United Airline
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Morgan Stanley's View On The UA- US Merger

Wed Jun 27, 2001 11:28 am

Hello everyone.  Smile

Recently, there are reports, as well as rumours saying that the Proposed UA-US merger will never occur, regardless of how confident James Goodwin is.

I have had a few words with a few analysts, as well as the Managing Director Mr Tony Liu of Morgan Stanley. I have also attended one of their board meetings (I have proves!) They all believe that the proposed merger will go through.

First of all, Wolfy is a smart guy and he is fully aware that under Bush's administration, the merger will benefit he himself, as well as US Airways in terms of the whole company. Republicans are KNOWN to support huge firms.

By merging two airlines, UAL will dominate both West Coast as well as East Coast and that will be a monopoly. Nevertheless, let's look at Microsoft. Under Clinton's Administration, the Court has ruled that Microsoft as a monopoly. Anything happened to Microsoft? NO! Microsoft is not recieving any kind of penalties. The anti-trust thing is simply GONE.

There are all different kinds of monopolies in the US, as well as all over the World. It is hard to stop them.

Although it seems that the Justices do not favour the merger, the Managing Director, as well as the analysts here at M.S strongly believe that by selling D.C. Air to AA, the merger will probably go through. Actually, J Goodwin is likely to come up with something new in the coming months to have the merger going through.

The merged airline will create a fierce competition between airlines like American, Delta, Continental etc.

Anyway, let's see!

Comments on this?
 
Cody
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jun 27, 2001 12:00 pm

Yes I have a comment. I foresee nothing but tragedy and havoc if this merger goes through, for everyone except Stephen Wolfe and a few of his friends.
 
D L X
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Repeat After Me...

Wed Jun 27, 2001 12:06 pm

Wolf (no 'e')
Wolf (no 'e')
Wolf (no 'e')
Wolf (no 'e')
Wolf (no 'e')
Wolf (no 'e')
Wolf (no 'e')
...


 
Cody
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jun 27, 2001 12:12 pm

OK sorry I wasn't sure. Stephen Wolf and a few of his friends.
 
D L X
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But Anyways...

Wed Jun 27, 2001 12:12 pm

United Airline, where is your source of information?
I find it a little hard to swallow that Morgan Stanley thinks this merger is going to go through, despite your 'proove.'

There's a huge problem with just selling off DC Air to American. You know how they just bought TWA? Guess what airline owns a very significant number of gates at National? Uh huh. TWA. Now, AA does. TWA currently leases out all this gate space to other airlines. (I believe they own the whole Banjo and a couple more.) With AA at the helm, you will see those gates being revoked, and AA flights moving in. Now, this is all before AA gets DC Air. The combo of the DC Air operation and AA's now current operation will be quite a bit ahead of the next largest airline at DCA - Delta.

And about Microsoft, don't go thinking it's over just yet. The case hasn't disappeared. It's in appeals right now. These cases take a LONG time. Especially when MS lawyers' sole purpose is to stall the case.
 
United Airline
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jun 27, 2001 12:45 pm

D L X:

I am now working as an Investment Trainee at Morgan Stanley for my summer Intern. And I had the chance to speak with a few analysts, Brokers as well as the Managing Director of Morgan Stanley (Hong Kong). More than 90% of them believe that the merger will go through. And of course, some of them believe that it will not due to the reasons we have discussed before.

I was a bit surprised but......

Des
 
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STT757
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jun 27, 2001 12:54 pm

UAL will not be allowed to aquire all of U, most likely scenario is that UAL picks up Charlotte and another piece while Philly,Pitt and everything else is sold off.

I definetly don't see UAL picking up all of U's LGA slots, the Port Authority and the FAA are pushing for parity at LGA. Most likely scenario at LGA each slot is auctioned off to the highest bidder and smaller carriers are given preference.

U is worth more piece by piece than it's whole, and that DC Air thing isn't going to fly either especially with AA involved. Again it's worth more to sell it off to the highest bidder.
Eastern Air lines flt # 701, EWR-MCO Boeing 757
 
D L X
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jun 27, 2001 1:01 pm

I strongly disagree with the idea that US is worth more piece by piece. That's (imo) an argument used by the people who are trying to get it sold piece by piece because no one is going to be able to swallow the whole thing.

US is so incredibly valuable because of its incredible market presence on the east coast. That wouldn't be the case if it was just an airline of DCA, or LGA, or BOS, etc. Fact is, from all big cities on the east coast, there are flights to most of the other big cities on the east coast non-stop. CO doesn't have that, DL doesn't have that, and none of the other airlines come that close even. Breaking US into pieces makes it just another airline.

As for Morgan Stanley's view, why hasn't Morgan bought the stock then? If the merger is so definite, there's a lot of money to be made. Wall street just doesn't seem to think that the merger will happen as evidenced by the stock price.
 
Guest

RE: Morgan Stanley's View On The UA- US Merger

Wed Jun 27, 2001 1:03 pm

There should be just one U.S. airline, they all pat eachother on the back anyhow, plus, there is no 'true' competition. Everyone, including analysts, just guess based on [historical] data. No one knows exactly what will happen. Business as usual, one could say!  Wink/being sarcastic
 
United Airline
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jun 27, 2001 1:10 pm

Wall Street HATES uncertainty. That's why!

Now they are uncertain whether or not the merger will go. They are just doing an estimation.

Probably UAL will come up with something new, as the analysts have said.

Just my 2 cents.
 
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STT757
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jun 27, 2001 1:15 pm

From an economic perspective D L X , U sold off piece by piece would earn the shareholders much much more money than if they just sold to UAL for $60 a share (which they're not going to get).

Aircraft,facilities,ground equipment,and landing rights sold piece by piece would earn more money for U's owners (shareholders) than another airline buying them whole.

This is a fact for most companies outside the dot com flops that have no solid assets.

It's also true in auto theft of all things stolen cars taken to a "Chop shop" and cut up for parts will bring in more money than selling the car whole.
Eastern Air lines flt # 701, EWR-MCO Boeing 757
 
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jun 27, 2001 1:27 pm

United Airline - interesting thread for a change. I'm impressed!  Smile

However, I must respectfully disagree with Tony Liu and his army of analysts. The UA-US deal is completely dead in the water in my opinion and here are the reasons why :

a) Justice Department.
I worked with DOJ's antitrust division on the TWA-AA deal and their views on UA-US were pretty clear. They will oppose it. That doesn't stop the deal from happening, but it will definitely put a huge obstacle in their path.

b) Labor.
Lets not even go any further than the AFA. They are suffering from ALPA-envy and will go to any length to derail the merger, if only to just flex their muscle. The other unions aren't gonna welcome it with open arms either.

c) Cash.
UA doesn't have the money to buy US. Simple as that. They don't have the leverage in the financial markets to raise that kind of capital either, unless they are willing to assume HUGE amounts of longterm debt at unfavorable rates. That will put them up shit creek with longterm debt up the wazoo. Not the best thing to do when you are bleeding more red than a Chinese flag in the washing machine.

d) DC Air
If you watched the Senate hearings on DCAir, you will have seen John McCain and Byron Dorgan stifling their laughter as Robert Johnson tried to justify the need for DC Air. Especially if AA gets the equity stake they are angling for, expect the Senate Transportation committee to crack down bigtime on this farce.
"The A340-300 may boast a long range, but the A340 is underpowered" -- Robert Milton, CEO - Air Canada
 
United Airline
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jun 27, 2001 3:33 pm

Is it possible for UAL to borrow money for the deal? If the merger goes through, it is possible that UAL can get some sources of finance through US Airways, or even through the sale of DC Air.

Just my 2 cents.
 
flashmeister
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jun 27, 2001 10:24 pm

UAL should be hoping and praying that the DoJ won't reverse course and allow the merger... that will send the airline right down the proverbial crapper.

They have so many internal problems as a resultof taking their eye off the ball that to add the financial and organizational burden of US would be devastating.

They should convince US to join Star and clean house at home... then go for another acquisition or growth strategy after they get things cleared up.
 
United Airline
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RE: Morgan Stanley's View On The UA- US Merger

Sun Jul 01, 2001 12:53 pm

United said seeking to alter US Airways merger deal
Saturday June 30, 1:06 AM EDT


WASHINGTON, June 30 (Reuters) - With a key deadline fast approaching, United Airlines is seeking to discard its current $12.3 billion deal to acquire US Airways and devise a new plan, the Washington Post reported on Saturday.

Citing sources, the newspaper said United, the world's largest airline and a unit of UAL Corp (UAL), was seeking changes in the acquisition proposals in an effort to get a lower price and to address regulatory concerns that the deal could stifle competition.


Sources told the Post United is considering several changes, including buying only parts of US Airways instead of the whole airline. United was also considering selling some routes to low-fare carriers to generate competition, the sources said.

The Post said all three airlines declined comment.

United announced in May 2000 plans to acquire Arlington, Virginia-based US Airways Group Inc (U), the sixth-largest U.S. airline, in one of the biggest ever domestic aviation merger proposals.

In a move to satisfy Justice Department concerns about competition, United agreed to sell some US Airways assets to American Airlines as part of the complex merger deal. If completed, the merger would make United Airlines by far the largest provider of domestic air travel in the United States.

Since the deal was announced, antitrust concerns and a weakened economy have dramatically changed the prospects for United's acquisition of US Airways, the Post said.

United shares have fallen 41 percent, from $60.38 the day before the accord was announced to close at $35.15 on Friday while US Airways shares have fallen slightly over the same period, from $26.31 to $24.30, the Post said.

United has until July 11 to decide whether to notify the Justice Department that it intends to go ahead with the acquisition, the Post said. Failure to do so will automatically doom the current agreement, because the airlines promised antitrust regulators that they would provide 21-day notice before closing the acquisition, according to the newspaper.

The Post said under the terms of the deal, neither side can alter the proposed merger agreement until August 1. After that date, the paper said either party would be free to walk away or restructure the deal.


©2001 Reuters Limited.



Perhaps UAL will sell part of US'a assets to AA, as well as a third or even a fourth party.

 
DCA-ROCguy
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RE: Morgan Stanley's View On The UA- US Merger

Sun Jul 01, 2001 2:26 pm

It still seems to me that US's Board is intent on selling the airline, in whatever fashion they can do it for the best return for shareholders. This means that they'll stick with Wolf and Gangwal, and try to sell the airline even if they aren't going to get the $60 stock price for the whole that they agreed upon last year. If I read Petzinger's portrayal of Wolf in Hard Landing correctly, Wolf will do whatever it takes to accomplish the purpose of sale. He's batted .1000 so far.

This history and the continuing commitment of the board suggest to me that US will not enter Star and try to make it on their own. It's an intriguing possiblity Aaron, but would Star feed come at a high enough yield to feed US's voracious "Mr. Creosote" cost structure? High enough to satisfy the board and Wolf? Star membership would be great for existing US FF pax (like me) but it's unlikely to produce satisfactory returns.

If US and UA fail to propose a plan by July 11, they may be forced into a Star arrangement for awhile, but it seems to me that the board will keep trying to sell. Probably by putting the airline up to bid, so to avoid a collusionary situation. UA has made pretty clear with the original $60/ share offer, that they'll bid whatever it takes to get what they want--probably, IMO, CLT and PIT and BOS. LGA is possible but as someone else suggested, DOJ and FAA may try to break up US's huge share there.

So far I haven't seen anything to contradict the bidding/ breakup scenario I've discussed before; AA would probably also bid whatever it took to get what it wanted, IMO PHL including its int'l routes. NW would bid for the Shuttle, and CO and DL would slug it out for DC Air. (the 49 percent that Johnson would sell out in three years as he's suggested).

Jim
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cch362
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RE: Morgan Stanley's View On The UA- US Merger

Mon Jul 02, 2001 3:13 am

If US Airways were to be carved up piece by piece, I think PHL and its international routes would be rendered worthless. This is especially the case to AA because of incompatible aircraft in AA's Boeing fleet (plus a handful of A300s) and AA's intl network already established at JFK.

Mr. Wolf was brought to US specifically for making it a target for takeover. He painted the aircraft nicely, added international service and polished the airline's outward image. People's perception of US becomes highly inflated and they are deluded to think that it has great investment value regardless of signs of profitability. The fact remains that US has a high cost structure that makes it uncompetitive against other airlines. Some pieces like BOS, LGA, DCA, Shuttle and PIT may be great assets. Others like PHL, BWI, CLT, Florida and Europe are less attractive. In the long run, an acquisition of any part of US may generate more passengers, but its profitability is doubtful.

This is turning out like the story of Pan American repeating itself, the domestic version of an aviation dinosaur on its final approach. Who knows whether US will have a crash landing, an aborted landing, or somehow just disappear from the radar screen?
 
flashmeister
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RE: Morgan Stanley's View On The UA- US Merger

Mon Jul 02, 2001 9:01 am

You're probably right, Jim, that the board will continue to favor a sale, but I can't say that I blame them. The Star arrangement won't stop the blood forever but it would buy time until they can figure out their next moves...

I would expect UA to grab BOS and CLT, but I'd also expect them to go after PHL rather than PIT. Granted PIT is a much better facility, but PHL is a better market, especially if UA won't get the benefit of having _all_ of US' existing Northeast network and has to grow on its own.
 
LON-CHI
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RE: Morgan Stanley's View On The UA- US Merger

Tue Jul 03, 2001 9:34 pm

Looks like Morgan needs some new analysts if "more than 90%" of them thought this merger would go through.
 
HyperMike
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RE: Morgan Stanley's View On The UA- US Merger

Tue Jul 03, 2001 9:52 pm

DCA-ROCguy, NO NO NO NO NO. The US Airways board doesn't want to sell the airline. It's Mr. Wolf (without the 'e') that wants to sell the airline.

Everyone seems to think that US Airways is a failing airline. Would you all please start listening to someone other than Mr. Wolf about US Airways' financial position! Do you realize just how easy it is for a corporation to declare a loss while its really making money hand over fist? Look at the balance sheet, will you! US Airways is PAYING CASH for most of their new fleet. Rather than finance them over the long-term, they're paying for them up-front and depriciating them at an accellerated rate.

Granted, not hedging fuel costs is just downright dumb.
 
DCA-ROCguy
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RE: Morgan Stanley's View On The UA- US Merger

Tue Jul 03, 2001 10:25 pm

Hypermike, you'll need to show us a news report from anywhere that says that US Airways' board doesn't back Wolf and Gangwal completely. Everything I've seen indicates that the board backs them strongly. That's who hired them.

Yes, US Airways is not failing; I've been arguing for awhile that they can hold out 8-10 years if they want to. But 13 cents seat/mile is a far higher cost structure than any of the other Six Families, and almost double that of Southwest. US Airways *will* fail eventually unless they can get their costs down into at least the 8-9 cents/ seat mile range. Between their unions, their hodgepodge fleet, mostly short flights, and sell-minded Board, US Airways is very unlikely to be a long term survivor on its own.

But at least this merger has failed, thank God. The airline will probably be broken up within two years.

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
Philly Phlyer
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RE: Morgan Stanley's View On The UA- US Merger

Tue Jul 03, 2001 10:47 pm

To Cch362:

You're profile reports that you are a "business analyst specializing in the airline industry." That is frightening based on your comments above. You stated that "PHL and its international routes would be rendered worthless" and that "great assets" would include BOS and PIT while PHL and CLT would be "less attractive."

You need to do your homework. If you take the shuttle out of the picture, U's operation in BOS is not that large and has several strong competitors (no ability to dominate market). While PIT is a very attractive and efficient physical facility (one of the best in the country), it is not their most profitable hub. On the other hand, CLT and PHL (with the Shuttle and LGA) are the assets that are sought after.

CLT is the only real alternative to ATL in the Southeast and is in a rapidly growing region. Every major carrier in the US would love to have that operation. PHL has a very large population base in driving distance and, as such, has the highest O&D traffic in the U system. It also presents a real alternative to JFK and EWR for international connections. [U is not the only carrier that has been adding international seats in PHL.] I would agree that AA would have no interest with what they are doing in JFK, but UA and NW are different stories.

As to the future of U. I believe that Wolf has been setting this airline up for a sale since he walked in the door. This is his history with every airline. [As such, unless the board throws him out, I believe that is the future.]

The airline dominates the Northeast and Mid-Atlantic (even with Airtran, JetBlue and Southwest) if you check number of seats and flights offered. [Who else, for example, will fly you from Albany to Harrisburg, Syracuse to Norfolk, or Buffalo to Richmond?] U can be profitable, but Wolf wants to sell and get out. [A Wolf is always a Wolf.] It's a real irony that he must make the patient look sick to be able to make a case to sell it (as a whole, in pieces or, after frightening the employees, to them) It is one of the quirks of this industry. Normally, you want to turn profits on your financial statements (whether they are real or not). In this industry, you want to post losses (whether they are real or not) to push the sale past the regulators.

 
Tan Flyr
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RE: Morgan Stanley's View On The UA- US Merger

Tue Jul 03, 2001 10:58 pm

JUst an off the wall question for you guys back East that fly US a lot...If a breakup would occur, would America West be able to take any part(hub) of it and make a go of it?

Bringing a new carrier in the region would be the most sound approach to me. Also, only someone with a low cost structure will ever be able to compete with Southwest and make it, IMO.
 
jaysit
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RE: Morgan Stanley's View On The UA- US Merger

Tue Jul 03, 2001 11:02 pm

Hmmm.

My barber's cousin's dogwalker who is related by adoption to Stephen Wolf's personal chef, who once slept with a First Boston M&A analyst also told me that they were 99% sure that this deal would go through.

Now, I'm soooooo surprised it did not.
Atheism is Myth Understood.
 
HyperMike
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RE: Morgan Stanley's View On The UA- US Merger

Tue Jul 03, 2001 11:40 pm

DCA-ROCguy,

For once, I'm caught with my pants down. I can't back up what I've said. It's based on a lot of rumor. But I have a pretty good sense of when a rumor is just a rumor and when there is some basis to the rumor.

Frankly, I strongly believe that the board is going to hang Wolf. They're going to need a fall guy.
 
DCA-ROCguy
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RE: Morgan Stanley's View On The UA- US Merger

Tue Jul 03, 2001 11:47 pm

Philly Phlyer's right about PHL--it's a strong major-city market that will host a major-carrier hub operation after all this is over, whoever that carrier will be. PHL's non-US Airways international air service is finally catching up to what an O & D market of that size can support, after it languished through most of the 1990's.

Tan Flyer, I doubt that America West would buy a US hub operation. If HP really wants to be another Southwest it can't take on the debt required to buy any piece of US. Also, all three US hubs have flights to Europe. HP would need to evaluate whether it wanted to get into the costs and fleet-type additions required to operate that service.

What's the deal with the new PHL commuter runway, PHilly Phlyer? I can't remember if you posted on the thread we had about that recently, but apparently the $225 million runway is getting little use. IMO it's way too close to the 9-27 runways, and pointing it at the terminal with its high-rise hotel and ramp-control towers wasn't a great idea.

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
D L X
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jul 04, 2001 12:11 am

Holy Crap! Is that Hypermike?! Welcome back!


As for the thesis of this thread, yup yup. I'm going to be doing the opposite of what Morgan Stanley says now. 90% thought the merger would go through? Hmm...


Philly Phlyer, right on. The only issue i have is that the Boston operation, even without shuttle, is quite large at 183 flights daily. That's comparable to the Airtran Atlanta operation iinm.

US' strength is its stranglehold on the east coast. The airline is greater than the sum of its parts. Breaking up is a bad idea. Let's put it this way. Breaking it up is much more likely to appease regulators than selling to UA. So, why did the board try to go that route instead?
 
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RayChuang
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jul 04, 2001 12:13 am

I have this feeling that the majority of the US Airways' board of directors will force out Mr. Wolf and his allies in the now-failed merger proposal.

IMHO, expect US to afterwards do some cost-cutting, very likely shutting down the Metrojet operation since it cannot really compete against the likes of Southwest, JetBlue and AirTran.

I think US in the longer run needs to do two things: 1) look at possibly starting up a Florida hub (JAX?) and possibly looking at creating a more westerly hub to better serve the western USA (MCI maybe?).
 
DCA-ROCguy
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jul 04, 2001 12:26 am

DLX, the UA board probably gambled on a buyout of US because they thought they could get away with it. The Reagan Justice Department waved the late 1980's airline consolidation through to the second window, handed them their burgers, and sent them off to screw middle America into the ground. Why not try again? The payoff would be enormous for management and shareholders if they could pull it off--last year that is.

In an industry where the financial picture can change so fast, it's hard to believe they really planned on the transaction taking 13 months to gain approval. Had they merged last year, they would have been in a much better financial position to pay for the integration of the two carriers.

I also get the impression that UA and US were genuinely caught off guard by the ferocity of opposition to their deal last year. The wily Wolf-Man had even provided to create a new airline with a capable minority CEO, who could possibly oppose such a deal? Surely the deal would be done by the end of summer 2000? UA and US did not allow for the fact that there's a record here--consolidation had happened before, and consumers had been paying rape fares in non-Southwest markets ever since. The proposal unleashed a lot of pent-up anger.

Jim



Need a new airline paint scheme? Better call Saul! (Bass that is)
 
HyperMike
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jul 04, 2001 12:34 am

Yup, It's me. In the flesh. DLX, drop me a line, off-line.

Let's be serious here. HP buying US facilities? Puh lease. My prediction is that US will bring in a turn-around CEO and wipe things up. Jethrojet will be gone. It's just not making money.

US Airways needs a serious west coast hub. I really think that HP is a target. With a common fleet of A320s, 737-300s, and 757-200s, its very possible. Granted, the engines have some differences, but US has a mixed bag of engines anyway.

I really think Mr. Wolf's days are numbered.
 
DCA-ROCguy
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jul 04, 2001 1:04 am

America West a target for US Airways? Very unlikely, although a West Coast hub would be attractive for US. Southwest has established hub operations at both Las Vegas and Phoenix. Why would US with its 13 cents-seat mile cost want to go up against Southwest with its 7-cents seat mile cost? Just imagine the reaction from US's unions if HP, with its far lower labor costs, were to be integrated into US's workforce. It'd be something like AA's pilot union's reaction when AA bought lower-cost Reno Air.

And US can't beat Southwest on its own East Coast turf at BWI. US would be slaughtered at PHX and LAS.

Come to think of it, is there *any* West Coast airport at which US Airways could house a financially tenable hub operation?

LAS and PHX are out, see above.
Delta has already taken SLC.
UA and Frontier have Denver; a three-hub bloodbath has been tried there unsuccessfully before.
SNA is full.
LAX is full.
AA has SJC, and WN is there to boot.
WN is entrenched at OAK.
SFO is a congested and snarled ATC hairball.
DL failed at PDX.
SEA is too far north, unless US bought AK.
SMF? Maybe, its O & D base is similar to SLC's and well-located. But WN is 80 plus daily there.
ONT? Maybe, but WN is established there too.
SAN is too far south, and constricted by size.
LGB has psycho-NIMBY neighbors, and JetBlue just bought all its NIMBY-permitted slots.

Any other options?

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
HyperMike
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jul 04, 2001 1:09 am

You're forgetting something about CSMs. They are always higher in the northeast. Landing slots are expensive and winter maintenance is hell. When SWA started service into a few northeast destinations, their CSMs went WAY up on those routes. CSMs on most long-haul routes are lower than those on short-haul routes. Because US has so many short haul northeast flights, their costs are expected to be higher.

Remember, EVERYTHING in the northeast is expensive. Have you ever tried to rent a hotel room in New York or Boston for less than $150?
 
Philly Phlyer
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jul 04, 2001 1:56 am

DCA-ROC Guy:

My understanding is that the new commuter runway was designed and started before the move from turboprops (DH-8s, etc) to regional jets. The plan was to move all commuters to the new runway and cross runway (take-offs on one and landings on the other). Also, the runway use will go up when the airport approach systems are upgraded. Until the new system and GPS are used by more aircraft, the runway is too close to the existing 9-27 right to be used as often as is was intended.

I have seen it in use. The other day when landing on 9-27 right, I watched a DH-8 land in front of us on the new runway.

DLX:

Regarding Boston Airport. According to the US Airways website, the total INCLUDING the Shuttle, is 183. The breakdown is as follows:

> Jet operations - 64
> Commuter - 87
> Shuttle - 32

Total 183

Also, 29 of the 64 jet flights are to the hubs in Charlotte (8 flights), Philadelphia (14 flights) and Pittsburgh (7 flights). For this reason, and considering the size of the operations that Delta, American (esp after TWA acquisition) and United have in Boston leads me to state that, while valuable, U's BOS operations are not as big an asset as some others.
 
DCA-ROCguy
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jul 04, 2001 2:06 am

"CSM's"--cents per seat mile. In other words, what I was talking about in my last post. US's CSM of 13 cents will *not* be brought down to a tenable 7-9 cents simply by getting West Coast hub. The higher costs associated with operating in the Northeast don't come anywhere close to making up that CSM differential. There's still US's stubbornly hodgepodge fleet, and high pre-dereg labor costs that no CEO from Colodny to Wolf has ever really dealt with.

And you still haven't even touched the other issues, Mike.

What about labor integration--the Reno Air syndrome?
Southwest competition at LAS and PHX? Again, Southwest is taking US to the cleaners at Baltimore--*with* a low-cost US unit in place! Would US want two whole additional MetroJet hubs just to watch them get whacked by WN? Look how United Shuttle has fared on the West Coast--not good.

And don't forget about different engines on the HP and US Airbus fleets. Ouch.

Only a bankruptcy that would allow US to abrogate contracts and rewrite their whole cost structure, offers any hope to saving US as a whole. But US's continued financial strength, which you have noted, means that bankruptcy won't pass the laugh-til-the-judge-cries test for another five to eight years.

Yes, US is a great airline. I fly them more than anyone else (DCA-ROC, what else do I need to say?) and their service is good and their schedules excellent. (Even if their fares are high). US has a proud history and far better service than most major airlines. But they cannot last in their current form without radical changes.

The Board is very unlikely to wait five to eight years. They want to sell--and the only way (thank God ) that DOJ will probably let that happen is in pieces.

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
DCA-ROCguy
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jul 04, 2001 2:14 am

"I fly them more than anyone else"--in other words, I fly US more often than I fly any other airline. Just in case that wasn't clear.

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
HyperMike
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jul 04, 2001 2:18 am

DCA-ROC, you make some good points. But the board will be out to do what is best for the shareholders in terms of value. Granted, selling the airline is a get-richer-quick scheme while turning it around to be extremely profitable requires patience.

Most small-time investors are impatient. People on the BoD of most corporations are more patient. We'll have to see what happens.
 
D L X
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jul 04, 2001 2:54 am

But, with the return of Hypermike, the good points about CASM are back.

A long time ago on this forum, I postulated how irrelevant comparing WN's CASM to US's CASM is. WN who flies the bulk of their flights in the cheapy cheap areas of the country is a poor comparison to US who flies in the most expensive area of the country. What counts is yield. And before Wolf went on his mission to sell the airline at all costs, US was the highest yielding of the major airlines. CASM is an average that ignores geography, and market demands. Southwest STILL doesn't fly to where the people actually want to fly on the east coast. Providence is not Boston, Baltimore is not Washington, Allentown is not Philly, and Islip sure as hell ain't Manhattan.

JetBlue is a *better* comparison.

If you want to compare apples to apples, let's see what a US hub out west would cost, ISOLATING its costs from the rest of the system. Probably not 7c still, but certainly not 12c either.


BTW, DCA_ROC, where is your source that Metrojet is being cleaned out at Baltimore?
 
DCA-ROCguy
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jul 04, 2001 3:43 am


DLX, you've made a lot of maningless distinctions that distort the picture regarding US Airways cost structure and survival options. Your yield-measurement system is what ignores geography and market questions.

An airline is a single entity whose costs affect one bottom line, one total pool of shareholders. A West Coast US hub could never be "isolated" from the rest of the airline. It would have some lower operational costs. But labor costs would be the same. US employee unions would demand that HP employees be raised to their work-rule standards which are *not* at parity with the rest of the industry, even if salaries are close. And the combined airline would have the same hodgepodge fleet which after four years of Airbus buying still has more types of critters than the National Zoo here in DC. With an additonal engine type thrown in for fun on the HP Airbuses.

BTW, no one has answered the question of where US could put an economically viable hub in the West. See my post up a little higher on the queue. LAS and PHX won't cut it against WN, and the other options are nil.

Yields are an irrelavant means of comparing entire large airlines. US Airways might get high yields on their DCA-LGA-BOS shuttle, but they're losing them elsewhere. Not on all routes--but on more and more. They've gotten away with gouging the eyes out of Northeast consumers for decades, but the low-fare revolution is moving in.

The low-fare revolution still hasn't hit anywhere close to a majority of US Airways routes, which is why US can hold on for awhile. But it's getting closer. And an awful lot of us are quite happy to fly to and from Providence and BWI. Just check BWI's skyrocketing pax counts--it's the fastest growing airport in the US.

And even where there isn't low-fare competition, the market is not allowing US to charge enough to feed the cost structure. To argue that US is going to survive as a network/ oligopoly carrier on the gouge-fare yields to LGA, BOS, and DCA is to whistle in the dark.

CSM's are the basic economic measuring unit of an airline; everything else is just cost-structure-feeding. Yields are a slave that feeds CSM's. And US Airways has a voracious "Mr. Creosote" cost structure that no amount of expansion will sate. It can gouge in lots of medium and small NE markets for now, and gouge through its regional affiliates too. But pax are fleeing them down the highway for WN or JetBlue in neighboring cities, more and more.

How can one know that MetroJet is getting beat at BWI? Read the timetables. MJ got cut from 55 to 44 departures in June, including complete withdrawals from CLE and several other cities. Southwest is past 130 daily departures at BWI and climbing.

Also, MetroJet's costs are higher than WN's. Only the pilots gave US a concessionary contract for MJ, the other employees did not. A pilot source in US tells me that the pilots, reasonably, are going to ask that the MJ exemption be killed in their 2003 contract. No one else played along, why should they?

It's too bad--MetroJet is a good service, and every MJ flight I've taken has been packed. But MJ losing the battle.

US is a great airline, loved even by many of us that don't work for them. I'll take them hands down over UA or AA any day. It would be great if they could survive by acquiring HP and getting national reach. But the handwriting on the wall is very clear.

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
HyperMike
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jul 04, 2001 6:55 am

Remember one thing,

CSMs, RPMs, routes, hubs, and fleets don't pay the bills. PROFITS DO!

US Airways should be profitable, but in the zest to look like a failing airline, US Airways hasn't been posting a profit. But have you noticed that they've paid off a ton of debt? Have you noticed that they outright own all nine of their A330s. Have you noticed that they own at least a third of their A320 family? That's why they're not posting a profit.
 
DCA-ROCguy
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jul 04, 2001 2:42 pm

Yes, profits pay the bills. But an airline becomes dependably profitable by *building a cost structure* that fare yields can dependably support. With the arrival of Southwest, JetBlue, and AirTran, more and more Northeast consumers have the choice *not* to pay the extortion fares that US needs to feed that awful cost structure. The Colodny-USAir days of high fares and no consumer accountability are long gone.

Yes, Steve Wolf has badly exaggerated the company's financial position; I'm not an accountant but it seems to me that some of his statements to Congress come close to outright lying. But he's right that US can't survive in the long term--they'll have to eat up that cash reserve and mortgage those free & clear owned planes as the years pass by. 13 cents per seat mile is NOT tenable for an oligopoly/ cartel airline in the US, and unless US can get down to the 8-9 range they're going under by 2006-2010. The Shuttle won't pay the bills for the rest of the airline.

Unless, of course the board sells out first.

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
nycank
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jul 04, 2001 5:46 pm

Jaysit: *ROTFLOL*

Hypermike: CASM and RPM are indicators that analysts use, to make sense of an airline. Profits can be elusive if cost structure is high. In case of US the
overheads ae really high, it should drop some of its international slots, focus on Shuttle like product, get rid of Wolf  Wink/being sarcastic
 
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RayChuang
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RE: Morgan Stanley's View On The UA- US Merger

Wed Jul 04, 2001 9:19 pm

Let's face it folks.

US will never have a decent US West Coast hub due to the very fact that once WN entered the California market WN zapped all the competition, which means WN is so strongly entrenched that US will never be able to compete against WN on the US West Coast.

(The only reason why UA was able to fight back was the sheer resources of UA made it possible to start up the United Shuttle operations on the West Coast.)

US, as I said earlier, would be better served by looking for a US Midwest hub to connect US West Coast to US East Coast destinations. That's why my suggestion of using Kansas City's MCI isn't such a far-fetched idea.  Smile
 
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RE: Morgan Stanley's View On The UA- US Merger

Thu Jul 05, 2001 12:54 am

Nycank, the last thing you want to do to lower costs is drop long distance flights in favor of short ones.


Jim, my argument is not meaningless. You simply cannot compare how much it costs WN system wide to how much it costs US system wide. Especially when, adjusted for flight volume, the two airlines probably have less than a 10% overlap (even assuming that ISP is a coterminal with LGA, etc.). Sure. Yield is a poor comparison value as well. But, if you're trying to compare apples to apples, you need to compare routes to routes. How much money does US make on a route compared to the same one on WN? How much does US spend on a route compared to WN? You just can't compare how much US spends on DCA-ROC to how much WN spends on PHX-RNO.


As for a west coast hub, US doesn't need one. DL doesn't have one. SLC is 600 miles inland, comparable to IND. NW doesn't have one. AA doesn't have one. Well, not yet at least. What US needs is a midwest hub. They NEED STL. MCI will do, but only if they bulldoze it and build a hubable (PIT/CLT-style) terminal. Kinda shameful that 'Mid-continent International' doesn't have a hub airline.
 
DCA-ROCguy
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RE: Morgan Stanley's View On The UA- US Merger

Thu Jul 05, 2001 1:56 pm

MCI's future does not lie with an oligopoly-mafia carrier hub; the city's O&D base isn't big enough and it's not close enough to enough people. US Air tried already at MCI around 1990, and failed. At best, MCI can hope to host a low-fare hub.

I think US Airways would find an even tougher situation at mCI now--with an aggressive hometown low-fare carrier (Vanguard) that's getting its act together, and an aggressive premium-service carrier (MidEx) also building up.

A Midwest hub would be great for US--but the candidates are already taken, as are the West Coast candidates. The end of TWA and the possibility of a TW-US merger, which I thought would make a lot of sense had it been economically possible, pretty much closes US out of the Midwest.

BTW DLX the hula-hoop terminals at MCI do indeed need to go. I hated them when I lived there. I flew thru US's hub there once and you had to keep going in and out of security. Unfortunately, the city has just decided to renovate them and market them as a 'local flavor' thing. They weren't a flavor I ever liked.

Jim

Need a new airline paint scheme? Better call Saul! (Bass that is)
 
HyperMike
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RE: Morgan Stanley's View On The UA- US Merger

Fri Jul 06, 2001 10:35 am

Let me jump to DLX's rescue again.  Smile/happy/getting dizzy

You really can't compare CSMs from US and WN. They have completely different business models.

1) US Airways operates the hub-and-spoke model where Southwest operates a point-to-point model. That makes a huge difference in how CSMs are distributed across the system.

2) This is probably the most important difference. Southwest has lower gross profits on most of their routes than other carriers, in this case US Airways. This is because Southwest makes their fortunes from volume. They do many more flights between destinations at lower profit margins.

Any thoughts?
 
WorldVoyager
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RE: Morgan Stanley's View On The UA- US Merger

Fri Jul 06, 2001 10:47 am

United Airline -

How did you receive your intern position? I've heard they are quite hard to get.
 
DCA-ROCguy
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RE: Morgan Stanley's View On The UA- US Merger

Fri Jul 06, 2001 1:23 pm

Mike: You really can't compare CSMs from US and WN. They have completely different business models. 1) US Airways operates the hub-and-spoke model where Southwest operates a point-to-point model. That makes a huge difference in how CSMs are distributed across the system.

Jim: Mike, one can't *escape* comparing them, because these two airlines now *compete.* They go after many of the same customers, and as WN grows in the Northeast they'll go after more and more of the same customers. Today's 20 percent overlap between US and WN catchment (remember, WN affects cities within a 150-mile radius, so exact market pairing of 10 percent is not an accurate measure) will be 50 percent overlap before we know it--I'd say within two years. Then 70 percent.

So business models will be irrelavant--whoever can deliver the better product more cheaply will be able to make money. And the volume model trumps the margin model whenever the volume one has a good product. That's the bottom line. I for one sure as hell won't pay $250 rt to fly DCA-ROC on my trips home when Southwest will fly me BWI-BUF for $87 rt.

US Airways got away with a gouging "margin" business philosophy when they could get away with it. Now they *have* to compete with Southwest's more viable (and frankly more just to consumers) volume model. 13 cents CSM ain't cutting it in that situation.

Mike: 2) This is probably the most important difference. Southwest has lower gross profits on most of their routes than other carriers, in this case US Airways. This is because Southwest makes their fortunes from volume. They do many more flights between destinations at lower profit margins.

Jim: But Southwest can keep racking those lower gross profits on individual routes, into a far better and far more consistent return on the same investment. When Southwest enters a market with $99 fares up against US Airways' $250-300 fares (can you tell I'm a student traveler who books 14 days in adv?) US is finished. Especially considering that WN has a frequent flyer program too. I think people are starting to figure out that you save so much on WN that an FF program at US is irrelavant.

US Airways must face the fact that the Northeast is no longer an Oligopoly-Only zone where they are free to gouge customers and artificially restrict traffic to the wealthy. Those days are ending, thanks be to God, due to Uncle Herb and David Neeleman. Unless US Airways can at least get its CSM's down to 8-9 cents range with the rest of the Mafia Oligopoly, they're finished in 5-10 years.

Jim

Need a new airline paint scheme? Better call Saul! (Bass that is)
 
D L X
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RE: Morgan Stanley's View On The UA- US Merger

Fri Jul 06, 2001 2:47 pm

Jim, note my quote when I said:
"Especially when, adjusted for flight volume, the two airlines probably have less than a 10% overlap (even assuming that ISP is a coterminal with LGA, etc.)"

I am counting the fact that WN at BWI does take some traffic away from DCA etc. But, you also have to take into account that US has many many more flights than WN in the northeast. There's no airport in the northeast that WN flies and US doesn't (although ISP only gets USX service). So, the 'flood' of WN flights just isn't there. That's why I only guestimated 10%.


I still think nobody is hearing me when I say "You just can't compare how much US spends on DCA-ROC to how much WN spends on PHX-RNO. " The more WN flies in US territory, the higher WN's costs get. The fact that they don't fly where people want to go forces them to charge less for the seat. WN's entrance into the Northeast is squeezing the margin between cost and revenue. I wonder how much money WN actually makes on BWI-BUF at $89...
 
HyperMike
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RE: Morgan Stanley's View On The UA- US Merger

Fri Jul 06, 2001 3:10 pm

DLX,

I heard you. WN can't be making that much on those routes. However, if they make just a little bit, and then they do it six times a day, they're going to make a decent profit. That's part of the Southwest business model.

If a route becomes very successful, most airlines will put a bigger plane on the route. Southwest, on the other hand, adds more flights.

You have to realize that there are so many variables in the 'who runs a more cost efficient' airline that we'll never duke it out here. Granted, CSMs are a contributing factor, but they're not the only variable.
 
ILOVEA340
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RE: Morgan Stanley's View On The UA- US Merger

Fri Jul 06, 2001 3:29 pm

I personaly could not bare to see this go through. There would be 2 us airline monopolies UA having east and west while AA has the central regions... I think it would be a lot worse than a lot of people think it would be... Also doesn't united hate Stephen Wolf??? Didn't the emploies kick him out in the early 90's??? anyways if this goes through what about a DL/CO/NW mega-airline??? hell why not... maybe SW and JB could join it too, hell if they join why not Midwest express too then lets add a few regionals and ...

well I am getting a little carried away with this whole thing. Whynot have just one Government run mega-airline... just a little naive thought from my socialist mind...