GuppyPuppy
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United's Confidential Business Plan Here
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How about pg 139 which states that under this smoke and mirror plan there will still be 30% of their operations losing money. Hello? Anybody home here? They are trying to sell a business plan to the creditors and banks that already admits it will fail?
This is the same management team that said they were only losing 7 million a day when trying get the ATSB loan, but then admitted under oath in BK it was more like 20 - 23 million per day.
Management over there is paying millions for this outside consulting advice while they are paying themselves millions to run the company. Does anyone see a problem with this?
Im sorry but this snappy demo and cute terminology has no one convinced except the people who wrote this.
UAL is doomed. It is only a matter of time.
This is the same management team that said they were only losing 7 million a day when trying get the ATSB loan, but then admitted under oath in BK it was more like 20 - 23 million per day.
Management over there is paying millions for this outside consulting advice while they are paying themselves millions to run the company. Does anyone see a problem with this?
Im sorry but this snappy demo and cute terminology has no one convinced except the people who wrote this.
UAL is doomed. It is only a matter of time.
Last edited:
sidesaddle
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Very true Guppy Puppy! those would be perfect.banned username 2
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United faces crucial test
Bankrupt No. 2 airline must show lenders it is making progress to stem losses despite fuel spike.
February 24, 2003: 5:02 PM EST
By Chris Isidore, CNN/Money Senior Writer
NEW YORK (CNN/Money) - United Airlines parent UAL Corp. must prove to its bankruptcy lenders at the end of this week that it has made progress on turning around the embattled No. 2 airline's fortunes.
The loan agreements with the so-called "debtor in possession," or DIP, lenders require the company to have made certain progress in stemming losses by the end of this month in order to be in compliance with the loans' provision. The banks potentially could pull the plug on about $700 million in that financing if the airline is found not to be in compliance.
While the airline, through negotiated agreements and court-imposed contracts, has made progress in cutting its labor costs, it has seen jet fuel prices soar by just over 50 percent since the time of the Dec. 9 bankruptcy filing. And due to its shaky credit, United has been unable to buy any of the long-term fuel contracts, known as hedges, which are used by airlines to cushion the blow of fuel price hikes. Fuel is the second-largest cost for an airline behind labor.
Asked if the airline is confident that it would be in compliance with the DIP financing agreements, a spokesman for UAL (UAL: up $0.04 to $1.10, Research, Estimates) would only say, "We are working to comply with those covenants."
United's leading DIP lenders, Citibank (C: Research, Estimates) and J.P. Morgan Chase (JPM: Research, Estimates), did not have any immediate comment on UAL's outlook. The Financial Times quoted one lender on a not-for-attribution basis Monday as saying that the airline probably would be in compliance at the end of this first assessment period, and that the lenders would probably be open to renegotiating terms of the deals if United came up short on the numbers.
"They have been outperforming the plan since the bankruptcy filing, so they have got some cushion," the FT quoted the lender as saying. "Their cushion of a couple of hundred million could end up being a major issue if there is a protracted war, which they would start burning through. But that does not mean we would be aggressive to pull the rug from beneath them."
Industry analysts said that even if UAL clears this month's hurdle, it faces progressively steeper obstacles in the coming months. The airline will face monthly reviews from this point on, and those reviews will require it to make further progress to stem losses in each period, said Phil Baggaley, managing director for airlines and aerospace companies at credit rating agency Standard & Poor's.
"They built in some room in the first period running up to Feb. 28, so they have more cushion relative to forecast than is true in subsequent months," said Baggaley. "And the way the covenants work, as you proceed through March, April and May, that's when they anticipated the cost savings would kick in."
The airline has proposed a plan to start a separate low-cost, low-fare carrier with about 30 percent of its assets and a separate staff, in order to compete with successful low-cost carriers such as Southwest Airlines (LUV: Research, Estimates). But the plan strongly opposed by the airline's powerful labor unions. One industry consultant said the lack of support for the plan could be a major factor with lenders when deciding whether to pull the plug on UAL early next month or in subsequent months.
"I think one of their big problems now is they're trying to sell their lenders as well as labor and everyone else that they have this plan, but I don't think anyone is buying it," said the consultant, who spoke on condition that his name not be used. "If they can't sell it to labor, they're not going to sell it to bankers, either."
If a U.S.-Iraq war ends quickly or is avoided, it could send fuel prices sharply lower, and give UAL the cost relief it needs to build more support for its plan. But analysts say that an extended war or another major act of terrorism in the United States in response to the war could lead the banks to pull the plug out of concern for the airline's prospects. The 1990-1991 Iraqi invasion of Kuwait helped topple several already shaky airlines. Eastern Airlines ceased operations two days after the United States started its air attack on Iraq, and within 10 months of the end of the war two other carriers -- Midway Airlines and Pan Am Airways -- both halted operations.
Bankrupt No. 2 airline must show lenders it is making progress to stem losses despite fuel spike.
February 24, 2003: 5:02 PM EST
By Chris Isidore, CNN/Money Senior Writer
NEW YORK (CNN/Money) - United Airlines parent UAL Corp. must prove to its bankruptcy lenders at the end of this week that it has made progress on turning around the embattled No. 2 airline's fortunes.
The loan agreements with the so-called "debtor in possession," or DIP, lenders require the company to have made certain progress in stemming losses by the end of this month in order to be in compliance with the loans' provision. The banks potentially could pull the plug on about $700 million in that financing if the airline is found not to be in compliance.
While the airline, through negotiated agreements and court-imposed contracts, has made progress in cutting its labor costs, it has seen jet fuel prices soar by just over 50 percent since the time of the Dec. 9 bankruptcy filing. And due to its shaky credit, United has been unable to buy any of the long-term fuel contracts, known as hedges, which are used by airlines to cushion the blow of fuel price hikes. Fuel is the second-largest cost for an airline behind labor.
Asked if the airline is confident that it would be in compliance with the DIP financing agreements, a spokesman for UAL (UAL: up $0.04 to $1.10, Research, Estimates) would only say, "We are working to comply with those covenants."
United's leading DIP lenders, Citibank (C: Research, Estimates) and J.P. Morgan Chase (JPM: Research, Estimates), did not have any immediate comment on UAL's outlook. The Financial Times quoted one lender on a not-for-attribution basis Monday as saying that the airline probably would be in compliance at the end of this first assessment period, and that the lenders would probably be open to renegotiating terms of the deals if United came up short on the numbers.
"They have been outperforming the plan since the bankruptcy filing, so they have got some cushion," the FT quoted the lender as saying. "Their cushion of a couple of hundred million could end up being a major issue if there is a protracted war, which they would start burning through. But that does not mean we would be aggressive to pull the rug from beneath them."
Industry analysts said that even if UAL clears this month's hurdle, it faces progressively steeper obstacles in the coming months. The airline will face monthly reviews from this point on, and those reviews will require it to make further progress to stem losses in each period, said Phil Baggaley, managing director for airlines and aerospace companies at credit rating agency Standard & Poor's.
"They built in some room in the first period running up to Feb. 28, so they have more cushion relative to forecast than is true in subsequent months," said Baggaley. "And the way the covenants work, as you proceed through March, April and May, that's when they anticipated the cost savings would kick in."
The airline has proposed a plan to start a separate low-cost, low-fare carrier with about 30 percent of its assets and a separate staff, in order to compete with successful low-cost carriers such as Southwest Airlines (LUV: Research, Estimates). But the plan strongly opposed by the airline's powerful labor unions. One industry consultant said the lack of support for the plan could be a major factor with lenders when deciding whether to pull the plug on UAL early next month or in subsequent months.
"I think one of their big problems now is they're trying to sell their lenders as well as labor and everyone else that they have this plan, but I don't think anyone is buying it," said the consultant, who spoke on condition that his name not be used. "If they can't sell it to labor, they're not going to sell it to bankers, either."
If a U.S.-Iraq war ends quickly or is avoided, it could send fuel prices sharply lower, and give UAL the cost relief it needs to build more support for its plan. But analysts say that an extended war or another major act of terrorism in the United States in response to the war could lead the banks to pull the plug out of concern for the airline's prospects. The 1990-1991 Iraqi invasion of Kuwait helped topple several already shaky airlines. Eastern Airlines ceased operations two days after the United States started its air attack on Iraq, and within 10 months of the end of the war two other carriers -- Midway Airlines and Pan Am Airways -- both halted operations.
Cardinal
Of The Kremlin
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- Nov 25, 2001
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- 2,308
This presentation did a fantastic job laying out the challenges in quantifiable form, but it is not clearly expressed just how they plan to make a $1 Billion dollar profit next year. The idea of the LCC - Why would one dedicate 30% of one's fleet to a market that by UA's own admission generates 4% of their revenue!?!? I could prattle on, but Michael Boyd said it best:
http://www.aviationplanning.com/asrc1.htm
Hot Flash - February 24, 2003
Part One: United: Relying On Whose Strategic Direction?
"Poor advice and unusual deals hastened Sabena's demise.
"FEW people who had anything to do with Sabena, a Belgian airline that went bust in November 2001, will enjoy a new report on the affair, published by Belgium's parliament on January 29th. For a start, the report hardly flatters McKinsey, the world's best-known management consultancy. Under de facto control by Swissair (which went bust in October 2001), Sabena brought in the Belgian arm of McKinsey, a favourite of Paul Reutlinger, then Sabena's Swiss boss. McKinsey recommended for Sabena the same high-risk strategy for growth that its Swiss arm had sold to Swissair. The report dryly concludes: 'This strategy...was as fatal to Swissair as it was to Sabena.'..."
- The Economist Magazine, February 6, 2003, Page 62
Indeed, is this the same McKinsey to which United is paying $1,000,000 a month, plus expenses, including $600,000 to develop new strategy? The same McKinsey, whose contract United's creditors have reportedly asked the judge to cancel, referring to the Swissair strategy debacle? The same United that's telling it's employees that it has a whole new strategy, but needs big concessions to make it work?
Say it ain't so.
Part Two: The Creditors' Presentation - More Strategic Questions Than Answers
By now, it's been circulated to more e-mail boxes than those annoying Viagra ads.
We're referring, of course, to United's 1/31 "Plan For Transformation" provided to to its creditors, a veritable Cecil B. DeMille production containing a whopping 270+ slides - truly the War And Peace of the PowerPoint set.
One could wonder if United's real "strategy" is trying to bore creditors to death. Dig the math: If they dragged these creditors into a room to view this thing, and spent just three minutes on each slide, it would run longer than the Sundance Film Festival. Like, it would be almost 14 hours of nonstop arrows, boxes, charts, and enough arcane, off-the-wall buzz-terms to choke a B-school library, all presented in a format more effective than barbiturates in putting people to sleep.
The presentation raised trendo-babble into the realm of an art form. Slides using terms like, "compelling customer value proposition" and "price driven occasionalist" came up repeatedly. Given how straight talk is eschewed by many these outside advisory firms, that's probably how they'd also describe negotiations in a Red Light district. Whatever, it all gives the impression that United's "Transformation Plan" may be more buzz than substantial.
Who Was The Real Audience? Nothing in the report was new. It droned on and on, mostly outlining all the things United management has discussed in the media. Things like: A low-cost internal airline. The theory that to survive United needed to look more like Southwest. More "regional" jets outsourced to small jet providers. All the things we've heard already. But that's not necessarily what comes across. Curiously, the whole thing seemed to have the flavor of United building a case to convince itself that that the plan would really, really work.
The Low Cost Carrier Issue - Hard Numbers For A Soft Concept. Over two months into Chapter 11, there's a lot of issues that United needs to clarify, and soon, regarding its strategic direction. First, outside of United's management, and the carrier's expensive outside advisors (like, maybe including those noted above,) there is, unfortunately, virtually nobody who gives much credibility to United's LCC concept. United's explanation of the need and the application of this as-yet un-named entity is mostly confused rambling supported by seemingly endless comparisons to Southwest. More concerning is the fact that the LCC really has no form, at least in the way UA has described it.
The idea seems to be that the LCC product - as yet undefined and undeveloped - will be injected into markets where a low fare carrier competes with United. But that indicates a strategy that is merely a reaction to competitive events. From that perspective, there'd ultimately be almost no United mainline out of Chicago on key high-density routes, because virtually all will be also operated by Southwest or ATA from Midway. So, the question becomes one of where does the LCC stop and mainline United begin? They don't seem to know. In fact, they seem to indicate that there is no line.
Fuzzy Math. Over the past six months, it is unfortunate that United's management has had a credibility problem with numbers. First, the ATSB found the data in the United loan-guarantee application to be unconvincing, and United's own data issued immediately after the ATSB rejection seemed to validate that conclusion. This perception isn't improved by the LCC concept outlined by United. They claim it'll have costs of 7.1 cents a mile - well under Southwest's 7.4 cent costs, and it claims it'll achieve this within a hub-and-spoke model. Aside from the fact it's hard to believe such numbers when even United admits it's not sure the exact size, scope, and structure of the LCC, it's pretty clear that the success of whole enchilada is dependent not operational efficiencies, but on slashing labor costs by as much as 40%, and maybe 50% below those of today. The message is that the strategy is based on making money almost solely by low labor rates.
So, What's The Alternative? United's management has a tough job ahead of it, and nobody is saying that the path to getting United out of this mess will be easy. But it's pretty clear - and widely agreed - that the current path isn't going anywhere positive. United's management may want to look to Continental and American - both losing money, but both are focused on building on their strengths, while cutting costs and pursuing new mainline operational efficiencies. (And, to be sure, getting labor participation, too.) There are enormous - and fixable - operational inefficiencies that still exist, many of which have been identified by various folks in United's rank and file.
One thing is certain. Implementing bad strategy will be lethal to United.
Just like it was for Sabena and Swissair.
http://www.aviationplanning.com/asrc1.htm
Hot Flash - February 24, 2003
Part One: United: Relying On Whose Strategic Direction?
"Poor advice and unusual deals hastened Sabena's demise.
"FEW people who had anything to do with Sabena, a Belgian airline that went bust in November 2001, will enjoy a new report on the affair, published by Belgium's parliament on January 29th. For a start, the report hardly flatters McKinsey, the world's best-known management consultancy. Under de facto control by Swissair (which went bust in October 2001), Sabena brought in the Belgian arm of McKinsey, a favourite of Paul Reutlinger, then Sabena's Swiss boss. McKinsey recommended for Sabena the same high-risk strategy for growth that its Swiss arm had sold to Swissair. The report dryly concludes: 'This strategy...was as fatal to Swissair as it was to Sabena.'..."
- The Economist Magazine, February 6, 2003, Page 62
Indeed, is this the same McKinsey to which United is paying $1,000,000 a month, plus expenses, including $600,000 to develop new strategy? The same McKinsey, whose contract United's creditors have reportedly asked the judge to cancel, referring to the Swissair strategy debacle? The same United that's telling it's employees that it has a whole new strategy, but needs big concessions to make it work?
Say it ain't so.
Part Two: The Creditors' Presentation - More Strategic Questions Than Answers
By now, it's been circulated to more e-mail boxes than those annoying Viagra ads.
We're referring, of course, to United's 1/31 "Plan For Transformation" provided to to its creditors, a veritable Cecil B. DeMille production containing a whopping 270+ slides - truly the War And Peace of the PowerPoint set.
One could wonder if United's real "strategy" is trying to bore creditors to death. Dig the math: If they dragged these creditors into a room to view this thing, and spent just three minutes on each slide, it would run longer than the Sundance Film Festival. Like, it would be almost 14 hours of nonstop arrows, boxes, charts, and enough arcane, off-the-wall buzz-terms to choke a B-school library, all presented in a format more effective than barbiturates in putting people to sleep.
The presentation raised trendo-babble into the realm of an art form. Slides using terms like, "compelling customer value proposition" and "price driven occasionalist" came up repeatedly. Given how straight talk is eschewed by many these outside advisory firms, that's probably how they'd also describe negotiations in a Red Light district. Whatever, it all gives the impression that United's "Transformation Plan" may be more buzz than substantial.
Who Was The Real Audience? Nothing in the report was new. It droned on and on, mostly outlining all the things United management has discussed in the media. Things like: A low-cost internal airline. The theory that to survive United needed to look more like Southwest. More "regional" jets outsourced to small jet providers. All the things we've heard already. But that's not necessarily what comes across. Curiously, the whole thing seemed to have the flavor of United building a case to convince itself that that the plan would really, really work.
The Low Cost Carrier Issue - Hard Numbers For A Soft Concept. Over two months into Chapter 11, there's a lot of issues that United needs to clarify, and soon, regarding its strategic direction. First, outside of United's management, and the carrier's expensive outside advisors (like, maybe including those noted above,) there is, unfortunately, virtually nobody who gives much credibility to United's LCC concept. United's explanation of the need and the application of this as-yet un-named entity is mostly confused rambling supported by seemingly endless comparisons to Southwest. More concerning is the fact that the LCC really has no form, at least in the way UA has described it.
The idea seems to be that the LCC product - as yet undefined and undeveloped - will be injected into markets where a low fare carrier competes with United. But that indicates a strategy that is merely a reaction to competitive events. From that perspective, there'd ultimately be almost no United mainline out of Chicago on key high-density routes, because virtually all will be also operated by Southwest or ATA from Midway. So, the question becomes one of where does the LCC stop and mainline United begin? They don't seem to know. In fact, they seem to indicate that there is no line.
Fuzzy Math. Over the past six months, it is unfortunate that United's management has had a credibility problem with numbers. First, the ATSB found the data in the United loan-guarantee application to be unconvincing, and United's own data issued immediately after the ATSB rejection seemed to validate that conclusion. This perception isn't improved by the LCC concept outlined by United. They claim it'll have costs of 7.1 cents a mile - well under Southwest's 7.4 cent costs, and it claims it'll achieve this within a hub-and-spoke model. Aside from the fact it's hard to believe such numbers when even United admits it's not sure the exact size, scope, and structure of the LCC, it's pretty clear that the success of whole enchilada is dependent not operational efficiencies, but on slashing labor costs by as much as 40%, and maybe 50% below those of today. The message is that the strategy is based on making money almost solely by low labor rates.
So, What's The Alternative? United's management has a tough job ahead of it, and nobody is saying that the path to getting United out of this mess will be easy. But it's pretty clear - and widely agreed - that the current path isn't going anywhere positive. United's management may want to look to Continental and American - both losing money, but both are focused on building on their strengths, while cutting costs and pursuing new mainline operational efficiencies. (And, to be sure, getting labor participation, too.) There are enormous - and fixable - operational inefficiencies that still exist, many of which have been identified by various folks in United's rank and file.
One thing is certain. Implementing bad strategy will be lethal to United.
Just like it was for Sabena and Swissair.
GuppyPuppy
Living the Dream
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Tim47SIP
Serving for the USofA
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What the heck!
Indeed, is this the same McKinsey to which United is paying $1,000,000 a month, plus expenses, including $600,000 to develop new strategy? The same McKinsey, whose contract United's creditors have reportedly asked the judge to cancel, referring to the Swissair strategy debacle? The same United that's telling it's employees that it has a whole new strategy, but needs big concessions to make it work?
You know, I had to read this several times, because there were so many 0's in those numbers. I was sure it was 100K per month. This is the most rediculous thing that I have heard. PER MONTH!!! Why not for the job! No wonder they are in trouble. And an additional 600K for a new stratagey? What the he$$ is the 1 mil per month for??? OK I am done now. Whew!
Indeed, is this the same McKinsey to which United is paying $1,000,000 a month, plus expenses, including $600,000 to develop new strategy? The same McKinsey, whose contract United's creditors have reportedly asked the judge to cancel, referring to the Swissair strategy debacle? The same United that's telling it's employees that it has a whole new strategy, but needs big concessions to make it work?
You know, I had to read this several times, because there were so many 0's in those numbers. I was sure it was 100K per month. This is the most rediculous thing that I have heard. PER MONTH!!! Why not for the job! No wonder they are in trouble. And an additional 600K for a new stratagey? What the he$$ is the 1 mil per month for??? OK I am done now. Whew!
Mr. Irrelevant
Well-known member
- Joined
- Nov 26, 2001
- Posts
- 562
I read the slide presentation as well. Or read half and skimmed the other half. It was interesting but scary that they seemed so pre-occupied with SWA. Alot of it didn't seem any more complex than what I and many of my classmates in business school would put together. Now that's SCARY!!!!
I like the idea of lowering costs in those markets they compete with LCC's but as has been said, there was not much clarity to the plan. Lots of brush strokes.
I wonder if they could take all of their 737 trips and simply convert those planes to the same configuration as SWA and run about the same fares. Given the more extensive network they have, it seems possible given the many connections fliers make that they could compete. SWA is only in 59 cities, United probably 200 or more. Just a guess/theory.
Some of the work rules (hours per month flown particularly) will probably have to go because this company is in alot of trouble. Wouldn't hurt for management to give up alot of perks and streamline as well. I always wonder why professional managers at a corporation feel they have to bring in consultants at high rates of pay to do a job they are already paid to do. Are they really so far removed mentally that they can't see the big picture?
Nice post Cardinal.
Mr. I.
I like the idea of lowering costs in those markets they compete with LCC's but as has been said, there was not much clarity to the plan. Lots of brush strokes.
I wonder if they could take all of their 737 trips and simply convert those planes to the same configuration as SWA and run about the same fares. Given the more extensive network they have, it seems possible given the many connections fliers make that they could compete. SWA is only in 59 cities, United probably 200 or more. Just a guess/theory.
Some of the work rules (hours per month flown particularly) will probably have to go because this company is in alot of trouble. Wouldn't hurt for management to give up alot of perks and streamline as well. I always wonder why professional managers at a corporation feel they have to bring in consultants at high rates of pay to do a job they are already paid to do. Are they really so far removed mentally that they can't see the big picture?
Nice post Cardinal.
Mr. I.
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