UAL news.........

[Ty Webb]

Think what you wish, skykid, but most of what you have posted is wishful thinking, pure and simple.

The most important thing you have posted is that UAL, with its planes "75-85% full" is still hemorrhaging money- over $4 million a day. That is miles away from turning a profit, which they need to do by October, according to your lender's covennants.

Even with an improvement in fuel prices and SARS gone (?) there is no way UAL will make money in this pricing environment, and they must start making money soon, or they either run out of cash or bust a covenant.

BTW, a one time shot-in-the-arm like the tax refund doesn't represent anything other than a fortunate circumstance, just as SARS was an unfortunate one. Welcome to the airline industry.

The picture, on another message board, which I posted a link to, was a picture of a UAL plane "tanking". If your skin is so thin, perhaps you shouldn't be on this board. Maybe Dr. Phil has a board you could find more soothing.

 

[spinup]

Ty Webb,

Since you appear to be "in-the-know", concerning UAL financially, perhaps you could answer a few questions.

1. Since UAL met previous DIP hurdles by a "wide margin", how many losses did they post early as opposed to later when DIP hurdles are more stringent? Outside of EBITAR for cash on hand purposes.

2. Why will UAL be forced into Chapter 7 if it misses a DIP hurdle, when US Airways missed all of theirs?

3. Why is it a bad thing for UAL to have the 4th best load factor in the industry, and the best on time performance? Will this somehow effect revenue adversely?

4. Do your $4m per day losses in April (the month most damaging due to War, Fuel cost, and SARS), accurately reflect future revenue earnings at UAL?

5. Will the $15.1b savings from labor (over six years) and the $700m savings from re-negotiated leases (annually) play no role in recovery?

6. Are all the cost savings, and increased efficiencies fully implemented, and $4m daily loss is the best UAL can hope for?

7. I thought that like DIP financing, exit financing was the norm. If it is not then what is?

9. Will the recent $10.00 dollar increase on tickets have no effect? At 200,000 pax daily that is a $2m daily increase in revenue. Will UAL still be loosing $4m daily? I guess technically the summer revenue picture would have to drop to $6m daily losses to keep with your $4m daily. Will this happen?

8. Most importantly, where is the industry heading? Is low fare the long term future, Hub and spoke network carriers, or is it a mix of the two?

Thanks in advance,

Spinup

 

[acarpe3448]

CNN reported that UAL lost close to $400 millon in April alone. I hope their recovery shows better numbers than this sometime soon.

 

[General Lee]

$400million in one month can mean a $1billion loss for the quarter. I know revenue is starting to pick up, but SARS isn't helping. Atleast Europe seems strong for the Majors. I wish them luck.

Bye Bye--General Lee

 

[Ty Webb]

(Originally posted by spinup)
Ty Webb,

Since you appear to be "in-the-know", concerning UAL financially, perhaps you could answer a few questions.

I am not "in the know". I am simply someone who is following the issue and an only calling it as I see it. I am not a financial guru, but I used to be a pretty successful businessman in another life, enough to know the difference, say, between an Income Statement, and a Balance Sheet.

1. Since UAL met previous DIP hurdles by a "wide margin", how many losses did they post early as opposed to later when DIP hurdles are more stringent? Outside of EBITAR for cash on hand purposes.

UAL met its earlier covenants because at that point in the process, they did not have to pay most of their bills (to put it in the simplest terms). If I gave you two months where you didn;t have to pay your mortgage, utilities and credit card payments, you would have a lot of extra cash on hand, too.

2. Why will UAL be forced into Chapter 7 if it misses a DIP hurdle, when US Airways missed all of theirs?.

I don;t recall that USAirways missed "all" of theirs, but they were dealing with the Alabama Retirement Board, who basically "upped" their ownership, and, as an owner, had more of a vested interest in keeping the company a going concern. UAL's debt is held by a wider variety of entities, making it more complex. I think that if they miss their future requirements (namely, to start making money by October) Citigroup and the others may decide to cut their losses and stop throwing good money after bad.


3. Why is it a bad thing for UAL to have the 4th best load factor in the industry, and the best on time performance? Will this somehow effect revenue adversely?

Didn't say that.

4. Do your $4m per day losses in April (the month most damaging due to War, Fuel cost, and SARS), accurately reflect future revenue earnings at UAL?.

I, too, will be interested to see if they can make money when these issues have been resolved.


5. Will the $15.1b savings from labor (over six years) and the $700m savings from re-negotiated leases (annually) play no role in recovery?

They won't if they don;t get the chance to . . . in other words, if UAL isn;t making money by October, and the DIP decide to pull the plug and liquidate, then all of those things won;t matter.

6. Are all the cost savings, and increased efficiencies fully implemented, and $4m daily loss is the best UAL can hope for?

Geez, I hope not, but who knows? Only time will tell. It's not just the costs, of course, it;s also the revenues, which, right now, may not be able to support UAL's (reduced) cost structure.

7. I thought that like DIP financing, exit financing was the norm. If it is not then what is?

The question is really will they get to the point where they can exit?

9. Will the recent $10.00 dollar increase on tickets have no effect? At 200,000 pax daily that is a $2m daily increase in revenue. Will UAL still be loosing $4m daily? I guess technically the summer revenue picture would have to drop to $6m daily losses to keep with your $4m daily. Will this happen?

This assumes that the pricing sticks. It is not enough on its own to enable them to do what they must- and that is, again, be making money by October.

8. Most importantly, where is the industry heading? Is low fare the long term future, Hub and spoke network carriers, or is it a mix of the two?

Much smarter people than you and I are wondering the same thing. When business travel comes back in a few years, we will see how they vote with their dollars.

 

[Boeingman]

They are losing $400 million a month without making any aircraft lease or facilities payments? You have to wonder how much, longer the lenders and creditors are going to watch this company burn through money.

What was also interesting was their cash balance change. Factor out the governemnt grant and tax refund, the picture does not look good.

 

[General Lee]

Do you mean $4million a day? I think that is right. The SARS thing has really cut into their Pacific flying---especially to China and Taiwan. That sucks.

Bye Bye--General Lee

 

[Boeingman]

Do you mean $4million a day? I think that is right. The SARS thing has really cut into their Pacific flying---especially to China and Taiwan. That sucks.

Bye Bye--General Lee

Whoa, typo. Thanks.

 

[Mugs]

UAL April Summary:

(A month that Boeingman and Gordo said UAL would never see a few months ago).
---------------------------

* Meets third DIP covenant despite impact of Iraq War and SARS

* Maintains strong cash position

* Challenging revenue environment drives loss from operations of 297 million dollars and net loss of 375 million dollars for April

* Operational excellence continues

* Company implements improvements in travel experience and plans to dedicate resources to re-engaging core customer base

UAL Corp. today filed its April Monthly Operating Report (MOR) with the United States Bankruptcy Court, and said that it met the third monthly requirement of its debtor-in-possession (DIP) financing. As part of its DIP financing agreements, United's lenders required the company to achieve a cumulative EBITDAR (earnings before interest, taxes, depreciation, amortization and aircraft rent) loss of no more than 849 million dollars between Dec. 1, 2002, and April 30, 2003.

The company reported a loss from operations of 297 million dollars and a net loss of 375 million dollars for April. The revenue environment for the entire airline industry was very difficult during the month, due to the full impact of the war in Iraq and the fear of SARS in Asia.

UAL improved its cash position for the month and reported an increase in cash of approximately 150 million dollars for April, ending the month with a cash balance of approximately 1.7 billion dollars, which included 651 million dollars in restricted cash (filing entities only). During the month of April, the company made a 64 million dollar quarterly retroactive wage payment, including taxes and interest, to employees who are members of the International Association of Machinists and Aerospace Workers (IAM) union. The company also received a 365 million dollar tax refund from the Internal Revenue Service. UAL began April with a cash balance of approximately 1.6 billion dollars, which included 633 million dollars in restricted cash (filing entities only). Excluding the tax refund and the quarterly IAM retro payment, the company's cash balance decreased approximately 150 million dollars for the month.

United's Executive Vice President and Chief Financial Officer Jake Brace said, "April marked the high point of the Iraq War and SARS impacts on revenue. Our cash burn was significantly higher in April as compared with March. We are pleased that our cash receipts have now returned to pre-war levels. We have stayed on track with our efforts to reduce our cost structure significantly and we continue to move our business forward. Early planning for the effects of the war in Iraq and our new flexibility to respond to market shifts helped us to meet our cumulative EBITDAR requirements and maintain a healthy cash position. We are confident at this point that we will also meet our EBITDAR requirements for May."

Brace continued: "We are pleased to have recently announced the resumption in June of 162 flights and are encouraged by bookings for the summer months. However, the revenue environment continues to be challenging."

In May, the company announced the appointment of John Tague as executive vice-president-Customer, and the company plans to dedicate significant resources to re-engaging its core customer base.

Tague said, "The company has made enormous progress in restructuring its costs. Looking forward, United is now turning its full attention toward revenue enhancement. The company is currently finalizing aggressive and focused plans across all of its revenue disciplines so that we can fully address visible opportunities for improvement through refining and investing in our marketing and revenue management strategy."

United's operations continued to demonstrate strong on-time performance, as well as improvements in customer service and satisfaction. In addition, United is continuing to demonstrate its commitment to investing in customers through a number of recently announced enhancements to the travel experience, including the introduction of online Web check-in (EasyCheck-in Online) for customers, the accelerated introduction of EasyCheck-in self-service kiosks, and the reconfiguration of our remaining Boeing 777 aircraft to deploy Economy Plus seating, and to increase leg room and increase seat recline in Business Class. United is also introducing JetConnect technology, so passengers can send and receive email from the plane.

 

[General Lee]

Mugs,,

Don't get me wrong--I want United to do well. I have many friends over there who are hanging on tight. I just am a little wary about a couple things. #1 being whether or not United has paid anything on their airplanes lately (lease payments), and #2 do they have a plan for their LCC etc? I have heard that they will mix it in at the hubs with their mainline. I would think that it might be really confusing for the passengers---United, United Shuttle, United Express, etc. The SARS thing cannot be helping when you need strong summer traffic. I hope you come out of this. It just proves that an airline can already being doing poorly before 9-11, then lose two planes on national TV during that day, survive a nasty bankruptcy, and have 1/2 of your Intl traffic be gone due to a disease (SARS), and still be able to survive. That really is amazing. I hope it works.


Bye Bye--General Lee

 

[Boeingman]

Mugs:

Yes, you guys survived another month and for that I am glad. Despite all the absolute dirty things UAL employees did to CAL during our bk in the 90's I do not wish to see your company fail.

However, I may be blunt, but I think the chances for UAL's survival are very bleak.

A couple of points. When you talk cash position be sure to remember that UAL got quite a bit of money from the government grant, the IRS tax refund, as well as cash on the sale of 5 744's to PIA. Of course your cash position today is healthier but you're burning money at an exponential rate over there. I believe that UAL would of been in default of their DIP covenants had it not of been for these extraordinairey revenue gains.

The General is correct. UAL has not made a dime in lease payments on aircraft or facilities. What do you think your losses would be without the protection of bankruptcy? My point is that fundamentaly, aside from hacking at labor costs....what is the plan to fix these massive losses?

It is really simple mathamatics. You have saved $2.5 b from the backs of the employees, yet you're on a path of losing over $4b
per year. All the fancy press releases and marketing plans (heard starfish is going to be canned now) will not make up that revenue shortfall. Sooner or later the creditors and the banks will pull the plug unless their is a radical change in the financial dynamics.

Good luck. The last thing this industry needs right now is more pilots on the street. Not to mention a glut of airframes for some new low cost carrier to further erode pay and working conditions.

 

[Booker]

#2 do they have a plan for their LCC etc?

To address the LCC specifically, as Boeingman mentioned, it has been shelved.

Best,
B

 

[Mugs]

I'm am certainly not an expert or really "in the know" on what UAL's picture looks like exactly. However, to say that UAL has not made a dime in aircraft or other payments isn't true. Here is a clip from a March report:
----------------------------
March cash flow results reflect the resumption of certain scheduled aircraft payments and a draw-down of $92 million from additional DIP financing. The company reported that it made payments of $85 million during the month in connection with various aircraft financings, which included some payments for the period from December 2002 through March 2003. United began March with a cash balance of approximately $1.5 billion, which included $579 million in restricted cash (filing entities only). It ended the month with a cash balance of approximately $1.6 billion, which included $633 million in restricted cash (filing entities only). Excluding the draw-down of $92 million in DIP financing, the company's cash balance decreased approximately $18 million for the month, which is less than $1 million per day.
------------------------------

But what do I know? If it doesn't work out then I think Boeingman is correct that there will be plenty of modern airframes available for ultra low cost new entrants in the marketplace.

 

[skykid]

UAL has not made a dime in lease payments on aircraft or facilities.

Mugs, you are correct of course. The statement posted above is only off by several hundred million dollars. By facilities, I assume he meant airport and gate fees as well as mx buildings, etc. Take any big UAL domicile, and do a search to see what is owed or disputed. Take DIA - paid up except for an arguement over the Dec bill that involves Dec 1-9 - - before Ch11 filing. Do a search of Chicago Sun times articles to see what UAL paid out in aircraft leases in Feb - 128 million. A dime, a few 100 mil, whats the difference?

 

[Live4flyng]

WOW

Sounds like UAL needs a new business model. I would venture a guess and say that if they continue to lose $350mil a quarter, they will need to form a SWA business model to survive.

 

[KingAirKiddo]

Not to mention that the point to point service offered by SWA and other low cost carriers is not the catch all, be all for the industry.

The hub and spoke system employed by the network mainline carriers is not fundamentally flawed. This type of system allows a number of communities to have airline service when they would otherwise not be able to due to cost and load concerns. For example, it is not practical to run a 737 between Peoria, IL and Tri-Cities, TN. It is practical, however, to run a CRJ or Brasilia from Peoria to Chicago where passengers can connect to a mainline flight and get to any destination.

Don't get me wrong--SWA, jetBlue, and others are great companies that I would fly for in a heartbeat. They offer a great product and serve their niche markets well. All I'm saying is there is still a need for a hub and spoke mainline operation, although cost structures and inefficiencies will need to continue being reduced in order for all the carriers to remain viable.

 

[MLBWINGBORN]

A few thoughts to ponder..

First..never, ever discount any city pair right off the bat..It all comes down to operating cost and amount of traffic between those two cities..
SWA does ORF to BWI and we are making a killing off of a 20 minute flight using 737s..

Second..The hub and spoke system may not be dead in alot of peoples minds..But..Its in for a very big series of changes if not out right death due to starvation..IMHO the hub and spoke system is deader than a cheese sandwich on the menue at Mortons..It aint gonna sell!!

How many RJs at say 65% does it take to fill up a 767 going from ORD to DEN?How many will it take when supplying a 767 that needs load factors in the high 90s to make money?

Or..Would it make more sense to operate the longer range RJs direct to DEN and make a profit in their own right..

Anytime your are put in a position of relieing on another airline to supply you with business sooner or later you are going to be left holding the bag..History proves this one about every 5 to 7 years during economic downturns..

Third..Old ways die very hard and this is true for all old business models..Evolve or die is going to be the hue and cry for many months to come if not years and the hub and spoke system will be one of the bigest to fall prey to the needed changes..

And my favorite..
When are people going to stop looking at SWA like its a small,regonial, or low cost carrier..?
2950 flights a day...348 aircraft..and a market place that extends to the entire width and breadth of the lower 48 states..We launch more flights a day than any two "majors" combined when you look at domestic service and dont count RJs or feeders..

And lastly..The hardest thing to change in this world is a persons mind..
Allowing any labor force to wring every last drop of financial blood out of a carrier just because it can is a sure plan for a failure..While at the same time having a managment group in place that thinks its employess are the reason they are losing money isnt gonna be the way to run a airline either..

So..Until there is basic change as to how an airline manages both its people and its business they are all doomed..

Doomed to repeat their long history of horrible labor disputes and poor managment practices that in the end only serve to put into place the causes for the next round of furloughs and bankruptsies..

All the while pissing away BILLIONS and then in the end coming back to the Congress for more money..So much so that the total amount "handed" out so far could have.. at current prices.. bought up ALL stock of the 4 majors combined..

Mike

 

[shagadelic]

Nice post MLB, but I disagree that hub & spoke is completely dead. Next time you fly the ORF-BWI, ask how many people are actually going to BWI... You will probably find a majority going to our "Hub" at BWI to connect somewhere else.

 

[spinup]

ORF is a MAJOR ship building community, requiring a lot of traffic. I agree the example of ORF to BWI is a poor one.

The point that Kingairkiddo made is a valid one. SWA can only get their costs so low, beyond that they cannot service smaller communities profitably. Not many 737's running EAS.

At some point the growth in point-to-point service will be capped, at what point remains to be seen. SWA is sticking to what they do well, putting planes in profitable markets only. This doesn't include a vast amount of markets better served by regional carriers, feeding hubs.


.

 

[KingAirKiddo]

MLB,

Nice post.

The "low cost carrier" label seems to be the phrase of the week; in no way do I mean it in a derogatory sense. I realize that Southwest is a major airline, albeit a non-traditional major airline.

Southwest serves its niche well. It runs point to point non-frills service using a single airplane type. It is a company that chooses its route structure carefully, after close scrutiny. Its executives recognize the employee as an asset and communicates this point effectively. Compensation is based on a combination of hourly wages, profit sharing, and stock options, if I understand correctly.

What Southwest cannot do is put somebody on a 737 in Myrtle Beach and fly them to London, England. Southwest cannot pick somebody up in Lansing, MI and take them to Tokyo or Honolulu, etc. There is still a need for mainline flagship carriers and the hub and spoke model is the only way to accomplish these types of missions effectively. Do the mainline carriers have some lessons to learn from Southwest? Yes, of course. Management needs to recognize the value of a loyal employee group, and employees need to recognize that it is not feasible to demand $250,000 annually to work 6 days a month. It is my opinion that the events of the past couple years have led to a realignment in many of these types of areas. There are lessons to be learned and practices to be copied, but there is nothing wrong with the fundamental hub and spoke concept.

Again, I believe that Southwest is an excellent company that I would love to be a part of someday. All I'm saying is that its type of operations is not necessarily THE ONLY wave of the future. Conventional majors are here to stay.

 

[Boz]

When will you guys realise that UAL and SWA are not the same. SWA does not fly Int'l fligths. You guys try to compare the two and it is definately apples to oranges. The main fact is that SWA is a point to point domestic carrier that any airline would wish to copy, but the fact is that SWA has perfected the LCO better than anyone can do..

There has been attempts from CAL, DAL, and UAL to emulate this and it has failed. Obviously SWA is a major competitor that no major is able to emulate thus far. So by trying to copy it has not worked in the past pretty much is a predictor that most majors will fail in this arena for time to come.

Another fact is that UAL, AA, DAL, NWA, etc....would love to have the secret that SWA has but again they canot do it overnight, nor ever IHO.

SWA is force that has been challenged and no major will come close to copying there business model. So is UAlLgoing to try to copy this! Again NO way do they stand a chance.

UAL is set up for the business traveler and the fact is that UAL is suffering from the interantional business travel being sown from the recent war in Iraq and SARS. It is not going to rebound overnight. But when times get better I feel the carrier will be a strong force to compete with as it is trying desperatly to get its costs inline with the discount carriers. It is very economic based and again when there is a another boom in the economy hopefully UAL and other majors will get a good share of the profits from air travelers.

Just my humbble opinion but I am not seeing a Ch. 7 anytime soon and the future will dictate where UAL stands in the major airline market. They wiil survuve amongst major comeption from the LCO airlines and they will be a force to be reckoned with in the economic enviornment that has taken shape as of late.

I personally would not count them out at this stage even though they have been compared to Eastern, TWA, Pan Am, etc..as of late.

 

[KingAirKiddo]

Boz,

I agree with you that SWA and UAL are not the same. That was the point of both of my posts on the subject.

KAK