United has to "plead" with its creditors

[Correcting]

I found this very interesting nugget in a Business Week article about DayJet.

"These days, with the finance world spooked, that’s a no-no. It is also one reason United parent UAL Corp. was forced to plead with its bankers earlier this week to revamp terms on some $1.5 billion of debt. The airline said May 6 it had received the “flexibility” it needs from a consortium led by JP Morgan Chase, Citi and Credit Suisse.

http://www.businessweek.com/lifesty...?chan=top+news_top+news+index_news+++analysis

 

[Shrek]

Kinda like what NW did a little while back..........you will see this again with another major I am sure.

 

[contrail67]

I found this very interesting nugget in a Business Week article about DayJet.

"These days, with the finance world spooked, that’s a no-no. It is also one reason United parent UAL Corp. was forced to plead with its bankers earlier this week to revamp terms on some $1.5 billion of debt. The airline said May 6 it had received the “flexibility” it needs from a consortium led by JP Morgan Chase, Citi and Credit Suisse.

http://www.businessweek.com/lifesty...?chan=top+news_top+news+index_news+++analysis

United Receives Lender Approval for Credit Facility Amendment

Posted May 6, 2008
[FONT=arial, helvetica]W[/FONT]e have received the approval of our lenders today to amend our existing 1.5 billion dollar Credit Facility with them, providing us with more financial flexibility as we implement our action plan to combat high fuel costs.

"This amendment gives us the flexibility to implement the significant actions we are taking to combat higher fuel costs," said Jake Brace, EVP and CFO. "We are comfortable with our liquidity and are well positioned relative to peers with 2.9 billion dollars in unrestricted cash and 3.0 billion dollars in unencumbered assets."
The requirement to meet our fixed charge coverage ratio is suspended for four quarters, beginning with the second quarter of 2008 and ending with the first quarter of 2009, and we amended the covenant test thereafter. We also must maintain a minimum unrestricted cash balance of 1 billion dollars, an increase of 250 million dollars over what was previously required. This is effective beginning the second quarter of 2008 and for all periods thereafter.
We have been aggressive in the steps we have taken to deal with high fuel prices, including capacity cuts, 200 million dollars in incremental cost savings, 200 million dollars in capital spend reduction, and additional revenue generation through new sources of revenue.


Here is the actual story...you probably did not have access to it.

 

[Jonny Sacko]

He still needs to be hung. That's crap. Who cares about incremental, blah blah blah. How about "Folks, I'm not too good at this airline thingy so I'll step out as of today, hoping the major unions don't sue me and keep me in court for the next 20 years to blow every dollar of that bonus I received" Now that's a proper manager!

 

[Ex737Driver]

Kinda like what NW did a little while back..........you will see this again with another major I am sure.

Pretty sure you will see this again many, many times with almost every US carrier out there. SWA might be excluded since they walk to a different beat.

 

[Andy]

This is troublesome. Paying $100M to waive covenants for 12 months on a $1.5B loan. Not good for UAL. It indicates to me that they were unable to roll over the $1.5B into a new loan with less restrictive covenants and that they're not easily able to raise additional capital.
They may have $3B in unencumbered assets, but it looks like no one was willing to loan them $1.5B against some of those assets.

 

[bluefin]

And those bast@#ds at the top want more money to pay themselves for the great job they are doing. Andy, do you think restrcuturing of debt will allow them to park all of the Guppies? It's kinda funny how they announce "we are growing internationally", announcing new service to one city, while cutting service to another so they can get the aircraft for it. I think thats no growth?

 

[~~~^~~~]

This is troublesome. Paying $100M to waive covenants for 12 months on a $1.5B loan. Not good for UAL. It indicates to me that they were unable to roll over the $1.5B into a new loan with less restrictive covenants and that they're not easily able to raise additional capital.
They may have $3B in unencumbered assets, but it looks like no one was willing to loan them $1.5B against some of those assets.

Good observation.

 

[Andy]

Andy, do you think restrcuturing of debt will allow them to park all of the Guppies?

No, they're unrelated.

Right now, the big concern is liquidity. They want to maintain as large a cash position as possible. With UAUA having $2.9B at the end of last quarter, they're undercapitalized going into this business environment.

There are a lot of moving parts on capacity cuts and we'll have to wait and see how they play out. It's logical to fly all of the 737s through the summer as long as load factors remain high. Once summer's over, I'd expect to see them park all of the 737-500s (30). It'd likely be a phased process as they surplus pilots off of the 737 and furlough the bottom of the list.

I'd expect to see continued cuts on the Express side of the operation (express ASMs actually decreased over the last year). However, they're walking a balancing act as to reducing frequency. For instance, Virgin America is now applying for approval to fly in/out of O'Hare.

It's a huge balancing act that all airlines are currently going through. The winners will be those that have enough cash on hand to survive the downturn as there will be casualties along the way. I'd rate United's management a bit below average, but not the worst out there. I see other airlines making bigger missteps, assuming that passenger traffic moving forward will be decreasing.
I saw an interesting program a couple of weeks ago about the percentage of families who had made reservations for summer vacation. The number was at an all-time low for that date at 14-16%. In 2007, that number was 40% for the same time period. That equals less vacations and less summer travelers. In order to compete in that kind of environment, all airlines need to reduce capacity. Right now, it's a game of who can bleed the longest.
And there's one airline that can outlast everyone - Southwest.

I've said before that airlines need to reduce capacity. Those that are adding capacity in this environment are committing seppuku. I think that United's management is being smart by parking 30 737s, in spite of the fact that it will likely result in my being furloughed. It's a necessary step for the long term survival of the airline.

 

[contrail67]

No, they're unrelated.

Right now, the big concern is liquidity. They want to maintain as large a cash position as possible. With UAUA having $2.9B at the end of last quarter, they're undercapitalized going into this business environment.

There are a lot of moving parts on capacity cuts and we'll have to wait and see how they play out. It's logical to fly all of the 737s through the summer as long as load factors remain high. Once summer's over, I'd expect to see them park all of the 737-500s (30). It'd likely be a phased process as they surplus pilots off of the 737 and furlough the bottom of the list.

I'd expect to see continued cuts on the Express side of the operation (express ASMs actually decreased over the last year). However, they're walking a balancing act as to reducing frequency. For instance, Virgin America is now applying for approval to fly in/out of O'Hare.

It's a huge balancing act that all airlines are currently going through. The winners will be those that have enough cash on hand to survive the downturn as there will be casualties along the way. I'd rate United's management a bit below average, but not the worst out there. I see other airlines making bigger missteps, assuming that passenger traffic moving forward will be decreasing.
I saw an interesting program a couple of weeks ago about the percentage of families who had made reservations for summer vacation. The number was at an all-time low for that date at 14-16%. In 2007, that number was 40% for the same time period. That equals less vacations and less summer travelers. In order to compete in that kind of environment, all airlines need to reduce capacity. Right now, it's a game of who can bleed the longest.
And there's one airline that can outlast everyone - Southwest.

I've said before that airlines need to reduce capacity. Those that are adding capacity in this environment are committing seppuku. I think that United's management is being smart by parking 30 737s, in spite of the fact that it will likely result in my being furloughed. It's a necessary step for the long term survival of the airline.

They also could adjust hours down to help avoid a furlough...or loa's offered...correct? It just seems stupid to furlough 150 pilots instead of adjusting the schedules or offering a leave for those who want it. We seem really short right now anyway...still.

 

[Andy]

They also could adjust hours down to help avoid a furlough...or loa's offered...correct? It just seems stupid to furlough 150 pilots instead of adjusting the schedules or offering a leave for those who want it. We seem really short right now anyway...still.

That's very true. C2003 gives management a HUGE range of monthly hours to fly pilots. I've done some back of envelope calculations that they could reduce block hours by 20% simply by building the bottom 2/3s of lineholders at the minimum guarantee (65 hrs).
I'm watching for a liberal leave of absence policy to be released. It'd be prior to any furlough announcement. How many pilots take the company up on it is anyone's guess. One thing to consider though - we've got a lot of pilots on mil leave and (furlough recall) leave of absence. As they return, pilot manning increases. Based on what I'm seeing here at TK, my guess is that we've got 10-15 pilots/mo returning to United. With a total of 4 retirements in the first 3 months of the year, the pilot head count continues to grow.

The company is going to try to minimize training events to the maximum extent possible, but as soon as they start parking 737s, that fleet becomes overmanned.

The cost savings in a furlough comes from employee benefits, not wages. They're already going to be able to see wage reductions in the way that PBS is designed - when you start to see bottom lineholders getting 65 hour lines, their next step will be to furlough. Another savings to the company would be to discontinue buying back vacation time.

The real question here is how deep the cuts go. United has a number of aircraft coming up on lease expiration this fall and can turn them back into the lease company with no penalty. I'm sure that they'll be playing that card to the max extent possible in order to either get great lease rates or simply reduce capacity further.

 

[pipe]

No, they're unrelated.

Right now, the big concern is liquidity. They want to maintain as large a cash position as possible. With UAUA having $2.9B at the end of last quarter, they're undercapitalized going into this business environment.

Step one to maintaining your cash position:

Pay a $250 million cash dividend. I guess that must have been some other kind of cash, not the kind they're trying to preserve now.

Tilton, Brace, etc... They're all on a long march toward Icahn status, they're just too stupid to get there as quickly.

PIPE

 

[TAWS]

You don't need to know how to fly an airplane, to run an airline. You do have to know about finances and credit to run ANY business.
Credit markets have tightened up worldwide. Maybe paying this dividend was better than the alternative, or maybe it's just buying time before a merger - who knows.