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The Last Thing United Will Do...

Wed Aug 07, 2002 10:37 pm

... is sell any piece of its network.

It will not do that even to avoid bankruptcy. As other airlines have shown, selling your key money makers does not prolong the survivability of your airline, but put it into a faster tailspin/nosedive.

United's route system works so well because it is efficiently balanced on the O&D and geographical connectivity scale. Ending LAX or IAD as a hub, for instance, woud lead to a greater loss of revenue than in proportion to the reduction in costs as network synergies are lost.

This is just a wake up call to those folks who fantasize about the Pacific Division and LHR being sold.

This is one thing that will come clear to the creditors in the event United files for bankruptcy. Although the sum of United's parts may be worth more than the whole, removing any signifcant portion of United would put the other parts on the path to making United even more unprofitable. And United just isn't going to be carved up in one-deal liquidation, no matter what anyone thinks.

Its systems are too complex and its fleet too tailored.
no wire hangers!
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RE: The Last Thing United Will Do...

Wed Aug 07, 2002 11:12 pm

The amazing thing about bankruptcy is that once you enter it you no longer have control of your destiny. While it is good and fine to say that UAL won't sell anything and that it is all needed. The cold hard realities of bankruptcy are that all bets are off. You no longer have control. The creditors have a say and most of all the judge.

Anyone who spouts anything else is either unknowledgeable or just making false statements.

All that aside, If UAL filed bankruptcy the four things people would want would be.....

1. LHR routes
2. Pacific routes
3. South American routes
4. Slots at slot controlled airports (ORD, DCA, LGA, JFK)
5. Gates at gate restricted airports (LAX, ORD, LGA, JFK, DCA, etc etc etc)

The things no one would be interested in are...

1. Overpaid unionized work force
2. Older fleet types
3. Non needed redundent facilities.. (ie maint bases in IND and res centers etc etc)

Now we are speaking hypothetically but, If you believe that UAL will have control of its own destiny then watch what happens if it goes to Bankruptcy. Skywest has a higher market cap then UAL and AMR combined!

I would not doubt that Carl Icahn would make a bid for them. Further regardless of all the noise the employee would make if an Icahn type character got them they would still work. (Maybe without smiles) but the pilots and FAs and everyone else for the most part would work because no one is so stupid as to be unemployed in the airline business at this time and in this economy.

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RE: The Last Thing United Will Do...

Thu Aug 08, 2002 11:41 am

In my opinion, UA will NEVER sell their Pacific routes. That's a large fraction of the revenue UA has now!

It's more likely that UA may cede some of the transatlantic routes to their Star Alliance partners; they may ask for help from the US and British governments so some of UA's transatlantic flights to LHR be ceded over to bmi British Midland (BD), if that is possible.

Anyway, no court in the USA would allow Carl Icahn to bid for any part of UA, given his history of wrecking TWA.
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RE: The Last Thing United Will Do...

Thu Aug 08, 2002 11:57 am

There is usually 50 million reasons  Smile that I disagree with Al, but this time it looks like we are of the same opinion. The only thing I wanted to point out is the slight error concerning the slots at ORD. There are no more slots at ORD, so this is no longer a commodity that UA has to use in the future.
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RE: The Last Thing United Will Do...

Thu Aug 08, 2002 12:21 pm

My point is that IMO the creditors will either try to make United work with parts intact (renogotiated, "fair" contracts)... or completely sell ALL the pieces of the airline (making United Airlines cease to exist).

Such is the way United's assets work. A shrunken United will only get smaller and smaller in no time.
no wire hangers!
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RE: The Last Thing United Will Do...

Thu Aug 08, 2002 1:02 pm

Is United really on the brink?

As far as selling anything. We just need to get 2 things down specifically.

A) The pacific routes/slots will NOT go.
B) There is no way United will give up LHR slots. United has some huge assets and those are just two of them. There is no chance in hell that United will sell Pacific and Heathrow slots.

In regards to the ORD slot issue, as of July, 2002, ORD is no longer slot-controlled.

I never thought I'd say this, but I don't want United to go belly up.

Give me a break, I created this username when I was a kid...
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RE: The Last Thing United Will Do...

Thu Aug 08, 2002 1:11 pm

There is no chance in hell that United will sell Pacific and Heathrow slots.

I wonder how many people said that about PanAm circa 1980?  Smile
"The A340-300 may boast a long range, but the A340 is underpowered" -- Robert Milton, CEO - Air Canada
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RE: The Last Thing United Will Do...

Thu Aug 08, 2002 3:29 pm

United owns most of their fleet right? Why not do a sale and lease back of aircraft? That's a fast way to earn some quick capital and has proven effective with other carriers in the past, Air Canada for one. But most importantly, it's a way to earn cash without having to give up slots, gates or routes. Isn't United more likely to sell it's fleet and lease it back before entertaining the possibility of selling their high-yield routes?

RE: The Last Thing United Will Do...

Thu Aug 08, 2002 4:24 pm

According to most reports, UA has somewhere between 3.5 and 4 Billion dollars of unencumbered planes to use as collateral.

On those planes, according to a knowledgeable source on, United is probably not going to get 1 dollar in financing for every dollar of value. This same source claimed that United would probably only realize approximately 2 Billion dollars of financing on 4 Billion dollars of collateral. Whether that has to do with United's poor crediting rating or the likelihood that many of the unencumbered planes are 747's, the source over at did not clarify.

United has gone to the ATSB because it is unhappy with the terms that most private or public placements would offer. United is not only complaining that it can't get full value on its collateral, but also that the costs of financing are 1.25 greater than those being offered to competitors like American, Delta, and Northwest.

Therein lies one of the weaknesses of their application to the ATSB. By mentioning to the ATSB that they can't get the same interest rates as American, Delta, and Northwest, they've forced the ATSB to wonder whether approving United's loan would interfere with the natural progress of a free market economy as it pertains to the airline industry. In other words, if United has access to capital even at higher rates, then, the ATSB might reason that that is only fair given the stronger balance sheets of its competitors. After all, Congress declared the ATSB to be a lender of last resort. They are not Fannie Mae/FHA.

If United's application had any true merit, I suspect that the ATSB would have already ruled on it. They are probably trying to determine how hard United has tried to get financing. I wouldn't be surprised if they have tried to facilitate that financing. It would be a way of helping United without giving them the loan guarantees. Or, they could have issued United an informal ultimatum. Get the IAM and AFA to make some wage concessions and we will issue some kind of conditional approval with a demand for more specific concessions. Whatever the case, it is not a good sign that it is taking this long.

For United's sake, I hope they still have the number of the lender who offered them 2 Billion dollars at 1.25 the rates offered to American, Delta, and Northwest.
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RE: The Last Thing United Will Do...

Thu Aug 08, 2002 4:28 pm

actually it's about $9 bil in planes......

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