US business parter UA plans to return to basics, Business blueprint presented to creditors

[LGA Fleet Service]

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On 6/25/2003 10:25:08 AM Chip Munn wrote:



and maybe that''s why two key senior executives resigned after long UA careers within the past two weeks

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Are you sure thats why they resigned?


[url="http://biz.yahoo.com/rc/030625/airlines_united_2.html"]http://biz.yahoo.com/rc/030625/airlines_united_2.html[/URL]

From the article itself:


Van de Kamp said in an interview with Reuters that his departure, while not exactly of his choosing, is in keeping with the company''s move to get out of Chapter 11 protection.

"Not exactly of his choosing" doesn''t sound he like lost the faith in UAL and decided to skip town does it?

Corporate officers at that level don''t get "Fired", they "Resign".

​

 

[Cosmo]

Some good news, or at least a positive trend, for "US'' code-sharing business partner" United. This morning the carrier announced a $155 million operating loss for the month of May, a net profit of $64 million (including Federal government assistance) and an increase in cash of $456 million, bring its total cash holdings to approximately $2.2 billion (including about $659 million in restricted cash). Probably the best news is that, even excluding Federal government assistance and a one-time asset sale, United increased its cash by $111 million in May, or about $3.5 million daily.

United EVP and CFO Jake Brace said the carrier''s labor costs in the second quarter of 2003 will be "$500 million or more" below those recorded in the second quarter of 2002, due in part to a year-over-year drop in capacity of 15 percent for the quarter. At the same time, United''s EVP-Customer John Tague said that "improving revenue is our foremost priority." He also said that United is currently experiencing steady demand against rising yields, although no indication was given as to just how much the yields are rising. Moreover, United''s yields are rising from a pretty low base, both in absolute terms and when compared with its peers. But at least the yields are finally going in the right direction -- up.

All in all, it''s generally good news combined with the realization that United''s revenue trends must continue to improve.

Here''s the United press release.

 

[767jetz]

I wonder why Chip hasn''t chirped in to trash the news about our positive cash flow yet?

 

[avek00]

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On 6/28/2003 9:01:11 AM 767jetz wrote:

I wonder why Chip hasn''t chirped in to trash the news about our positive cash flow yet?

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I don''t know what all of the cheer is about - UAL is STILL losing over $5 million/day ($155 million for the month) from its operations. UAL only posted a positive cashflow figure due to government assistance and accounting tricks.

 

[767jetz]

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On 6/28/2003 9:41:00 AM avek00 wrote:

I don''t know what all of the cheer is about - UAL is STILL losing over $5 million/day ($155 million for the month) from its operations. UAL only posted a positive cashflow figure due to government assistance and accounting tricks.

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Well avek00, here is part of an article that doesn''t sound so "doom and gloom" in my opinion. Notice I adopted Chips method of hi-lighting only the parts that I want a casual browser to focus on.



Meets Fourth DIP Covenant
Reports Positive Cash Flow and EBITDAR in May
CHICAGO, June 27 /PRNewswire-FirstCall/ --

Brace continued, "United met its cumulative EBITDAR goal for the fourth time. In addition, we are pleased to report that our EBITDAR for the month of May itself was positive for the first time since filing for Chapter 11, even excluding the $300 million in government assistance that we received in May. The company is confident that it will also meet the cumulative EBITDAR requirements for June. On the revenue side, we continue to face a difficult economic environment, but we are seeing positive signs for our business."
United''s Executive Vice President - Customer, John P. Tague said, "Improving revenue is our foremost priority as we move to leverage the cost effectiveness that United is building into its business model. This includes customer-focused service improvements and carefully targeted marketing programs. For example, this month United became the first major U.S. carrier to announce the introduction of in-flight passenger e-mail access in our domestic market. We also introduced the ''Fly Three, Fly Free'' advertising and marketing campaign that has resulted in a number of registered participants that has far exceeded our expectations. We are encouraged by the steady demand against rising yields that we are currently experiencing."
United continued its strong operational performance. The company recorded its best May performance ever, including a departure completion rate of 99.7%, on-time departures of 77% and arrivals within 14 minutes of schedule of 86%.

 

[USA320Pilot]

In previous posts I said that UA received a reprieve from meeting its stringent EBITDAR, revenue, and cash flow requirements until the fall because the company received about $365 million in April from a tax refund and about $300 million in May from the second federal bailout. Without these monies, UA’s financial position would be much worse considering the airline continues to financially bleed during the strongest financial period of the year.

The challenge for the Chicago-based company will occur after Labor Day when the industry experiences seasonal traffic declines and the significant drop off in bookings the ATA is experiencing due to continued passenger fear surrounding the September 11 anniversary. The DIP financing requirements could be violated in October when J.P. Morgan, CIT Group, Citigroup, and Bank One’s covenants say UA must be cash flow positive, which according to May numbers is $155 million per month away.

What will occur then and what will the DIP financing lenders do? Furthermore, the fourth and first quarters are the industry's worst performing time of the year and if UA cannot make money now and has posted over $1.8 billion in the first five months of 2003, what's in store for the fall and winter?

Avek is correct, certain UA employees are cheering a $155 million operating loss in May, but that seems curious at best and maybe even scary. UA posted a significant NOL with the entire industry experiencing extremely high load factors, the month saw a $10 industry wide round-trip ticket price increase, the government provided relaxed war risk insurance premiums, there were lower fuel prices, and UA benefited from an additional 10,000 passengers per day due to the US code share agreement. In comparison, AA said it was cash flow positive versus having a $155 NOL while the FT. Worth-based company is paying all of its bills, unlike UA who has a bankruptcy reprieve from paying all of its debt, which is something to think about.

Also noteworthy, in the company's monthly filing with the U.S. Bankruptcy Court, UA reported an increase in cash of about $456 million for May, but that's $209 million less than the $665 million provided by the government in April and May. At today's cash burn rate, this money could be gone before Labor Day at a time revenues will dramatically drop off, according to the ATA. Moreover, UA must continue to reduce its NOL and be cash flow positive in the fall, when summer traffic is gone, seasonal bookings fall off, and passengers are now booking away from the entire industry due to the September 11 anniversary.

Ohcaptainron, can you explain to me how my comments above are the "weakest link"? By the way – why don’t you ask ALPA National EF&A about their opinion of UA’s chances of remaining intact as a viable on-going concern? In addition, according to the Chicago Tribune UA continues to "face a difficult economic environment," said Jake Brace, UA's chief financial officer. John Tague, UA's executive vice president in charge of customers, added, "Improving revenue is our foremost priority." Ohcaptainron, what's your opinion of the UA senior management comments to the Tribune?

In conclusion, I agree UA has made some progress in several areas during the last month and UA has received a reprieve with the significant federal government one-time gains. But, it's way, way to early for UA employees to cheer May's numbers or to believe the company is out of the woods. October's EBITDAR requirements are only three months away, the maximum cumulative loss gets smaller each month until the fall, when UA must show a positive cumulative cash flow. In my opinion, UA's public spin is not convincing the financial community that the carrier can meet the DIP financing covenants in just a few months, without financial waivers.

Best regards,

Chip

 

[Busdrvr]

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On 6/28/2003 9:41:00 AM avek00 wrote:


I don''t know what all of the cheer is about - UAL is STILL losing over $5 million/day ($155 million for the month) from its operations. UAL only posted a positive cashflow figure due to government assistance and accounting tricks.


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Do you think it''s possible UAL only reported a 155 million NOL with "accounting tricks" despite doing much better (as evidenced by the cash flow numbers)?

 

[Busdrvr]

"AA said it was cash flow positive versus having a $155 NOL while the FT. Worth-based company is paying all of its bills, unlike UA who has a bankruptcy reprieve from paying all of its debt, which is something to think about."

Chip, your lack of understanding of basic accounting is downright scary. You lose credibility as someone "in the know" when you don''t now the differance between "NOL" and "Cashflow". Although UAL has a "reprieve" from paying some bills, they STILL GET REPORTED IN THE NOL NUMBER. UAL''s EBITDR from Dec-may is now a POSITIVE number. Please, go to the library and check out a freshman accounting book. But then again, you''ve been told this before, so I''m starting to wonder if you are knowingly reporting false, anti-UAL information.

 

[trollydolly]

And just to be fair, is it not true that UAL WAS NOT the only carrier to receive the financial kick back from the government? If I remember correctly, the kick back was basically a re-imbursement for the fortifying of the cockpit doors. UAL just did not report this kick back into their 1st quarter earnings, while the other carriers did. We are all loosing money (with the exception of LCC,) give it a break and wish the best for all.

 

[USA320Pilot]

Busdrvr:

You're right when I misused cash flow and net operating loss terms and I apologize for the confusion, but needless to say UA reported an operating loss for May of $155 million during the peak travel season with much of its cost cuts in place and the airline not paying all of its bills.

In contrast, AA who is an airline similar in scope to UA, is paying all of its bills and reported it had positive operating cash flow in May. Do you see a problem here?

I agree UA had month-over-month progress when the carrier saw its loss drop from $297 million in April to $155 million in May, but this should be a concern. The airline continues to bleed cash, the airline has only three months left in the busy travel season, and the loan covenants get tougher and tougher each month.

As I have said before, UA was given a 5 to 6 month reprieve when the airline received the tax refund and federal bailout, however, crunch time could occur this fall when by October 31, the airline must be cash flow positive with its EBITDAR of $46 million for the period since December 1.

To meet these goals the airline may have to cut costs even further with the airline suffering from industry worst revenues, and like US employees, UA employees may need to provide further concessions.

It has become clear due to its bankruptcy, the war, SARS, and now the fall revenue problem UA will be challenged to improve upon its industry worst revenue performance. In fact, the Chicago Tribune reported yesterday UA continues to "face a difficult economic environment," said Jake Brace, UA's chief financial officer. John Tague, UA's executive vice president in charge of customers, added, "Improving revenue is our foremost priority."

Busdrvr, why would Brace have made this comment, which had a different tone than his prepared statement in the PRNewswire Press Release?

Meanwhile, in an interview with the Rocky Mountain News, Douglas Baird, who teaches bankruptcy law at the University of Chicago, said, "The real question is whether they're going to surmount the loan covenants" later this year. Busdrvr, in my opinion Baird's comments are dead on accurate and who first made a statement similar to Baird's on this website?

It appears Tague understands the major problem, which if you remember I first broke on this website weeks ago, and if revenue does not dramatically pick up, UA must further cut costs or may have to sell assets to meet its financial requirements.

Time will tell how this will play out, but one thing is for sure, it will be an interesting summer as we approach the fall, when traffic seasonally drops off and the ATA is reporting the industry will see lower revenue/bookings in response to the September 11 anniversary.

Best regards,

Chip

 

[novaqt]

Lark-

"Your continuous interest in the slanting of news to predict United''s demise is a puzzle to me. Why do you continuously search for the most negative press or angle and post that view only? Why do you only select that which may agree with your stance and post that portion but nothing else? One might venture that you have a personal vendetta against all of the good people at United. This possibility became of some interest to me, so I did some research into the past posts on this forum, and on some others. The negative theme (particularly slanted against United) in your posts has been a constant. Would you care to explain? Thank you."

Novaqt responds -

Lark, you are right on the mark! One thing comes to mind, Capt. Munn is a USAirways 320 pilot. His motivations of perpetually seeking negative articles and info about UA are strictly self-serving. He believes that if UA goes out of business and USAirways remains, his seniority level will increase. If this happens, he earns more money by qualifying for a larger aircraft. UA and U are now code-sharing partners and are moving towards, I believe, one day merging. Chip believes that U will purchase UA''s assets in liquidation (Chap. 7). Make no mistake about it, this will never happen!

UA is on the road to successfully emerging from bankruptcy. The company is discussing emerging early, 4th quarter 03 or 1st quarter 04. The original date for emerging was 2nd quarter of 04. Tilton is doing a wonderful job of running UA so far. The entire industry is restructuring, not just UA. All the majors are teeter tottering on the brink. All could go one way or the other if another catastrophic event occurs to stop the economic recovery.

Chip is such a negative person that I would hate to fly on his plane and I suspect others feel the same. His preponderance of negativity against UA and their employees and wishing that they all lose their jobs is pure selfishness, self-centeredness and immature at best. No one on the face of this planet should wish that employees lose their jobs. The economy could not stand for thousands of employees to hit the non-existent job market during a time of this sideways slowly increasing economic recovery.

 

[TheLarkAscending]

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On 6/29/2003 11:53:51 AM novaqt wrote:

The entire industry is restructuring, not just UA. All the majors are teeter tottering on the brink. All could go one way or the other if another catastrophic event occurs to stop the economic recovery.

No one on the face of this planet should wish that employees lose their jobs. The economy could not stand for thousands of employees to hit the non-existent job market during a time of this sideways slowly increasing economic recovery.
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I agree that the airline industry is experiencing incredible hardships and extremes that will continue for quite some time. There is no way to predict an outcome, for any one individual carrier, either in the negative or positive. Experts inside and outside of the field have expressed economic concerns enveloping the ENTIRE industry, not just one particular carrier. So many variables, so many opinions.

Yes, it is foolhardy and in incredibly poor taste to savor, anxiously anticipate, or manifest enmity for so many. It reminds me of someone joyously preparing to dance on the proverbial graves of others. Sad.​

 

[TheLarkAscending]

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On 6/29/2003 10:59:02 AM Chip Munn wrote:


Busdrvr:

You're right..... and I apologize........

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Someone pinch me, I must be dreaming!!
​

 

[737nCH11]

Chip,

Do you want UAL to liquidate? If so then come right out and say it. If not, then give them a break! We all know that they have some big hurdles to overcome, and I''m sure that Busdrvr and 767Jetz will admit that to you. The point that you seem to overlook is that they are making substantial progress.

It amazes me that you continue to skim over U''s problems (and they are many) while focusing solely on UAL. Maybe this will drive the point home: The other day I was in Denver talking with a group of people from various airlines. They didn''t know what company I worked for. The question came up as to which airline, if any, would be history two years from now. The answer: a unanimous USAirways! If that doesn''t grab your attention then nothing will. Wake up and smell the coffee Hester!

 

[737nCH11]

Yeah, you are dreaming. This thread is like the movie Groundhog Day. Monday will start with another fresh batch of news to skew and distort. Same thing week after week. Nothing new here.