[BR][BR][FONT face=Times New Roman size=3]I believe I said that US did not qualify for the loan guarantee because the company's business plan no longer projected a 7 percent profit margin. I did not say the company was rejected by the ATSB, but stated further cuts were necessary to obtain the government backed financing.[/FONT][BR][BR][FONT face=Times New Roman size=3]US filed a dual track application with one option for an out of court restructuring and the second option after emergence. To obtain the loan guarantee, the company will need additional cost cuts of around $200 million per year. It is expected the cuts will come largely from vendors, creditors, and lessors, but there will likely need to be further changes in productivity and pensions (note – the pension issue is going to be a larger problem with yesterday’s FOMC decision to drop interest rates by one half point. [/FONT][BR][BR][FONT face=Times New Roman size=3]Today the Pittsburgh Post-Gazette published a column titled US Airways must cut more or may lose loan guarantees that can be read at:[/FONT][BR][BR][A href=http://www.post-gazette.com/businessnews/20021107usair1107p4.asp][FONT face=Times New Roman size=3]http://www.post-gazette.com/businessnews/20021107usair1107p4.asp[/FONT][/A][FONT face=Times New Roman size=3] [/FONT][BR][BR][FONT face=Times New Roman size=3]that echoes what I have been saying for the past couple of weeks.[/FONT][BR][BR][FONT face=Times New Roman size=3]For those naysayers, I encourage you to read the article.[/FONT][BR][BR][FONT face=Times New Roman size=3]In regard to a corporate transaction, there are multiple moving parts with government, investor, bankruptcy, and corporate interests. The final form of the US and UA restructurings are still being determined, but again, there are discussions occurring among heavy hitters, which will decide the final outcome(s). Will it occur, who knows? But, it is being discussed.[/FONT][BR][BR][FONT face=Times New Roman size=3]As far as both the US & UA loan guarantee application, both companies have underfunded pension plans. US has not publicly disclosed its liability, but UA told the SEC in October that if interest rates fall and the market value of the assets held in its defined benefit pension plans continue to decline, it would be required to record a pension liability that's likely to exceed $1.5 billion before tax, as of December 31.[/FONT][BR][BR][FONT face=Times New Roman size=3]I understand in yesterday's letter from the ATSB to UA, the board asked questions about how UA would meet this obligation, which apparently was not adequately addressed by UA's presentation to the ATSB earlier this week.[/FONT][BR][BR][FONT face=Times New Roman size=3]Meanwhile, shortly after delivering UA the letter, the FOMC cut interest rates by one-half of a percentage point that will further underfund the retirement plans. [/FONT][BR][BR][FONT face=Times New Roman size=3]This will dramatically affect both UA & US pensions and loan guarantee applications.[/FONT][BR][BR][FONT face=Times New Roman size=3]With FRB Chairman Alan Greenspan in charge of interest rates and a sitting ATSB member, it's likely the ATSB knew of the rate cut before sending UA the letter.[/FONT][BR][BR][FONT face=Times New Roman size=3]The pension problem is another hurdle that needs to be addressed to get the loan guarantee by both carriers and this deepening problem will likely require further cuts to obtain the 7 percent profit margin and Fitch recommendation.[/FONT][BR][BR][FONT face=Times New Roman size=3]In the case of the US pilots, the issue is being discussed today by the MEC, Negotiating Committee, Retirement and Insurance Committee, and ALPA EF&A on how to address this issue.[/FONT][BR][BR][FONT face=Times New Roman size=3]Chip [/FONT][BR][BR][BR][BR][BR]
