UA has a date with a Banckruptcy Judge

[~~~^~~~]

There is an excellent article on Boyd's web site. The basic figures are United needs about $700 million in cash for daily operations and they are sitting on about $1Bn. At some point they have to obtain protection for that cash to continue operations and the catalyst is likely to be the $375 million EETC (Equipment Trust Certificates - aircraft financing) that is due today. There is a ten day grace period before United is officially in default, so I expect the "news" of the Banckruptcy within the week.

What I am curious about is how this effects the rest of the industry. United's management is looking for labor concessions, but as Boyd points out, labor is not what got United into this mess. The lack of leadership at the airline has been appalling.

Will Delta's management try to take back part of the "United Plus" contract they signed? Certainly there will be downward pressure as United's employees take pay reductions to try to save their airline. What will be the fate of Skywest and ACA? We can bet American will jump into Chicago and perhaps Delta will renew interest in building operations in the Western US again.

However, none of us should lick our chops at United's possible demise. First, I believe it will have a ripple effect on our airlines as bankrupt carriers have a tendency to ignite fare wars to reclaim passengers and cash flow. Also, there is the real possibility that other members of the Star Alliance will come to the rescue before watching the dominant partner (and largest source of passenger feed) fall apart.

These are interesting times.

 

[ceo_of_the_sofa]

Does this mean more CFI's filtering back to flighschools?

 

[avbug]

I haven't seen the article, but as of this morning, United anounced that they do not intend to seek bankrupcy.

That aside, let's not forget that the US government will not allow the airline to collapse. The airline, if bankrupcy does finally come to fruition, won't fail. It will put off debts and continue to operate. In fact, if bankrupcy is used, it may be more of a union busting or controlling tactic than anything.

With a large bulk of the military civil reserve aircraft fleet (CRAF) in United (et al, among other major carriers), the government has a vested interest in seeing the carrier survive. Additionally, the government has been keeping the airlines alive for over 80 years in one way or another. The airline is a national transportation resource which, while publically held economically, affects so many other areas. The government cannot let it collapse, and that's not going to happen.

United seeks gauranteed loans of two billion. This isn't government money, but loans gauranteed by the government. Again, another investment (of many), securing further governmental support. United's value is junk bond right now...no credit, and they can't secure loans without these gaurantees. After the machinists issue is settled (hopefully by Thursday), the matter of loans may proceed.

We're not seeing the airline going anywhere, and it's not going to collapse.

 

[reepicheep]

I agree and don't think UAL is even going to have to file.

UAL have a valuable route-structure and a great franchise. Folks are going to need to travel to Japan and Hong Kong and Europe and LAX-JFK. They are not USAir - big deal so you can't fly BUF-BWI anymore so take Southwest or drive or take the train; we won't be missed for a second.

 

[freightdogfred]

United Bankruptcy?

The government chose not to bail PanAm, so why would they bail out United?

PanAm was the pioneer in overwater flying, and did the proving runs for the Pacific and South America, routes the rest of the world's airlines now fly. The Government did not reward them for fiscal mismanagement, and I doubt they'll reward United. Any Federal loans they receive will be conditional on restructuring debt, the same as all the rest of the airlines applying for Federal loans.

 

[Franky4Fingers]

UA is the worlds largest carrier. Could Pan Am say that when they went under? The government wont let United fail.

 

[~~~^~~~]

Eastern, Pan Am, Braniff, TWA were each among the largest leaders of our industry at one time. The government will not "bail out" UA, nor is there any political incentive to do so, outside of Denver and Chicago.

Many people, myself included, have a problem with 1.7 Billion of the 2.0 Billion in loan guarantees going straight into the employees pension fund. While I understand why United must comply with the law on funding pensions, the pension deal is largely a result of the overall condition of the stock market and the stupid move of the penion funds managers to invest in UAL's stock as part of the employee ownership plan. After Enron, you would think....

At any rate, propping up the pension fund is a nice thing for a company to do right before declaring bankruptcy - but how does a payment to a pension fund help get the airline running again? It does not.

Shame UAL "fired" their previos CEO after he told them the truth and hired some one with no airline experience. Now is not the time for a leader who is on a "learning curve." UAL may not disappear, but if they don't get some leadership in the CEO's office, they are histowa'.

 

[eaglefly]

Not letting United "fail", is NOT the same thing as Chapter 11 BK.

The Bush administration, the ATSB and the DOT know fully well that UAL will continue to operate a majority of their operations should they restructure through Chapter 11.

UAL 's chances of avoiding Chapter 11 are 50/50 at best.

If the mechanics vote no on Thursday (for basically the same give-backs), BK will be filed by late Friday night.

If they vote yes, the ATSB will have to announce their decision soon after. (note I did not say "make" a decision, because I believe they already have).

We'll see soon.

 

[navigator72]

CEO pay

I would be curious to know how many upper management types at UAL have taken a pay cut or given back some of their multi-million dollar bonuses.

 

[Marko Ramius]

Ohh Fins, give me a break

You're giving Jim Goodwin a pass, because of his ill-timed, poorly handled "perish" letter? This guy was clearly the worst CEO in UA's history. I don't think George Keck, though inept, caused this much damage and at least Ferris and Wolf had much to do with the building of the airline outside of their darker sides. Let's not forget it was Goodwin who walked onto the job at the world's largest employee-owned company(a fact that shouldn't have escaped him since he worked there for 34 years), and started off by saying that he wanted to move towards a more traditional management-employee relationship. That's like walking into a Ford plant with a Honda shirt on. He then decides to build UA through an acquisition. He of course ignored the fact that the only successful acquisition for UA has been when they purchased fragments and not whole airlines. Nonetheless he started off with would have been the smarter purchase of America West, but was outfoxed by politicos and the like and backed down-a sign of things to come. He then goes for the whole enchilada by attempting to grossly overpay for UsAirways. Ohh did I mention that genius boy decided to mark his return to traditional management-employee relations by returning to traditional RLA hardball drag it out style labor negotiations? Then when he gets through his contract with the pilots, does he learn ANYTHING? Nope, unlike DAL and others in similar situations, this cretan decides to drag out successive labor negotiations, play employee groups off each other, and actively contribute to a negative image of his employees and his airline. He somehow how thought that allowing his employees to portrayed so, didn't reflect on the airline in the customer's eye. Then when he came to his senses and realized that UsAirways wasn't going to work, he had to pull off the political full court press. Alot of politicos stuck their necks out for UAL go hung out to dry, and UA has been paying for it sense. Look at all the trouble they've had with Washington so far, do you really think Fatwin would have been the right man to send up the hill a year after he fu@ked them all? I won't even get into the closing of Anchorage, reducing the productivity of Shuttle, misuse of 777's and 400's, DotComs, Avolar, and Roadway trucking stuff. Genius, pure genius, truly tis a "shame," he was relieved of his duties. Sorry, if this sounds harsh but I'm not going to listen to someone say it's a "shame," that Plumpwin was sent packing. UFB, I just wish someone had given him a granite parachute instead of a golden one.

 

[80drvr]

UA is the worlds largest carrier. Could Pan Am say that when they went under? The government wont let United fail.

Just a technicality, but, UAL is not the world's largest carrier.

 

[SpeedBird]

In replying to the first post, Boyd forgot to include over $500 million dollars which UAL now owes to a German banking concern (Kreditanstalt fuer Wiederaufbau). This loan was originally deffered by UAL last month to paid sometime in 2007.

However, since the IAM membership was unable to approve its concessions vote last week, that $500 million became due in full yesterday (Dec 2nd). When you add this to the $375 million EETC obligation, UAL is looking at $900 million due in the next two weeks (taking into account the various grace periods). The airline is already operating at its bare minimum for cash on hand ($1bn).

If the ATSB does not approve the $1.8bn loan guarantee within the next 7 days it looks like bankruptcy is the only option left to preserve its capital base under Chp. 11 operations. If, as some of you think, it is in the government's best interest to keep UAL financially solvent then the ATSB has had some time to step through the "open door" and pull their bacon out of the fire.

The fact that they haven't yet says that the ATSB is doing their job and forcing UAL to prove they're worth the risk. So far UAL hasn't cut the mustard sufficiently for that to occur. The government it not acting as the white knight, nor should it, if UAL continues to stumble forward into a financial blackhole.

IMO, if I was an employee at UAL I'd be reviewing my resume and updating it accordingly. One way or the other the UAL of future will be much different than the UAL of the past.

 

[chppr5]

for someone with so little time and airline experience, you seem to have all of the answers..

 

[Franky4Fingers]

Upon further review, UAL appears to be in big trouble. SELL SELL SELL while you still can!

 

[AAflyer]

Just got off the phone with my UAL buddy. It looks like BK is the only way to go.

The ATSB has said no to a government loan. What are the remaining options? Goodwin all but dried up taditional methods of capital with his doom and gloom letter. To my understanding the loan decline was not about concessions, it was about a business plan that did not look healthy.

Do not fool yourself that UAL could not go bankrupt, after a meeting with Don Carty yesterday AA is only a year away from the same position.

A UAL bankruptcy would not cause them to fold overnight, they would continue to operate, and could emerge from BK a leaner, more healthy company that would have and advantage over other carriers, initially Frontier would be in jepordy with a UAL BK.

UAL needs to decide soon, as a company needs to go into BK with as much cash as they can, and UAL's burn rate of 8-10 million a day does not give them a long time to "mull this over".

BK has it's risks, take a look back to de-regulation, of all the companies that had filed Chpt 11, which is the only carrier that emerged and has not filed again or shut down. CAL! That is it.

USairways is whole other story, they appear to be defaulting on agreements of the loan.

I do not say this with pleasure, but we have too many seats available in this country, we need less, it would be easier if a major fell by the wayside, but looking a the personal side of that, I do not want to wish that on any of my brothers and sisters.

I would like to hear from some the ACA and Air Whiskey guys on what they think a UAL BK would do to them.

AAflyer

 

[F9 Driver]

I don't think that F9 is in danger from UAL. Even in Chapter 11 I don't think UAL's CASM will be as low as ours, and we have the ATSB loan if the bleeding gets excessive.

Rationalizations are more important than sex. When was the last time you went a week without a rationalization!

The real question is if they can come up with a plan that shows the BK judge that they can emerge from Ch 11. The relationship between management and labor will be a real challenge in any post BK rebuilding also.

The real cost of CH 11 in my opinion is the loss of the ESOP shares. This is a bitter pill for those who gave the concessions back in the 90's to keep UAL alive.

I have many friends across the field and wish them well!

 

[Boeingman]

What you are saying is true in a typical BK scenario. UAL is light years from a typical BK.

Their achilles heal is going to be the lack of ability to secure DIP financing. They have jacked around for so long and burned through so much cash, without DIP they are finished.

So ask yourself this. If Uncle Sam was far from impressed with their business plan, what makes anyone believe a bank or creditor is going to loan them money or extend credit?

I know the assets etc. etc. They will be attached post haste to cover debt already owed. Also, an asset is only as good as its liquidity. The vultures will not pay anything if UAL tries to sell since they can wait for them to go for pennies on the dollar in an 11 or most likely a 7 proceeding.

Finally aircraft. LOL, used 747's? Anyone been to the desert parking lots lately? I have....not a pretty picture.

We haven't even discussed the underfunded pensions yet.

 

[AAflyer]

F9,

Lighten up, this is my opinion, don't take it so personally, I don't wish any company or pilot trouble. I am merely looking at the possible fall out, and one is we have no idea how low their CASMs will go, will it drive F9 out of biz, probably not, but you would be a FOOL not to look at this as possible trouble.

Two airlines in BK in the US (both majors) is spooky, and no one knows the problems this is going to cause for the other majors and LCCs (particulary the LCCs that are not that financially healthy).

Everything in the past 2 years has been NON normal, I wouldn't expect UALs BK to be any different.

AAflyer

 

[TurboS7]

Avbug,nice post, I only have one question....what happened with EAL and Panam???? I think that the government should just start their own airline with civilian pilots for the CRAF program. They could have a nice DOD airline just with everything that is parked at Victorville alone. It should be non-union and every pilot must have an A+P and be willing to really work. Leave the FAA out of it and run it like a Marine operation, at least we would get something done.

 

[cocknbull]

I don't know anything about UAL's CEO, but do you think UAL will "force" salary cuts if it files for CH11 to attrack investors(band aid). Will it be like a Lorenzo and CAL. Or will UAL try to adjust its business model and become profitable in the long run.

If UAL files CH11 will this allow their management to work "around" the present scope clauses.

What do you guys think will hapen to ACA?

I wish the best to all UAL pilots.