US/UA merger?

[Busdrvr]

[blockquote]
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On 9/30/2002 1:23:48 PM chipmunn wrote:

Chip comments: Busdrvr, I take exception to your comment that I mislead, which I interpret you as calling me a liar. If your going to be offensive, would you care to identify yourself, Mr. Courageous?

Chip
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[/blockquote]

Chip, I'd like to commend you for correecting yourself after 777 pointed out an error. Have you corrected the point you made about UAL ALPA's merger protection agreement, which I'm guessing was meant to put UALs pilots in a poor light and which was factually incorrect? Did you correct the inaccuracies I pointed out in your past Chip's Corner articles? Your statements are either accurate or they or not. I don't know what your intent is, but if you are proved to be factually incorrect, and proven so, I'd expect you to make the correction or admit your error, as you did above, unless you have some sort of agenda.


However, I'm not sure the same can be said by the UA ALPA employee group. The previous UA restructuring agreement term sheet is considered insulting to other ALPA pilots.

The agreement says that if UA acquires another airline, and it may specifically state US, UA would be required to take only assets (another words cherry pick), all UA furloughees must be recalled first to fly the previous airline assets, before ALPA Merger & Fragmentation policy occurs. I have not seen the specific language, but I have been told this by multiple US ALPA MEC members.

Still waiting for the retraction of the factually incorrect and inflammatory post.

 

[chipmunn]

UAL777flyer, you're right and I knew of the distinction. What I should have said was ALPA, IAM, and the non-contract employees. Thanks for the correction.

Busdrvr said: It's easier to support a theory when you use only part of the truth.

Chip comments: Busdrvr, I take exception to your comment that I mislead, which I interpret you as calling me a liar. If your going to be offensive, would you care to identify yourself, Mr. Courageous?

Chip

 

[UAL777flyer]

Busdrver,

The only problem is, our cashburn is again ticking North. The summer was an abolute nightmare. So going into the Fall, it's reasonable to expect that until major cost savings go into effect, our cashburn will only get worse instead of better. That only leads to exert even more pressure on Tilton and the unions to either fish (hammer out concession agreements) or cut bait (file for Ch.11).

 

[chipmunn]

Busdrvr:

By the way...Argento's comments are not a theory, it's an option I have commented on previously called a unique corporate transaction that has been discussed by the parties. Will it occur? Who knows, but the point is it has been discussed at WHQ, CCY, and other important locations.

Chip

 

[gilbertguy]

[BLOCKQUOTE]
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On 9/30/2002 10:41:07 AM JFK Fleet Service wrote:


Wish lists written on cocktail napkins don't count.

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[/BLOCKQUOTE]

Ya know, the Superbowl trophy was conceived on a cocktail napkin...


[/P]


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So was Southwest...[/P][/BLOCKQUOTE]


Southwest was conceived in SAN using PSA ideas![img src='http://www.usaviation.com/idealbb/images/smilies/14.gif'] [img src='http://www.usaviation.com/idealbb/images/smilies/15.gif'] [img src='http://www.usaviation.com/idealbb/images/smilies/8.gif'] [img src='http://www.usaviation.com/idealbb/images/smilies/7.gif']

 

[UAL777flyer]

Good question. My guess says that would put us close to cash neutral. I don't know what our current average daily cash burn is, but I'd bet it's back up around $4-5 million per day.

 

[DCAflyer]

This article appeared in The Deal, an corporate newspaper



Bankruptcy best option for UAL?
by Lou Whiteman
Updated 10:12 AM EST, Sep-30-2002

Despite progress in talks between UAL Corp. and its unions over proposed wage concessions, the parent of United Airlines still appears to be sputtering toward bankruptcy, sources within the industry contend.

UAL's major unions announced last week that they were prepared to negotiate $1 billion a year in cost cuts over the next five years. That offer, while an improvement over previous union stances, fell short of the company's request of $1.5 billion in annual cuts over the next six years.

News that the Elk Grove Township, Ill.-based company's unions had proposed a cost-cutting plan sent UAL's stock up 33% in one day last week, with investors hoping that the nation's second-largest airline could could avoid filing for creditor relief. UAL workers own a significant stake in the company through its employee stock option plan, which could motivate unions to come up with a plan to avoid an equity-destroying filing.

But industry analysts were less encouraged by the proposal. James M. Higgins, an analyst with Credit Suisse First Boston, wrote in a research report that the unions' offer was too little too late. Viewed over the lifetime of the plan, he noted, the unions' $5 billion in cuts comes well short of the $9 billion in concessions UAL has said it needs to extract. He said he expects the company to file for Chapter 11 protection within a month.

While in any negotiating arena, first proposals are usually above and below the hoped-for amounts, we think the 46% spread between the two sides is too wide at this late date, Higgins, who does not give press interviews, wrote in his report.

UAL has said it needs the full cuts to secure $1.8 billion in federal loan guarantees. The company hopes to raise fresh capital quickly to avoid a cash crunch in the fourth quarter.

Although it has cash reserves of about $2.7 billion and an additional $3.4 billion in unencumbered aircraft, UAL is burning through more than $1 million per day and has more than $800 million in debt that begins to mature in November. The airline has lost nearly $3 billion since spring 2001. In addition to the labor cuts, UAL is also seeking about $1 billion in annual savings from aircraft lessors and other vendors.

Proposals at this point are only putting off the inevitable, said another industry analyst who asked not to be identified. United is sick and needs to get well in a hurry, and the only way to do that is to go through the courts.

Still, the unions' overtures do offer a compromise, even if court supervision is needed to get it. Assuming labor gets on board, analysts said there is no reason to believe UAL will go the way of other storied names in the industry such as Pan Am, TWA or Eastern.

Given the right cost structure, UAL could be a powerful airline, the analyst said. This is among the strongest franchises in the world, supported by the best international alliance. But it appears they need to file for bankruptcy if they hope to benefit from their strengths.

 

[chipmunn]

Argento:

Listed below are news article extracts from today that give an indication of UA's liquidity:

UAL hires Aon to manage 401(k) stock fund

CHICAGO, Sept 30 (Reuters) - UAL Corp., parent of No. 2 U.S. air carrier United Airlines, said on Monday it has hired Aon Corp. to manage company stock in its 401(k) retirement plans while the airline designs a financial recovery strategy.

No. 6 U.S. airline, US Airways Group, which filed for bankruptcy in August, hired Aon to manage company shares in its 401(k) plan about a month and a half before it filed for bankruptcy, said Nell Hennessy, president of Aon Fiduciary Counselors Inc.

But a spokesman for Elk Grove Village, Illinois-based United said the decision to hire Aon did not signal a UAL bankruptcy was imminent.

We believe that this a prudent course of action given our current challenges and the uncertainties the company faces, United spokesman Jeff Green said. The decision to appoint an independent fiduciary should in no way be interpreted that United has made any decision about the possibility of a bankruptcy filing.

UAL Suspends Stock Dividend

CHICAGO (Reuters) - UAL Corp., parent of No. 2 U.S. airline United Airlines, said on Monday it has suspended the payment of dividends on its Series B Preferred Stock to conserve cash and address its current liquidity crunch.

The airline, which has said it could be forced to file for bankruptcy if it cannot trim costs severely, also said it will extend a Dec. 31, 2002, interest payment on junior subordinated debentures due 2026 until March 31, 2003.

UAL said the suspension of dividends and delay of interest payments will defer about $5 million this quarter.

United Airlines Mum on Unions' Plan

CHICAGO (AP) -- United Airlines chief executive Glenn Tilton plans meetings this week with top union leaders to review their proposal to cut $5 billion from labor costs in an effort to keep the carrier out of bankruptcy.

Spokesmen for both United and the unions did not know when talks would be held or when Tilton's response might be disclosed.

 

[chipmunn]

Busdrvr:

Busdrvr said: Have you corrected the point you made about UAL ALPA's merger protection agreement, which I'm guessing was meant to put UALs pilots in a poor light and which was factually incorrect? Did you correct the inaccuracies I pointed out in your past Chip's Corner articles? Your statements are either accurate or they or not. I don't know what your intent is, but if you are proved to be factually incorrect, and proven so, I'd expect you to make the correction or admit your error, as you did above, unless you have some sort of agenda.

Chip comments: However, I'm not sure the same can be said by the UA ALPA employee group. The previous UA restructuring agreement term sheet is onsidered insulting to other ALPA pilots.

Busdrvr said: The agreement says that if UA acquires another airline, and it may specifically state US, UA would be required to take only assets (another words cherry pick), all UA furloughees must be recalled first to fly the previous airline assets, before ALPA Merger & Fragmentation policy occurs. I have not seen the specific language, but I have been told this by multiple US ALPA MEC members.

Busdrvr said: Still waiting for the retraction of the factually incorrect and inflammatory post.

Chip responds: Busdrvr, I made the post above before I read the ERP Overview. My post was based on a conversation I had with an informed MEC member, but per the overview was incorrect. However, I do not believe it serves a useful purpose to publicly discuss seniority integration issues considering past history.

Chip

 

[chipmunn]

[P][FONT face=Times New Roman size=3]S&P cuts UAL Corp 12.25 pct series B preferred stock[/FONT][/P]
[P][A href=http://biz.yahoo.com/rc/021001/airlines_ual_s_p_1.html]http://biz.yahoo.com/rc/021001/airlines_ual_s_p_1.html[/A][/P]

 

[UAL777flyer]

MrMarky,

UA's union BOD seats (IAM and AlPA) have veto power over significant decisions made by the company (M/A activity, CEO, etc). I also believe, but may be incorrect, that a bankruptcy filing must be unanimous by the BOD, hence their ability to block it or stall it. Someone else can correct me if I'm wrong.

 

[DCAflyer]

Marky...

That is definitely against bankruptcy law. By that thinking, you could own, say a $10 million house and have $1 million in debt, sign the house over to your parents and then declare bankruptcy to try to wipe out your debt. The bankruptcy courts would invalidate the previous transfer of assets because they were transferred fraudulently. With the documents that need to be filed in the bankruptcy court, there must be a declaration by the company listing what assets were transferred out, their value, etc. Also, the assets technically belong to the shareholders, so there would be a securities fraud situation as well. Tilton would probably do some jail time over that scenario.

 

[MrMarky]

[P]There has been some discussion that the two union reps on the BOD may prevent a BK filing until all the cash is burned up. If there is only two of them on the board, how can they wield so much power? Does the vote to file BK have to be unanimous? Do the union BOD members control enough votes to stop it? Does the vote require some sort of super majority?[/P]
[P]Also, there has been some discussion about getting the labor concessions and then having to file BK anyway. Wouldn't the unions want some guarantee as part of the concessions that there will be no filing? [/P]
[P]Finally, and perhaps I'm being naive here, not being a Wall Street bigshot, but why not set up a new corporation and sign over all the unencumbered assets to the new company, and then let the old company, saddled with all the debt and no longer holding any unencumbered assets, file Chapter 7 and liquidate.[/P]
[P]The new entity could re-hire only those employees it wants and negotiate new contracts (if they have unions at all) and use the UAL cash on hand to bid on those encumbered assets that UAL still holds. If they lose a few planes, big deal -- there's plenty in the desert. Shouldn't be much trouble keeping the WHQ since the IAM holds the paper on that, and what other airline would have the capital or desire to pick up hangers or gates or other equipment and facilities?[/P]
[P]They could just sort of 'charter' the old company and throw all the crap they don't want overboard. [/P]
[P]I can't wait to hear how many laws my simpleton thinking would break. [img src='http://www.usaviation.com/idealbb/images/smilies/9.gif'] [/P]
[P]Marky[/P]

 

[MrMarky]

[P]John and DCAFlyer--[/P]
[P]Thanks for the responses and information.[/P]
[P]DCA--[/P]
[P]Here in California, PG&E did just what I'm talking about. PG&E Corp is the parent I think, and they took everything out of Pacific Gas & Electric and then let them file chapter 11. Obviously it's more complicated than that, but key assets were transfered to the parent prior to the filing and that made those assets untouchable in BK court.[/P]
[P]Marky[/P]

 

[chipmunn]

Per the US S.1113 Legal Brief restructuring agreements were required to obtain the TPG, CSFB, & BOA DIP financing. $75 million was released the first day and the $175 million second tranche was dependent on obtaining the so-called 85 percent concessions from ALPA, AFA, and both IAM units. The third tranche that was the final payment of $250 million in DIP financing was dependent on all labor groups reaching acceptable concessionaire accords.

This is a negotiated item, but with UA stating it has no access to the public capital markets it would make sense a DIP financier would require UA employee concessions, regardless of whether or not the company enters bankruptcy.

Chip