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USAirways--Merger good or bad??

FlyBoeingJets

YES, that's NICE
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USAirways merger as described by a skeptical Motley fool contributer. He is not entirely correct, but it is true mergers have special problems and don't come out as well as expected. When merger issues are not solved as fast as some would like the stock may trend down.

Mixed fleet has 411 planes and will get smaller by 50 very soon. Some of the $600 million savings anticipated will be elusive or will be at the expense of revenue.

I predict good things (survival), but not that good, for the combined company this next year. Savings will not be as good as announced but the reduction in debt will be key to success for a year or two. The reduction in U.S. capacity will greatly assist revenue.




http://www.fool.com/news/mft/2005/mft05092910.htm?source=eptyholnk303100&logvisit=y&npu=y&bounce=y&bounce2=y

US Airways? Too Flighty.
By Tim Beyers (TMF Mile High)
September 29, 2005

US Airways (NYSE: LCC), the oft-beleaguered carrier, has emerged from bankruptcy, trimmer and supposedly stronger after a merger with America West and a year in bankruptcy. I've my doubts that any real good can come of this, but apparently many of you don't share my concern. The stock, which now trades under the all-too-cute symbol LCC -- for "low-cost carrier" -- saw its shares rise more than 6% by yesterday's close.

Cash your reality check
Who are you people? Are you the same ones who bid up Delta (NYSE: DAL) 40% when it filed for bankruptcy protection? If so, good luck. But if you're not, and yet you find yourself oddly intrigued and contemplating a purchase, I'd like to point you to the top four reasons not to buy, as recounted by US Airways. Yes, you read that right. These come straight from the airline's S-1 filing, beginning on page 16 with "Risks Related to Our Business":

1. Fuel costs are high. "Continued periods of historically high fuel costs, significant disruptions in the supply of aircraft fuel, or significant further increases in fuel costs could have a significant negative impact on our operating results."
There are three factors to look at here. First, oil is, as of this writing, priced at around $67 per barrel. Second, no fewer than three times in the S-1 does the company say that its financial position may prevent it from obtaining futures contracts to hedge against the rising price of fuel. And, third, still-bankrupt United says that it needs oil to average around $50 per barrel over the next five years to meet its targets. It's probably a good bet that US Airways management is hoping for the same or better in its recovery plan.

2. Unwarranted optimism. "We may not perform as well financially as we expect following the merger."
The fiscal health of the new US Airways is completely dependent on being able to realize $600 million of what it calls "synergies." Reduced fleet size is expected to contribute $175 million. Reduced administrative overhead -- that is, facility closures and IT infrastructure cuts -- is expected to contribute $200 million more. And the $225 million that remains? Where will that come from? Your guess is as good as anyone's.
And don't be quick to say it will come from labor. The new airline has already squeezed its employees tight enough to get blood from a stone. And unions would likely resist anyway, having already filed objections to the new business plan. (Though, to be fair, those complaints were aimed at executive severance pay.)

3. The merger will be hard. "The integration of US Airways Group and America West Holdings following the merger will present significant challenges."
It sure will. Most mergers fail, after all. This ditty at the end of page 16 offers a good illustration of why: "The integration of US Airways Group and America West Holdings will be costly, complex, and time-consuming, and the managements of US Airways Group and America West Holdings will have to devote substantial effort to such integration that could otherwise be spent on operational matters or other strategic opportunities."
4. Losses are still huge. "US Airways Group continues to experience significant operating losses." The document goes on to say that losses will probably continue through at least 2006.
To sum up, in other words, what US Airways is saying: We're not yet sure we'll make money, but we'll figure it out. Trust us.
Uh-huh. Suuuuuurrrrrrre, you will.

The Siren song of bankruptcy -- don't buy it
Hey, I know it's easy to fall in love with companies exiting bankruptcy. They're supposedly leaner and meaner. US Airways certainly fits the former description in that it has trimmed its net debt (which includes lease obligations) to $1.6 billion on operating revenues of just about the same amount, according to the S-1. But that's nothing compared with Southwest (NYSE: LUV), which has more than $200 million in net cash as of its most recent quarter on revenues of $6.5 billion, according to Yahoo! Finance.
Maybe that's an unfair comparison. But US Airways did restructure itself with the intention of better competing with Southwest and Motley Fool Stock Advisor pick JetBlue (Nasdaq: JBLU). Factor in United's Ted, Delta's Song, and innumerable regional carriers, and you can't help concluding that the low-cost bin is already too full. And that's why I can't get very excited about US Airways' plan. You probably shouldn't, either.
 
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TWA Dude

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No analysts are right very often.

My opinion: this new company definitely has the possibility of the chance of maybe being hugely successful -- or not. And I'm sure I'm right.

break

A guy or two ragged me for keeping my handle even after flying for Trans States and then AWA. Go ahead and rag me again 'cause even as a USAirways pilot I'm not changing it!
 

AAflyer

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The Fool is a FOOL,

I have read his dribble before and it is mediocre at best, atleast in regards to the airline industry. Besided if you have to wear a clown to be heard makes you wonder whether you really WANT to LISTEN!..

Good Luck AWA/AAA

AAflyer
 

Cactus73

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Posts
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I wrote the following to Tim at the Fool when this article came out. He has yet to respond.

Tim,

In your column you rightly pointed out many challenges
ahead in the union of America West and USAirways.

What you don't understand, and industry guru Mike Boyd
does, is that there is NO comparison between the
legacy route systems and the likes of Southwest and
Jetblue.

Southwest and Jetblue chase different customers than
the new US Airways. Try this: go to www.southwest.com
and buy a ticket from Fresno, California to Dublin,
Ireland. Kind of difficult, isn't it. Well, how about
a Jetblue ticket from Portland, Maine to San Jose,
Costa Rica? Can't do it, can you?

My point? Comparing Southwest and Jetblue to the new
US Airways is misleading your readers. The revenue
opportunities available to the new airline are
significantly greater than those of your easy to pick
favorites of Southwest and Jetblue.

(BTW, Jetblue is only lightly hedged for most of 06 while the
new US Airways is about 50% hedged through the third
quarter 06 with hedges purchased by AWA. Jetblue may
report a loss for the 4th quarter on the rise of fuel
costs).

Take this example: both Southwest and US Airways fly
from Los Angeles to Philadelphia. The revenue
opportunities on the US Airways aircraft are
significantly higher due to the ability to connect the
customer on to Europe, South America, or smaller
Northeastern cities. The challenge for the new US
Airways management is to make sure that routes like
this garner this type of revenue advantage.

To compare Southwest to US Airways is myopic at best. Southwest and Jetblue are great airlines with great products, but to compare every airline to them shows that you don't know much about the industry.

Regards,

XXXXXXXX XXXXXXX
Scottsdale, AZ
 
Last edited:

Juvat

Used Register
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The reason he didn't respond is because you took up a whole page to make a point that could have been made in two sentences. Nothing against you personally. I actually think you may have a valid argument here. You just can't rant in a letter like it's a forum post, then call the guy myopic at the end. The Fool probably said "what-EV-er" and trashed it.

Oh well. Good try though.
 

Green

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Come on guys. The FOOL advises people on the stock market. Will the new Us Airways survive? Maybe, but I sure as h#ll wouldn't bet my 401k on it. Airlines are rarely, if ever, a good stock bet and I don't think US Airways is a diamond in the ruff by any shot.

The fool has done a good job of warning their clientell about the enormous risk/downside of the newco. I wouldn't buy SWA or JBlue either these days. The airline industry has many challenges ahead and a new paint job/route network doesn't gurantee shareholder success by any means. Hope i'm wrong because I work for them.
 

Dan Roman

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Just a question, not a flame, I heard that AWA is struggling with their 180 min ETOPS certification and it's being complicated by the merger, anyone know anything?
 

PHXFLYR

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AAflyer said:
The Fool is a FOOL,

I have read his dribble before and it is mediocre at best, atleast in regards to the airline industry. Besided if you have to wear a clown to be heard makes you wonder whether you really WANT to LISTEN!..

Good Luck AWA/AAA

AAflyer


Thanks,AAflyer....apprecate it!!:)


PHXFLYR:cool:
 

TWA Dude

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Joined
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Posts
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Dan Roman said:
Just a question, not a flame, I heard that AWA is struggling with their 180 min ETOPS certification and it's being complicated by the merger, anyone know anything?
Yes, we're apparently having some issues. I don't know what's up but it doesn't sound like the merger has anything to do with it.
 

amF16

Active member
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BTW, Jetblue is only lightly hedged for most of 06 while the
new US Airways is about 50% hedged through the third
quarter 06 with hedges purchased by AWA. Jetblue may
report a loss for the 4th quarter on the rise of fuel
costs).


Arent you only hedged at 60 dollars a barrel.....not much of at hedge?
http://www.airlines.org/news/files/Airlines_Fuel.pdf
 

Cactus73

Well-known member
Joined
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Posts
221
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Juvat said:
The reason he didn't respond is because you took up a whole page to make a point that could have been made in two sentences. Nothing against you personally. I actually think you may have a valid argument here. You just can't rant in a letter like it's a forum post, then call the guy myopic at the end. The Fool probably said "what-EV-er" and trashed it.

Oh well. Good try though.

Juvat,

I agree. I can be rather long winded at times. I want our new airline to succeed and many are writing us off after one day.

What the Fool should really have a problem with is our debt. We have $2.5 billion in cash on hand - ALL borrowed money.

Southwest's cash is not debt, it's unrestricted.
 

Cactus73

Well-known member
Joined
May 12, 2004
Posts
221
Total Time
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TWA Dude said:
Yes, we're apparently having some issues. I don't know what's up but it doesn't sound like the merger has anything to do with it.

We are having issues passing the FA evac drills. According to VP Chronic's latest voice mail, however, we are on scheduled to start proving flights in early November and expect full ETOPS certification soon there after.

The merger has nothing to do with it.
 

FlyBoeingJets

YES, that's NICE
Joined
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Posts
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amF16 said:
BTW, Jetblue is only lightly hedged for most of 06 while the
new US Airways is about 50% hedged through the third
quarter 06 with hedges purchased by AWA. Jetblue may
report a loss for the 4th quarter on the rise of fuel
costs).


Arent you only hedged at 60 dollars a barrel.....not much of at hedge?
http://www.airlines.org/news/files/Airlines_Fuel.pdf


Very informative PDF!!

The last time USAir came out of BK capacity was not falling like it is now, but oil was lower. The minimal hedge will still be good with oil this high and some others essentially unhedged.

The only worry I have is falling passenger counts with lower disposable income and rising ticket prices. If the passengers keep coming I stand by my prediction that USAir will do well the next two years.

As a stock investment, I'm not sure. But I think USAir will go down before it may go up. I won't hazard a guess right now on SWA. It depends on how popular the transportation index is.
 
Last edited:

ivauir

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Cactus,
Wow, articulate and unemotional. Are you sure you are really a pilot? ;) Great letter.

Cactus73 said:
I wrote the following to Tim at the Fool when this article came out. He has yet to respond.

Tim,

In your column you rightly pointed out many challenges
ahead in the union of America West and USAirways.

What you don't understand, and industry guru Mike Boyd
does, is that there is NO comparison between the
legacy route systems and the likes of Southwest and
Jetblue.

Southwest and Jetblue chase different customers than
the new US Airways. Try this: go to www.southwest.com
and buy a ticket from Fresno, California to Dublin,
Ireland. Kind of difficult, isn't it. Well, how about
a Jetblue ticket from Portland, Maine to San Jose,
Costa Rica? Can't do it, can you?

My point? Comparing Southwest and Jetblue to the new
US Airways is misleading your readers. The revenue
opportunities available to the new airline are
significantly greater than those of your easy to pick
favorites of Southwest and Jetblue.

(BTW, Jetblue is only lightly hedged for most of 06 while the
new US Airways is about 50% hedged through the third
quarter 06 with hedges purchased by AWA. Jetblue may
report a loss for the 4th quarter on the rise of fuel
costs).

Take this example: both Southwest and US Airways fly
from Los Angeles to Philadelphia. The revenue
opportunities on the US Airways aircraft are
significantly higher due to the ability to connect the
customer on to Europe, South America, or smaller
Northeastern cities. The challenge for the new US
Airways management is to make sure that routes like
this garner this type of revenue advantage.

To compare Southwest to US Airways is myopic at best. Southwest and Jetblue are great airlines with great products, but to compare every airline to them shows that you don't know much about the industry.

Regards,

XXXXXXXX XXXXXXX
Scottsdale, AZ
 

HalinTexas

&#26119;&#12427;&#22826;&#38525;&#12398;&#22303;&#
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This is my favorite. Heard from an SWA CA while jumpseating and again later form someone else.

Herb Kelliher: "A merger between AWA and AAA is like throwing two cats in a burlap sack, shaking it up and hoping you throw out a dog."
 

Green

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Well we can't all be SWA...

If things ever go south at that airline I don't think there will be much sympathy from the rest of the industry.
 
Last edited:

KeroseneSnorter

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Green said:
Well we can't all be SWA...

If things ever go south at that airline I don't think their will be much sympathy from the rest of the industry.


It is just a matter of time. USAir (Allegheny)used to pull huge profits all the time back in their day too. As did Eastern, Pan Am, United, AA, DAL, Braniff, etc etc etc.

Only the stupid get cocky when it comes to airline profits.
 

FlyBoeingJets

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Joined
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HalinTexas said:
This is my favorite. Heard from an SWA CA while jumpseating and again later form someone else.

Herb Kelliher: "A merger between AWA and AAA is like throwing two cats in a burlap sack, shaking it up and hoping you throw out a dog."


Green said:
Well we can't all be SWA...

If things ever go south at that airline I don't think there will be much sympathy from the rest of the industry.

C'mon green....where is your sense of humor? I've endured jokes about SWA being a regional from my C-130 buds for quite awhile. I think SWA jokes are funny. I think cargo and legacy jokes are funny and I've always enjoyed Herb's jokes and antics. Life is too short...
 

HalinTexas

&#26119;&#12427;&#22826;&#38525;&#12398;&#22303;&#
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Green said:
Well we can't all be SWA...

If things ever go south at that airline I don't think there will be much sympathy from the rest of the industry.

I'm sure that sentiment has been repeated numerous times but with a different airline mentioned. I know I've heard it about UAL, AMR and DAL.
 
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