US Airways must stop losing money or the airline like any other company will become insolvent.
The ATSB loan guarantee has minimum financial requirements and the loan guarantee is secured by virtually all of the company's tangible assets, therefore, it's a loaded gun to any recipient's head.
If the company re-enters bankruptcy there would likely be no Chapter 11 filing, but instead a Chapter 7 liquidation.
In regard to the UCT, I believe it's less likely now because of further deterioration of network carrier fundamentals and that's why Dave Siegel and Jeff Stanley made their recent prepared comments in their speeches.
In my opinion, before a deal can proceed US Airways must stabilize its financial position and United must prove it can emerge, then the companies and RSA will consider a corporate transaction, but industry consolidation is inevitable.
In fact, the November 14 Kiplinger newsletter said, "U.S. and European air carriers will get the OK to merge by 2010, thanks to an open skies agreement that will be hammered out by then. It won't be possible to reach a deal sooner than the end of the decade because unions don't want domestic traffic opened up to foreign carriers. Over time, though, they'll see that airlines need to merge to survive. Mergers will bring lower prices and better service for travelers on overseas and U.S. routes as carriers benefit from economies of scale."
In my opinion, both US Airways and United Airlines cannot reduce their unit costs low enough to compete long-term unless there is a merger because they must eliminate duplication through economies of scale.
For review, in prepared comments on October 28 Siegel said, "Again, I don't have all the answers, but I do sense that increased cooperation, coordination, and potentially consolidation between and among network airlines must be another source of strength through enhanced efficiencies, in both marketing and operations."
Three days later United executive Jeff Stanley said, "If things stay the way the are now, there will be several Chapter 7 (bankruptcy liquidations) down the road, and that's not good for anyone," he said. The most feasible solution to the situation is consolidation in the domestic airline industry."
In my opinion, both companies need one another to survive and although a UCT is possible, it does not create economies of scale and reduce the combined CASM. Thus, at some point in the not-so-distant future we could see RSA become a holding company, become United's equity investor, and then the new holding company could create an arrangement similar in scope to AF-KLM.
Could that be why Siegel said he senses that increased cooperation, coordination, and potentially consolidation between and among network airlines must be another source of strength through enhanced efficiencies, in both marketing and operations?
The other option would be a traditional merger where I understand one thought within the US Airways Executive Suite would be for RSA to acquire United, merger it into US Airways, keep the US Airways paint scheme/word mark, CCY headquarters, and the new airline would be called United Airlines. This would be similar in scope to the ValueJet - AirTran deal.
Regardless, I believe you are going to hear some major news regarding US Airways and its operation shortly. Then, a deal with United could proceed.
Regards,
Chip
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