Will United Survive?

[Heavy Set]

It looks like United is doomed - with sky-rocketing fuel costs as we enter a war with Iraq and no hedging options = VERY EXPENSIVE. I agree about the trendy "LCC" solution they are peddling - too little too late. I hate to say it, but cash is absolutely king - and United is burning too much of it too quickly. I think the creditors will pull the plug to preserve some of their value - I know I would. Otherwise, UAL will eat up more cash and lose more money - especially if a war begins and travelers become skittish - they will for awhile. It does not look good for United.

I feel sorry for the pilots (and all other employees, of course). I know many UAL pilots - they were a very happy bunch. Now morale is busted. Can you think of all of the pilots who turned down jobs at Southwest, Jetblue, Delta, Fedex, etc. to go to United? I know so many who refused to even consider Southwest or UPS or Fedex. I know one guy who was RIDICULED because he accepted a position at AirTran instead of United - but now he is a 717 Captain and his decision looks pretty good. Amazing how things can change so quickly... Braniff, Pan Am, TWA and now maybe United... Very sad.

Good luck to all involved!

 

[HA25]

This is all so depressing, I need a zoloft!

 

[hawkowl88]

United will close its doors within 60 days because their costs are increasing!!!! under chapter 11.

According to "TheStreet.com", 1/31/03, "operating expenses before special items totaled $4.4 billion, up 15% from last year. Salaries and related costs jumped 29% to $1.88 billion; passenger revenue rose 12%; passenger unit revenue rose 5%; and the load factor increased by 4 points.

As 120% torque mentioned, in order to adhere to the stipulations of the DIP financing, UAL has to have an average burn of no more than about $5million per day for Jan & Feb. Uhhhh. I think Jan is over and I bet they did twice that amount. The major banks providing the DIP, Citibank, BancOne etc. Had hoped to resell parts of this loan to other banks to spread the risk, but virtually no one is biting. Also, the feds think it is a worse risk than USAir and won't provide the emergency financing. So the banks will throw good money after bad, or cut their losses and seize the collateral. No more lenders are available.

Fuel costs will go through the roof once the war starts and on top of being unable to hedge the fuel costs, UAL has to pay cash on the barrel--accelerating the cash burn rate.

The lease holders of the aircraft are not being paid and are showing signs of panic and may demand the return of the planes immediately (up to the judge of course).

The pilots have switched gears. Formerly accomodating with their furloughs and 29% pay cut they now see light at the end of the tunnel....and it's attached to a freight train coming at 60 mph. They are now vehemently denouncing the reorganization (breakup plan). No more pliant concessions from the pilots, and so go the other unions.

They have put so much pressure on their regional affiliates that Skywest, ACA, & Air Whiskey have had it. The "regionals" are seeking other codeshares or hoarding their cash reserves to purchase UAL's assets at going out of business prices rather than operate under suicidal directives from UAL mgmt.

Finally, the war will provide the coup de grace in the form of a complete and utter revenue dry up. No one wants to buy a ticket and fly anywhere, much less overseas where the global carriers still can make a decent buck due to the lack of international LCC's.

I'm sad, depressed, and developing a migraine. I see nothing but sacrifice and pain in the short run. AMR, DAL et al will benefit from the reduction in capacity, but this only prolongs their demise--unless they address their fundamentally flawed business models. Bloated cost structures, hub & spoke ineffeciences and insane work rules for rampers, mechanics, customer service etc.

Turn the seatbelt sign on. Cinch the shoulder harness and slow to Vb.

 

[Snakum]

Fox2 - If you read JetPilot's post and thought he was taking joy in an airline's demise, you certainly read more into it than I did. He was just pointing out an instance of Economic Darwinism at work, and certainly didn't appear to be rejoicing over it. Further, I can't see where his statement had anything to do with your other three points.

I think you might wanna take another look at what he wrote.

Minh

 

[120% Torque]

I tend to agree with the sentiments being shared here...United's days in it's current form seem to be numbered. Not to sound like a conspiracy theorist but I am begining to wonder if the Pilot and Flight Attendant Union Leadership haven't pinpointed what United management intends with it's "master plan" after all. That is to say that United wants to start a so called low cost carrier if for no other reason but to have a "holding company" to channel some of its assets as the bulk of its operation goes down the tube. Kind of like someone getting ready for a divorce trying to hide some assets with a friend so to at least have something left after the fall out. I mean let's be realistic, does anybody really believe a low cost carrier in and of itself would generate the profits necessary to buoy up the rest of an uneconomical and inefficient sinking ship? It's kind of like asking Jack Lelaine sp? to tie a rope to himself and the Titanic and swim it to a safe harbor. I think most the analysts have questioned "Song" for the same reasons. Though I think some managers at Delta really do believe Song is a step in the right direction and not necessarily a "channeling" effort like what United may be attempting it's chances of success are very much in question as well. You just cant pour money into an operation (TV's on seat backs, games, mp3's, etc) and still pay the pilots what they are making at mainline and expect to come out smelling like roses. It was interesting to note at Thursdays aviation conference what the leaders of JetBlue, Airtran and Southwest had to say about Song....they were very skeptical of Delta accomplishing what they say they want to do and would be surprized if it really materializes as promised. I think most view a LCC at United the same way.

It will be really interesting to hear the official details of United's "plan" which should be out by Monday or Tuesday. I tend to think that if it doesn't include very deep cuts (deeper than present) along with a sale of many assets to raise cash it does not look good at all. Having said that, United Management is still leaking positive snippets to the press and "remain optimistic" about a recovery. Perhaps they have to keep saying good things right up to the last day because they dont want to be eaten alive by the employees like Goodwin was when he announced that if the company did not stop the hemoraging the company would perish? His message was true, but I think it instantly angered so many people because they saw him as the one who got them to this position in the first place, which in my opinion is 50% true.

 

[WhiteCloud]

Re: UAL

I, too, would hate to see UAL go down. It's been a major part of the Denver economy. The new Denver International Airport was conceived with United very much in mind. United's training center has been around forever. I have no idea how much United itself is using it these days, but I recall that a lot of its sim time was brokered out to non-UAL users.

I don't think United per se will end. I'd bet that because of the bankruptcy it will reinvent itself as a LCC or something. Frontier has been giving it competition for a while.

Seems to me that the company must have some hope of survival. Otherwise why would they continue to operate and lose money? Is it that continuing to operate mitigates some of the loss (in the short term)? Ziggy1

 

[HA25]

Fox2 - If you read JetPilot's post and thought he was taking joy in an airline's demise, you certainly read more into it than I did. He was just pointing out an instance of Economic Darwinism at work, and certainly didn't appear to be rejoicing over it. Further, I can't see where his statement had anything to do with your other three points.

I think you might wanna take another look at what he wrote.

Minh

Hear Hear...

 

[bobbysamd]

UAL

Seems to me that the company must have some hope of survival. Otherwise why would they continue to operate and lose money? Is it that continuing to operate mitigates some of the loss (in the short term)? Ziggy1

They aren't simply going to fold their tents. They would hope to emerge from bankruptcy. Bankruptcy is simply a way for an business entity to get a fresh start. Recall what happened when Uncle Frank declared bankruptcy at Continental. It came back, but was different, which is my 2¢ opinion for United. Bankrupt companies don't always emerge, however.

The shareholders would incur tremendous financial losses and perhaps risk personal liability if United simply folded.

I second Snakum's comments about JetPilot500's post. He was just making an observation about current events.

 

[TWA Dude]

Re: UAL

"Rumors of my death are greatly exaggerated."

UAL is hurtin' a plently but I think there's a lot of powerful forces that want it to stick around: Chicago and IL, Denver and CO. The Bush administration obviously doesn't care but local politicians do. I agree the industry as a whole needs a large carrier or several smaller ones to fail so that the rest can survive. TWA was literally hours away from liquidation several times yet it somehow managed to last until it was bought. It just shows to go you that anything could happen, and it probably isn't what you'd expect.

 

[hogdriver00]

Not their job

The Bush administration obviously doesn't care but local politicians do.

Why should the federal government care? It's not the taxpayers responsibility to bail out companies that develop poor business plans and loose money to the tune of 3.1 Billion in a year. The government is the only one that can do that.

If United goes TU then the survivors will prosper, become profitable, and eventually grow.

It all works out in the end so long as your not at UAL. My heart goes out to those folks.