united Pilot and Furloughees-- we're screwed:

Skippy

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July 22, 2009

TO: All United Pilots

FROM: UAL-MEC Communications

RE: United’s Second Quarter Results


Dear Fellow Pilots:

Yesterday, United Airlines released its June quarter results, and they show an airline struggling to recover from past mistakes and manage through a global recession. We have all read articles and analyst reports highlighting United’s struggles and even the potential risks of another bankruptcy filing. Your MEC and Council officers have heard from many of you directly about your concerns regarding the future of the airline and your job security. Though United Airlines, to many, appears to be at the edge of a financial cliff (as are many other U.S. carriers), there is much that can and is being done to prevent it from actually falling off that ledge.

Right now, United’s most pressing concerns are liquidity and compliance with the Company’s financial covenants. As explained in a recent Straight and Level, there are two different triggers. The first is credit card holdbacks with American Express (AmEx) and JPMorgan Chase (JPM). The Straight and Level explains credit card holdbacks. Credit card cash holdbacks are based on United’s unrestricted cash balances each quarter. If unrestricted cash drops below $2.5 billion, then JPM may hold back up to 15% of United’s advance ticket sales processed by JPM. If unrestricted cash drops below $2.4 billion, then AmEx may holdback 15% of advance ticket sales processed by AmEx. If United’s unrestricted cash drops below $2.0 billion, then each credit card company may hold back 25% of advance ticket sales. The percentages increase as the unrestricted cash falls further below $2 billion. Given United’s current liquidity and large operating losses (when excluding non-cash hedge accounting gains), it is not difficult to envision a scenario where our two primary processors could, absent modification, require large amounts of cash collateral under the terms of the agreements.

There are also financial covenants associated with United’s bankruptcy exit financing. United’s fixed-charge coverage ratio test (again, as explained in the recent Straight and Level) measures adjusted EBITDAR against the sum of cash interest expense and aircraft operating rent expense. The required minimum ratios are different depending on the quarter. Additionally, there is a minimum unrestricted cash requirement of $1 billion. United was in compliance with all of its financing covenants at the end of the second quarter.

The interplay between credit card holdbacks and the minimum unrestricted cash covenant could cause a downward spiral. As more cash is held back by the credit card processors, unrestricted cash continues to fall and could trigger a covenant default under the exit financing credit facility. This could result in another United bankruptcy, or at a minimum, an expensive covenant waiver request. However, United ended the second quarter with $2.6 billion in unrestricted cash and with restricted cash of $281 million. And United has the ability to pledge collateral in lieu of cash with both JPM and AmEx (this ability is currently set to expire in January 2010 with JPM).

As United exits the busy summer travel season, it will start to burn some of the cash it has built up with advance ticket sales. Absent a quick recovery in revenues (which no one is expecting) United must raise additional financing or renegotiate its holdback provisions. United currently has $1.1 billion in unencumbered hard assets which it could pledge as collateral for more financing (how much can be raised and at what cost would be determined by the capital markets). Other options could include the sale of a stake of the Mileage Plus program, additional advance mile purchases by our credit card partners, the sale of the training center or maintenance bases, or even further equity offerings. These options, however, will eventually run out and we ultimately will need to generate profits and cash flow from operations. Does the MEC condone this burning of United’s furniture? Certainly not. Nonetheless, it is not over until it is over, so we must believe and act on the premise that United will prosper.

Let’s address specifically United’s second quarter results. Bottom line result was a loss of $323 million excluding non-cash hedge gains and other charges. This was driven by several factors.
First, consolidated passenger revenues for the second quarter are down 25% from the same period last year, and passenger revenue per available seat mile (PRASM) was down 17%. This is a much greater decline than the 9% decline in consolidated ASMs for the quarter. What’s most disappointing about this result is that United has cut capacity further than its peers, yet its PRASM performance is not holding up better than the average. Year-to-date through June, industry PRASM as reported by the Air Transport Association is down approximately 12%, while United’s PRASM is down over 14%. The Company continues to tout its progress generating ancillary revenues (over $275 million in the second quarter), and while these efforts are helping, they aren’t enough to overcome the Company’s continued focus on the premium passenger at the expense of those visiting friends and relatives. For now, United’s management has left the Company awaiting the return of the premium passenger.

Second, consolidated cost per available seat mile (CASM) excluding special items and non-cash fuel hedge gains was down nearly 16%. CASM excluding fuel and special items was down 0.2%, a fact which management has touted loudly to analysts, particularly given the significant capacity reductions. But to put this in context, year after year, both before and after bankruptcy, United has had among the highest unit costs in the industry, even though, post bankruptcy, its labor costs have been among the lowest in the industry. Until now, the Company has been able to offset its higher costs by having among the highest unit revenues in the industry. But with the recent dramatic decline in premium passengers, United’s historically high cost structure has left the Company playing catch up again. So while the published statistics are accurate about year-over-year cost containment, this result is possible because United had a lot of ground to make up. And our competitors have also done well containing costs with the end result that as of the second quarter, United's unit costs are expected to be higher than everyone except Continental and American when adjusted for the average length of flights.

It is important to emphasize that United’s current financial dilemma is not a reflection on the performance of the pilots and the employees of United Airlines. Simply stated, United’s management has overseen $902 million in losses for the first six months of this year, excluding non-cash hedge and other charges. That equates to $20,044 for each of United’s 45,000 full time employees in six months.

Early last month, we wrote a “Focus on 5” that was sent to 14 of the most influential airline analysts. The report was well received and prompted calls to the Company. Lately, there have been newspaper articles asking the same question we have been posing for months: Why is Glenn Tilton still here? While other airlines have been operating in the same economic environment as United, why is United still in such a difficult financial position? Our “Focus on 5” will help answer that question.
 

Skippy

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For more than a year, we have been sounding the alarm on our current CEO’s inability to manage and secure a future for United Airlines (recall: prepayment of large amounts of debt at par in order to pay large dividends to common shareholders ; mismanagement of fuel hedge programs amidst a sharp spike in commodity prices, incurring losses of over $1 billion in part by aggressively expanding hedges at the top of the market with contracts that had significant downside exposure; over-paying for financial covenant relief relative to peers; failure to re-invest in the airline; failure to execute on a UA-CO merger in a common-sense and widely-anticipated parry to DL-NW; failure to effectively manage non-fuel unit costs; terrible customer satisfaction scores; ceding further territory to low-cost competitors; continued attempts to shrink to profitability; and failure to motivate employees in a service industry). Our initial warnings were met with skepticism by both outside readers and, frankly, by too many of our own pilots. The Company labeled our alarm a “ploy” to open contract talks early, without even once refuting the facts demonstrating the financial failings which we had brought to light. As recently as last month, we were criticized by some of our members for highlighting management’s failures at a recent shareholder meeting because they said it conveyed the wrong message. Ladies and Gentlemen, this is the message: Glenn Tilton’s inabilities are systematically taking this airline on a course that cannot be sustained.

Considering all of the sacrifices made by the employees upon exiting bankruptcy, a valid question is why are we in this position? The answer to that question is simple: Tilton and this management group in exiting bankruptcy were and are focused on one strategy — a merger. All of their decisions were based on that with no attention to the operational side of the business. That management decision has put us where we are. The pilots and employees had no input into that decision and it has been the pilots who have repeatedly pointed out that if the operational side is taken care of, the rest will follow. Instead, United finds itself in a tight liquidity position awaiting the return of its core premium passenger.

Our competitors, however, continue to execute their plans. American Airlines CEO Gerard Arpey wrote to his employees last week:

“As challenging as things are today, our task would be far more daunting had we not met so many challenges head on during the last several years. Moreover, I want to stress once again that our objective is not to simply endure the latest crisis. It is to make sure our airline is positioned to compete and win over the long haul. That's what our fleet renewal program is all about, and one of the important highlights of the second quarter was the deployment of the first wave of new 737s we will receive in the next two years. In addition to new planes, we are continuing to prudently invest to refurbish our aircraft interiors and airport facilities in a variety of ways.”

Delta meanwhile has used the downturn in the economy to accelerate its integration with Northwest Airlines to capture an estimated $2 billion per year synergy. United’s senior management group has done nothing comparable because it lacks the vision, skill, ability and personality to guide this airline.

So, what can we do as individual pilots and employees? First, we will continue to negotiate our contract resolutely under the Railway Labor Act for our Section 6 negotiations. Second, read thoroughly the “Focus on 5” article. If you are now truly convinced, as is your MEC, that Glenn Tilton is the root cause of United’s problems, then write to UAL’s Board of Directors and encourage others you know to do the same. Third, we will continue our flight operations in full compliance of the RLA and the court injunction. These quarterly results and our discussion of them come at a sensitive moment. As you know from recent communications, sick leave rates right now are high. If rates continue to be high, management will surely blame those rates on ALPA and, after-the-fact, point to this letter as a cause. Finally, be assured that your MEC is there for all of us and all of you, that they know where United is and where it is heading. You may feel like you are behind the cockpit door, not able to see much of what is being done in the cockpit, but your MEC and its leadership are not passengers in the back of the airplane. They are in the cockpit, fighting to keep this airplane upright and level, working on many avenues to secure the future of this airline. As specified in every United Flight Manual, “Fly the Airplane, Silence the Warning, and Confirm the Emergency.” They’re doing exactly that.

In Unity
 

contrail67

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A typical response by the Union...company states the positive spin and the Union takes the opposite spin.
 

Skippy

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we're 100 million in unrestricted cash from one holdback covenant and 200 million from another. AND 500 million from a 25% holdback, I cant spin that positively. That's like one quarters worth of time so basically by the end of the year-- time to start financing some more spare parts at 17%!

I predict a bankruptcy, merger, and gov bailout- and of course an even longer furlough in the future.


SKIPPY
 

contrail67

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I have yet to see anyone on this forum able to predict anything with any accuracy.... just like not one person "predicted" a "profit" by United.
 

Sonny Crockett

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Not good!
 

Browntothebone

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Their premium passengers (full fare business travelers) left because UALs customer service and cabin amenities sukk.
 

jmreii

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I have yet to see anyone on this forum able to predict anything with any accuracy.... just like not one person "predicted" a "profit" by United.
You maybe right but nobody outside of this forum has correctly predicted the future for any company, only time will tell.
 

contrail67

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Their premium passengers (full fare business travelers) left because UALs customer service and cabin amenities sukk.

It probably had nothing to do with the recession we are in and businesses pulling back......think.
 

crashpad

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I flew UAL the past four years every month. In all that time, I did not see ONE example of bad customer service.
 

NavinRJohnson

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Interesting read. Thanks for the post and good luck to all of you at United.

I hope your BOD get inundated with letters for Tilton's ouster.
 

Skippy

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I have yet to see anyone on this forum able to predict anything with any accuracy.... just like not one person "predicted" a "profit" by United.

It was a BS profit thru accounting shim sham-- dont fool yourself
 

Skippy

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a tad unusual- maybe trying to silence some pilots

there was a group of pilots who were informing the pilot group a little too well on the finances of united- take in combination that nice ual alpa note about sick calls higher than normal and voila:





UALMEC Forum Update, July 22, 2009

The UALMEC Forum is closed due to a server virus. Please watch the ALPA FastReads for future updates. Thank you.
riiiiiiight a virus---- is it the glen tilton virus
 

Speedtape

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enough
Tick-Toc-Tick-Toc! Another great airline run into the ground by Corporate Pirates--when will it end?
 
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regionaltard

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Tick-Toc-Tick-Toc! Another great airline run into the ground by Corporate Pirates--when will it end?
I think that this might be good old-fashioned incompetence rather than piracy. Even pirates need to come up with plans and execute them in order to succeed.
 

Sonny Crockett

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there was a group of pilots who were informing the pilot group a little too well on the finances of united- take in combination that nice ual alpa note about sick calls higher than normal and voila:





UALMEC Forum Update, July 22, 2009

The UALMEC Forum is closed due to a server virus. Please watch the ALPA FastReads for future updates. Thank you.
riiiiiiight a virus---- is it the glen tilton virus

FISHY!!!!!!

ALPA is really pi$$ing me off! Take away our Forum just because we are asking questions that the MEC Chief doesn't want to answer.

ALPA you NEVER cease to amaze me!

Virus.....RIGGGGGGHT
 

JakeSnake

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I think that this might be good old-fashioned incompetence rather than piracy. Even pirates need to come up with plans and execute them in order to succeed.
No..they are scary sharp. They have been engaged in a systematic and organized beat-down of pilots, FA's, mech's, and every other employee group since at least 2003. They have outmaneuvered ALPA at EVERY turn, and have been able to see a farther horizon than any of the employee groups. From the pension giveaway, no furlough clause giveaway, rj giveaway, E190 giveaway, scope giveaway, block hour giveaway, TRO, etc. etc. etc. Even the "free" TA the pilots got last year, we have come to find out came at a price.

They are not incompetent...you must understand what motivates them (they are NOT motivated by growing this airline from w/in). Once you understand what they are motivated by, it becomes clear that they are executing, with precison, their long-term plan.

Their actions don't sit well with "us"--that is why it can appear that they are incompetent.

Don't be fooled.
 

glasspilot

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It probably had nothing to do with the recession we are in and businesses pulling back......think.

If you think the loss of the "premium passenger" is a result of the current recession then you are on crack.

Nobody likes to fly commercial. Not the folks in coach and not the rich in first. Now the problem is that those that can afford to leave the airlines do. NetJets started offering fractional flying in 1986. Yeah, that was ya'lls heyday, but it was in 1998 that Warren Buffet (a 3 year customer) decided to financially back NetJets, buy them and that's when things really took off.

Since then an entire fractional industry has cropped up. There are 6 major companies offering everything from a BBJ (Boeing Business Jet (737)) to a piaggio (prop). Added to that each program offers full fractional ownership and newer programs where owners buy time cards so they don't even have to own or pay for the plane. They simply buy a 25 hour card and call when they want to fly. They call and a few hours later a plane drifts out of the sky to their local airport and takes them where ever they want to go. So now your "premium passenger" has so many options that they will NEVER EVER go back 121.

That Piaggio I mentioned costs less than first class on your planes if you break it out by number of seats vs. flight cost and goes nearly as fast (400kts) and up to FL410. The point is the premium passenger has options and it doesnt' cost half as much as you think. They are not comming back. The airlines screwed it up and should just move on. Service the masses and do what you must to keep them happy before some air taxi service moves in and takes them too.

Whatever you do, don't blame the loss of "premium passengers" on a recession that's been around for a year and a half or so. You started losing those passengers well over a decade ago.
 
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Flopgut

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Whatever you do, don't blame the loss of "premium passengers" on a recession that's been around for a year and a half or so. You started losing those passengers well over a decade ago.
Fractionals have a good product, but most of the growth is a result of the exponential growth of the number of ultra wealthy. That won't continue, in fact that number might be decreasing. Additionally, I don't think the tax paradygm is correct for these ops. The FET wasn't collected for most of the time Netjets was called EJA. I'd like to see how much fractionals grow if they were taxed at 40%+ like airline tickets.

Premium passengers might not come back to the airlines in the same numbers they left, but some will. But I wouldn't bet fractionals grow like they did in the last 10 years.
 

Bavarian Chef

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An observation:

United int'l service blows. But that is what the US gov buys primarily for overseas orders. They will throw out Qatar Air every now and then, and that is what int'l service is supposed to be.

Maybe the recession is what's driving their loads, but that abysmmal entertainment suite on the 777 and the ahem, SWA service on a long haul flight, is probably not helping things.
 
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