Jetblue/AA bid for UAIR Shuttle

[lowecur]

I must say this is a shocker. I didn't expect Neeleman to get into a bidding war for the Shuttle, but I guess he needs gates and slots. I don't think this is smart, as the price will get bid up to the $300M area, and this will hurt the cash reserves of B6.

Reuters
Four airlines bid for US Airways assets-sources
Tuesday January 27, 11:19 am ET
By Kathy Fieweger


CHICAGO, Jan 27 (Reuters) - Four U.S. airlines have bid on various assets put on the block by US Airways(NasdaqNM:UAIR - News), including American Airlines, which wants the East Coast shuttle, according to banking sources familiar with the matter.

The airline is looking for ways to cut costs 10 months after emerging from bankruptcy protection in a bid to survive and avoid another trip to the courts.

Executives at American Airlines parent AMR Corp.(NYSE:AMR - News), which recently reported a much narrower fourth-quarter loss, have sought the shuttle for years, said the sources, who requested anonymity. In 1997, American bid about $300 million for the shuttle.

The shuttle was for sale again in 2001, when UAL Corp.'s (OTC BB:UALAQ.OB - News) United Airlines tried to buy US Airways. That deal failed after it was blocked by antitrust regulators.

With around $3 billion in cash and its finances somewhat stabilized since its brush with bankruptcy last year, Fort Worth, Texas-based American finds the chance to buy the shuttle worth pursuing, the sources said.

The shuttle, which flies between New York, Washington, D.C. and Boston, is expected to fetch around $100 million to $150 million, they said.

Also bidding on different pieces of US Airways assets are JetBlue Airways Corp.(NasdaqNM:JBLU - News), Delta Air Lines Inc.(NYSEAL - News) and AirTran Holdings Inc. (NYSE:AAI - News)

Bids were submitted last Thursday, according to bankers, and the US Airways board is to meet in early February to review the proposals.

Spokesmen at the airlines did not immediately return calls seeking comment.

JetBlue has bid for the shuttle and other assets, the sources said. Delta, which already flies an East Coast Shuttle, was said to be interested in US Airways' non-hub flying slots and "pretty much everything" except the shuttle, according to one source.

EXPLORATORY PROCESS

US Airways spokesman David Castelveter said the company has acknowledged that it has begun an "exploratory process" regarding its financial options but added: "We have not made a decision to sell any assets."

US Airways, which emerged from Chapter 11 bankruptcy last year after an 8-month stay, received a government-backed loan via the Air Transportation Stabilization Board. It must meet certain financial covenants by June 1.

In addition, General Electric Co.'s (NYSE:GE - News) finance arm is financing the airline's purchase of regional jets, but requires a credit rating maintained at B minus.

JetBlue, the low-fare carrier based in New York, continues to expand its popular service featuring live TV and leather seats. Last week it said it filed with the U.S. Department of Transportation for 10 slots to begin service from New York's LaGuardia Airport this spring.

 

[Snakum]

Wasn't Eastern's repeated fire-sales back in the day a major contributer to it's ultimate demise?

This can't be good.

Minh

 

[lowecur]

snakum

I think AA already has a shuttle in place. I think their main purpose is to block B6 from walking away with this.

It's a real chess game.

 

[General Lee]

And Delta is "pretty much interested in everything but the Shuttle." Hmmmmm. I think they will really want some paycuts soon from the pilots. Apparently every 5% we give is worth about $100 million, and 5% from the 60,000 other non union workers is also worth about $100 million. Well, I hope they get some needed cash to help the debt and MAYBE buy something of interest. I would rather refinance some of that debt, but who knows what they are doing these days? Maybe they will blow the whole wad on EMB-190s??? (Lowecur would be jumping up and down!!)


Bye Bye--General Lee

 

[roman]

When someone buys the shuttle, what exactly do they get? Just slots?

 

[General Lee]

Roman,

When we bought the Pan Am Shuttle we got exclusive rights to the MAT---Marine Air Terminal, and the slots. I think if you bought the USAir Shuttle, you would get the slots only, because I think Continental owns the USAir LGA gates, I believe. (From Frank Larenzo days of New York Air) So, if you wanted gates, I think you would have to go to Continental.....(not sure if that is exactly true, but that is how I understand it...?)

Bye Bye--General Lee

 

[lowecur]

General

The Main UAIR terminal has 12 gates, and the Shuttle Terminal has 8. The New $250M Main Terminal was opened in 1992. I think UAIR refurbished the 8 gate Shuttle Terminal when the Main Terminal was built. Don't know who paid the cost, but UAir obviously has some kind of a long term lease, and I believe they feel they could sell the terms of that lease for specific gates/slots to B6. If indeed CAL has first right of refusal should UAIR file 7 and liquidate, then they would have to gain the slots to use them (and this could be tough politically). I'm sure that B6 feels that they can legally buy these gates and slots for the Shuttle, if bought prior to liquidation.

This may be the perfect scenerio for UAIR to get maximum dollar for the Shuttle. A bidding war would help them meet their covenants in June of this year, and buy valuable time needed to consolidate the airline around PHL.

 

[SWA/FO]

You guys think there are other airlines bidding? Other then the ones mentioned in the article?

 

[General Lee]

Why wouldn't they list them? Also, I think some airlines are bidding to make the price a little higher for the eventual winner....It's called a game of Chess.....

Bye Bye--General Lee

 

[lowecur]

Why wouldn't they list them?

I think you're right General. The article was quoting some of the bankers that are involved, and all the bidders needed to have their bids in last Thursday. I think this is it, but that doesn't mean if LUV or Branson come along with a late bid, they wouldn't listen. Afterall, they haven't decided yet whether to sell.

 

[G4G5]

CAL only get's the USAir LGA terminal IF USAir files CH7. They are not likly to go CH7 still holding onto the Shuttle, at least not if the Alabama pension folks have anything to say about it.

The Shuttle would most likly be sold with the Southern fork of the USAir terminal at LGA (the one closest to DAL/Shea/31). 8 gates and associated slots. That would still leave USAir with the Northern fork.

This could get interesting.

 

[lowecur]

The NY Times is reporting this morning that any buyer of the Shuttle will really have their hands full. Apparently, AMR's unions would really put up a fight, as seniority issues would arise. It seems that the deal would have to include the Shuttle employees from UAIR. Here's a paragraph from the article:

American or any other airline that purchases the shuttle would have to absorb US Airways' union members, who have vowed that a new buyer must honor their labor contracts. That could lead to sticky situations involving the seniority of pilots, flight attendants and other employees.

 

[SpeedBird]

Well you would think that revelation would put plenty of cold water on the deal. I wonder what is really going on with this public disclosure of potential suitors for the shuttle.

 

[Flying Freddie]

The Full Content Of The NY Times Article

Offers Are Said to Flow In for Assets of US Airways
By MICHELINE MAYNARD and ANDREW ROSS SORKIN

Published: January 28, 2004


everal airlines, large and small, have made offers for the major assets of US Airways, including its East Coast shuttle and gates at several airports, people briefed on the negotiations said last night.

American Airlines, Delta Air Lines, JetBlue Airways and AirTran made preliminary bids last week in a process led by Morgan Stanley, these people said. Mesa Air Lines, a regional carrier serving the West Coast, has also said it is interested in bidding on US Airways' assets.


The board of US Airways is set to consider the offers at a meeting early next month.

The airline, a unit of the US Airways Group, based in Arlington Va., emerged from Chapter 11 bankruptcy protection less than a year ago. But US Airways, the nation's seventh-largest carrier, has been struggling since. It is pressing its unions for further concessions as it tries to cut more than the $200 million to $300 million it had planned to trim from its operations this year.

Late last year, it said that it had to revise its business plan to meet stiffened competition from low-fare carriers including Southwest Airlines, which plans to start service in May to Philadelphia, one of US Airways' three hubs.

US Airways operations in Philadelphia are among the operations the airline put up for sale, as well as its other hubs in Charlotte, N.C., and Pittsburgh; gates at La Guardia Airport and Logan Airport in Boston; its US Airways Express regional carrier; and its East Coast shuttle.

The shuttle was thought to have attracted the most interest among a group of carriers that made offers for the airline's assets, people briefed on the bids said.

US Airways has never said definitively what it would sell. And, earlier this month, David G. Bronner, the airline's chairman, said that US Airways had retained Morgan Stanley "to help us see if anything makes sense."

Indeed, the bids may not necessarily be to US Airways' liking. For instance, the US Airways Shuttle was only expected to bring $100 million to $150 million, people briefed on the offers said, versus the $300 million bid that American made to purchase the shuttle in 1997.

US Airways has operated the shuttle since 1992, as part of a joint venture that ran the carrier, and took control of it in 1998.

Moreover, some of the airlines involved may encounter obstacles to completing the deals. For instance, while American, a unit of AMR, has been interested in buying the shuttle for years, it may have trouble winning the backing of its labor unions, which granted the airline deep cuts in wages and benefits last year when American said it was on the verge of Chapter 11 bankruptcy.

American or any other airline that purchases the shuttle would have to absorb US Airways' union members, who have vowed that a new buyer must honor their labor contracts. That could lead to sticky situations involving the seniority of pilots, flight attendants and other employees.

Robert W. Mann Jr., an industry consultant based in Port Washington, N.Y., saw two strategies in US Airways' efforts to find buyers for its assets. First, Mr. Mann said, the airline most likely wanted to put pressure on its labor unions, which granted the airline two sets of contract concessions in bankruptcy, but thus far have resisted any further cuts.

Since the assets were put up for sale in early January, US Airways' pilots agreed to hold discussions with the airline on its financial problems, although the pilots' union said the meetings were not formal contract talks.

Mr. Mann also said the company was most likely curious to see what its assets might bring in the industry's difficult economic climate. "It's almost as if they were dribbling out a little bit of honey to see whether any bees would arrive," Mr. Mann said.

 

[jetblue320]

All the more reason to support my feable claim that JBU has no real intention of operating a shuttle or any other service from LGA. The shuttle purchase would be chocked full of complications due to the fragmentation clauses that are in the USA pilots agreement. I have never seen this CBA, but we have loads of USAir pilots here now and they all agree that it would be a mess indeed, labor wise. Personally, I think it is a power play on our part to force either the "other guys" to use their slots and gates or give them up and also to otherwise force them to rearrange capacity into LGA to cause a diversion effect. Either way, we have to be prepared to go through with any offers made or applications made. Financially for us, not a problem either way. Not sure how this will play out but it sure will be interesting to watch.

The funny thing is, we have kinda been buying USAir anyway for the past two and a half odd years....one pilot at a time!!!


C yaaa

 

[vc10]

If the sale of Shuttle involves the transfer of aircraft, then it's plausible that the US Airways pilot contract would require that pilots transition too (if they want).

However, if the sale of Shuttle is no more than the sale of gates and slots but no aircraft, then I don't see how the pilots would have the right to be transferred---unless the sale of LGA/DCA slots/gates is specifically addressed in their contract.

Unless that is true, I doubt they have any rights in the event that it's the transfer of gates/slots only. After all, airlines have the right to change where they fly---if US Air transfers the A319s from the Shuttle routes to somewhere else, what right do the pilots have to complain?

Any Airways pilot out there want to explain?

Wouldn't be the first time the NYTimes got it wrong...

When you get right down to it, the Shuttle is no more than the slots and gates. It's not as if only _those_ aircraft can fly those routes...

 

[lowecur]

vc10

Obviously there has to be some caveats in the bids by both AMR and Jetblue. If there is no way to exclude employees, then both carriers would want to state that the sale would be contingent on the acceptance by Shuttle employees of the offer. My guess is both carriers would treat all employees as new hires, and they would have to qualify through the various hiring criteria set by both carriers.

I think B6 would have the easier time. They only would have to deal with the Shuttle employees, where AMR has to deal with both Shuttle and their own employees. If I were a Shuttle employee, I would do whatever it takes to insure my long-term future.

 

[dlredline]

USAirways "Triggering" Event

From the CBA between USAirways and ALPA, Section (D) -(F), "Change of Control" and "Other Protections":

[Section 1(F)1. paraphrased]
If the Company sells, transfers or disposes of assets...which constiture 20% or more of the value of the assets of the Company or USAirways Group shall satisfy the aforesaid percentage being referred to as a "Triggering Event", then:

[Section 1(F)1.a. paraphrased]
In the event another air carrier (a "Transferee") purchases or acquires any aircraft of the Company or USAirways Group as part of any transaction that constitutes a Triggering Event, the Association (ALPA) shall determine, in it's sole discretion, whether or not pilots from the USAirways Pilot Seniority List .. shall transfer to the Transferee and which pilots shall transfer.

[Section 1(F)1.b. paraphrased]
The Company .. shall require any Transferee to employ the Tranferring Pilots, with the integration of the Transferring pilots into the Transferees' seniority to be governed by the Association (ALPA) Merger Policy if both pre-transaction pilot groups are represented by the Association..



Several things to point out here: If the Shuttle constitutes less than 20% of the total operation of USAirways as a whole (I believe in the latest filings, the Shuttle falls below 20% of total operations) than this would not equate to a "Triggering Event", and ALPA would have no claim to the transfer of U pilots. Even if it did, seniority integration only occurs with another ALPA carrier under ALPA's merger policy, which was changed from strict DOH several years ago (by a UAL controlled ALPA BOD) to (1) DOH, or absent an agreement, (2) arbitration.

Bottom line IMHO is that the pilots of U would not have a right to transfer to any purchasing entity of the Shuttle (less than 20% rule), nor would any purchaser be required by any CBA to provide employment to said pilots. If the purchaser is an ALPA carrier, it could (and probably would) end up in court arguing the percentages and languages of the two ALPA contracts. If it's a non-ALPA carrier buying the Shuttle, I don't see the legal foundation to provide integration of the pilots, much less a requirement that the pilots be required to come with the assets. And just to clarify, there are no "Shuttle" employees. Everyone who works at the USAirways Shuttle is a mainline employee working at a bid position.

Hope this information helps....

Red

 

[TWA Dude]

Re: USAirways "Triggering" Event

News flash for y'all. TWA's union contracts had lot's of protections in 'em and AA was able to get around them pretty easily. True, they used the bankruptcy court as ammunition, but who's to say anthother Chap 11 isn't in U's future? We live in a pro-business, anti-labor environment. I suspect a few union contracts won't get in the way of important business.

Dude

 

[SpeedBird]

DL

The CBA language concerning the "triggering event" threshold makes much more sense than the NYT article excerpt.

In the case of jetBlue I would expect that a purchase of the Shuttle from US would be just for gates and slots if there is an option to do so. B6 is definitely not interested in US's A319s (CFM-equipped), nor any of the accompanying staff that would come with it. Of course TWAdude hits the mark about how contract protections can be abrogated under certain circumstances.

In the end though I must agree with jetBlue320 in that Neeleman et. al, is involved with this bidding to make the competition earn it the old-fashioned way and force them to crap or get off the pot with regard to unused gates/slots, etc.

Let's just say this is jetBlue's opportunity to say thanks to AA for their efforts in Long Beach over the last couple of years.

 

[General Lee]

Speedbird,

But the Long Beach analogy is not the proper one. LGA actually is slot restricted for a reason---actual traffic. LGB has a noise ordinence. You will have fun along with the rest of us at LGA, sitting for an hour to cross runway 4 just to taxi to 13, and wait for all of the landing traffic on 22. It really is fun, but it does give you another NYC airport, which is better for convienence to Manhattan.

Bye Bye--General Lee

 

[lowecur]

I've only been to LGA a few times, but it seems to me there are an awful lot of small regional props. Are these slot exempt? I would bet LGA could clean up quite a bit of backlog if they would limit the 8-10 of these flights per day from the small/medium markets. I know the DOT wants to keep these smaller markets viable, but frequency is not the answer.

Plugging in 3 or 4 CRJ700-900 or the E-series would probably do wonders to relieve the overcrowding. Of course raising landing fees would be another alternative for limiting frequency. How the heck does a 767 use a 7000' runway? Geesse!!!

 

[OakRBust]

Congratulations Low...

I didn't know that you had the term CRJ in your vocabulary!!!

 

[lowecur]

oak

I can type it, but I can't say it.

 

[dlredline]

Re: Re: USAirways "Triggering" Event

News flash for y'all. TWA's union contracts had lot's of protections in 'em and AA was able to get around them pretty easily. True, they used the bankruptcy court as ammunition, but who's to say anthother Chap 11 isn't in U's future? We live in a pro-business, anti-labor environment. I suspect a few union contracts won't get in the way of important business.

Dude

Excellent point, Dude. The difference between TWA and the plight of USAirways is contained in the covenance language of the ATSB government loan backing. A second filing of Chapter 11 by USAirways would render them in default of the loan convenance, and therefore is not an option.

I disagree with some who've suggested that retaining Morgan Stanley to investigate an asset sale is a "ploy" to get ALPA back to the concession stand (though it did work, didn't it?). The announcement alone has sent revenues down as passengers bail from "troubled" USAirways, not the smartest business move if this were a ploy (though stupid business moves are the norm for USAirways). I believe the asset sale is real, and perhaps their only alternative at this stage, though akin to "burning the furniture to save the house".

And I agree with you that any labor contract these days offers little impediment to the sale of the Shuttle. U's MEC has yet to show the backbone necessary to instill confidence from it's troops (no-furlough, scope, and retirement all gone). But it looks like the point is moot here. ALPA will not have a say in where U's pilots go if/when the Shuttle is sold, their own contractual language shows that.

Red

 

[G4G5]

What's in it for us?

That's a phrase that the mgt at DAL and AA are going to be hearing from all of their labor groups. I know at AA the pilots group would be hard pressed to add USAir pilots with 2,500 AA pilots out on the street. I would venture to guess that the FA's, Tech's, gate agents, baggage folks, yada yada all feel the same way. From what I have read on the union web page their are a few folks asking, why again did we give back the contract concessions? Not to purchase assets and then take the employees. How about just saying, "No" and offering to take care of your own?

This is a tremendous difference between today and when AA purchased TWA. Their were no DAL/AA pilots out on the street back then.

Since neither airline would be intrested in USAir's A320's. The odds are that USAir will keep them. This is probably something that appeals to Siegle. He was floating around the possiblilty of a 60 airbus purchase last week. I would guess that no equipment changes hands. Which would make it even harder for ALPA.

The other big difference is AA is not ALPA. The pilots of AA have their own contract language for intergration. IMHO, Neeleman would take care of his pilot group.

What happens if 19% is sold to more then one airline. I wonder if the 20% is cumulative?

 

[jointops]

What are the chances US Air "leaked" this info and falsely included airlines not even interested in order to start the bidding war?

Especially since our management at B6 just sent an e-mail to the employee groups stating that if/when they made those decisions the employee groups would be notified and not read about it first. That any mention of us at this point is pure specualtion.

Having been furloughed from US Air, I thought it interesting our name (B6) was thrown into the mix. Especially since management came out with a counter offensive e-mail.

Man, back to the expressway visual after finally recovering from all those delays from LGA.

Happy lanidngs

 

[C77MD80]

What's in it for us?

That seems to be a question asked a lot from the AMR types.

This is a tremendous difference between today and when AA purchased TWA. Their were no DAL/AA pilots out on the street back then.

The pilots on the street are just that, pilots on the street. APA doesn't give two hoots about them and they go back to the above question.

I know at AA the pilots group would be hard pressed to add USAir pilots with 2,500 AA pilots out on the street.

See below

The other big difference is AA is not ALPA.

and staple as usual.......

Not to purchase assets and take the employees.

You always staple the majority, percentage wise you do much better in the end, how does this hurt you guys at AMR?