For USAirways, it's all in the numbers

[dlredline]

Ok, this is a little long on numbers, but follow me on this . . .

I just read the court filings for USAirways' request for 1113(e) interim emergency relief for an across the board 23% pay reduction for all union employees. Now, let's start with the plus side:

(1) USAirways started October with $699 million in cash. A full retroactive 1113(e) grant would save them $38 million/month, or roughly $106 million by the end of the year.
(2) The judge did not rule on an $110 million pension payment that was due last month, so let's figure that he does and they get to retain that cash.
(3) Management has been given an across the board pay cut, which basically computes (based upon average pay scales at the management level) of about 5%/month. But this is offset by the June pay increase of 4% (amazing a team of managers would take a pay increase while asking, at the time, it's employees for $800 million in "gives", but I digress), so let's call this one a push.
So the total best case scenario is USAirways saving $38-40 million/month, or $120 million total to the end of the year.

here endeth the good news.

On the negative side:
(1) The $38 million/month pay savings(best case scenario) will likely be closer to "only" $30 million/month if/when ALPA ratifies their TA for an 18% pay reduction (down from the 23% request), saving the company only $90 million total to the end of the year.
(2) In their initial BK filing, they factored oil costs at $45/brl. For every $1 increase in oil price, this adds $2 million/month in costs. With oil now at $53, this adds $8 million/month in losses (I know it's really $16 million/month, but let's be conservative and split the baby here), a potential of $24 million cost to the end of the year.
(3) In their filing, USAirways figured a yearly 2004 loss of $600 million, about $1.5 million/day, or roughly $50 million/month. This equals losses of $150 million to the end of the year.
(4) USAirways lost $20-25 million in revenue from the recent hurricane season. We'll give them a mulligan on this to make the numbers below even more conservative.
(5) Though USAirways started Oct. with $699 million in cash, the ATSB has stated that they will only allow them to burn into their $700 million to the tune of $250 million total, or down to a cash balance of $450 million.
(6) Sources indicate that once USAirways gets to a cash balance $300 million, this position will not allow them to properly fund their operation, and need to file Ch. 7 will be immediate. This means they can burn a total of $400 million before the door is closed.
(7) Manangement acknowledged yesterday that passengers are bailing on bookings right and left, and revenue is beginning to dry up. No actually numbers were presented in court.
(8) There's no DIP financing available, none, nada, zilch, because every asset USAirways has was hocked at the pawn shop during the first BK filing. Cash is king right now.

Soooo . . .

In simplistic terms, this company is still losing a total of $58 million/month, or a total of $174 million by the end of the year. Add the $110 million pension obligation, and that brings us up to $284 million down. Subtract the $120 million savings from the paycuts (best case 1113(e) total), and their loss is $164 million by the end of the year, for a total cash-in-bank balance of (699-164) $535 million, more realistically closer to $505 million.

But wait, there's more!!!

In January of '05, USAirways has a non-negotiable aircraft lease payment of $260 million. Assuming (don't say it) no further losses in revenue generation, this would bring their cash position down to a mere $275 million, below their own stated Chapter 7 threshold. If the judge allows USAirways to renege on the lease payment, that only buys them a little time, since the lessors of the aircraft will park the planes overnight after the rulling, thus reducing even more the revenue generation potential, and again assuming (I said, don't say it) they've already parked a portion of the 737 fleet, their fleet total won't be enough to sustain payment of the snack vendors, much less the total airline operation.

On whole, I just don't see how this 1113(e) filing will even save what is left, even if the bleeding stops on the revenue side, especially with the traditionally slow booking months approaching. The pilots could take a 100% pay cut, and that would only lower their CASM's by about .5 cents/seat mile. I've continued to say it, and will again: USAirways needs someone to run an airline, because absent that, the numbers still won't add up to survival past December.

Red

 

[Networ-King]

Ok, this is a little long on numbers, but follow me on this . . .

I just read the court filings for USAirways' request for 1113(e) interim emergency relief for an across the board 23% pay reduction for all union employees. Now, let's start with the plus side:

(1) USAirways started October with $699 million in cash. A full retroactive 1113(e) grant would save them $38 million/month, or roughly $106 million by the end of the year.
(2) The judge did not rule on an $110 million pension payment that was due last month, so let's figure that he does and they get to retain that cash.
(3) Management has been given an across the board pay cut, which basically computes (based upon average pay scales at the management level) of about 5%/month. But this is offset by the June pay increase of 4% (amazing a team of managers would take a pay increase while asking, at the time, it's employees for $800 million in "gives", but I digress), so let's call this one a push.
So the total best case scenario is USAirways saving $38-40 million/month, or $120 million total to the end of the year.

here endeth the good news.

On the negative side:
(1) The $38 million/month pay savings(best case scenario) will likely be closer to "only" $30 million/month if/when ALPA ratifies their TA for an 18% pay reduction (down from the 23% request), saving the company only $90 million total to the end of the year.
(2) In their initial BK filing, they factored oil costs at $45/brl. For every $1 increase in oil price, this adds $2 million/month in costs. With oil now at $53, this adds $8 million/month in losses (I know it's really $16 million/month, but let's be conservative and split the baby here), a potential of $24 million cost to the end of the year.
(3) In their filing, USAirways figured a yearly 2004 loss of $600 million, about $1.5 million/day, or roughly $50 million/month. This equals losses of $150 million to the end of the year.
(4) USAirways lost $20-25 million in revenue from the recent hurricane season. We'll give them a mulligan on this to make the numbers below even more conservative.
(5) Though USAirways started Oct. with $699 million in cash, the ATSB has stated that they will only allow them to burn into their $700 million to the tune of $250 million total, or down to a cash balance of $450 million.
(6) Sources indicate that once USAirways gets to a cash balance $300 million, this position will not allow them to properly fund their operation, and need to file Ch. 7 will be immediate. This means they can burn a total of $400 million before the door is closed.
(7) Manangement acknowledged yesterday that passengers are bailing on bookings right and left, and revenue is beginning to dry up. No actually numbers were presented in court.
(8) There's no DIP financing available, none, nada, zilch, because every asset USAirways has was hocked at the pawn shop during the first BK filing. Cash is king right now.

Soooo . . .

In simplistic terms, this company is still losing a total of $58 million/month, or a total of $174 million by the end of the year. Add the $110 million pension obligation, and that brings us up to $284 million down. Subtract the $120 million savings from the paycuts (best case 1113(e) total), and their loss is $164 million by the end of the year, for a total cash-in-bank balance of (699-164) $535 million, more realistically closer to $505 million.

But wait, there's more!!!

In January of '05, USAirways has a non-negotiable aircraft lease payment of $260 million. Assuming (don't say it) no further losses in revenue generation, this would bring their cash position down to a mere $275 million, below their own stated Chapter 7 threshold. If the judge allows USAirways to renege on the lease payment, that only buys them a little time, since the lessors of the aircraft will park the planes overnight after the rulling, thus reducing even more the revenue generation potential, and again assuming (I said, don't say it) they've already parked a portion of the 737 fleet, their fleet total won't be enough to sustain payment of the snack vendors, much less the total airline operation.

On whole, I just don't see how this 1113(e) filing will even save what is left, even if the bleeding stops on the revenue side, especially with the traditionally slow booking months approaching. The pilots could take a 100% pay cut, and that would only lower their CASM's by about .5 cents/seat mile. I've continued to say it, and will again: USAirways needs someone to run an airline, because absent that, the numbers still won't add up to survival past December.

Red

I hate to say this, but its really just a matter of time for USAir. All I can say is that the repos are already being planned out by GECAS. What a mess.... good luck guys.

 

[lowecur]

Red

Very good analysis.

What I would like more info on, is what a/c are involved in the $260M payment due in early 2005. They have 138 737's and 757's under lease, and I believe they are prepared to let them go. They also have 69 Airbus' under lease, and I'm sure they will make those payments. They also own 46 Airbus' in the 320 series, and 9 330's. I believe the new contract if radified will allow the reduction of fleet size, but still keeps the seniority list.

As far as future bookings are concerned, the LF's came in pretty decent for Sept considering 11 was filed on 9/13/04. They were up 4 pts on mainline, and 7.5 pts on WO.

The judge's and employee decisions will make or break the airline in the next few months. I'm still betting on survival.

 

[Boeingman]

Very good analysis.

What I would like more info on, is what a/c are involved in the $260M payment due in early 2005. They have 138 737's and 757's under lease, and I believe they are prepared to let them go. They also have 69 Airbus' under lease, and I'm sure they will make those payments. They also own 46 Airbus' in the 320 series, and 9 330's. I believe the new contract if radified will allow the reduction of fleet size, but still keeps the seniority list.

As far as future bookings are concerned, the LF's came in pretty decent for Sept considering 11 was filed on 9/13/04. They were up 4 pts on mainline, and 7.5 pts on WO.

The judge's and employee decisions will make or break the airline in the next few months. I'm still betting on survival.

Radified? What is radified? Is that some super secret term used by you insurance barons? Is it something to do with a vegetable recipe? Also, you shouldn’t use the coma after “mainline” since you used “and” following it..



You’re betting on survival? LOL, ok Mr. Brilliance, sure, who cares about the financial numbers and revenue forecasts.

 

[Boeingman]

Red:

Your numbers are spot on with what has been posted with various financial publications. What will be amazing is if nobody pays attention to the obvious deteriorating financial condition. My guess is the ATSB will pull the plug right after the election. It would be the perfect for them since it will be long before the Xmas holiday and they wouldn't lose any possible votes for George by doing it sooner.

I have heard from some guys on the line (who have relatives over there) that WWIII is about to break out amongst the employees regarding the possible court imposed cuts. What's your take on that?

 

[dlredline]

Very good analysis.

What I would like more info on, is what a/c are involved in the $260M payment due in early 2005. They have 138 737's and 757's under lease, and I believe they are prepared to let them go. They also have 69 Airbus' under lease, and I'm sure they will make those payments. They also own 46 Airbus' in the 320 series, and 9 330's. I believe the new contract if radified will allow the reduction of fleet size, but still keeps the seniority list.

As far as future bookings are concerned, the LF's came in pretty decent for Sept considering 11 was filed on 9/13/04. They were up 4 pts on mainline, and 7.5 pts on WO.

The judge's and employee decisions will make or break the airline in the next few months. I'm still betting on survival.

Let's see, where to start . . .

I'm not exactly sure about which airplanes are under the $260 lease payment, but I remember reading most were Boeings, so you can figure the answer is a mix of 757s and 737s. U negotiated a sweatheart deal for the Airbii back in the mid 90's, and they negoiated a deferred payment plan in the last BK that extended their payment schedule way into the future, so I'm not sure if/how many 'Bus's are included. But the "plan" they have now is to go to a predominant Airbus fleet in the future. I'll try and find out if any of the 330's are a part of this lease payment.

If the new TA is "ratified", furloughs will occur in seniority order, for now. The TA does allow training out of seniority, with holds and pay protections. But it doesn't really matter much. 60 days after ratification, USAirways can simply file another 1113(e) abrogating that portion of the contract.

As far as the bookings, you are right that their recent filing showed a load factor increase. However, remember this is a look back on the traditionally stronger summer months. Their statement before Judge Mitchell yesterday was a look forward on depressed bookings vis a vis current ASMs in the coming "slow" months, based upon their belief passengers are bailing because of the bad press associated with "Financially Troubled USAir" (sic). If the fleet remains at 279 (unlikely), they predict lower LF's looking forward. Of course, a major fleet reduction (likely) would impact the LF's positively, but then again reduce the company's total revenue generation capabilities.

And I respectfully disagree that "The judge's and employee decisions will make or break the airline in the next few months. I'm still betting on survival." I've been reading a lot of pontification about when USAirways will likely file 7 (guilty myself at times). What I tried to do here is put the numbers to the test and basically show that, irregardless of what Judge Mitchell or ALPA or IAM or does, irregardless of the current political conditions, irregardless of what RSA does (short of throwing more $$ into the black hole), and irregardless of obtaining financing for additional 170s and 190s to MDA (not even sure how they could pull that off), short of an amazing turn around from a management team rudderless in their own decision making process, it simply doesn't matter.

Boy I hope I'm wrong. But putting hopes and wishes aside, the numbers simply don't add up. At the time when their cash position becomes terminal, even Judge Mitchell's hands would be tied with Federal statutes dictating a protection of the creditor's committee interests.

Red

 

[lowecur]

ibid.

 

[Boeingman]

Deleted in difference to red.

As usual, Lowecur's reply spoke volumes all by itself.

 

[dlredline]

Bookings Decline at US Airways
Carrier Tells Court Of Fight to Survive
By Keith L. Alexander
Washington Post Staff Writer
Friday, October 8, 2004; Page E01


US Airways Group Inc. attorneys and executives acknowledged in bankruptcy court yesterday that bookings had fallen more steeply than they had anticipated in reaction to their Chapter 11 filing last month as travelers -- concerned about the airline's future -- resist locking in reservations.

US Airways didn't specify the level of the drop-off in bookings and contended its efforts to conserve cash, largely through pay cuts, were aimed at maintaining travelers' confidence.

"If the public perceives us as running out of cash, there will be more booking away," said US Airways Chief Financial Officer David M. Davis.

During testimony in a crowded courtroom in Alexandria, US Airways executives outlined the airline's need for a court-imposed 23 percent, across-the-board pay cut for most of its employees for at least six months. Without the cuts, "there's a very high probability that (US Airways) will not survive," said US Airways lead attorney Brian P. Leitch. The action, the airline said, would save it about $38 million a month.

"Most debtors have nine lives, but this debtor has used up most of them and doesn't have many options," Leitch said.

U.S. Bankruptcy Judge Stephen S. Mitchell made no ruling on the pay-cut request as testimony will continue at a hearing Tuesday.

US Airways' argument was challenged repeatedly by a parade of labor attorneys who insisted the airline did not need such steep cuts from employees. The attorneys insisted that the carrier could find other ways to conserve cash and questioned the amount and duration of the pay cut sought by the airline.

Sharon L. Levine, an attorney for the airline's mechanics, said if the court grants the 23 percent cut, the average annual salary of a mechanic would decline to the point of "people losing their houses, their cars and making very difficult decisions about their health care."

Under cross-examination by labor attorneys, Davis acknowledged that the airline's top managers received a 4 percent pay increase in April, the same time the airline began seeking $800 million in concessions from its employees. Earlier this week, the airline implemented a 5 to 20 percent pay cut, with the majority of managers receiving the 5 percent reduction.

The airline said it needed to conserve its cash balance to pay about $260 million in aircraft leases that are due at the beginning of the year. The airline said it needed to start conserving cash now to offset the traditionally slow fourth and first quarters. Without the cuts, US Airways would have about $300 million at the beginning of the year, which Davis said would not be enough to sustain the airline. The carrier had about $699 million in cash at the end of September.

US Airways also is concerned that it may lose some of its 280 jets. The airline has built its restructuring plans and growth on its current fleet size.

Separately, Mitchell denied a request from the mechanics union to delay the proceedings, saying it was important to move forward in considering the airline's request for court intervention.

"I want to do what's right. I want to do what's fair. I want to see this airline survive," Mitchell said.

The Arlington-based airline said in court papers that it may liquidate in February if it fails to raise enough cash.

Because its assets are mostly tied up in financing from its previous reorganization, US Airways has virtually no chance of borrowing or attracting new equity.

Mitchell approved the company's plan to make its combined contributions of $29 million to its employee pension plans on Oct. 15 and Jan. 15, 2005, but did not rule on the airline's request to skip its $110 million pension payment that was due last month. That request was sharply contested by the labor groups.

Mitchell said legal issues related to pension obligations before and after the airline's Sept. 12 Chapter 11 filing were too complex to rule on immediately.

"One of the reasons people take the jobs that they do is the type of pension they're going to get," Mitchell said.

Leitch said employees should expect their current pension plan to be changed forever.

"I would not encourage any employee to continue working at US Airways if they expect the same benefit plans as presently set forth," Leitch said.



© 2004 The Washington Post Company

 

[On Your Six]

The sad part is that these cuts will not help USAirways avoid the inevitable... However, they will set a very low bar that will end up hurting everyone else. This must be a tremendously difficult time for all USAirways employees and I feel for them. Get your resumes out ASAP - hopefully Virgin USA will start up in the spring and at least provide some new opportunities and a fresh outlook (although I am sure pay levels will probably be as pi$$ poor as those at USAirways)...

 

[dlredline]

Just read an analyst report (insert your own derogatory comment here) that hypothesized the increase load factors this past summer, along with the weak yields they generated, was derived from many frequent flyers cashing in their mileage early. Seems logical, and may portend things to come on the revenue side.

Red

 

[lowecur]

Bookings Decline at US Airways
Carrier Tells Court Of Fight to Survive
By Keith L. Alexander
Washington Post Staff Writer
Friday, October 8, 2004; Page E01

Most of these statements are courtroom posturing by both sides. The truth I'm sure lies somewhere in between, and the judge knows this. I don't think there will be any job actions after 1113(e) is imposed. IAMs and the FA's will probably have contracts imposed by the judge before the end of the 60 days for 1113(e), and I would look for job actions at this point if it were to happen.

 

[dhc8ap]

My thoughts and prayers are with the pilots and FA's at USAir. I fortunately was able to find a corporate flying job and bailed from one of the WO's.

Adding insult to injury will be the cost of winter operations added to the balance sheet.That wasn't factored into the original post.

Thanks for the analysis dlredline and pulling it all together. I have heard bits and pieces and a heck of a lot of rumors. For the sake of those involved, I hope they come through, but I am not quite sure as to how.

 

[dlredline]

Most of these statements are courtroom posturing by both sides. The truth I'm sure lies somewhere in between, and the judge knows this. I don't think there will be any job actions after 1113(e) is imposed. IAMs and the FA's will probably have contracts imposed by the judge before the end of the 60 days for 1113(e), and I would look for job actions at this point if it were to happen.

Actually there has never been a "job action" post 1113(e) filing to date
(because of the "interim" nature of the (e) filing). The RLA only addresses such an action post 1113(C), which is the complete abrogation of an existing contract, so the legality of it is all new territory. But, as someone pointed out on another thread, nothing prevents them from simply saying "enough, we're taking our pennies and leaving".

I'm sure the truth does lay in the middle. However, the numbers don't lie, and all the grandstanding by management, vilification of the RC4, and posturing by IAM unfortunately doesn't change that "truth".

Red

 

[xanderman]

Loss of words...

I wish I could convey a more eloquent sympathy for your unfortunate situation. Our thoughts and prayers are with you guys...
Andy

 

[dlredline]

Here's a very interesting read from the AFA local president who attended the 1113(e) hearing on Tuesday:



I attended the hearing. Just off the cuff and without looking at my notes, this is what I was able to understand in gross form.

BTW, the star players were the IAM. They gave a compelling argument defending their members.

In short, PBGC gave a compelling argument on the company's obligations to the pensions and also the tax liability that they just can't thwart or decide to "dump" these obligations.


The PBGC spoke about the intent of the ERRISA statues and also the congressional intent of protecting pensioners. Too bad the argument was not made or was compelling enough last year to save your defined pensions.

The room was filled with labor attorneys and company attorneys along with the press and media. They were present the entire day.

Get all the papers tomorrow. IAM attorneys were the STARS. They gave a compelling argument on the outsource issue that the company motioned again to be permitted. The judge made it clear in the room to the company attorneys that he also wants to see the company survive, but he believes in "fairness". That should be in the papers tomorrow.

ALPA legal stunk. They basically gave a "luke warm" presentation on that they have aT/A that when ratified will give the company the needed opportunity to survive and thrive, and they should not be included in the 23% argument. They also said the co. had stipulated that if their agreement ratifies that the co. would not commence with the 23% for ALPA. That was basically ALPA dump response.

CWA presented and was strong in representing opposition to the 23% and comparing their salaries to other LCC. Along with AFA who presented the inequity of management's share of sacrifice does not even come close to the rest of what is being demanded from labor.

Once again, IAM comes shining through in the character of the argument, its powerful message, that left the judge,IMO speechless. Dave Davis testified and said that even with the pilots agreement, it would not prevent a liquidation of the airline by FEB if the co. can not receive the immediate relief.

The company also presented that with regard to the pension, that the co. has repeatedly told employees through the years that a defined pension was not a "sure thing" as a retirement vehicle. This is when the judge spoke up and said that most employees who stay for many years with a company expect a retirement that is promised to them in good faith by the company....it was awesome.

They will reconvene again on Tuesday. In summary, I was very pleased and I get the impression that the company will not be able to "hood wink" the judge again when it come s to labor issues.

No ruling yet accept about the pensions below, which I will send to my members.

Keep in touch.
In solidarity,

Teddy
Local 40

 

[lowecur]

I attended the hearing. Just off the cuff and without looking at my notes, this is what I was able to understand in gross form.

BTW, the star players were the IAM. They gave a compelling argument defending their members. I assume they mean from a moral/credibility standpt.

In short, PBGC gave a compelling argument on the company's obligations to the pensions and also the tax liability that they just can't thwart or decide to "dump" these obligations. No, but they will look to defer.

Get all the papers tomorrow. IAM attorneys were the STARS. They gave a compelling argument on the outsource issue that the company motioned again to be permitted. The judge made it clear in the room to the company attorneys that he also wants to see the company survive, but he believes in "fairness". That should be in the papers tomorrow. What will also be taken into consideration is UAL's 1113 (c) filing to bring the FA's and IAM back to the table. It's silly to believe the judge will base his IAM's decision on retribution from the outsourcing issue. In this economic atmosphere, you cannot base your decisions on punitive actions.

ALPA legal stunk. They basically gave a "luke warm" presentation on that they have a T/A that when ratified will give the company the needed opportunity to survive and thrive, and they should not be included in the 23% argument. They also said the co. had stipulated that if their agreement ratifies that the co. would not commence with the 23% for ALPA. That was basically ALPA dump response.

CWA presented and was strong in representing opposition to the 23% and comparing their salaries to other LCC. Along with AFA who presented the inequity of management's share of sacrifice does not even come close to the rest of what is being demanded from labor. I think Lakefield can afford to match Grinstein's offer of no salary. However, in reality they need to pay key people in order to keep the airline viable. One needs to look no further than what is happening to airline mgt nationwide. There is a drain going on, as the rats are jumping from these sinking ships.

Once again, IAM comes shining through in the character of the argument, its powerful message, that left the judge,IMO speechless. Dave Davis testified and said that even with the pilots agreement, it would not prevent a liquidation of the airline by FEB if the co. can not receive the immediate relief.

The company also presented that with regard to the pension, that the co. has repeatedly told employees through the years that a defined pension was not a "sure thing" as a retirement vehicle. This is when the judge spoke up and said that most employees who stay for many years with a company expect a retirement that is promised to them in good faith by the company....it was awesome. I agree.

They will reconvene again on Tuesday. In summary, I was very pleased and I get the impression that the company will not be able to "hood wink" the judge again when it come s to labor issues. This person obviously has their agenda, and the "hood wink" comment is laughable. The judge has difficult decisions to make that will try to keep a company viable while at the same time bring into focus that economic reality will dictate some harsh and what will seem to be unfair decisions.

No ruling yet accept about the pensions below, which I will send to my members.

Keep in touch.
In solidarity,

Teddy
Local 40

.....

 

[AA717driver]

Of course ALPA legal stunk. They were out to lunch when TWA's MEC was threatened with 1113(yet another area pioneered by TWA ). Their advice? Surrender. Thanks ALPA.

The founders of ALPA must be rolling in their graves.TC

 

[Sir Humpalot]

It just seems like a sinking ship. From what i have been reading and all the financial analysis offered by Red and others, its time to start looking for a job.

 

[typhoonpilot]

From what i have been reading and all the financial analysis offered by Red and others, its time to start looking for a job.

It was time to start looking for a job just after 9:00 am on September 11th, 2001. Mind you I was in a state of shock for a couple of weeks and didn't start until early October. A lot of other USAirways pilots started around the same time and many have been hired by jetBlue, Southwest, Fedex, Wasinc, Cathay, Polar, etc. Those are the ones that were ahead of the game and saw the same thing that made Dred go to jetBlue. Some would have been furloughed, but many others were in no danger of furlough. One guy at my present company was number 320 on the USAirways seniorirty list and knew it was time to leave. Two others had been Captains for more than 10 years and also knew it was time to move on.

It's getting late in the game for the present USAirways pilots to move on. Some couldn't do so earlier because they didn't have 1000 hours PIC. Many of those went to the J4J carriers to get that time and are just now able to apply to Southwest, JB, etc. Hopefully there will be some jobs for the 3000 plus remaining, but that sure is a lot of pilots to hit the street at once. Not to mention the number of RJ pilots that this will put out of work as well.


Typhoonpilot