United/aca Transition Agreement

[mweiss]

Especially since the major airlines have broken the implicit contract with their customers regarding the FF programs. For the past several years, they have all been decreasing the value of the programs. This leaves a bad taste in the mouths of the customers, who can't help but feel that there's been a bait and switch. This sort of feeling reduces the loyalty that the customers feel toward their former airlines of choice.

 

[Just Plane Crazy]

At this moment ACA gets over 60% of its revenue from UA. Once that is gone, how are they going to support their operation. They have to swim fast or they will drown. The security net is gone and now they have to take the risks (and heat).

 

[Flying Titan]

At this moment ACA gets over 60% of its revenue from UA. Once that is gone, how are they going to support their operation. They have to swim fast or they will drown. The security net is gone and now they have to take the risks (and heat).

It's not like they're broke. I believe I read that they have somewhere around $200M in cash (please correct me if I'm wrong). Plus, didn't they put out for $125M in new investment recently? That makes for a pretty well-financed start-up.

 

[N230UA]

Hmmm... let's see....

All jet service - on new or re-furbished aircraft; seatback IFE, leather seats, lower fares with a simplified fare structure, and high-frequency scheduling

- vs. -

competition from a mix of "express" carriers - some offering RJs some offering exciting aircraft such as the Saab 340, no IFE, and more fares and restrictions than your travel agent can count.

Nah, it'll never work. Who would ever fly an airline like that?

Seriously, I don't know if this will work even if they do attract passengers. I have a major problem with the idea of a low-fare carrier making a successful run with 50-seat aircraft because there just doesn't seem to be enough volume to make these flights profitable (even when the planes are full). Still, ACA has enough money to be around long enough to pose a major problem for the weakened legacy carriers that dominate IAD and the east coast (UA, US, and DL). These carriers can only take so many hits before one of them falls and, make no mistake, this is definitely another punch.

IFE will NOT be available on the CRJs...

 

[Flying Titan]

Hmmm... let's see....

All jet service - on new or re-furbished aircraft; seatback IFE, leather seats, lower fares with a simplified fare structure, and high-frequency scheduling

- vs. -

competition from a mix of "express" carriers - some offering RJs some offering exciting aircraft such as the Saab 340, no IFE, and more fares and restrictions than your travel agent can count.

Nah, it'll never work. Who would ever fly an airline like that?

Seriously, I don't know if this will work even if they do attract passengers. I have a major problem with the idea of a low-fare carrier making a successful run with 50-seat aircraft because there just doesn't seem to be enough volume to make these flights profitable (even when the planes are full). Still, ACA has enough money to be around long enough to pose a major problem for the weakened legacy carriers that dominate IAD and the east coast (UA, US, and DL). These carriers can only take so many hits before one of them falls and, make no mistake, this is definitely another punch.

IFE will NOT be available on the CRJs...

Didn't realize that. I thought that they were retro-fitting their CRJs in addition to having the IFE installed on their Airbii. Thanks for the correction.

 

[whlinder]

exactly. united will match or come close to any IA fare.

Well if thats the case then Independance Air will probably be a success, since if United matches the fares of Iraqi Airways instead of DH, Independance Air will be cheaper than UA 100% of the time!

 

[UnitedChicago]

HA! Now that was the first chuckle this board has ever gotten out of me! Thanks for the laugh WH !

 

[Just Plane Crazy]

It's not like they're broke. I believe I read that they have somewhere around $200M in cash (please correct me if I'm wrong). Plus, didn't they put out for $125M in new investment recently? That makes for a pretty well-financed start-up.

As of 12/31/03 they had aprox 95M in cash available. Accounts receivable was 9.1M and accounts payable of 24.8M. This gives them a true 79.3M available cash. This is not enough to stay up and running for a long period of time.

In addition Delta canceled today its contract with ACA. This gives them $0 income on their Regional fleet and they have to fill the seats so that they can pay their employees.

The airline that recently got outside investment was Midwest and not ACA.

 

[Whadayano]

ACA did a convertible deal this year for $125mm, so someone is willing to take a sporting risk. If Delta cancelled their deal, they will have to buy those planes that ACA bought based on that contract--and the manufacturer is out of business. So Delta will have a stranded fleet of about 25 planes that haven't been working well (major engine trouble) and will have to shell out, round numbers, $400million for them. So I doubt that info is correct. If the post that 40% of their revenue is NOT from the codeshare is correct, that's alot better than others, who have connection rates of 85-90%. But then, Dulles IS underserved....the issues I think are, can ACA really offer prices that stimulate traffic when they have RJ costs (16-18 cents a passenger mile); and if there are now twice as many RJ's flying every route every day, how will they keep from all of them losing a ton of money?

 

[iflyjetz]

UAL was approx 85% of ACA's revenues; Delta was approx 15%.
ACA did a convertible bond issuance recently for $125 million par value. I have not seen how much ACA netted; I suspect that the offering went for below par (less than $125 mil) and there are also fees associated with the bond writing that will reduce ACA's net proceeds.
As for the 328s that ACA operates for Delta, Delta has a couple of options that will allow them to walk away with ACA holding the planes. First, Delta's contract required a certain financial liquidity on Delta's part in order to buy those planes from ACA; Delta no longer meets that liquidity requirement. Secondly, the contract allows Delta to cancel the contract without having to buy the planes if ACA is unable to meet 95% completion rate for three straight months. ACA was less than 95% completion rate for Jan and Feb; it appeared that ACA would not be able to meet 95% completion for March, but I have not seen the final figures.

In short order, ACA will have zero revenues from any source other than Independence Air. ACA did a convertible bond offering with extremely liberal provisions for the buyer (upper and lower collars, multiple cash out options, 6% interest rate); net proceeds won't be known until ACA's quarterly results since ACA has been tight lipped on terms. ACA's Airbuses won't be flying until November. ACA may be stuck with redheaded stepchildren 328s that they will have to fire sale out to Delta or whomever takes over ACA's contract.
ACA will be going into the summer as Independence Air flying high cost RJs. United has replaced all of ACA's feed, so ACA won't be able to steal a lot of United customers.
I don't give ACA long before they burn through all of their bond proceeds (some of which was probably used for Airbus deposits) and most of their cash on hand.
This isn't neccessarily good for United; JetBlue or VirginAmerica can swoop in and take over ACA's gates when they go chap 7; I don't expect ACA to make a stop at chap 11 (their cash burn will be similar to UAL during the darkest days, but with considerably less revenue).

 

[Cosmo]

iflyjetz:

IIRC, ACA leases most, if not all, of their 328Jet fleet. So while under certain circumstances Delta could be forced to accept assignment of those leases, there would likely be no cash payment to ACA for aircraft purchases and Delta would simply start making the monthly aircraft lease payments to the appropriate lessor(s).

At least that's my understanding of the situation.

 

[Just Plane Crazy]

As I understand it, DL will ask Skywest to operate the aircrafts and DL will renegotiate the lease. So DL will not be out of any pocket money.

ASA will have a tough time since they are not as financial stable as they try to pretend to be. And I don’t look as far as VirginUS, I just look over to Mesa. They are very quiet and it looks like they still have a joker up their sleeve. The last chapter on this has not been written.

 

[DCT JVL]

As I understand it, DL will ask Skywest to operate the aircrafts and DL will renegotiate the lease.

It isn't Skywest, it is Skyway, the Midwest Airlines commuter. They are already a 328Jet operator, so adding the ACA flying isn't such an issue for them.