USA320Pilot
Veteran
- May 18, 2003
- 8,175
- 1,539
Some people are wondering if US Airways can survive and are asking them self questions like how soon must exit financing be in place? Can the company continue to operate in bankruptcy beyond June 30 and does the airline have enough cash on hand to operate beyond June?
Those are all good questions but the situation is so fluid it’s difficult to accurately answer those questions.
The company is required to file its plan of reorganization (POR) by its GECAS agreement by March 15 and by the bankruptcy court by March 31. Those dates can be changed by consent of GECAS and the bankruptcy court. Earlier this year US Airways was required to file its POR by February 15 and GECAS and the court agreed to extend the date to March 15. During last week’s MEC meeting chief executive Bruce Lakefield said that all of US Airways financial partners and the ATSB want to see the company survive and are working with the airline. Thus, it’s reasonable to assume those parties will work with the company again, and if necessary, will extend the date required to file the POR. In fact, the company hinted at that this earlier this week in a column written by the Pittsburgh Tribune-Review.
The newspaper noted US Airways stated on Feb. 14 that it delayed by one month the filing of the plan. But yesterday, spokesman David Castelveter said the airline would "not tie ourselves to when we'll have a plan." He also said the airline might ask the court to extend past March 31 the time it -- and not creditors -- has exclusive right to present a reorganization plan.
See Story
In my opinion, due to the fluid nature of the company’s discussions to further cut costs, increase revenues, and find the best exit financing possible, US Airways may need more time to formulate its business plan.
"I think we're doing a great job in a very competitive environment," said CEO Bruce Lakefield, after updating pilots on the airline's reorganization plans last Thursday, the Tribune-Review reported.
See Story
I believe a financial analysis to figure out the company’s “staying power†without access to confidential information is to difficult because there are too many variables in a very fluid situation. US Airways is in a “race with time†to get its cost cuts fully implemented and revenue increased to deal with current fundamentals, thus it needs more cash to not only improve its balance sheet, but to buy it more time. The problem for management to accurately provide a POR is its finances and projections for energy costs and revenue keep changing.
However, when Lakefield made the comment to ALPA that US Airways could liquidate without additional financing most observers believed it was because US Airways needed more time to fully implement its business plan to realize all of the cost cuts because it needed to deal with the fuel problem. Because the cuts are not coming out all at once and are being phased in, fuel prices are eating away at the unrestricted cash position, thus he needs more cash to provide the company more time to continue its restructuring.
US Airways’ business plan will likely work at $45 to $46 per barrel of oil, but tonight it’s trading at about $54 per barrel. Thus, the company must make up $16 to $18 per month in more cost cuts and/or additional revenue.
To help it come up with on average of $18 million per month in additional revenue and cost cuts the company had two positive revenue developments during the past two weeks when every legacy carrier increased its ticket prices. US Airways is selectively adding them to the network and not revealing the percentage of routes seeing the increase. Thus, without looking at every route and doing a side-by-side comparison, it is difficult to tell how much revenue will be added. Regardless, I believe the revenue improvement will be significant and last Friday’s increase could not have come a more important time.
Meawnhile, Southwest Airlines is increasing its fares too.
See Story
In regard to cash, US Airways is moving forward with its employee “buy outs†and continues to spend money on facility and capital improvements. The company is completing the work for flight attendant “buy outs†and it closed for CWA personnel on Friday. In addition, it continues to spend money on the Philadelphia terminal B and C remodeling a la Charlotte and has refurbished or replaced about 50 percent of the Philadelphia ground support equipment (GSE). The important point here is that the company can still spend money and meet its obligations, but it’s no secret the Eastshore/Air Wisconsin DIP financing was needed to not violate the ATSB’s February 28 unrestricted cash requirement.
I understand that US Airways reached its low cash point for the year the first week of March and is now cash flow positive. The second and third quarters are the company’s best of the year and the carrier is now entering the heavy travel period. On Friday Lakefield told employees in his weekly message that weekend bookings are over 800,000 people. By comparison last week the airline carried 800,000 people for the entire week.
Meanwhile, the company made other announcements last week, which management believes will lower unit costs
US Airways announced two major job cuts with significant outsourcing, which I understand is more than originally planned. Not only will some of the Pittsburgh RSA jobs outsourced, but maybe about 300 in Winston-Salem could be gone too. US Airways will likely open up a reservation sales center in San Salvador where agent pay will go down from about $17.50 to $2.20 per hour, with no benefits.
Then in its second major outsourcing move last week, US Airways told employees on Friday that it would farm out the work of about 600 FSA’s in 26 cities to outside vendors, starting on April 11.
See Story
These cuts are in addition to the 11 B737-3/400s that are coming out of service in May. These aircraft have monthly lease payments between $80,000 to $90,000 per month and all require expensive heavy maintenance in the not-so-distant future. Speaking of heavy maintenance, Lakefield told ALPA US Airways deferred some of its A320 family aircraft heavy maintenance that is now due this year and will cost the company about $100 million.
Fuel is a huge issue, but the company is taking out extra cuts to deal with the problem, however, it is going to take time to realize all of the labor savings and management cuts, which is why the company must have more financing in place so it can reduce its losses and maintain the operation.
One area the company has indicated is one of its “strongest cards†is to attract additional financing is through its RJ affiliate carrier contracts. US Airways has not yet affirmed its “Fee for Service†contract with its 3 affiliate RJ partners, Chautauqua, Mesa, and TSA, and using these agreement as leverage to lower unit costs or to obtain equity.
Meanwhile, Raymond James & Associates managing director of investment banking James Parker told the Pittsburgh Post-Gazette last Saturday Mesa’s interest in propping up US Airways with a new investment reflects the carrier's interest in “self preservation†because Mesa relies on US Airways for about one-third of its business. It has a "keen interest in seeing US Airways survive and prosper," said Parker.
Parker believes Mesa would consider an investment based on several conditions that include:
• It wants its feeder contract with US Airways reaffirmed in bankruptcy.
• The company also is interested in operating larger aircraft through US Airways.
• It needs to see a US Airways business plan that "would make this company viable over the long term." In addition, Mesa "would only invest in US Airways if other investors came forward."
Parker’s 3 points are valid. Mesa is the lowest cost RJ affiliate carrier for US Airways and likely wants its current “fee for service†contract affirmed, it would like to operate more 90-seat RJ aircraft (maybe without the J4J provision) per LOA 93, and would probably like more equity provided from other investors to boost US Airways liquidity position and reduce the Phoenix-based company’s US Airways exposure.
Moreover, if US Airways fails, so could Mesa if it instantly loses one-third of its revenue. The commuter company’s interest in operating 90-seat RJ’s is obvious, but Parker’s comment that Mesa "would only invest in US Airways if other investors came forward" is interesting. With US Airways’ governance contracts with its union’s and MSP obligations, coupled with Air Wisconsin’s pending stake 25%, Mesa and a third equity investor, could prevent Mesa from gaining control of US Airways. In addition, the same governance issue will make it harder for RSA to take the company private.
Lakefield told ALPA that the list of interested investors is "long" and he hinted that GE, all of the affiliate carrier’s, and EDS are interested in helping US Airways. He said these companies want to be partners in US Airways’ transformation and along with RSA and other financial firms, may be interested in providing US Airways with exit financing.
Asked if Mesa could contribute enough to emerge with a controlling interest in US Airways, Parker said, "That's possible. He might do that." But at the same time, "he's not going to do anything to jeopardize and do any harm to Mesa."
In my opinion, the motivation behind Mesa’s interest is deeper than the three points listed above because Bruce Lakefield told the ALPA MEC that if Mesa, Chautauqua and TSA, do not reduce their “fee for service†contract and/or provide equity to US Airways, then the Arlington-based carrier would (not could) replace an affiliate carrier with Air Wisconsin flying, regardless of the Appleton-based carrier’s flying obligation for United Express.
That is likely why exact details of the Air Wisconsin agreement were redacted from the public record because of the competitive issues surrounding the placement of regional jets within the marketplace.
Meanwhile, a report surfaced on Sunday that it was unclear if Mesa would take a stake in US Airways.
See Story
In conclusion, US Airways is clearly in play, it probably needs more time to restructure, and it could seek to have its exclusive period to file its POR extended, which is likely a “good thing†considering the fluid situation and complex negotiations currently taking place.
Regards,
USA320Pilot
Those are all good questions but the situation is so fluid it’s difficult to accurately answer those questions.
The company is required to file its plan of reorganization (POR) by its GECAS agreement by March 15 and by the bankruptcy court by March 31. Those dates can be changed by consent of GECAS and the bankruptcy court. Earlier this year US Airways was required to file its POR by February 15 and GECAS and the court agreed to extend the date to March 15. During last week’s MEC meeting chief executive Bruce Lakefield said that all of US Airways financial partners and the ATSB want to see the company survive and are working with the airline. Thus, it’s reasonable to assume those parties will work with the company again, and if necessary, will extend the date required to file the POR. In fact, the company hinted at that this earlier this week in a column written by the Pittsburgh Tribune-Review.
The newspaper noted US Airways stated on Feb. 14 that it delayed by one month the filing of the plan. But yesterday, spokesman David Castelveter said the airline would "not tie ourselves to when we'll have a plan." He also said the airline might ask the court to extend past March 31 the time it -- and not creditors -- has exclusive right to present a reorganization plan.
See Story
In my opinion, due to the fluid nature of the company’s discussions to further cut costs, increase revenues, and find the best exit financing possible, US Airways may need more time to formulate its business plan.
"I think we're doing a great job in a very competitive environment," said CEO Bruce Lakefield, after updating pilots on the airline's reorganization plans last Thursday, the Tribune-Review reported.
See Story
I believe a financial analysis to figure out the company’s “staying power†without access to confidential information is to difficult because there are too many variables in a very fluid situation. US Airways is in a “race with time†to get its cost cuts fully implemented and revenue increased to deal with current fundamentals, thus it needs more cash to not only improve its balance sheet, but to buy it more time. The problem for management to accurately provide a POR is its finances and projections for energy costs and revenue keep changing.
However, when Lakefield made the comment to ALPA that US Airways could liquidate without additional financing most observers believed it was because US Airways needed more time to fully implement its business plan to realize all of the cost cuts because it needed to deal with the fuel problem. Because the cuts are not coming out all at once and are being phased in, fuel prices are eating away at the unrestricted cash position, thus he needs more cash to provide the company more time to continue its restructuring.
US Airways’ business plan will likely work at $45 to $46 per barrel of oil, but tonight it’s trading at about $54 per barrel. Thus, the company must make up $16 to $18 per month in more cost cuts and/or additional revenue.
To help it come up with on average of $18 million per month in additional revenue and cost cuts the company had two positive revenue developments during the past two weeks when every legacy carrier increased its ticket prices. US Airways is selectively adding them to the network and not revealing the percentage of routes seeing the increase. Thus, without looking at every route and doing a side-by-side comparison, it is difficult to tell how much revenue will be added. Regardless, I believe the revenue improvement will be significant and last Friday’s increase could not have come a more important time.
Meawnhile, Southwest Airlines is increasing its fares too.
See Story
In regard to cash, US Airways is moving forward with its employee “buy outs†and continues to spend money on facility and capital improvements. The company is completing the work for flight attendant “buy outs†and it closed for CWA personnel on Friday. In addition, it continues to spend money on the Philadelphia terminal B and C remodeling a la Charlotte and has refurbished or replaced about 50 percent of the Philadelphia ground support equipment (GSE). The important point here is that the company can still spend money and meet its obligations, but it’s no secret the Eastshore/Air Wisconsin DIP financing was needed to not violate the ATSB’s February 28 unrestricted cash requirement.
I understand that US Airways reached its low cash point for the year the first week of March and is now cash flow positive. The second and third quarters are the company’s best of the year and the carrier is now entering the heavy travel period. On Friday Lakefield told employees in his weekly message that weekend bookings are over 800,000 people. By comparison last week the airline carried 800,000 people for the entire week.
Meanwhile, the company made other announcements last week, which management believes will lower unit costs
US Airways announced two major job cuts with significant outsourcing, which I understand is more than originally planned. Not only will some of the Pittsburgh RSA jobs outsourced, but maybe about 300 in Winston-Salem could be gone too. US Airways will likely open up a reservation sales center in San Salvador where agent pay will go down from about $17.50 to $2.20 per hour, with no benefits.
Then in its second major outsourcing move last week, US Airways told employees on Friday that it would farm out the work of about 600 FSA’s in 26 cities to outside vendors, starting on April 11.
See Story
These cuts are in addition to the 11 B737-3/400s that are coming out of service in May. These aircraft have monthly lease payments between $80,000 to $90,000 per month and all require expensive heavy maintenance in the not-so-distant future. Speaking of heavy maintenance, Lakefield told ALPA US Airways deferred some of its A320 family aircraft heavy maintenance that is now due this year and will cost the company about $100 million.
Fuel is a huge issue, but the company is taking out extra cuts to deal with the problem, however, it is going to take time to realize all of the labor savings and management cuts, which is why the company must have more financing in place so it can reduce its losses and maintain the operation.
One area the company has indicated is one of its “strongest cards†is to attract additional financing is through its RJ affiliate carrier contracts. US Airways has not yet affirmed its “Fee for Service†contract with its 3 affiliate RJ partners, Chautauqua, Mesa, and TSA, and using these agreement as leverage to lower unit costs or to obtain equity.
Meanwhile, Raymond James & Associates managing director of investment banking James Parker told the Pittsburgh Post-Gazette last Saturday Mesa’s interest in propping up US Airways with a new investment reflects the carrier's interest in “self preservation†because Mesa relies on US Airways for about one-third of its business. It has a "keen interest in seeing US Airways survive and prosper," said Parker.
Parker believes Mesa would consider an investment based on several conditions that include:
• It wants its feeder contract with US Airways reaffirmed in bankruptcy.
• The company also is interested in operating larger aircraft through US Airways.
• It needs to see a US Airways business plan that "would make this company viable over the long term." In addition, Mesa "would only invest in US Airways if other investors came forward."
Parker’s 3 points are valid. Mesa is the lowest cost RJ affiliate carrier for US Airways and likely wants its current “fee for service†contract affirmed, it would like to operate more 90-seat RJ aircraft (maybe without the J4J provision) per LOA 93, and would probably like more equity provided from other investors to boost US Airways liquidity position and reduce the Phoenix-based company’s US Airways exposure.
Moreover, if US Airways fails, so could Mesa if it instantly loses one-third of its revenue. The commuter company’s interest in operating 90-seat RJ’s is obvious, but Parker’s comment that Mesa "would only invest in US Airways if other investors came forward" is interesting. With US Airways’ governance contracts with its union’s and MSP obligations, coupled with Air Wisconsin’s pending stake 25%, Mesa and a third equity investor, could prevent Mesa from gaining control of US Airways. In addition, the same governance issue will make it harder for RSA to take the company private.
Lakefield told ALPA that the list of interested investors is "long" and he hinted that GE, all of the affiliate carrier’s, and EDS are interested in helping US Airways. He said these companies want to be partners in US Airways’ transformation and along with RSA and other financial firms, may be interested in providing US Airways with exit financing.
Asked if Mesa could contribute enough to emerge with a controlling interest in US Airways, Parker said, "That's possible. He might do that." But at the same time, "he's not going to do anything to jeopardize and do any harm to Mesa."
In my opinion, the motivation behind Mesa’s interest is deeper than the three points listed above because Bruce Lakefield told the ALPA MEC that if Mesa, Chautauqua and TSA, do not reduce their “fee for service†contract and/or provide equity to US Airways, then the Arlington-based carrier would (not could) replace an affiliate carrier with Air Wisconsin flying, regardless of the Appleton-based carrier’s flying obligation for United Express.
That is likely why exact details of the Air Wisconsin agreement were redacted from the public record because of the competitive issues surrounding the placement of regional jets within the marketplace.
Meanwhile, a report surfaced on Sunday that it was unclear if Mesa would take a stake in US Airways.
See Story
In conclusion, US Airways is clearly in play, it probably needs more time to restructure, and it could seek to have its exclusive period to file its POR extended, which is likely a “good thing†considering the fluid situation and complex negotiations currently taking place.
Regards,
USA320Pilot
That's your problem, not mine. Now have a few belts from your favorite bottle and chill out.
