USA320Pilot
Veteran
- May 18, 2003
- 8,175
- 1,539
Dear Fellow Employee:
During previous economic downturns airlines reduced capacity across-the-board to match supply with demand. As capacity was pulled down airlines increased their load factor and pricing power returned. During this down economic cycle the same thing occurred with US Airways the most aggressive in pulling down service, however, this time LCC’s are expanding with a superior business model keeping capacity to high for legacy carrier’s.
In fairness to US Airways’ senior management, who would have predicted JetBlue ordering EMB-100s proposing low pay scales, AirTran’s huge B737/B717 order, Southwest’s entrance into Philadelphia, or even Southwest considering buying the EMB-100?
The dramatic LCC growth plan will likely further depress domestic yields, which will effect US Airways more than other network airlines due to the company's route network. The structure of US Airways route network is the primary route of the company’s cost problem, but that is something that cannot be easily changed.
US Airways near-term problem is the requirement to maintain a minimum unrestricted cash balance of about $1billion until June 30 and then specific EBITDAR requirements throughout the loan guarantee period.
US Airways will have challenges with this government requirement and at this point there is no use complaining about the past and our collective mistakes. God knows there is enough blame everywhere within the company and there is no benefit to pointing fingers because there is nothing we can do about the past.
To meet these requirements US Airways has three options: quickly obtain consensual agreements between management and labor to permit the transformation plan to go forward, or conduct an asset sale to raise liquidity, or more than likely an combination of these two options.
One challenge US Airways’ board will face is that when the buyer knows the seller is distressed, the market value of the asset is low. Another words, why pay full market value when you know the asset could become available on the open market in a Chapter 7 bankruptcy liquidation? Moreover, US Airways does not have a lot off assets that other carriers desire. In my opinion, if asset sales occur, the likely assets to be sold would be PSA, Piedmont/Allegheny, the Shuttle, and the LaGuardia terminal.
Let’s examine why these could be sold and the likely buyer.
PSA – The D-328 and CRJ operator is profitable, but this asset could be sold and not significantly effect the core business. US Airways’ benefit would be to raise cash, reduce aircraft acquisition debt going forward, and keep the feed within the US Airways network, providing future revenue. The likely candidate to obtain this asset – Mesa Air Group.
Piedmont/Allegheny – It is less likely the combined companies would be sold because the debt load will be less, but the same parameters listed above for PSA exist. Furthermore, if all “wholly owned†airlines are spun-off this would eliminate a mainline merger problem, especially with United (UAL AFA Air Wisconsin scope grievance victory) going forward.
Shuttle – If the Shuttle is sold, I expect it would be sold to a company that US Airways could code share with. Candidates include companies like Mesa, Chautauqua, and TSA, with the likely candidate to obtain this asset – Mesa that has publicly expressed interest in obtaining the asset.
LaGuardia terminal – If US Airways elects to sell this facility, Continental Airlines has the first right of refusal. However, it makes sense that Delta and Continental may be interested in this asset to consolidate their facilities. Delta could move their Shuttle from the MAT, Continental could move from the main terminal, and Comair could use gates, which would give the three business partners LaGuardia’s best facility. This move would also permit the three airlines to obtain more connecting traffic, further depressing US Airways’ and or Mesa’s Shuttle traffic.
Provided US Airways can meet its financial challenges, there is extremely strong reason to believe that US Airways will be involved in a corporate transaction. I believe most observer’s understand who will be the Arlington-based company’s marriage partner, but the final form of any deal depends on a number of factors, some not in the control of either airline. First, US Airways and its partner both must prove to the financial community that they can survive and compete, otherwise the airlines would not be able to attract capital. Other interested parties that will have a voice in any deal will be the ATSB, DOJ/DOT, creditors committee, and bankruptcy court.
Right now it’s to early to tell who will be the surviving business entity or the final form, but it’s clear the end result will be a merger. Why? That’s the only way to remove dramatic cost cuts necessary to average down unit costs with economies of scale to compete with the LCC’s long-term. In my opinion we will either see an Air France-KLM type of deal or a true merger, but the end result will be a merger.
From the US Airways employee perspective, the only question is who will fly and support the company’s aircraft. US Airways employees or another airlines furloughed employees?
Therefore, when considering whether or not to support management’s transformation plan consider the following two points:
Would it be better to enter a merger with 339 mainline aircraft, with 60 more A321’s, A320s, and A319s or 279 aircraft?
If the potential changes are too much, then it's better to look for another job while you still have an income, medical insurance, dental insurance, travel privileges, and in the case of the pilots monthly DC Plan benefits.
The ALPA MEC will address this issue at a special meeting on Monday and Tuesday and according to US Airways spokesman David Castevetler in comments made to the Pittsburgh Post-Gazette on Friday, "We walked away from that meeting (January 15) recognizing we do share the same goals" and that "these goals are the survival of the company. We now wait to hear back from [the pilots] as to what the next step will be."
Therefore, when would now be a good time for all employee groups to meet with management to discuss the transformation plan, the requirement to stabilize finances, and then prepare for the upcoming corporate combination, with consolidation inevitable?
Respectfully,
USA320Pilot
During previous economic downturns airlines reduced capacity across-the-board to match supply with demand. As capacity was pulled down airlines increased their load factor and pricing power returned. During this down economic cycle the same thing occurred with US Airways the most aggressive in pulling down service, however, this time LCC’s are expanding with a superior business model keeping capacity to high for legacy carrier’s.
In fairness to US Airways’ senior management, who would have predicted JetBlue ordering EMB-100s proposing low pay scales, AirTran’s huge B737/B717 order, Southwest’s entrance into Philadelphia, or even Southwest considering buying the EMB-100?
The dramatic LCC growth plan will likely further depress domestic yields, which will effect US Airways more than other network airlines due to the company's route network. The structure of US Airways route network is the primary route of the company’s cost problem, but that is something that cannot be easily changed.
US Airways near-term problem is the requirement to maintain a minimum unrestricted cash balance of about $1billion until June 30 and then specific EBITDAR requirements throughout the loan guarantee period.
US Airways will have challenges with this government requirement and at this point there is no use complaining about the past and our collective mistakes. God knows there is enough blame everywhere within the company and there is no benefit to pointing fingers because there is nothing we can do about the past.
To meet these requirements US Airways has three options: quickly obtain consensual agreements between management and labor to permit the transformation plan to go forward, or conduct an asset sale to raise liquidity, or more than likely an combination of these two options.
One challenge US Airways’ board will face is that when the buyer knows the seller is distressed, the market value of the asset is low. Another words, why pay full market value when you know the asset could become available on the open market in a Chapter 7 bankruptcy liquidation? Moreover, US Airways does not have a lot off assets that other carriers desire. In my opinion, if asset sales occur, the likely assets to be sold would be PSA, Piedmont/Allegheny, the Shuttle, and the LaGuardia terminal.
Let’s examine why these could be sold and the likely buyer.
PSA – The D-328 and CRJ operator is profitable, but this asset could be sold and not significantly effect the core business. US Airways’ benefit would be to raise cash, reduce aircraft acquisition debt going forward, and keep the feed within the US Airways network, providing future revenue. The likely candidate to obtain this asset – Mesa Air Group.
Piedmont/Allegheny – It is less likely the combined companies would be sold because the debt load will be less, but the same parameters listed above for PSA exist. Furthermore, if all “wholly owned†airlines are spun-off this would eliminate a mainline merger problem, especially with United (UAL AFA Air Wisconsin scope grievance victory) going forward.
Shuttle – If the Shuttle is sold, I expect it would be sold to a company that US Airways could code share with. Candidates include companies like Mesa, Chautauqua, and TSA, with the likely candidate to obtain this asset – Mesa that has publicly expressed interest in obtaining the asset.
LaGuardia terminal – If US Airways elects to sell this facility, Continental Airlines has the first right of refusal. However, it makes sense that Delta and Continental may be interested in this asset to consolidate their facilities. Delta could move their Shuttle from the MAT, Continental could move from the main terminal, and Comair could use gates, which would give the three business partners LaGuardia’s best facility. This move would also permit the three airlines to obtain more connecting traffic, further depressing US Airways’ and or Mesa’s Shuttle traffic.
Provided US Airways can meet its financial challenges, there is extremely strong reason to believe that US Airways will be involved in a corporate transaction. I believe most observer’s understand who will be the Arlington-based company’s marriage partner, but the final form of any deal depends on a number of factors, some not in the control of either airline. First, US Airways and its partner both must prove to the financial community that they can survive and compete, otherwise the airlines would not be able to attract capital. Other interested parties that will have a voice in any deal will be the ATSB, DOJ/DOT, creditors committee, and bankruptcy court.
Right now it’s to early to tell who will be the surviving business entity or the final form, but it’s clear the end result will be a merger. Why? That’s the only way to remove dramatic cost cuts necessary to average down unit costs with economies of scale to compete with the LCC’s long-term. In my opinion we will either see an Air France-KLM type of deal or a true merger, but the end result will be a merger.
From the US Airways employee perspective, the only question is who will fly and support the company’s aircraft. US Airways employees or another airlines furloughed employees?
Therefore, when considering whether or not to support management’s transformation plan consider the following two points:
Would it be better to enter a merger with 339 mainline aircraft, with 60 more A321’s, A320s, and A319s or 279 aircraft?
If the potential changes are too much, then it's better to look for another job while you still have an income, medical insurance, dental insurance, travel privileges, and in the case of the pilots monthly DC Plan benefits.
The ALPA MEC will address this issue at a special meeting on Monday and Tuesday and according to US Airways spokesman David Castevetler in comments made to the Pittsburgh Post-Gazette on Friday, "We walked away from that meeting (January 15) recognizing we do share the same goals" and that "these goals are the survival of the company. We now wait to hear back from [the pilots] as to what the next step will be."
Therefore, when would now be a good time for all employee groups to meet with management to discuss the transformation plan, the requirement to stabilize finances, and then prepare for the upcoming corporate combination, with consolidation inevitable?
Respectfully,
USA320Pilot
you are right 700 they the union and the company promised me 
