D L X
Topic Author
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Is It All Over For US Airways?

Tue Apr 23, 2002 5:49 am

I've been quite out of the loop on US Airways for the last year or so. I moved to the west coast, where US doesn't do much flying. I still have a lot of US FF Miles though. Should I cash them all in now? Will US be around for me to fly them next year? In two years? five?


Fact based opinions are appreciated. Thanks,


D L X
 
DCA-ROCguy
Posts: 3894
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RE: Is It All Over For US Airways?

Tue Apr 23, 2002 5:55 am

Cash the FF miles in within the next year or so. From their current position, $569 million in cash, and CSM's not making any meaningful progress, I'd say US Airways has til about the end of 2003. But just to be safe, don't book on US AIrways any later than a year from now.

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
flashmeister
Posts: 2671
Joined: Fri Apr 28, 2000 4:32 am

RE: Is It All Over For US Airways?

Tue Apr 23, 2002 5:59 am

Jim's right about the money, but I wouldn't wait a year to get rid of the FF miles -- plan a summer vacation.
 
Sinlock
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RE: Is It All Over For US Airways?

Tue Apr 23, 2002 6:05 am

I would say the same thing about America West.
 
ScottB
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RE: Is It All Over For US Airways?

Tue Apr 23, 2002 6:20 am

It will also depend in large part on whether US Airways is able to obtain Federal loan guarantees. If the airline can, then I can see them limping along for several more years while the low-fare carriers continue to infringe on their core markets. Without the loan guarantees, US will face a difficult winter (the weakest part of the year for revenue) and may be faced with a Chapter 11 filing if their liquidity becomes critical. The airline's cash position is likely closer to $750 million at present given the tax refund they received *after* the close of the first quarter. The summer is also likely to be generally cash-positive (though depreciation/amortization will probably result in an operating loss) so the cash problem won't become an issue until 4Q02 or 1Q03.

America West got a big cash infusion as a result of the Federal loan guarantee program, so they ought to be OK for another couple of years, unless the current fare war is protracted.
 
flashmeister
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RE: Is It All Over For US Airways?

Tue Apr 23, 2002 6:30 am

I can see them limping along for several more years while the low-fare carriers continue to infringe on their core markets.

I doubt it...

Even at $750 million, US has a cash burn rate of $3 million a day. That's 250 days of life support left.

Yes, they do expect to be cash-positive this year, but they've already said that a cash-positive summer will probably lead to a cash-negative winter. More life support.

Let's do some numbers to see what kind of loan guarantee US might get:

US is about twice as big as HP, based on RPMs. (In Mar02, US had 3.1billion RPMs, HP had 1.7billion).

HP got $380 million in guarantees. So, US might get $760 million. That's another 250 days of life support.

Worse yet, if US doesn't satisfy the terms of the loan agreements, which will probably include a financial performance provision, the loan becomes payable, and life support gets a whole lot harder. In any event, it's like living on credit cards today when you're not sure when if ever you'll get the money to pay the bank...

The only thing in doubt about US is their success. Their failure at this point is nearly certain.
 
haveric
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RE: Is It All Over For US Airways?

Tue Apr 23, 2002 6:35 am

Flashmeister -- US is at or near cash flow positive. During the summer months, it should be taking in money, not spending it. If they get $760 million in gov't loans added to their current $750, plus profits they'll make this summer, that puts them well over $1.5 billion by the fall. This, in combination with new work rules that the feds will require, as well as the introduction of RJs and the reduction of CASMs due to longer mainline stage lengths and fewer types of planes in their fleet (it's taking them awhile to adjust to the more stream-lined fleet) bode well for the future of US, IMHO....

Eric
 
seven_fifty7
Posts: 900
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RE: Is It All Over For US Airways?

Tue Apr 23, 2002 6:37 am

I'd really hate to see that carrier go.

Question: We all thought CO was on its way under a decade ago. Isn't there anyway possible US can turn around and rally like CO did?

What would it take?
 
usairways85
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RE: Is It All Over For US Airways?

Tue Apr 23, 2002 6:42 am

if usairways is at or near a cash flow positive, then why are there consecutive quarters where usairways posts major losses?
 
ScottB
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RE: Is It All Over For US Airways?

Tue Apr 23, 2002 6:47 am

Well, my reasoning went as follows:

US Airways gets the Federal loan guarantees. As a condition of the guarantees, the company obtains 10% concessions from the unions on labor costs, which reduces labor costs by roughly $80 million/quarter, or almost $3 million/day (the approximate cash burn in the first quarter). With substantially reduced labor costs, an oprating profit may even be possible in the 3rd quarter, but I do agree that the winter will be cash-negative again. I just don't see it being quite as severe as $3 million/day unless the economy goes into the toilet again. $750 million in loans plus $750 million in current cash would be enough to keep them afloat for a quite while given a gradually improving revenue environment and the labor concessions which would be a precondition of any loan guarantees.

Again, I don't see their long-term position being stable, though, given that they have a very long way to go to become competitive with the low-fare carriers. It just remains to be seen if the US Airways story will look like TWA or Eastern.

As for America West...they were perilously close to the brink in January. If you read their earnings (loss) statement for the first quarter, they reported a quarter-end cash balance of "a record" $421 million. Of course, during the quarter, they received $390 from the guaranteed loans and $34 million in a federal income tax refund. Without those, they would have ended the quarter with a cash balance of negative $3 million (and they had positive cash flow in March).
 
haveric
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Joined: Fri Jan 05, 2001 9:31 am

RE: Is It All Over For US Airways?

Tue Apr 23, 2002 6:48 am

Because last summer the airline was lost, after the merger fell apart and the winter, particularly post-9/11, is always a difficult time for airlines. US has stated in the last week that they are at or near cash flow positive.

Eric
 
flashmeister
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Joined: Fri Apr 28, 2000 4:32 am

RE: Is It All Over For US Airways?

Tue Apr 23, 2002 12:27 pm

This, in combination with new work rules that the feds will require, as well as the introduction of RJs and the reduction of CASMs due to longer mainline stage lengths and fewer types of planes in their fleet (it's taking them awhile to adjust to the more stream-lined fleet) bode well for the future of US, IMHO....

That all is true, but CASMs don't drop overnight with the introduction of a more RJs or modified work rules.

The CASM problem at US is a cultural issue -- if they find ways to cut costs someplace, I have no doubt that they'll find ways to raise them elsewhere.

What you've stated is totally true -- all of the points will result in decreased CASMs, but not right away, and by the time they do, it will be too little, too late.
 
Ryefly
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RE: Is It All Over For US Airways?

Tue Apr 23, 2002 2:56 pm

Wow, is everyone calling that psychic Miss Cleo again this week? I guess I didn't get the memo that it's predict how soon US Airways will die and how hard they will fall week. If they do go completely under soon, let me save you the suspense. I am predicting now there will be many post of exactly what we are seeing this week but with several "I told you so" added. They are not shut down yet, so why don't we wait for that day to come, IF it even does.

By the way isn't it "why is Northwest service so bad" week again, or is that next week?  Smile/happy/getting dizzy
 
deltaflyertoo
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RE: Is It All Over For US Airways?

Tue Apr 23, 2002 3:22 pm

I think it is all over.

I predict they will never be able to get their costs under control. While the pilots union has agreed to switch to RJs, the reality is by the time US takes delivery of these planes and deploys them, it may be too late. Plus, I can't see ALPA ever making a concession beyond this one. This is just one concession of 3 the airline needs, and lower wages and more hours just doesn't seem to fit the bill.

Even if US did get its cost down, it will still crash because the low fares will just keep eating away at US. Looking ahead, once Air Tran and WN and maybe Jetblue get a little more established, there is absolutely no reason to fly US on the east coast. Who is going to fly through PIT or PHL or CLT just to go 500 miles? When you can go nonstop on the others? And if US does try to match the others in more point to point, it will begin to alienate itself at its own hubs. A huge catch 22.

Like HP, it is interesting to wonder why US didn't see this all coming in the 80s when it went on that shopping spree of Piedmont and PSA.

Another point, there is no reason to fly US to Europe either. Most of the pax are O&D or around the Ohio, Great Lakes and mid-Atlantic area. Given the right environment, these same pax can easily just switch over to a CO, DL, AA or UA for their Trans Atlantic needs.
 
Boeingfan
Posts: 369
Joined: Thu Aug 30, 2001 1:47 am

RE: Is It All Over For US Airways?

Tue Apr 23, 2002 4:18 pm

US is going to make one last effort... will it work?

Only time will tell. They need to get their cost structure in order, reduce flying capacity, "the plan."

Create a management reserve with 15% of the loan concession/bail out. Shop for a good codeshare partner to Europe. (Stop flying across the Atlantic all together once the codeshare is in place.) Maybe Swiss would be a good partner? Back to BA? Or join one of the major Alliances Star, Oneworld, Sky Team or Wings (NW, CO, KL?) Eliminate the widebody fleet costs.

Be forced to merge at 'bargain price' with another major carrier. Which carrier would have the funds to afford all the new aircraft lease debt? Maybe one or two (DL or NW?)

Work concessions, we will see? If no pay cuts, then US will follow Eastern Airlines and Pan Am into the history books.

Sell or franchise valuable landing/take off slots with a codeshare agreement at DCA, LGA and BOS?

Good luck US you are going to need it.

Oh cash in your miles before 2003... its going to be a bumpy ride, no matter what the outcome, they will shrink.