Will UAL ever come out?

[storminpilot]

http://biz.yahoo.com/djus/040318/0429000299_1.html

Dow Jones Business News
UAL Faces Delay In Chapter 11 Exit
Thursday March 18, 4:29 am ET


CHICAGO -- After running smoothly for 15 months, the bankruptcy proceedings of United Airlines parent UAL Corp. have encountered turbulence that is setting back the company's schedule for emerging from court protection by June 30, people familiar with the matter told The Wall Street Journal.

Lawyers for the nation's No. 2 airline are expected to tell U.S. Bankruptcy Court Judge Eugene Wedoff at a hearing Friday in Chicago that UAL won't be able to step out of Chapter 11 until later in the summer. The carrier also is expected to ask the judge to extend for 30 or 60 days UAL's right to field a reorganization plan without competition from other groups, said people with knowledge of the case. Currently, that period of exclusivity ends April 8, after which creditors ostensibly could introduce their own plan to reorganize the company.

UAL appears to be hampered by some factors beyond its control. The company is awaiting a decision from the federal government on its application for $1.6 billion in loan guarantees, and for legislation pending in Congress that would ease the burden of future pension obligations on many companies. The airline also must contend with a lawsuit brought by one of its unions, at a time when the aviation industry is facing fresh setbacks from renewed terrorism fears and higher fuel costs.

Wall Street Journal Staff Reporter Susan Carey contributed to this report.

 

[Andy]

Tilton said a long time ago that UAL would not emerge from chap 11 until they had squeezed every possible cost savings out of the chap 11 process. Thus far, his management team seems to have done an excellent job of extracting concessions from every UAL supplier and employee group.
The rumor is that JPM and C will loan UAL exit financing with or without the ATSB loan guarantee. Of course rates will be higher if UAL doesn't have an ATSB loan guarantee, so Tilton is working on getting an ATSB guarantee. UAL management is playing their cards close to their vest, but I would expect a plan B if the ATSB turns down UAL's request.

 

[TWA Dude]

Conventional wisdom these days is that US Airways made a big mistake by emerging from Chap 11 too soon. Methinks UAL is being wiser in that regard.

Dude

 

[G4G5]

ATSB Gives US Airways Narrow Window
Under the new deal, US Airways must "significantly narrow" losses in 2004, regain profitability in 2005 and maintain an unrestricted cash balance of $700 million. The company's current unrestricted cash balance is roughly $925 million.

"This agreement gives us a narrow window for management and labor to ... make the changes necessary to get back to profitability," said US Airways Chairman David Bronner.

The IAM is refusing to reopen its labor contract to make more concessions. The pilots union has agreed to talk with US Airways management again, but the flight attendants union has demanded a detailed business plan before it will consider new talks.

US Airways Chairman David Bronner said the agreement "gives us a narrow window for management and labor to continue to work together to make the changes necessary to get this company back to profitability."

You may ask what does this have to do with UAL?

1. UAL has said that they expect to gain, "hundreds of millions of dollars" form it's alliance with USAir. If something negative happens to USAir in the upcoming months. Then UAL doesn't get any of that money. What's worse is they get to go back to the banks and the ATSB and restate their financial plan once again. This time subtracting the hundreads of million that they had built in.

2. If for some reason USAir defaults on the ATSB loan some time in the near future. The odds of UAL getting theirs approved is slim and none.

 

[Andy]

You may ask what does this have to do with UAL?

1. UAL has said that they expect to gain, "hundreds of millions of dollars" form it's alliance with USAir. If something negative happens to USAir in the upcoming months. Then UAL doesn't get any of that money. What's worse is they get to go back to the banks and the ATSB and restate their financial plan once again. This time subtracting the hundreads of million that they had built in.

2. If for some reason USAir defaults on the ATSB loan some time in the near future. The odds of UAL getting theirs approved is slim and none.

G4G5, I don't know if you're aware of this, but Tilton sponsored UAIR's STAR alliance application. Tilton has been well aware of UAIR's tenuous position. There are rumors that UAL is not going for $2 B in loans, but $4 B. That is obviously much larger than is needed to exit chap 11 and still be healthy. I would speculate that a large portion of an additional $2 B would be used for asset purchases. Whose assets? Anyone? Anyone? Ferris? Anyone?

Let's suppose that UAIR defaults on its ATSB loans (not a possibility, according to UAIR's CEO Bronner, who has publicly stated that he will liquidate UAIR and pay off ATSB loans before defaulting). Why is UAIR the only ATSB loan that you're using as an example? What about AWA and FRNT?

 

[Pickle]

Andy said: "I would speculate that a large portion of an additional $2 B would be used for asset purchases. Whose assets?"


Can ATSB money be used for something like that? Buying another company or a companies assets??

 

[G4G5]

Andy,

How soon we forget. What happend to UAL's last application?

How many airlines have applied:
The airlines are Aloha Airlines, American Trans Air, America West, Evergreen International Airlines, Frontier Airlines, Frontier Flying Service, Great Plains Airlines, National Airlines, Spirit Airlines, Vanguard Airlines, United Airlines, US Airways and World Airways.

The number of denied applications is greater then the ones approved. What happened to Vanguard, Great Plains and National?

I am not saying that this will happen to UAL(and I hope it does not) but you ask the question why only use USAir? I could have used plenty of others.

UAL can ask the banks for as much as they want. $4+ billion. Let me remind you of a very important fact. The banks want gurantee's for their loans. UAL can only ask for what they can provide colateral for. Does Tilton want to mortgage the entire airline just so he can borrow more money?

Don't ever believe for a minute that the banks care if UAL survives. They want their monthly payment and if they don't get it they will take their guranteed loan and sell the asset to the highest bidder. If the ATSB says No then UAL will have to provide additional colateral worth the $2 billion that the ATSB was going to provide. Just today Morgan Stanley took a hit on their earning because of their loans tied to UAL.

As of today Delta's market cap is under a billion and AMRs is under 2 billion. So finding a bank willing to lend a CH 11 airline $4 billion dollars is highly unlikly. And if Tilton could find a bank, can you imagine the interest rate?

You mention aquisitions, Feris? I don't ever recall Pan Am, TWA, Eastern, Contential (either time) running out and purchasing assets after coming out of CH11. Maybe you can provide an example? Paying down debt will be the only thing that Tilton will be concerned about.

I am curious if Bonner has to sell USAir in pieces to pay back the ATSB loan, is that a positive thing for UAL? Do you think that will help get the approval?

 

[Andy]

Can ATSB money be used for something like that? Buying another company or a companies assets??

Pickle, sorry, let me clarify. There is a rumor that UAL will get a $2 B ATSB backed loan, to be followed by an additional $2 B non-ATSB backed loan. It's the additional $2 B that is rumored to be partially used for expansion.
It's just a rumor, so take it for what it's worth. (Street value of this rumor: less than the value of a Grande Triple Latte at Starbucks).

 

[G4G5]

Andy said: "I would speculate that a large portion of an additional $2 B would be used for asset purchases. Whose assets?"


Can ATSB money be used for something like that? Buying another company or a companies assets??

No, it can't, it can only be used as a gurantee for loans. Basicly Uncle Sam is willing to co sign a loan for UAL. They will back it for upto $2 billion.

One very important thing to remember is the ATSB will require that UAL keep an Unrestricted Cash ballance minimum. If USAir is any example then you can expect that the ATSB will require UAL to keep a minimum of $2 billion cash on hand or be subject to default.

So they give you the money but you can't do anything with it. It's just their to save the airline from having to provide assets as colateral. It also gets the airline a lower interest rate on the loan becasue Uncle Sam is cosigning it.

Fuel Costs will do more to hurt UAL then any LCC.

On Tuesday, a UBS Warburg analyst reversed his full-year estimate for American from a profit of $1.05 a share to a loss of $1.20, citing the issues American faces.
To be sure, American is not alone in being hammered by fuel costs. Continental Airlines said last week that it did not expect to be profitable this year because of fuel prices, and Delta Air Lines raised its first-quarter loss estimate to $400 million last week for the same reason.

 

[Andy]

Andy,

How soon we forget. What happend to UAL's last application?

Are you saying that the concessions that UAL has extracted from vendors and employees since the original loan application does not change the likelihood of ATSB approval? I don't know the exact amount of annual cost savings to UAL; I think that it is somewhere north of $2B/yr. UAL has an entirely different cost structure than when it applied for the ATSB loan prior to chap 11.

I am not saying that this will happen to UAL(and I hope it does not) but you ask the question why only use USAir? I could have used plenty of others.

But you chose to use the only airline which received an ATSB loan and is still floundering. Are you aware of why UAIR rushed their exit from chap 11? It was due to their credit card agreement; it ended the day after emergence. Had UAIR stayed in chap 11, they would not be able to process credit card charges. They would have been chap 7 in a matter of weeks without being able to accept credit card purchases.

UAL can ask the banks for as much as they want. $4+ billion. Let me remind you of a very important fact. The banks want gurantee's for their loans. UAL can only ask for what they can provide colateral for. Does Tilton want to mortgage the entire airline just so he can borrow more money?

Let me remind you that the airline industry is one of (if not) the most leveraged industries out there. It is the norm to have all of a company's assets used as collateral on loans AND have unsecured loans. You are assuming that UAL has no assets and that banks will not provide unsecured loans. As for Tilton mortgaging the entire airline to borrow more money, that is the norm in this business.

You mention aquisitions, Feris? I don't ever recall Pan Am, TWA, Eastern, Contential (either time) running out and purchasing assets after coming out of CH11. Maybe you can provide an example? Paying down debt will be the only thing that Tilton will be concerned about.

I also don't recall airline assets being sold for this low a price. While a comparison to the past is valid, one must guage all aspects of the current environment.
I don't know Tilton and I'm guessing that you don't either. Where did you get the information that Tilton is only concerned with paying down debt? Do you have a link to confirm this? Otherwise, you are merely speculating, just as I am. I have made sure to use the term 'rumor' with my statements.

I am curious if Bonner has to sell USAir in pieces to pay back the ATSB loan, is that a positive thing for UAL? Do you think that will help get the approval?

A two part question. I'll take the second part first. I assume that Bronner will not sell UAIR assets until after UAL obtains an ATSB loan and emerges from chap 11. You have assumed the opposite; however, UAIR has enough cash to get it through the summer and into the fall without any asset sales.
To answer your first part, if UAL has a lot of extra cash on hand, it is likely to try to purchase some of UAIR's assets IF they are for sale. There is little overlap between the two airlines so UAIR's assets are more valuable to UAL than most other carriers.

Again, everything that I write is rumor and speculation. I have no inside information on the direction of UAL other than what I read and hear from various sources within the airline.

By the way, great debate, G4G5. I enjoy reading other opinions.