - including some international backbone routes like JFKNRT.

Remember also that NW has veto rights on any combination CO might participate in so you can bet they will only let CO merge with anyone when NW is capable of standing successfully on its own two feet.

Fleet combinations are not likely to be the problem alot of people make them out to be. You could easily see a combined DL and NW, for instance, trade its Airbus fleet w/ CO/UA for Boeings or something similar. It will be costly to integrate fleets but it makes more sense to swap a couple of large fleets that are not common between two merged airlines with another airline that has the "matching set" than to continue to operate many different types of aircraft for years to come.

And remember, when it comes to network overlap, DL and NW have very little just as CO and UA do not. AA overlaps with just about everyone (remember they already have a fairly sizable operation at NRT as well as in the NE and have a sizable presence in the midwest). The DOJ is going to look much more favorably on combinations that do not increase a carrier's control of key markets. And selling off key assets doesn't accomplish much. The NE is a key part of DL's route system; ie the only carriers that don't have a comparably strong position in the NE are NW and UA and it is the NE that will draw the most attention from regulators because of the capacity limitations and high demand for facilities there.

Bottom line is that it is probably UA that will precipitate merger activity but I think they need to focus on getting their business on track coming out of bankruptcy rather than go after a merger right away. Tilton has already talked about a laundry list of product improvements he wants to invest in; money spent on product can't be used for mergers and vice versa.

 

[Bear96]

Hey WT

Looks like you're getting a little nervous there and your inner spinner is kicking into overdrive.

For your own health and sanity, relax a bit.

Maybe DL will survive; maybe it won't. Life will go on either way. Whatever happens will take a long time to fully play out (you can't keep this level and intensity of information control going on for the few years that the DL bankruptcy will take), and your posts here won't influence the outcome either way.

Breathe.

 

[Fly]

soooooooooo, size does matter to WorldTraveler. Is it Napolean syndrom you suffer from?

 

[TechBoy]

You folks act like assets can just be tossed aside with no regard to the underlying owners. Particularly, AA can't just waltz in and dump a boat load of NW's airplanes because they don't like them.

Really? Isn't that what bankruptcy is all about, walking away from contracts. Of course NW's leases can be terminated in bankruptcy. Haven't you been watching for the past 3 years?

DL is expanding its international and domestic network by reallocating resources while NW is cutting key routes - including some international backbone routes like JFKNRT.

DL may be expanding internationally, but definitely not domestically. From the top of my head, let's see, 25% reduction in CVG, selling 762s, returning 733s, parking 732s.

 

[garyjr02]

I dont understand.

Why does NW have veto rights in the event of a CO merger?

 

[FWAAA]

I dont understand.

Why does NW have veto rights in the event of a CO merger?

Has to do with an investment NW made in CO when CO was really desparate back in the early 1990s (CO's second bankruptcy?). NW received some stock in CO carrying the veto power.

 

[WorldTraveler]

you folks are just nervous that someone will actually walk through BK and reorganize in less than the 3+ years that UA has taken - and they still aren't making money!

and, DL is not dropping routes - they are adding them, in fact. I didn't say they weren't reducing capacity. argue with what's written, if you're going to argue. They are reallocating capacity to international routes but so is every other airline in the industry. If it's so bad for Delta, then why has UA spent so much time doing it? And DL is not getting rid of any international aircraft, unlike UA.

 

[TechBoy]

and, DL is not dropping routes - they are adding them, in fact. I didn't say they weren't reducing capacity. argue with what's written, if you're going to argue. They are reallocating capacity to international routes but so is every other airline in the industry. If it's so bad for Delta, then why has UA spent so much time doing it? And DL is not getting rid of any international aircraft, unlike UA.

I never said that the reductions were bad for Delta. On the contrary, Delta clearly needs to shrink significantly -- just like UA did. What I was questioning was the rose colored glasses that you are wearing. Even post-BK, the airline industry is not going to be pretty for any of the legacies.

 

[FWAAA]

Really? Isn't that what bankruptcy is all about, walking away from contracts. Of course NW's leases can be terminated in bankruptcy. Haven't you been watching for the past 3 years?

Exactly. I don't what WT was thinking while typing that. BK is exactly the time to ditch the expensive obligations you don't want. With few exceptions, the debtor has the absolute right to dump executory contracts (like long-term leases). It can also dump its secured debt by returning the collateral to the lender. And for the most part, those decisions are within the province of the debtor. The standards for aren't very stringent.

Airbus won't be able to veto the aircraft rejection decisions at NW. Nor will anyone else.

When AA wrote TWA's bankruptcy plan almost five years ago, AA specified exactly which airplanes it would assume and which ones were rejected. AA retained some TWA airplanes that it didn't want to keep long-term (DC-9s, 717s, and 757s); the plan was to order new Boeings to replace them. Of course, later that year everything went in the toilet and disrupted AA's fleet replacement plans. Still, AA did order and take delivery of nine new 763s to replace the PW-engined 763s (which went back to the lessors). The court approved the AA-sponsored plan - as expected. Expect the same if AA swoops in and gets cozy with NW now.

 

[FWAAA]

you folks are just nervous that someone will actually walk through BK and reorganize in less than the 3+ years that UA has taken - and they still aren't making money!

I think UA showed a net profit in 3Q2005 excluding the reorganization items.

Just looked. Yep, UAL had a $68 million net income in the third quarter excluding reorg items:

http://biz.yahoo.com/prnews/051031/nym127.html?.v=27

That's a better result than at AA, which lost $95 million, excluding special items. And AA showed the largest percentage gain in mainline unit revenue of any major airline: RASM up over 12.5%, yield up 8% year over year.

October brought UAL a big net loss, excluding reorg items:

http://biz.yahoo.com/prnews/051123/cgw024.html?.v=33

I'm thinking that UAL will make money, but reasonable people can differ.

 

[WorldTraveler]

of course they will make money but they have not consistenly done so and neither has any other legacy airline. A few quarters of profit doesn't make a sustainable company after years of losses even with a bankruptcy filing.

And airlines have not been able to simply walk away from airplane contracts by the dozens, in case you didn't notice. AMR was able to walk away from so much of TWA's fleet because it was TWA's 3rd bankruptcy and it was pretty apparent to everyone that TWA would be liquidated.

WT was thinking about the same thing when I typed my previous statement that I am thinking now: airlines don't dump dozens of modern, marketable aircraft on their first bankruptcy because debtors would rather restructure debt than accept that many aircraft back. By #2 and #3, things change. US is the only airline that has even gotten to #2 and they seem relatively stable for the time being.

Now, within the context of the current industry restructuring environment, would you like to explain how NW or any other airline will succeed at dumping a significant portion of its modern, operating fleet?

And when you talk about an AA acquisition of NW, remember that, unless NW is no longer capable of operating independently (highly unlikely), AA will have to come up with an acquisition plan that gives as good of a treatment to NW's creditors as they could get if NW remained a standalone company. And when talking about several hundred modern Airbuses and some major terminal projects, the price tag for walking away from all of that for less than a dozen beyond Japanese routes is billions and billions of dollars - way too much for AA to spend for so little.

 

[ualdriver]

you folks are just nervous that someone will actually walk through BK and reorganize in less than the 3+ years that UA has taken - and they still aren't making money!

Now we're not making money? On a net basis? Operating basis? Perhaps some negative cash flow? Which is it and what recent quarter are you referring to? Ok, World, I'll add that to the list of other famous World Traveler statements like, "UAL can't find exit financing" (when in fact we had) "UAL's revenue is declining" (when in fact it was going up), "UAL is not paying its pension obligations" (when in fact at that time UAL was), etc., etc. There's plenty more where those came from but those are just off the top of my head.

World, I think the only nervous person on these threads is you. 1300+ posts, plenty of nervous UAL bashing, and a whole bunch of damage control on the DAL threads, especially when your beloved carrier entered bankruptcy. What are you so worried about?