$500M Cash in March based on $44 oil
Cash projections given to the judge show available cash using the ATSB money based on certain assumptions. These numbers are based on the current fleet and the existing capacity that will most certainly be reduced by Jan 1, and they don't include the requested 23% reduction of pay rates for a savings of $200M, plus a mgt reduction 20% for an additional $45M. My guess is oil will remain over $50 per barrel, but the changeover to a more economical Airbus mainline fleet will off-set the increase.
PHL has requested that UAIR turn over 2 gates in terminal D to them for lack of use. LUV will probably be the recipiant of this good fortune in what could be the beginning of the reduction of hub traffic through PHL, as UAIR will have to focus on more point to point with a fleet of only 125-150 a/c.
Posted on Wed, Sep. 29, 2004
US Airways bets on oil, passenger predictions
STAN CHOE AND ADAM BELL
Staff Writers
Like any business plan, US Airways' blueprint to survive and change into a low-cost carrier depends on certain gambles.
The airline, for example, is guessing crude oil prices will stay around $44 per barrel through April and that it will lose no more than $100 million from nervous fliers ditching it for competitors.
Those assumptions are guiding US Airways' all-important cash projections as it tries to pull itself out of its second tumble into bankruptcy protection in two years. If those assumptions prove wrong, it could force a "very significant" drop in cash holdings, the company said in a bankruptcy court filing last Friday. That could be a dire turn for the Arlington, Va.-based airline's 28,000 employees, including 5,700 based in its busiest hub of Charlotte.
US Airways' creditors -- led by the federal Air Transportation Stabilization Board -- are keenly watching that cash. They could cut off the airline if its cash holdings dip too low.
The reason US Airways is in bankruptcy protection again, the airline says, is it made wrong assumptions when it first left bankruptcy in March 2003. Mainly, it had assumed fliers would continue to pay high fares.
"US Airways did not accurately anticipate the magnitude of this structural shift," it wrote in its bankruptcy filing Sept. 12. But, the airline added, neither did its lenders or the ATSB, which backed $900 million in loans and is now the airline's most powerful creditor.
Analysts give the airline credit for "fessing up" to past mistakes and believe US Airways' management this time will be extra cautious in making projections, for fear of getting burned again.
"They're facing reality now," said aviation analyst Ray Neidl of Calyon Securities in New York. "They're realizing it's do-or-die at this point."
The airline says it carefully studied the numbers to come up with the best projections possible. It used a combination of economic models and outside consultants to arrive at its $44-per-barrel assumption and others. The airline told the bankruptcy court it devised a reasonable range for its assumptions, with best- and worst-case scenarios.
In the best case, the airline would have about $500 million at the end of March, not including a 23 percent pay cut from union workers it's requesting. In the worst case, it would have what it considers a dangerously low $256 million, not including pay cuts. The airline estimates the most likely result is $387 million.
Labor unions at the airline say they're still studying US Airways' assumptions.
The assumptions were included in a filing that asked Bankruptcy Judge Stephen Mitchell in Alexandria, Va., to impose temporary 23 percent pay cuts on its labor unions. The cuts would save the airline about $200 million over five months.
Those cuts will let the airline hold onto enough cash to convince creditors to allow it to continue tapping into cash and restructure, US Airways said. The company also continues to try to work out long-term concessions with the unions.
The creditors will likely weigh in on the assumptions in court. That could come in an Oct. 7 hearing on the 23 percent pay cuts, though that session could spill into another hearing Oct. 12.
The creditors will also be in court at an Oct. 14 hearing, when US Airways will ask for permission to continue dipping into its cash.
Some analysts who have reviewed US Airways' filings say management may be a bit optimistic in its assumptions.
The airline listed three major dangers that could push its projections out of whack: soaring oil prices, which mean higher jet-fuel costs; nervous passengers booking away from US Airways; and hurricanes, terrorism or other world events.
During the last three months, the airline said, oil prices have ranged from $37.50 to $48 per barrel. With its assumption of $44 per barrel through April, each $1 per barrel increase costs the airline an extra $2 million a month.
Crude oil just broke the $50-a-barrel barrier, and energy analysts are unsure where the price goes from here.
It doesn't take much to push oil prices up, they say, such as hurricanes that delay freighter shipping, problems at a giant Russian oil producing company or political turmoil in Iraq that disrupts the supply of oil. Some also worry about unrest in Nigeria, Africa's leading exporter of oil.
That's on top of rising global demand and limited refinery capacity.
Seth Kleinman, an energy market analyst with PFC Energy, a Washington consulting firm, called US Airways' $44 projection "extremely optimistic."
A cold winter, with its ensuing higher oil demand, "makes that number look silly," he said. "We're entering unexplored territory for prices here."
Kleinman expects to see prices around $48 or $49 per barrel.
Doug MacIntyre, senior oil market analyst with the federal Energy Information Administration, called the $44 figure "as reasonable an estimate as anyone can make."
The agency is estimating oil will be $40-$42 per barrel through April, but MacIntyre acknowledged it's possible it could hit $50 or more.
"Everyone has been constantly underestimating the prices, including ourselves," he said.
Analysts also question US Airways' projection of $100 million lost to book-aways. "I think $100 million is probably low," said Robert Mann, an aviation consultant on Long Island.
Mann pointed to the high number of sales coming from US Airways in the past week. Those $349 round-trip tickets from Charlotte to Paris are US Airways' attempts to entice passengers to stay with US Airways rather than book on another carrier.
In calculating projections, Mann said airlines must practice an the art of finding the balance between being too conservative and too optimistic. It's not a science, he said.
"It's a decision tree; you're looking at possible outcomes out of a whole slew of variables."
