Chip Munn said:
The reason I post other public information is that people try to “shoot the messengerâ€, not with facts, but with emotion because they do not like the news.
Well, that's why I was asking for the FACTS.
Regardless, there is reason to believe the parties are moving away from the UCT plan because it does not lower unit costs, which will be a key going forward.
I agree. This has been evident to me for some time. Surely it has been evident to the Executive Suite for longer than I. This is why I have said that I believe the likelihood of the UCT has been dramatically reduced if not elimintated for some time. This did not happen this week. If this looked promising, it would have been done, pronto, when the opportunity presented itself. Maybe this horse didn't get shot until this week, but its been sick for a long time.
I agree that UAL is a mess... As is UAIR (although to a lesser extent).
How do you think this and other LCC expansion news will effect future revenue forecasts, which must be containted in the loan guarantee application to meet the OMB guidelines of a 7% profit margin within 7 years?
Its obvious that LCC Growth is a problem for both companies. It seems as though it is a bigger problem for UAIR, as UAIR seems to be the focus of several LCC's. However, UAIR has some valuable assets. This is why I believe UAIR will be an acquisition target, as I have stated many, many times. I also believe, with the right moves, and precision focus, UAIR can remain an independent, viable, profitable airline. However, the focus thus far hasn't seemed to be precise enough. Maybe a direct attack on PHL will galvanize management and rally the troops. One can only hope.
Finally, if you have been following my recent thought process, it appears the parties are moving away from the UCT and evaluating some other form of an integration, although it’s unclear (maybe even to management) how this will end up. In my opinion, we could see RSA become an airline holding company for US Airways and United, similar in scope to Air France and KLM, which will eventually be merged once the economic climate improves.
I think this situation has a very small chance at happening. The comparison is not exactly apples to apples, however. Neither KLM nor Air France are bankrupt. It is a lot less risky to merge two relatively strong airlines which are having problems because of a worldwide recession vs. two recently bankrupt carriers which are having extreme liquidity, labor, revenue, and competitive problems.
Furthermore, RSA is a retirement fund, not venture capital. If the manager of my retirement fund wanted to buy two bankrupt airlines and merge them, I would move my money into something more conservative. Does that mean Mr. Bronner won't do it? Not necessarily. If successful, the reward is high, but the risk is extreme. In my opinion, too extreme for a retirement fund. This risk/return ratio is more on par with a venture capitalist or bankrupcy specialist.
American acquired TWA a few year back. This move, along with 9/11 and the recession nearly forced bankrupcy. Texas Air tried to merge several bankrupt carriers in the late '80's. It was largely unsuccessful. While CAL is still with us today, the attempts at merging bankrupt Frontier, bankrupt Eastern, and almost bankrupt PEOPLExpress into Continental helped force Continental into bankrupcy during the recession of the early 1990's. I know there were many many other factors, and that is not a can of worms I am trying to open. I am merely pointing out that other recent attempts to acquire and merge bankrupt airlines have resulted (or nearly resulted in the AA case) with the owners of those companies losing the entire value of what they owned.
So your proposal for RSA to hold both carriers and merge at a later time is not outlandish. However, in my opinion, it is very unlikely. There are more rational solutions out there.
You have also repeatedly suggested that UAIR would be able to acquire UAL assets. Maybe. I believe that if UAL is going to shed assets (so far it looks like this will not happen), they will go to the highest bidder, not necessarily a code-share partner. While the partner link-up has some benefits for UAL (retaining the routes through alliance, for example), it does not serve the primary goal: Sell assets for highest return. Furthermore, there is no guarantee that UAIR and UAL remain partners forever... Remember UAIR and British Airways? Remember CAL and America West (which were both owned in part by TPG)? I would think that UAIR may not be able to out-bid some rivals without RSA help. Again, I think RSA pouring more money into a questionable company comes with extreme risk - not typical of a retirement fund. When you look at what assets UAL might shed for cash (i.e. Pacific routes/slots, LHR slots, etc), it seems obvious to me that UAIR would find a fight on its hands with most of them, and in my opinion probably be out-bid. In other words, not the slam dunk you continually suggest it to be.
The only support for RSA investing more money into UAIR, or into UAL, is that they have already been unconventional. And this is true. However, as I have stated, more RSA investment seems like an extreme risk to me.
-Funguy2
