Us Airways Reports $177mm Q1 Loss

[BoeingBoy]

"the only major airline to have first quarter break even cash flows"

Were that it were true....

AMR Corp:
Net Cash Provided (Used) by Operating Activities $ 371

American Airlines, Inc:
Net Cash Provided (Used) by Operating Activities $ 298

Jim

 

[sfb]

Today's quarterly financial report is encouraging with the company the only major airline to have first quarter break even cash flows. Much of Siegel's business plan is working: improved liquidity, lower unit costs, and increased revenues.

The quarterly financial report is very encouraging but it's also untrue that US Airways was the only "major airline" to have first quarter break-even cash flow. First of all, the cash flow was only break-even after excluding the ATSB loan repayment. Southwest is a member of the major airlines as defined by USDOT and showed positive cash flow before a stock repurchase (and they spent $360 million in the quarter for property & equipment, primarily aircraft-related). Even if we narrow focus to the major network carriers, CAL showed operating cash flow of over $80 million and would have been cash positive had they not paid down $90 million in long-term debt (comparable to the ATSB loan). AMR's cash and short term investments increased by roughly $600 million, though this was largely due to financing transactions. NWAC improved unrestricted cash and short-term investments by about $180 million in the quarter.

All that said, the improvement in cash position in March after the prepayment of $250 million of the ATSB-guaranteed loans was extremely positive, and you could tell on the conference call that the analysts were surprised. Some of the questions seemed to be aimed at finding out exactly how the company managed to improve its cash position. Forward ticket sales were brought up (as alluded to by funguy2 & BoeingBoy), though the company stated that reserve requirements (by the credit card issuers?) probably don't allow those to be counted as unrestricted funds (someone please correct me there if I'm wrong!). It was mentioned that refunds of aircraft predelivery deposits (for CRJ's/Embraers I assume) helped the cash position, since those aircraft are debt/lease-financed. I'd also venture a guess that the sale of the company's second quarter hedge position might have been done in the first quarter (entirely a guess, I have no knowledge of the actual timing!); that also would have helped the cash position, even though the accounting gain will only apply to the second quarter.

The news that the company is engaged in some hedging was excellent. Improvements in RASM were heartening especially given the increase in average stage length; increased load factors more than made up for a marginal decline in yield. The drop in non-fuel CASM of 3.4% was a definite positive, though that number is still too high. Management's bullish outlook for the second quarter impressed the analysts (either that or they were skeptical and being diplomatic). I realize that though WN is coming to PHL in 12 days, they probably will have less impact in the second quarter with the first set of routes added than they will in July; all of their new PHL routes (excluding PVD, and FL flies PHL-BOS already) already have service from other low-cost carriers.

I believe US Airways is in good shape through the third quarter; there was mention of a $100 million payment into one of the pension plans being due in September and that will cut into cash. But seasonally strong traffic for the summer should (hopefully!) mean positive operating cash flow. And ideally, the airline's cost and revenue picture can be revamped by then.

 

[USA320Pilot]

BoeingBoy, Funguy2, & SFB:

BoeingBoy and SFB, you're correct. I forgot about AA. US Airways' report was better than expected and in comparison to First Call estimates for DL, NW, and CO, and likely will be far better than what UA will report, since the company told the bankruptcy court the airline lost about $300 million in the first two months of the year.

Funguy2, I agree with your comments. Last quarters performance and the seasonal uptick in Q2 and Q3 will buy the company more time to restructure, but as you know after Labor Day the industry will again have seasonal traffic declines.

If Lakefield can bridge the labor-management trust gap and all stakeholders can agree on the new business plan, maybe, just maybe, we have seen the bottom and the airline can become an effective competitor.

Meanwhile, S&P just released their report:

See Story

Regards,

USA320Pilot

 

[BoeingBoy]

Another way to compare the 1Q report to other network carriers that have reported is to adjust for size. Using ASM's as the adjustment factor, these are the results:

Loss per ASM:
AMR 0.368 cents
CAL 0.547 cents
DAL 1.115 cents
USA 1.198 cents

(NWA did not report ASM's for their express operations, so I didn't include them)

Jim

 

[USA320Pilot]

Just one more point...

In addition, US Airways improved its performance on several key measures in the industry, including CASM, which dropped 3% quarter to quarter for the mainline, to 11.68 cents (including fuel). This improvement is even better excluding fuel because fuel costs increased by about 10%.

Mainline RASM increased 2%, from $10.41 to $10.62 and management projected similar improvements in Q2 CASM and RASM.

Respectfully,

USA320Pilot

 

[ClueByFour]

-- The company is going to approach non-labor stakeholders to lower unit costs, which could include bond holders, EETC holders, Airports, etc.

I think Siegel pretty much burned that bridge in bankruptcy.

None of the major aiports will really give all that much. Airbus might give a bit--I don't see GECAS moving all that much, all things considered.

 

[BoeingBoy]

Clue,

That's pretty much what S&P said....

"However, based on the experience of other airlines that sought to restructure debt outside of bankruptcy, it would be very difficult to renegotiate public debt obligations, and US Airways may have to focus its efforts instead on lessors and private lenders."

 

[funguy2]

Another way to compare the 1Q report to other network carriers that have reported is to adjust for size. Using ASM's as the adjustment factor, these are the results:

Loss per ASM:
AMR 0.368 cents
CAL 0.547 cents
DAL 1.115 cents
USA 1.198 cents

(NWA did not report ASM's for their express operations, so I didn't include them)

Jim

Very interesting Boeing Boy. Very.

 

[funguy2]

Clue,

That's pretty much what S&P said....

"However, based on the experience of other airlines that sought to restructure debt outside of bankruptcy, it would be very difficult to renegotiate public debt obligations, and US Airways may have to focus its efforts instead on lessors and private lenders."

Heck... Allegheny County did not even give that much DURING bankruptcy... hehe

 

[sfb]

CLT would probably do everything short of giving US a free ride in exchange for moving more jobs/operations to the area if past experience is a guide. We've already seen what PIT is willing to do, and PHL likely wouldn't be terribly motivated considering that much of US's mainline service would be replaced within a year or so. BOS and LGA would tell them to take a hike, and I imagine the same is true for DCA given that US has the best facilities there.

I'd figure Airbus would be pretty willing to deal, given that they probably don't want 110+ nearly new narrowbodies coming on the market all at once; it weakens the market for new orders, after all.

 

[ClueByFour]

While mainline CASM might be dropping, this is more than offset (one would think) by the increased flying by the regional affiliates and WOs, who should have a somewhat higher CASM due to stage length and relatively fewer number of ASMs.

This trend will only continue as more and more flying is farmed to RJs.

 

[ringmaruf]

I noticed this little tidbit in a Reuters article:

Lakefield also said he was talking with Chief Financial Officer Neal Cohen about his future. The company confirmed Cohen has a contract option, similar to the one exercised by Siegel, that would permit him to leave soon with certain benefits. The unions have also been unhappy with Cohen.

 

[USA320Pilot]

Earlier today a colleague of mine made the following comment:

"US Airways prepaid the $250 million to get relief from the ATSB loan covenants that would have put us into non-compliance at the end of June. That they were negotiating with the ATSB to do this was made clear by Bruce Lakefield at the MEC meeting in February.

Currently US Airways has $978 in unrestricted cash. ATSB loan covenants require that cash position to stay above $700 million OR the ATSB loan balance of $726 million, whichever is lower. So we have $278 million in cash to use in turning the airline around before being in violation of the covenants.

This is hardly a plot on the part of the company. We will stop living in fear ONLY when we start making money again and can compete in the new airline marketplace. That is going to happen ONLY when this airline restructures, a process the pilots will play a leadership role in. WE don't have the ability to save this airline, but we do have the ability to kill it by not cooperating," he said.

Respectfully,

USA320Pilot

 

[funguy2]

So, another way to look at it is this:

$978mil unrestricted
$726mil to pay off ATSB
$240mil to pay off RSA


That leaves $12mil + assets to pay off other shareholders creditors in the event of a liquidation.

I assume, if CH 7 were to be filedm that ATSB has top priority for payoff, second to RSA, then the rest of the normal BK order... Anyone know if thats true?

 

[700UW]

THe $240 million is not loan, they purchased around 37% of US Stock, the RSA does not get that back stock is not refundable.

RSA only has $75 million risk for thier portion of the $100 million that was not underwritten by the ATSB.