US Air to Address Creditors on Takeover plan

[BoeingBoy]

Now my synopsis. If Doug can persuade the secured creditor then the unsecured creditors will follow or they will have to file a claim against American during bankruptcy and possibly jeopardizing bankruptcy exit (remember union are businesses too) so I don't think that will happen.

First, this part is wrong. The secured creditors don't get a vote - they're assumed to be supportive of whatever POR is proposed since they come out whole (which is what makes them secured creditors to start with). The unions can choose to be unsecured creditors or not, in the sense that they can choose to have unsecured claims or not. Consensual agreements on concessions don't automatically generate claims but concessions imposed through the 1113 process do generate claims. At any rate, it is the unsecured creditors that will get the only vote. Admittedly, some unsecured creditors are also secured creditors, but only the unsecured claim constitutes a vote.

Some things I read in this article that sound like things are going Doug's way are the creditor committee seemed responsive (they will get more money this way because if someone else wants to buy American the only way to get DOJ approval is to sell off large parts or face a myriad of law suits for all the other airline not included in the transaction (possibly jeopardizing the position of exiting bankruptcy without DIP and if that happened it would almost be a certainty US would buy American).

First, don't ever take anything in the media as 100% gospel. Those articles are written by people with as little understanding of bankruptcy as of airlines in general, and are ofter just rephrasing of earlier articles (and we all know how the kid's game of telephone worked). I'd recommend reading all these recent articles as saying that US people may have talked to some people associated with some of the unsecured creditors and that some of those people may have been supportive at least to the point of saying "If you can get us a better return with a viable POR we'll listen." Take the thread title - AA is the only one that can present a POR to the UCC during the period of exclusivity plus I think either 30 or 60 days following that to sell it to the UCC. US cannot present a plan to the UCC during that time. One of the underpinnings of bankruptcy is the assumption that everyone's interests are better served if the company in bankruptcy is able to restructure successfully. Only if a successful restructuring becomes doubtful do other options - mergers, fragmentation, liquidation - come into play.

The problem Doug will have is financing. Since US stock is worth relatively little compared to what it was worth in the DL attempt, most of the offer will have to come from debt or equity financing. Buying a $24 billion or so a year company, even when it's in bankruptcy, won't be cheap. Throw in the extra cost in just employee expenses that an AA/US merger would result in for the US employees - AA is proposing that it's pilots will make more on the A320/321/737-8/9 than anything east operates including the 330. The end result - a US/AA merged company will have many of the same problems that AA had going into bankruptcy. So Doug is going to have a little problem convincing the unsecured creditors that 1 ) his plan will be more successful than a stand-alone AA and 2 ) give them a bigger return than anything that AA can come up with. And it's at that point that Doug runs into the problem of what US adds to AA, not what AA adds to US.

Jim

 

[etops1]

Doug will get all the financing he needs . The problem Doug will probably face is convincing AA employees that this deal is good for them . We shall see .

 

[BoeingBoy]

Doug will get all the financing he needs .

Note that I didn't say he couldn't get it. The problem is coming up with a believable POR that's better than what AA comes up with when saddled with the cost of all that financing, no matter whether the cost is debt or equity. AA ain't US in bk 2 - $600 million or so (peanuts for what was to be an $11 billion/year combined company) won't cover it this time. You're talking about somewhere over $10 billion in extra financing (I'd guess $15B or more) that US would need but AA wouldn't. Any POR US proposes has to show how that $10 billion+ is going to be covered while still giving the unsecured creditors more than they'll get from AA.

Jim

 

[signals]

Merger wolf continues

 

[signals]

Like the US Airways executive said the other day, without AA employees on board with a merge - the the chances are slim to none that it could successfully be accomplished. From where I'm sitting, I don't see anyone at AA supporting a merge with anyone. One look at the unsecured creditors committee will show no less than 4 automatic NO votes on that deal.

IMO, AA employees only means pilots.

 

[signals]

.

because AS has generated substantial value by being a true niche legacy carrier - part true LFC while still being a legacy airline. They have jealously guarded their key franchise in the Pacific NW.... and they have also not tried to be something they can't do well, something the best companies in the world know as absolutely critical.
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The notion that DL has unworkable overlap with AA while US does not is simply wrong. US ALREADY has a higher percentage of slots at DCA than DL does at LGA or JFK - and there is another competitor at JFK and EWR, both viable alternatives to LGA more than IAD is to DCA.
There is no doubt that DL cannot obtain large chunks of AA's NYC operation and it may have no intentions of doing so.... but DL is already a larger airline than US and the percentage of the overlap is probably no larger than what it would be if AA and US combined their DCA operations.
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It's also worth noting that DL is expecting very large response to its current early retirement programs which include retiree health care subsidies - perhaps for the last time. If DL obtains the success with these plans that they are predicting, they may not only be significantly understaffed but also be in a much greater position to take on large numbers of AA workers, perhaps even disproportionately larger than the assets which they acquire.
Given that the employees are part of the creditors committee through their unions, DL could have an advantage in being able to pick up more of AA's people than could other bidders.
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And it still doesn't change the fact that other carriers probably could present more viable business plans than US can, driven largely by the fact that most other potential airlines have better financials than US.
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US desperately needs to come up with a merger but this time they are competing with an industry that is largely in better financial shape than it was in the past.
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And, as Jim notes, it doesn't change the fact that US really brings little to AA that AA needs - while using AA resources to help save US, something those with the money that Parker needs to make a deal work will surely realize.
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And it still explains why Parker wants to push as hard as he can to convince people that AA-US is a good idea before he has to compete with other bids and before his plan is truly vetted. Wings is indeed right that the best financials will win AA's future whether it be a standalone AA, an AA acquired in whole, or an AA acquired in parts.

Parker has not grasped the fact that his last merger was not as successful as he hoped.

 

[Rogallo]

IMO, AA employees only means pilots.

You got that right!!

 

[WorldTraveler]

It's time for a few statistics to show where LCC really stands in relation to other US airlines - for those who care to think about the topic logically, instead of solely on the basis of emotion.
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LCC is worth about $1.2 billion - the value of its outstanding stock.
ALK is worth twice as much while JBLU is worth 3X as much. Both ALK and JBLU generate about $4.5B in revenues per year - 1/3 of what US generates.
.
LUV and UAL are both worth about 6X what LCC is worth.
DAL is valued at 7X the value of LCC.
.
ALK and JBLU have as much cash on hand as LCC is worth in market capitalization.
DAL has a larger line of credit than LCC's market capitalization.
.
LFC's debt to equity ratio is higher than most of its major airline peers.
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Yet somehow there are people who continue to believe that Parker and US will succeed in buying a company that is almost twice as large as US, has an unfinished merger, and generates financials that are near the bottom of the industry - not even mid-tier.
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It can only be pure emotion and pure hope for anyone to believe that US will succeed in obtaining AA's hand compared to any other option, including even a semi-successful restructuring of AMR itself. Add in the fact that US is about the only US airline that doesn't have fuel hedging in the face of rising fuel prices and the proposition seems even more absurd. The chances are that AMR would generate better financials as a standalone company. Yet somehow we are supposed to believe that investors will give US control of billions of dollars worth of prime industry assets when they have not demonstrated they can use what they do have to produce even industry standard financial results.
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Methinks some people will be sorely disappointed when the creditors actually speak instead of wishful "but a few of them seem interested".
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Perhaps if the option was liquidation of AA and not another entity on the planet was willing to invest in AA would the AMR creditors choose US - but it's hard to believe such a scenario like that would ever happen.
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In the meantime, the US media machine will continue to try to drum up support for the deal before anyone really bothers to think through what actually is involved.

 

[Buck]

You got that right!!

Yea, the problem with mechanic wages, is that they are not pilot wages....

 

[fltguymk]

Can we liquidate and get a cash buyout? LOL!

 

[usa1]

Methinks AA and US together are quickly worth more than all of the above .... lol

 

[Beancounter]

It's time for a few statistics to show where LCC really stands in relation to other US airlines - for those who care to think about the topic logically, instead of solely on the basis of emotion.
.
LCC is worth about $1.2 billion - the value of its outstanding stock.
ALK is worth twice as much while JBLU is worth 3X as much. Both ALK and JBLU generate about $4.5B in revenues per year - 1/3 of what US generates.
.
LUV and UAL are both worth about 6X what LCC is worth.
DAL is valued at 7X the value of LCC.
.
ALK and JBLU have as much cash on hand as LCC is worth in market capitalization.
DAL has a larger line of credit than LCC's market capitalization.
.
LFC's debt to equity ratio is higher than most of its major airline peers.
.
Yet somehow there are people who continue to believe that Parker and US will succeed in buying a company that is almost twice as large as US, has an unfinished merger, and generates financials that are near the bottom of the industry - not even mid-tier.
.
It can only be pure emotion and pure hope for anyone to believe that US will succeed in obtaining AA's hand compared to any other option, including even a semi-successful restructuring of AMR itself. Add in the fact that US is about the only US airline that doesn't have fuel hedging in the face of rising fuel prices and the proposition seems even more absurd. The chances are that AMR would generate better financials as a standalone company. Yet somehow we are supposed to believe that investors will give US control of billions of dollars worth of prime industry assets when they have not demonstrated they can use what they do have to produce even industry standard financial results.
.
Methinks some people will be sorely disappointed when the creditors actually speak instead of wishful "but a few of them seem interested".
.
Perhaps if the option was liquidation of AA and not another entity on the planet was willing to invest in AA would the AMR creditors choose US - but it's hard to believe such a scenario like that would ever happen.
.
In the meantime, the US media machine will continue to try to drum up support for the deal before anyone really bothers to think through what actually is involved.

Now, I didn't stay at a Holiday Inn Express last night, like you obviously did. I only have advanced degrees in Business and Accounting. Do you realize that market capitalization has nothing to do with a company's actual worth? I am eagerly awaiting your 500 page reply.

Bean

 

[AAviator]

Prepare for the wrath of AAviator .

LOL!!

Nah,
Ed is just another "Just you watch Dougie go" cheerleader, who hasn't taken in the whole picture.

What he conveniently glossed over is the fact that there are options out there for AA.

Looking back, Dougs first deal was with USAirways. The success there has yet to be seen when you really think about it. The "winning" combination has yet to show a profit since the combination. It has lost more money than it has made. It's anemic profit last year would have been wiped out if the East pilots were paid similarly to the Westies.

Moving on.. Doug tries to get into bed with UAL a couple of times.. And it didn't work out. As we look at UAL today, we can ALL agree that they did the right thing.. They took the better option for their future. They passed on the sub standard, questionable benefit LCC deal, and moved on . To a better future.

The same story can be told of Delta. Dougie gave DAL a lap dance that should have been irresistible, but the crew over there at DAL just didn't have enough beers in her to let her do the deed. DAL took it's time, mapped out a better future.. One that addressed it's needs and walked down the aisle with NWA. We can ALL agree as far as Delta goes,they did the right thing.

Moving along to AA.. The post BK possibilities and opportunities AA have, looking at the remaining field, there are without question better options than the coming LCC "jam it down your throat because you need us" proposal.

 

[Kellerguy]

Methinks AA and US together are quickly worth more than all of the above .... lol

It will come down to how much debt the combined structure would have to end up being saddled with to pay for US buying AA, and the mess with multiple unions as well. Parkers other option would be to merge with, but keeping the companies separate until AA is out of BR and offering stock in the new company to the creditors. Adding true East Coast hubbing from US is the only thing that seems to bring a lot to the table to AA, something they can get without a merger. I'm not sure how the fleet/engine mix works, I'll let someone else decide whether that is a + or -. The real question is whether a combine AA+US scenario is the best competitive solution for AA or not. If AA can exit BR and recapitalize with an IPO without US and quickly implement its business plan, I think that puts US at a competitive disadvantage, meaning between UAL/DAL/AA/WIN/LCC, one of these carriers defaults for good within 3-4 years and without a merger, US would be most at risk..

AA would exit BR with much lower leasing costs and adjusted lease end dates, new fleets and cheap financing already lined up for the first couple of years when the Being orders start arriving, not to mention tying up a lot of manufacturing assembly lines at Being and Airbus. AA's unit costs will be the lowest of the five airlines above. The joint ventures will be in full swing with JAL now fully out of BR and running a lean operation. That sounds pretty good to me.

So then is AA better off independent, or just what else will US bring to the table.

 

[AAviator]

Now, I didn't stay at a Holiday Inn Express last night, like you obviously did. I only have advanced degrees in Business and Accounting. Do you realize that market capitalization has nothing to do with a company's actual worth? I am eagerly awaiting your 500 page reply.

Bean

Bean,
I think WT, in a longwinded way was saying the company doesn't have the luxury of presenting an offer like its past offer for Delta, when its share price was in the mid 50"s vs' the "south" of 8 bucks it is today. A large part of the DAL offer was LCC stock.

Which brings up the point BoeingBoy has been making... A 15-16 billion dollar offer is a boatload of debt. Whomever lends that kind of money has to be certain the combined airline would be profitable enough to service that debt.

High cost LCC + an AA thats in BK because its costs are too high...







No way Dougie....