Businessflyer
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UA To Exit Chp 11 In 1H04?

Mon Sep 01, 2003 10:37 am

Apologies if this news has already been posted, but there is an interesting article in today's FT on United. The key points of the article are:

UA now believes that it will exit from Chp 11 in 1H04 and not in 03 as previously thought.

Glen Tilton sees an agreement with the ATSB as critical to UA's exit from Chp 11. (although I don't necessarily see why - any thoughts?)

The biggest issue, however, is with respect to UA's US$6bn of unfunded pension liabilities, although the article did point out that this is not a problem unique to UA. However, it does make you wonder how they can reach an agreement with the employees to ensure that pension plans are secured.

Anyway, apparently its cash position increased to US$2.3bn at the end of July...
 
AA717driver
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RE: As Time Goes By: Many 767s Bound For Scrapping

Mon Sep 01, 2003 11:43 am

Businessflyer--The reason the ATSB money is so critical is that UA cannot borrow from outside sources while in bankruptcy(it may not be prohibited but that is the reality of the situation). Unless it has those loan guarantees, it may not have enough cash left in 4Q03 to emerge comfortably.

The pension problem is most certainly not unique to UA--most companies' pensions are underfunded(except for those of the senior management, of course). This is a huge liability for those corporations not in ch. 11. For UA, it becomes a huge hurdle to regaining financial stability.TC
FL450, M.85
 
artsyman
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RE: UA To Exit Chp 11 In 1H04?

Mon Sep 01, 2003 12:46 pm

If the $1.5 billion that UAL has borrowed to get through Chapter 11 is not enough to get them profitable by 2nd quarter 2004, UAL should not be allowed to borrow more money from the ATSB, especially at taxpayers expense.

There has to come a point when people say enough is enough. I am all for UAL surviving, god knows enough people on here love them and want to remain in employment, but these huge losses cannot continue indefinately with them borrowing more and more each time in order to stay around. If by the 2nd quarter, they are still burning through the cash, what assurances does any lender have to getting their money back, if UAL couldn't stop the losses while in Chapt 11
 
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STT757
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RE: UA To Exit Chp 11 In 1H04?

Mon Sep 01, 2003 1:18 pm

"Sizing up United a matter of debate
CEO Tilton rejects suggestions for hefty trimming of its routes

By Susan Chandler
Tribune staff reporter
Published August 31, 2003
http://www.chicagotribune.com/business/chi-0308300297aug31,1,2913181.story

More than 1,800 pilots and 5,465 flight attendants on layoff. Capacity down by 24 percent since 9/11.

No question, United Airlines has become a dramatically smaller carrier.

But it may not have shrunk enough, some experts argue.

United has discontinued only 15 routes since seeking bankruptcy protection in December and added 12, which computes to a decrease of three.

The consequence of hanging on to its empire: a $431 million second-quarter operating loss that would have been far worse if United's employees weren't taking home substantially reduced paychecks.

To restructuring expert Michael Kayman, it means one thing: United needs to decide what business it is in and get out of routes that don't fit that model.

"United has to choose its customers," said Kayman, who counsels troubled companies from the Chicago office of Conway MacKenzie & Dunleavy, a Detroit-based restructuring firm.

If United is losing money flying to South America, where economies are weak and American Airlines is the dominant player, it should pull out altogether, he said. If it can't make a profit flying budget-conscious leisure travelers to Florida, United should say so long to the Sunshine State.

Kayman isn't the only one that thinks that. Some of the company's creditors and several of its competitors say the same thing.

Other carriers are undergoing more radical surgery.

American Airlines, which isn't in Chapter 11, is downsizing its St. Louis hub, cutting its flight schedule there in half and dropping non-stop service to 27 cities.

US Airways, which emerged in March from seven months of bankruptcy, has discontinued six mainline routes, including Baltimore/Los Angeles and LaGuardia/Tampa; closed operations in 13 cities served by its express carriers; and turned 19 mainline routes over to its express partners.

United says that kind of shrinkage isn't the answer.

Speaking in Hong Kong last week, United Chief Executive Glenn Tilton explained his rationale.

"One of our greatest assets is our global route network--getting our customers to 771 destinations in 133 countries with ease, efficiency and comfort," Tilton told members of the American Chamber of Commerce. "To business travelers, this network is essential."

If United were a retailer, Tilton's job would be much simpler. He could rank his stores from the most profitable to the least profitable and lop off the bottom 20 percent.

If that didn't push the chain into the black, he could go back and lop off some more. The repercussions would be relatively few. Closing a store in Nashville, for instance, wouldn't affect one in Chicago.

Domino effect

Of course, restructuring isn't really that simple in the retail business--just look at struggling Kmart Corp.--but it is more complicated for a network carrier, said John Pincavage, a financial adviser to airlines.

"You may look at a specific route where you're not making money, but it turns out that it's integral to the entire network," said Pincavage, who is based in Westport, Conn.

"If you're a hub-and-spoke carrier, every flight you drop eliminates the possible combinations of markets you can serve. You basically diminish the power of the hub."

For instance, dropping service to Florida cities or other medium-size markets such as Louisville/Chicago could potentially hurt traffic on major routes such as Chicago/Tokyo, he said.

That makes identifying unprofitable routes extremely complicated from a system perspective. Maybe one leg of a traveler's itinerary doesn't make money, but the other two do. If you pull out of the unprofitable market, maybe your passenger starts flying somebody else.

Because the cost of owning or leasing jets is fixed, it often makes sense for airlines to keep flying marginally profitable or unprofitable routes to bring in a little extra revenue, some airline executives say.

That's the problem, chide others. If everyone continues to fly unprofitable routes, the airline industry's overcapacity won't go away, and pricing power will continue to be weak. Although that's a boon for consumers, it doesn't help an industry that lost almost $19 billion in the past two years.

At United, its extensive global network is considered one of the company's "crown jewels," an essential asset that must be preserved for the airline to attract business travelers and return to profitability.

"You can't really judge a network on historical profitability when you have wars and SARS and bankruptcy effects in the numbers," Doug Hacker, United's executive vice president for strategy, said in an interview last week.

"We've said, `Let's focus on a future period when costs are in a steady state, revenue performance is at steady state, and use that as a sizing exercise for our network.' We believe analytically that this network preserved will be quite profitable in some future time frame."

Trotting out small lineup

Rather than cutting off routes, United has several other tools at its disposal, Hacker said.

It can deploy smaller jets on unprofitable routes, "down-gauging" its network, in industry parlance. Or it can turn that flying over to its regional partners, which have much lower wage costs. United has done that in 20 markets, including Chicago/Cedar Rapids, Iowa; Los Angeles/Tucson and Denver/Eugene, Ore.

As part of the new contracts between United and its pilots, United Express carriers Mesa Airlines and SkyWest Airlines soon will be flying 70-seat jets, larger aircraft than they were allowed under the previous contract.

Those jets could be used on lightly traveled routes of 300 miles or more where one of United's 120-seat Boeing 737-300s isn't cost-effective, consultants say, or on routes where discount competition is keeping United's revenue below its operating costs.

United also is forging ahead with plans for its own discount carrier, another way to stay in the game without giving up geographic reach. United still has not announced a date for the debut of the low-cost carrier, code-named Starfish, but it has said it initially is devoting only 40 aircraft to Starfish, less than a third of what it envisioned earlier this year.

Some cuts restored

No question, United has tightened its belt.

Its overall capacity declined 14 percent in the second quarter. A good chunk of that was related to flight cutbacks related to the Iraq war and the Asian outbreak of severe acute respiratory syndrome. But much of that capacity was added back by early June, after the war wound down and the SARS outbreak abated.

A better measure of United's downsizing is the 7.5 percent decrease in available seat miles flown during the first six months of the year. Although that may sound substantial, it is less than US Airways' 11.9 percent decrease and Delta Air Lines' 9.2 percent decline.

United continues to fly more routes than any of its competitors, according to data from the Bureau of Transportation Statistics in Washington. During the first five months of the year, United was flying 2,061 routes, compared with 1,869 for American and 1,473 for Delta.

All this talk about shrinking is headed in the wrong direction, says one airline consultant.

United should be focused on winning market share from its major rival, American Airlines. If it can do that, it won't have to worry about ceding routes to regional jets or low-cost carriers.

"United's service is outstanding right now. It isn't good. It's outstanding," said Michael Boyd, president of the Boyd Group in Evergreen, Colo.

"Remember, they're in Chicago, and two concourses over, American is boarding millions of passengers. Why not go after them? They should tell their employees, `Feel sorry for American because we're going to put them out of business.'"
Eastern Air lines flt # 701, EWR-MCO Boeing 757
 
artsyman
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RE: UA To Exit Chp 11 In 1H04?

Mon Sep 01, 2003 1:47 pm

Remember, they're in Chicago, and two concourses over, American is boarding millions of passengers. Why not go after them? They should tell their employees, `Feel sorry for American because we're going to put them out of business.'"
*****************

But it's going to take UAL years to accomplish this, so the taxpayer should foot the bill for 5 years until it eventually happens ?. Then AA declare chapt 11 and the same thing happens in reverse ?
 
ual777contrail
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RE: UA To Exit Chp 11 In 1H04?

Mon Sep 01, 2003 3:12 pm

arty,
you say that there comes a time when people have to say enough is enough? Well where would you be if they said that about CO with their numerous bankruptcy's? Or TWA? Just because AA bought out the old timers doesn't mean they would have had the same problems UAL is facing now, yes they made have gone tits up a few months after.
You have always been one of the doomsdayers who chants for the demise of UAL, we wont go into the lame crap I always bring up, you aren't our CEO and I would be willing to bet he has a plan for the company, he has more insight as to what is REALLY going on. You have in fact had some okay responses to issues regarding UAL but you always seem to lose it when you voice your opinion.

STT757,
that was a good article but one point I would like to add on this topic is this, the article complains that UAL in all only gave up like 3 routes? And "If UNITED were a retailer, Tiltons job would be much simpler. He could rank his stores from most profitable to least profitable and lop off the bottom 20%"

UAL already has done this, that is why mainline service doesn't stretch to MSN,MRY, AND various east coast cites like they use to. In came the lawn darts and BAE 146'S and do away with the guppies and stretch 27's(they left after 9/11) I work in a line station and I can assure you UNITED ranks it's stores or stations if you will, we had our necks on the chopping block but survived the cuts. For months rumors spread like wild fire of who was going next and we were okay for awhile. I know you didn't write the column but I thought I would add to what some may not know, or to others who may not care.

ual 777 contrail
 
artsyman
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RE: UA To Exit Chp 11 In 1H04?

Mon Sep 01, 2003 3:41 pm

It's one thing to reorganize in chapt 11, it is another thing to burn through 3 billion in borrowed money along the way (assuming they get the ATSB loan), and all the while while still not paying your bills and hiding from the real world for years.

Continental didn't borrow all the cash that UAL are, Continental never burned through the absulutely ridiculous amounts of cash that UAL are, and Continental didn't stay in Chapt 11 for a ridiculous amount of time.

US Airways went into Chapt 11, fixed what they could and emerged leaner, healthier and a little closer to their goal. UAL after all this time, still do not have a viable plan for profitability.

As the article states, UAL really needs to make some decisions and live or die by them, but they seem to be avoiding making decisions and seem to be wasting borrowed money along the way

I know you always think it is personal, but it really isnt. If it makes you feel better to think so, then so be it

Jeremy

[Edited 2003-09-01 08:47:30]
 
ual777contrail
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RE: UA To Exit Chp 11 In 1H04?

Tue Sep 02, 2003 4:11 am

Jeremy,
I don't take it personal when you slam My airline, I know this forum means nothing but idle chat about who should go under and who isn't going under no matter how fast one thinks the sky is falling. Funny the rules change when it isn't your airline. I know you want to see UAL pull through  Insane and it would help CO out tremendously to feed off the carcass of UAL. We aren't going anywhere and if we do? It's to new destinations and better times. I don't live in a fantasy land, I have other things going besides UAL, and real soon it will leave UAL in the dust finacially. I only give you a hard time because whenever you print or comment on an article or column for the rest of the forum to see, you ruin it by adding your comments on the topic. I know the company is dancing on glass, one terrorist act will level the industry again bye,bye to UAL and probably CO or HP or bring AA to it's knees, so don't comment on my responses as being brash, or ignorant, I am loyal to my carrier until they close their doors for good. So you know it's all well and good, this is a forum for debates, news breaks, and shocking news that WE otherwise wouldn't have received in our local papers due to importance on the matter. Lets just have fun with it. Those who are pushing for UAL arent wearing blinders, we arent all idiots, we are just pushing for the airline we like and serve.
 
ual777
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RE: UA To Exit Chp 11 In 1H04?

Tue Sep 02, 2003 8:55 am

Ual777contrail,

I believe I speak for all of the employees and families at UAL when I say thank-you. We appreciate your loyalty in a world that is dominated by saving 2 dollars.
It is always darkest before the sun comes up.
 
StevenUhl777
Posts: 3281
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RE: UA To Exit Chp 11 In 1H04?

Tue Sep 02, 2003 11:25 am

UAL777:

Add another person loyal to UAL! I grew up in a UAL family, and though I lost my "benefits" at 23, I only fly United, but now as a revenue passenger. I'm going to UK next July, and learned only just yesterday on this website that UA is upgrading virtually all flights in the coming months to 744's! I've never flown on one, so I can't wait! Once that tax refund rolls in next Feb., it's going right to UA in the form of my ticket!

Good luck! BTW, just had four great flights two weeks ago between SEA and BOS.

And the winner for best actress is....REESE WITHERSPOON for 'Walk the Line'!!!!!!!!
 
milesrich
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RE: UA To Exit Chp 11 In 1H04?

Tue Sep 02, 2003 11:38 am

Sounds like they may be exiting Chapter 11 for Chapter 7!
 
UALPHLCS
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RE: UA To Exit Chp 11 In 1H04?

Wed Sep 03, 2003 6:36 am

It is no use disscussing this issue on Airliners.net After over a year of explaining the ATSB comments as uninformed as this:

"If the $1.5 billion that UAL has borrowed to get through Chapter 11 is not enough to get them profitable by 2nd quarter 2004, UAL should not be allowed to borrow more money from the ATSB, especially at taxpayers expense."

Still get posted as read as fact.

ATSB money is not at taxpayer expence. The taxpayer is only on the hook if UA where to liquidate. Not likely since this discussion is about the timing of UA's exit from Chapter 11.

I fervently hope that UA exits Chapter 11 sonner rather than later simply so these threads will stop. They are repeatative to the point of extreme boredom. EX.
"Good News from UA"
"What UA was bought by WN?"
"No."
So what could the good news be? Who cares UA sucks"

Yawn.
A little less Hooah, and a little more Dooah.
 
worldtraveler
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RE: UA To Exit Chp 11 In 1H04?

Thu Sep 04, 2003 3:13 am

Tilton's comments that shrinking the network isn't an option touches on the real difficulty in downsizing a network business. But when all of the network doesn't contribute to the bottom line, it has to give. UA is still very much in love w/ the idea of being all things to all people and they will be saying it all the way to the grave. Using South America as an example, CO and DL both recognized that there isn't money to be made in Buenos Aires right now so pulled out - and both are in much better shape because they aren't holding on to money losing routes for the sake of the network. AA and UA will never fix their problems until they both get over the idea of trying to be at the top of the heap. Even BA w/ all it's int'l clout has recognized that you have to lop off parts of the network if they don't make money. That Michael Boyd advises UA to hold onto routes w/ threats of AA gaining share is reprehensible.

The federal gov't is UA's only hope to repay the huge loans they've got outstanding and have cash to start over. And the cash from the ATSB will not even begin to address the pension issue. Although every airline has underfunded pensions, only companies in bankruptcy have to address the underfunding in order to get out of bankruptcy; AA, DL, and the rest have to keep making their yearly payments but they don't have to correct the whole problem now. There is no way UA can emerge from bankruptcy w/o terminating all of its pension plans; the gov't is not going to allow UAL to walk away from those kind of obligations.
 
AA717driver
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RE: UA To Exit Chp 11 In 1H04?

Thu Sep 04, 2003 3:43 am

UAL has already taken the money from the pilot's retirement generated by the ESOP concessions. If they thought they could get away with terminating the rest of the pension plans without destroying the company, they would.

I think the PBGC is in a fighting mood right now and won't gleefully write off $6 Billion in pension liabilities.TC
FL450, M.85
 
BeltwayBandit
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RE: UA To Exit Chp 11 In 1H04?

Thu Sep 04, 2003 4:59 am

If the ATSB (the US Government) gives UA a loan guaranty, I will renounce my US citizenship! The ATSB is charged with providing post-9/11 liquidity to airlines that cannot get liquidity elsewhere; but only if the airline has a viable business plan. The last thing the ATSB (or any US citizen) wants is for the US Government to have to bail out UA (or UA's banks) because it emerged from bankruptcy with a half-baked business plan. At this point, any liquidity problem has little, if anything, to do with 9/11.

The ATSB turned its nose up to at least one airline that is solvent, alive and well today.
 
Guest

RE: UA To Exit Chp 11 In 1H04?

Thu Sep 04, 2003 6:45 am

Looks like this article hints at some of things I've been saying for a long time. In short, United management wants to retain the myth of UA as a "worldwide airline" at all costs. The ultimate cost may be the airline itself.

I was, however, a bit surprised by what Michael Boyd had to say. It makes sense only if he is saying that United's IAD hub drains ORD of capacity, and that UA could be more competitive at ORD if it focused its European operations there.

It does not make sense if he is actually suggesting that UA pull down capacity elsewhere to strengthen Chicago. Boyd also fails to acknowledge that United needs more regional jets at Chicago to compete against American. The impasse between ACA and United, however, has put a hold on any such plans.

As for providing an outstanding product, Boyd has to be kidding. It's notable that United continues to lead the industry in on-time arrivals. But, there is more to providing an outstanding product than that. United's premium product on international and domestic routes is by no means outstanding. American bests United on premium transcon routes and in domestic first/business out of ORD. Cathay, Singapore, JAL, and even ANA best United in first/business on transpacific routes. British Airways, Lufthansa, et al. best United in first/business on transatlantic routes. United has lost significant numbers of premium business to those carriers. As long as the "premium traveler" remains the cornerstone of United's marketing plan, a market share grab for leisure passengers at ORD really isn't going to help it much. You'd think Boyd would know that better than most.
 
ual777
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RE: UA To Exit Chp 11 In 1H04?

Thu Sep 04, 2003 8:49 am

Ladevale,

I your real name Bob Crandall or Gordan Bethume? You don't know much about UAL it seems because I have been checking the loads out of NRT, ORD and IAD over the past 3 weeks and all 3 have very high load factors internationally. In addition, UALs First Suite is second to none. In fact, I don't know what business magazines you've been reading, but UAL has recently gained the business of a number of French businessmen and their companies. In the future, do us a favor, and think before you speak.
It is always darkest before the sun comes up.
 
TWFirst
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RE: UAL777

Thu Sep 04, 2003 8:57 am

Dude, you just shot yourself in the foot. If United can only manage to attract 'French businessmen', then it IS in serious trouble  Big grin


Seriously though, your posts and associated thoughts come across as based purely on emotion. Step back for a sec... you surely must realize Ladevale is entitled to critique your favorite airline's product, as well as Boyd's dribble. If that hurts your feelings, who has the real issue??
An unexamined life isn't worth living.
 
ual777
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RE: UA To Exit Chp 11 In 1H04?

Thu Sep 04, 2003 9:12 am

It is not based purely on emotion. I based it off what I have seen...it doesn't hurt my feelings....Its just that he is making baseless accusations that fail to give any reasonable statistics. It seems that while Unitd is in trouble, he is doing nothing but pulling numbers out of his ass. My sources come from within the company. I don't know where his come from.
It is always darkest before the sun comes up.
 
worldtraveler
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RE: UA To Exit Chp 11 In 1H04?

Thu Sep 04, 2003 9:51 am

It's also worth noting that AA consistently gets better average fares in most markets where it competes w/ UA. (this is factual from DOT data). While I agree that pure product isn't the sole driver and UA is delivering the best product ever (amazing how the threat of extinction forces one to finally produce), AA does the best job in the industry of getting companies to pay the highest fares possible.

UA had best be attracting lots of new business but all of the indications are that it is coming by deeply discounting fares and offering quick promotions just as they are doing publicly. UA is regaining some of the corporate business which they lost but they are not addressing the cost problems or network deficiencies fast enough so the short term revenue improvements will soon be insufficient to keep the company viable. Unfortunately, there are plenty of examples of similar behavior in this industry - esp. from bankrupt carriers. There are very few examples of airlines that have turned things around; CO and HP are the best examples and that came after several trips through chapter 11 together and a rebuilding of the airline around little more than the old name.
 
Guest

RE: UA To Exit Chp 11 In 1H04?

Thu Sep 04, 2003 3:06 pm

Thank you WorldTraveler for a terrific explanation of how United is filling its planes these days. It may be common knowledge for us that high load factors don't necessarily equal high profits. But, apparently, not everyone has learned that lesson.

For those who can follow along, please note how I came to the conclusion that UA's Tokyo hub is becoming a liability. UA was losing money at Narita even before 9/11. More US airlines now offer non-stop service to Narita than in the days when PanAm and Northwest had exclusive rights. Today, United faces more non-stop competition to Narita than ever before. Given that it had exclusive rights, PanAm never had to worry about competition from other domestic carriers even at the domestic carrier's own hubs. For instance, PanAm never had to worry about AA starting service from JFK to Tokyo. Today, AA operates that route in direct competition with United. Continental also serves the Japan market from Newark. Eventually, United will be the odd man out here, since AA and Continental are much stronger carriers in the New York market.

Moreover, United now faces intense competition from codeshare routings that bypass Narita to points in Asia. As the market recognition of these codeshare routings increases, particularly the AA/Cathay pairing, much of the economic rationale for connecting services (Tokyo/Asia) will diminish. So far, Northwest has done a better job of addressing this strategic shift by finding the right plane to base at Narita. JAL's strategy has always been to make Haneda the focus of all of its intra-Asia services, thus undermining the market appeal of Narita as an intra-Asia transfer point. For these reasons, JAL and Northwest will be long term players in the intra-Asia market out of Tokyo. United, however, never quite made up its mind, whether to offer non-stop service from the US to points in Asia or whether to offer connecting service through Narita. As a result, United's Tokyo hub is now a much weaker economic operation. It may, in fact, be in its death throes.

On a happier note, it's been a good week for Continental and American. Both stocks have been soaring as a result of some really positive comments from various Wall Street analysts about their cost-cutting efforts and yields. AA's stock in particular was boosted by news today that American Eagle's traffic increased 20% year over year. The new scope clause has really given AA the opportunity to maximize the revenue and traffic potential of Eagle, all to mainline's benefits. A consensus seems to be forming on Wall Street that AA's operational loss will be significantly lower than last quarter's. They might even end up profiting on operations. Things are starting to look good for AA.

Meanwhile, some signs that not everything is well with United. Still no word on whether UA has resolved its differences with ACA. Still no business plan. In fact, rumors are that United will ask for another extension on the date to file. Still, no announcement about equity partners. Instead, news that UA plans to revise its ATSB loan application. Wonder what they are going to tell the ATSB about their pension obligations. They won't get the loan guarantee without some relief on the $6 billion dollars in underfunding. Hence, it came as no surprise that last week UA announced that they probably wouldn't emerge until sometime late in the first half of next year.

For the moment, however, no one seems to be paying attention to UA. Of course, why should they? With Continental and AA beginning to show strong signs of life, United is no longer such an interesting story. For United, however, that's not really good. The better things get for the other airlines, the worse the business conditions actually are for United.

At this point, in fact, it seems clear that Continental and AA are no longer waiting around for United to fail. They could care less. Indeed, they are acting as if United has already failed.
 
StevenUhl777
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Joined: Sun Jul 08, 2001 11:02 am

RE: UA To Exit Chp 11 In 1H04?

Fri Sep 05, 2003 4:32 am

I'd like to make two points first:

1.) When UA originally entered Ch. 11 on 12/9/2002, they initially stated it could take up to a year and a half before they emerged, making the latest date 6/30/2004. Then, with things improving for UA, there was some speculation (and I think UA discussed this openly after that) that emerging earlier was a possibility. However, given the current uncertainty at both United AND the industry as a whole, they stated that it would in fact be sometime in the first half of '04, which comes back to their original timeline, as announced in their original 12/2002 statement. Cause for alarm and panic? Hardly.

2.) The ATSB loan is a guarantee. It is NOT a bailout or a handout, or whatever you want to call it. No need to renounce US Citizenship, either. If an airline gets it, and then repays it over the agreed term with interest, then it's just that: a loan guarantee. There are MANY strings attached to this ATSB loan guarantee package, it's not a blank check by ANY means.

If the government were to simply write a check for $x billion, with NO requirements, THEN that would be a bailout. However, this is not the case, and thus a moot point.

Finally, Regardless of which party occupies the White House, the President-appointed board is going to be very tough regardless. Why? Due to the amount, the board doesn't want to take the chance of a default, and therefore ask really tough questions and look very closely at numbers. They were right to reject UA's application last year, given the shortcomings of the plan, and a board appointed by Al Gore probably would have rejected it as well, and rightfully so.
---
In general, each bankruptcy case is unique in its own right. UA's is the largest airline bankruptcy filing by far, and the two filings by CO, TW, and even the 1991 filing by Pan Am are pale in comparison. Based on that, UA will more than likely spend more time in Ch. 11 than it's predecessors. The UA case is very, very complicated, and it will take a lot of time to resolve issues. A number of them already have been sucessfully resolved. One final thought on this topic, and this relates to any company in any industry in Ch. 11: never stay too long under the court's protection, but don't leave a day too soon, either. Make sure ALL issues are resolved, and that there isn't a penny left on the table that can't be given back in concessions (labor/vendors)that will help the company once it emerges. Companies that go against this conventional wisdom either a.) emerge and then find themselves back again or b.) don't emerge at all.

UA is not asleep at the switch, in fact, if I read that press release correctly, they have a range of options open to them regarding equity financing, pension obligations, they haven't given up on ACA, Denver gates, etc. Just because it isn't front page news every day, doesn't mean that discussions/negotiations aren't taking place. I would reasonably expect that over the next few months, we'll see each of these issues resolved in some form.

There *IS* a new business plan for United. Folks in Elk Grove have not been playing solitaire or surfing the net for the last year. I don't know what it is, neither do any of you (unless you're user "Elkgrove"). Glenn Tilton and Doug Hacker (VP-strategy) know, as do other key people behind the scenes. The DIP lenders know, as does the court. Why publicly announce it now, with big issues still on the table, especially in a cutthroat industry? UA is exactly right by keeping this under raps. They won't release it until absolutely necessary. Let the competition keep guessing.

And the winner for best actress is....REESE WITHERSPOON for 'Walk the Line'!!!!!!!!
 
BeltwayBandit
Posts: 474
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RE: UA To Exit Chp 11 In 1H04?

Fri Sep 05, 2003 7:07 am

2.) The ATSB loan is a guarantee. It is NOT a bailout or a handout, or whatever you want to call it. No need to renounce US Citizenship, either. If an airline gets it, and then repays it over the agreed term with interest, then it's just that: a loan guarantee. There are MANY strings attached to this ATSB loan guarantee package, it's not a blank check by ANY means.

If the government were to simply write a check for $x billion, with NO requirements, THEN that would be a bailout. However, this is not the case, and thus a moot point.

================================

First, I didn't, and would never call the ATSB guarantee itself a bailout. It is, however, a subsidy in that it will vastly lower their cost of funds, thus making it the equivalent of a cash dividend. I did say that it would be a US Government bailout if the government had to pay up on that loan guaranty.

The ATSB was very stingy, and that shows fiscal prudence. However, they have shown signs of inconsistency (the America West guaranty was ram-rodded through by McCain). Let's stop having the US Government pick the winners and losers, and let the marketplace decide.
 
StevenUhl777
Posts: 3281
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RE: UA To Exit Chp 11 In 1H04?

Fri Sep 05, 2003 7:38 am

Beltwaybandit:

Good points. In general, I've read many people miistakenly think the ATSB loans were free cash and thus a "bailout" which is certainly not the case.

Bush hates to give away government money, and I'm glad to see that the government IS being fiscally sound. Of the total pool of ATSB cash granted after 9/11, VERY LITTLE of it has actually been doled out. Bush has instead favored alliances, thus giving way to the AA/BA tie-up, and will likely do the same in the future. Let companies earn extra revenue through relaxed regulations, as opposed to government-backed loans.

In the case of the ATSB, they should base their decision on a sound business plan that is presented before them, not political connections, as was the case in America West. If United can do that, great. If not, they can pursue equity financing, which I would much rather seem them do.
And the winner for best actress is....REESE WITHERSPOON for 'Walk the Line'!!!!!!!!
 
worldtraveler
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RE: UA To Exit Chp 11 In 1H04?

Fri Sep 05, 2003 9:54 am

Ladevale,
AA), Japan">NRT is still a very valuable hub - if the right a/c are used. The intraAsia traffic rights are very valuable; one could wish they were from a country that had a stronger, healthier economy than Japan but the rights are within Asia and those will always be valuable. I think that the US airlines will one day regret giving up their intra-Europe traffic to their European partners. However, one of the biggest reasons US airlines gave up intraEurope flying was because of the change of gauge issues; Asia is much more spread out and the frequency of flights should allow US airlines to fly intraAsia flights w/ the same a/c they use to fly over the Pacific - this strategy doesn't work in Europe.

All,
The ATSB only guarantees loans that commerical banks write but which have a higher level of risk than they would otherwise assume. Banks won't write loans, even w/ the gov't guarantee, if there isn't a strong likelihood that they will make money and recoup their investment. UA's business plan isn't substantially different than it was before bankruptcy and they are still not paying many of the bills which they will have to pay if they were not in bankruptcy; thus their current finances are not at all indicative of how they will perform outside of bankruptcy. Banks will consider that in making loans.

Finally, as Ladevale points out, every other airline is improving financial performance. UA's creditors will become increasingly restless if UA doesn't turn things around very soon. The differing qualities of management is apparent between AA and UA; AA came breathlessly close to falling off the cliff but is taking full advantage of the opportunities afforded it w/ its near-death experience and is positioned to regain its previous preeminence in the industry. While AA's investment in AA), Japan">NRT flying was costly initially (loads were very light for months around the war), AA will very likely steal many of the pax that have flown UA to AA), Japan">NRT. Also, AA has a much better track record in dealing w/ the encroachment of low cost carriers and they are moving into transcon markets in full force. Getting out of bankrupcty is a herculean job for any airline but it is even harder for UA when other network carriers are adapting their business models to the new environment much faster and more successfully than UA.
 
UA744Flagship
Posts: 1433
Joined: Tue Jul 13, 1999 1:55 pm

RE: UA To Exit Chp 11 In 1H04?

Fri Sep 05, 2003 10:09 am

United's premium product on international and domestic routes is by no means outstanding.

I won't argue with you. But American's is not a great leap forward over United. You're kidding yourself if you think AA's premium products are equivalent to the "prestige" international carriers.

While your writing is quite persuasive, this is not fact as you lay it out, and is quite a subjective matter of conjecture.

American bests United on premium transcon routes and in domestic first/business out of ORD.
WorldTraveler adds:It's also worth noting that AA consistently gets better average fares in most markets where it competes w/ UA. (this is factual from DOT data).

While this is true in many markets, it is not indicative of the "premium transcon routes" as you claim. And how can American best United in domestic business out of ORD? American does not have a mid-con 3-class product.

Here is official data from the DOT DataBank on revenue/fares for 2002 in the NYC/BOS-SFO/LAX markets that AWA has decided to penetrate:

Annual Revenue from BOS/JFK-LAX/SFO Routes
AA: $425 million
CO: $166 million
DL: $94 million
UA: $500 million

United maintained fare dominance in all of the four mentioned routes.

I can only list the data for one of the routes because I am required to not divulge all the data given to me.

For the BOS-LAX market, you would think AA would have the higher fares/yields. Ladevale, especially you would think this, no? Because of AA's "premium catchment" in BOS, etc. right?

Nope.

Average Fares BOS-LAX/ Total Revenue BOS-LAX:
AA: $250/ $52 million
DL: $167/ $19 million
UA: $255/ $40 million

Ladevale, you write eloquently, but do back up your statements before you pass off your opinion as fact or almighty gospel.

no wire hangers!
 
UA744Flagship
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RE: UA To Exit Chp 11 In 1H04?

Fri Sep 05, 2003 10:15 am

WorldTraveler,

I just wanted to say I enjoy your posts very much.

They are particularly objective and not filled with loyalist defensive/offensive claims.

However, I disagree with the speed at which other carriers are adapting to the success of the LCC model.

AA has implemented significant changes, including rolling its hubs and redefining STL's role as a hub, but AA, along with all the network carriers, have not adapted their businesses enough.

I am optimistic that United has a business plan that is more dramatic and eclectic than the "tweaks" the other airlines have made while it has appeared United has moved sluggishly. This is based on insider information and reports of a revolutionary business plan by John Tague, a few consultants, and various industry articles, though the number of informed consultants and media sources remains decidedly small.
no wire hangers!
 
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airzim
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RE: UA To Exit Chp 11 In 1H04?

Fri Sep 05, 2003 10:20 am

Ladevale,

Not sure what you are referring to when you discuss JAL's Haneda intra-Asian strategy. The only services that are offered by JAL or anyone for that matter is to destinations within Japan from HND. Other than EVA Air and China Airlines services to TPE and HNL, which have now been moved to Narita, there are no international services between HND and anywhere.

In fact your argument would also be the same with NW. They fly LAX/SFO/SEA/JFK to NRT with little local feed or presence except for hub flying. Also NW sends virtually all flights to Asia through NRT while UA with much better West Coast presence is able to offer nonstop flights to BJS/TPE/HKG/ICN that NW cannot.
 
ual777contrail
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RE: UA To Exit Chp 11 In 1H04?

Fri Sep 05, 2003 10:29 am

Ladevale,
Your anti-united statements and ignorance stating facts is hilarious to say the least. You sound like a high schooler stating his bias point. Did United treat you bad over the years? Have you had your dungeons and dragons cards lost on on one of our aircraft, I speak for myself and nobody else when I say almost to a tee what ualflagship said and get your facts straight. There was an article ran about 6 months ago when people like you hogged the post of how horrible United is and was. The article stated how united was bigger in the 20 most profitable routes in the US. Most of which travel in and out of the New York area. If anybody has this article would you post it please. If I find it ladevale I will send you a copy.


ual 777 contrail
 
worldtraveler
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RE: UA To Exit Chp 11 In 1H04?

Fri Sep 05, 2003 10:35 am

Flagship,
obviously if you have insider information you are at an advantage to all of us. John Tague certainly should come w/ some pretty good ideas and I'll be happy for you if UA can make them work; unfortunately, I don't see them happening.

also, on the average fare info from DOT, you are right that UA and AA are closer than in the international markets but AA has historically maintained a fare premium over UA; I usually look at quarterly vs. yearly data but your numbers are similar to what I see - just for different periods

Business adaptation is measured by profit improvement more than new programs or initiatives; this fall and winter will be a very good measure of what all of the airlines are actually doing - there should be no gov't help and the economy is somewhat improving but the industry is far from out of the woods meaning that there will be some winners and some losers.

StevenUhl,
what options are there for the pension and debt repayment hurdles? maybe I'm missing something but I only hear Tilton saying that he needs help w/ pension funding regs and a gov't backed loan. Given that the gov't just announced that most defined pension plans are underfunded in this country, I doubt if the gov't is going to do something for UA that it couldn't do for other companies and industries.

yes, there should be lots of options for UA to get equity financing but all depend on UA convincing investors that it has a credible business plan. Right now, they haven't convinced anyone they are turning things around. If they can and deliver, UA might have a future but I see very small steps forward more than the dramatic leaps that should happen in bankruptcy.

This will be a very interesting winter, possibly defining the future of the industry.
 
StevenUhl777
Posts: 3281
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RE: UA To Exit Chp 11 In 1H04?

Fri Sep 05, 2003 12:14 pm

WorldTraveler:

Re: pensions: I don't have inside info., so I don't know all the options being considered. My reference to the "options" is what was mentioned in the article about delaying reemergence...one of the executives in the article stated that they are looking at a range options to resolve the issue.

The only possibility I can think of is related to the pilots, but I'm sure there's others out there that would also make sense. The pilots pension plan represents the vast majority of the shortfall, but each plan will have to be resolved. UA will have to make some sort of deal with the pilots in order to get ALPA's signoff....and based on past history, my bet is that ALPA will settle for nothing less than a large stake in the "new" post-Ch. 11 United. Maybe not 50.1% or CEO veto rights like before, but ALPA will expect to keep their board seat at the minimum. On the flip side, the pilots have the most to lose of all the employee groups, (i.e. pay and ability to get a comparable job at another major) so it's also in their best interest to resolve the issue in a way that will benefit the company and ensure it's long term survival, and to do so with minimal acrimony and taking the least amount of time.

You are very correct in stating that the winter will define the future of the industry. How the individual airlines perform, restructure, and emerge from the slow season come March/April will answer MANY questions raised in these forums the last few weeks/months.


And the winner for best actress is....REESE WITHERSPOON for 'Walk the Line'!!!!!!!!
 
artsyman
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RE: UA To Exit Chp 11 In 1H04?

Fri Sep 05, 2003 12:35 pm

I just don't see how the pilots can be given a large stake in UAL. Other than the fact that it has been argued by most UAL employees I know, and many on this board also, that giving the pilots control was one of the main contributing factors that got UAL to the position they are currently in. There are quite a few people in line for a stake in UAL long before the pilots get anything, never mind the 51% you talk of. The people that lent UAL 1.5 billion so that they could keep flying during Chapt 11 will get a stake in the new company. The other debtors and leasers that UAL basically screwed over while in Chapt 11, and lastly the ATSB are taking a % of each of the companies that they gave loan guarantees to. In short, UAL owes so much money to just about everyone that they are just not in a position to give % of companies to any employee group, it will need to be approved by the bankruptcy judge before anything can happen, and I just cannot see any creditor that has been screwed for millions of dollars ever accepting an agreement that gives the pilots control of the company ever again.

[Edited 2003-09-05 05:50:29]
 
StevenUhl777
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RE: UA To Exit Chp 11 In 1H04?

Fri Sep 05, 2003 1:12 pm

The pilots are too strong collectively and too smart to just let their pension benefit vanish like a fart in the wind with nothing to show for it. While bankruptcy is tough on everyone in the company, the pilots (as can other affected groups) can make things REALLY tough day in and day out for United if they feel like they are being screwed over in a big way, which is what happened 3 years ago. The last thing management, th creditors and the DIP lenders can afford to have happen is for incredibly angry employees (even more so than before) on the front lines "slowing things down" due to issues like this. It's in their best interest, if they want to see repayment in some form at all, is to work this issue out VERY quickly and VERY quietly. United's gained a lot of positive momentum in the past six months or so, and it would be a shame for an issue like this to derail that.

Without knowing the specific options being looked at, or a complete knowledge base of the restructuring plan, no one here on the site can speculate as to what will be the final outcome. It's all conjecture and guesses at this point, with my thought above being included.
And the winner for best actress is....REESE WITHERSPOON for 'Walk the Line'!!!!!!!!
 
artsyman
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RE: UA To Exit Chp 11 In 1H04?

Fri Sep 05, 2003 1:30 pm

Steven, I agree, loads of progress has been made over the last 6 months, especially in PR and in Operational performance, but to date, very little in the way of actual critical structural change has occured. I agree that hopefully the pilots sort it out quietly, but if I was a pilot approaching my retirement, there is not a deal that you could offer me that will make me bend on my pension. Being given a % of the company would mean nothing to me, especially after I have just seen my initial share of the company go down the toilet, so then just waving goodbye to a large portion of my pension would essentially be the double flush....

Does anyone know what percentage of ALPA at UAL is over 50 ? as I cannot see any of them accepting any reduction in pension, as the long term viability of the company is of very little concern to a person approaching retirement, all he / she cares about it stability for themselves and their familes

 
worldtraveler
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Joined: Tue Aug 05, 2003 6:18 am

RE: UA To Exit Chp 11 In 1H04?

Fri Sep 05, 2003 11:35 pm

in alot of respects, US restructured so quickly that the employee issues (pension dissolution for pilots) happened w/o a whole lot of opportunity to discuss or determine the truth. Agree w/ both of the above posts that the pilots are not going to be suckered again and the company is not in a position to give big chunks of the company to employees. Besides, employee ownership is given for future (or foregone) pay and it is true that UA has real, current debts to pay. I'm not sure that ownership in UA will be enough to satisfy the creditors.

I don't see any way for UA to emerge from bankruptcy w/o an outside ownership change involving an injection of capital (such as a leveraged buy out) or an acquisition of at least portions of the company by another airline (either of which still might involve terminating some of the pension plans). Even though UA may return to operational profitability in bankruptcy, there are more people that have to be paid to get out of bankruptcy than there is cash available.
 
Guest

RE: UA To Exit Chp 11 In 1H04?

Fri Sep 05, 2003 11:38 pm

Yet another set back in recovery.

UAL was in trouble before 9/11, they lost nearly $2 Billion in the three quarters leading up to it. UAL should just go away quietly.
 
StevenUhl777
Posts: 3281
Joined: Sun Jul 08, 2001 11:02 am

RE: UA To Exit Chp 11 In 1H04?

Sat Sep 06, 2003 3:46 am

The first set of debt covenants were "easy" to meet, by design. DIP lenders want the company to start off small and make the changes such as CBA's, leases, and other changes that will help immediately turn things around, which United has largely accomplished, and the reason why they have met the requirements for 6 (7?) consecutive months. It's rare, if not unheard of, for "major" changes to take place in the first few months of any bankruptcy case, that is put off until the end. Creditors and DIP lenders haven't been demanding publicly for a comprehensive business plan, and won't, until these "smaller" issues have been put to rest.

Now comes the hard part....

UA will now face the bigger, more painful issues requiring tough decisions. Pensions, route structure changes, equity financiing, long term business plan, among others. From what I've read so far, these tough issues are being addressed and worked on, and we will begin to see the results over the next six months. I will have to agree with WorldTraveler that UA would be better to get private equity financing as opposed to an ATSB loan guarantee...better off not having the government involved in the daily business!

WorldTraveler: The creditors being owed cash won't demand payment in full on day 1, post Ch. 11. One of the benefits (?) of Ch. 11 is to provide the company the opportunity to restructure payment plans, etc. Early on in the process, a creditors committee was formed (typically comprised of the crediors with the largest amounts owed) and approved by the court, and they then will review approve the payment plans for the company to meet. The priority will be to lease holders on aircraft and interest on debt, airport leases and landing fees, and so on down the list.
And the winner for best actress is....REESE WITHERSPOON for 'Walk the Line'!!!!!!!!
 
worldtraveler
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Joined: Tue Aug 05, 2003 6:18 am

RE: UA To Exit Chp 11 In 1H04?

Sat Sep 06, 2003 6:12 am

StevenUhl,
agree that all of the debts won't have to be paid on day 1, post Ch. 11. The problem is that UA has so much debt (secured and unsecured) and that creditors usually don't agree to significant reductions in the total amount of indebtedness, only to different terms for financing it (usually spread out over a longer period of time). UA's aircraft secured debt alone is nearly $15 billion - meaning UA would proabably have $1B/yr debt payments for many years to come. Further, based on US's bankruptcy, the creditors offered a willingness to spread out payments and reduce payments on older planes in return for the opportunity to finance new US aircraft - RJ's and new Airbuses. UA already has a fairly young mainline fleet and is contracting out most of their RJ flying, making it difficult for UA to be able to promise the finance companies much new business. As for airports, most have been burned by bankruptcies and may relax payments some but it will probably come at the cost of new competition from new gates or from gates UA will have to release in order to cut payments.
I may be missing something, but I don't see how the numbers can add up - revenue has to either dramatically increase w/ the same assets or assets have to be unloaded but revenue has to remain the same. Either scenario seems almost impossible in today's environment.