Will United Survive?

[Boeingman]

*
Take a look at USAviation.com message forum board. Under UAL thread "load of crap" 1st message and read the link.

Someone pirated the powerpoint slideshow of managements plan for turning the company around. To me it was nothng but a bunch of fancy terms and a whole lot of smoke and mirrors.
I noticed that even within this glorified dog and pony show they still believe they will have a third of their routes unprofitable. Huh? I bet the banks and creditors are real happy to see a plan alread that admits they are still going tol lose money.

I also read yesterday they are trying to ammend the terms of the Debtor in Possesion loans with Banc One. That is NOT a good sign.

Personally, I think UAL is doomed.

P.S. Anyone read about the accomadations Tilton is allegedly getting while staying in ORD? Not to mention his compensation package? UAL seems to be out of touch with their ownfiscal reality.

* I did not want to post a link directly to this.

 

[HA25]

*
Take a look at USAviation.com message forum board. Under UAL thread "load of crap" 1st message and read the link.

Someone pirated the powerpoint slideshow of managements plan for turning the company around. To me it was nothng but a bunch of fancy terms and a whole lot of smoke and mirrors.
I noticed that even within this glorified dog and pony show they still believe they will have a third of their routes unprofitable. Huh? I bet the banks and creditors are real happy to see a plan alread that admits they are still going tol lose money.

I also read yesterday they are trying to ammend the terms of the Debtor in Possesion loans with Banc One. That is NOT a good sign.

Personally, I think UAL is doomed.

P.S. Anyone read about the accomadations Tilton is allegedly getting while staying in ORD? Not to mention his compensation package? UAL seems to be out of touch with their ownfiscal reality.

* I did not want to post a link directly to this.

Did you actually see this statement of 1/3 of their routes being unprofitable..

 

[Boeingman]

Did you actually see this statement of 1/3 of their routes being unprofitable..

Yes. Page 139

 

[Floyd94]

bttt, good stuff, keep discussing, this to me is very educational

 

[120% Torque]

The board of directors wants to close some Hubs??! This is the first time I have heard this. Also, sounds like the Pacific routes are slowly getting closer to the chopping block. From this article it doesnt sound like the Unions and Management are getting any closer to hammering out a deal. It's not going to be pretty when Tilton continues to ignore the labor groups opposition to a carrier within a carrier. Once further pay cuts are forced down their throat and the start of Starfish or whatever it will be called is begun things could get downright violent.

Associated Press
United Pilots' Chief Opposes New Carrier
Monday February 24, 7:10 pm ET
By Dave Carpenter, AP Business Writer
United Pilots' Chief Voices Strong Opposition to Low-Cost Carrier


CHICAGO (AP) -- United Airlines' pilots union reiterated strong opposition Monday to the company's proposal for a low-cost carrier even as United pushed ahead with the concept by naming an official in charge of it.
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In the latest sign of dissent within bankrupt United over starting a discount airline, pilots' union chief Paul Whiteford sent CEO Glenn Tilton a letter saying the sides are "miles apart" on the planned carrier "with no progress in sight."

Meanwhile, a United executive told a bankruptcy court judge that the airline is looking into the possible closure of its hubs in Los Angeles, Denver and Washington as part of its reorganization plan, Dow Jones Newswires reported. Senior vice president Gregory Taylor said the company was asked by its board of directors to consider the hub closures as an alternative, along with the possible sale of the airline's Pacific operations.

Company spokesman Joe Hopkins, asked to comment on the testimony, insisted that United has no intention of closing any of its five hubs and is exploring various restructuring alternatives at the request of the creditors' committee that oversees it in bankruptcy. Tilton has told employees repeatedly that he wants to keep all the hubs.

If Tilton's current strategy fails to gain the backing of labor, creditors and the bankruptcy court, however, the world's second-largest airline would have to scramble to put together another plan in order to avoid liquidation.

Other investment firms reportedly have held exploratory talks with members of the creditors' committee about possible financial stakes in United in the future. One includes Texas Pacific Group, a Fort Worth-based private equity firm, according to people familiar with the matter.

Texas Pacific declined to comment, and United attempted to downplay the talks. "Equity financing is essential to United and our significant constituent groups, including our unions, as we successfully exit Chapter 11," the company said in a statement. "Conversations with interested parties continue and will continue to take place."

Whiteford, who represents United's 9,000 pilots, disputed Tilton's numerous recent statements that the Air Line Pilots Association and the company are in general agreement on the elements of United's restructuring.

"Let me be clear: ALPA and the company do not share a common vision for a low-cost carrier," he said. "We question the business wisdom of the concept; we are concerned about the execution risk inherent in your program, and we are fundamentally and unequivocally opposed to any separate airline entity within United that operates under a separate labor agreement, seniority list or corporate structure."

"We are miles apart on this issue -- and several others -- with no progress in sight," Whiteford said in the letter, which was sent to other union leaders.

United had no immediate response.

Specific plans for the low-fare carrier, including a name and launch date, are being worked out. But in the latest evidence that management is intent on going ahead with the airline -- code-named Starfish -- the company announced on a recorded hot line that 19-year United veteran Sean Donohue will be vice president in charge of the low-cost carrier along with another executive from outside the company who has yet to be selected.

United plans to shift about a third of its capacity to the separate airline in order to better compete against discount rivals such as Southwest Airlines and JetBlue on many of its routes.

Despite the poor track record for such carriers, Tilton has told employees in a series of recent meetings that the market has changed and that creating a discount airline is the only way for United to avoid shrinking significantly, including giving up routes and laying off thousands more workers.

Besides having the goal of making United more competitive, the carrier's creation would help the company reach its stated objective of lowering annual labor costs by $2.56 billion. United can seek to have its strategy and terms imposed on the unions in bankruptcy court -- a process it says it plans to proceed with on March 17 -- but at risk of alienating workers.

Like the pilots, the flight attendants' union has resisted the low-fare carrier concept, concerned about jobs, seniority and whether it makes good business sense. The flight attendants plan to issue their own contract proposals later this week.

The machinists' union has refrained from public comment on the concept. But Randy Canale, president of the union district representing baggage handlers and public contact workers, told members earlier this month that the separate carrier "could prove to be the only viable alternative to a competitively irrelevant, shrinking UAL" -- United's parent company.

 

[Heavy Set]

Texas Pacific Group

Looks like Texas Pacific Group (multi-billion dollar investment firm) is looking to possibly invest in United (just like USAirway's savior). I believe the Greenbrier Group (another big investment firm) is also kicking the tires. The problem is that fuel prices continue to escalate (probably more as we decimate Baghdad) and unions continue to balk at "low fare" discussions... With no ability to hedge fuel costs, it amazes me that the banks haven't already called their loans... The economy sucks and operating costs continue to climb.

I hope UAL makes it, but the situation looks grim as fuel prices continue to rise with no end in sight... How long can they last? If you were UAL's banker, how long would you wait - how much RISK could you take?

What day do you think is the deadline for the ultimate decision? March 1st?

 

[Splert]

Forbes Magazine
Deathwatch
Thursday February 13, 6:36 pm ET
By Neil Weinberg

UAL's Chapter 11 reorganization may just turn into an outright liquidation. Lenders, lessors and competitors are ready to pick up the pieces.

Even by the sickly standards of the American airline industry, UAL Corp. is a mess. After losing $3.2 billion last year, the nation's second-largest carrier is confronting the distinct possibility that it will not emerge from Chapter 11. It may instead be auctioned off in parts, the airplanes and landing slots carted off and the corporation liquidated in the manner of Braniff, Pan Am and Eastern.

Valiantly presiding over the Chicago-based parent of United Airlines is Glenn Tilton, a 54-year-old former oil executive who took the chief executive job in September. Perhaps radical thinking is just what is needed at this desperate juncture. But so far some of Tilton's moves have been--to put it politely--counterintuitive. To increase traffic he cut unrestricted walk-up fares by 40% in January out of United's two busiest hubs, Denver and Chicago O'Hare. That gained it some passengers but lowered the take from last-minute travel by an estimated $30 million a month.

Even without the discounts UAL (NYSE:UAL - News) was burning through money faster than jet fuel. In the fourth quarter it had an operating loss (earnings before depreciation, interest, taxes and airplane rent) of $478 million. Lenders, of course, have very limited patience with funding such operating losses, and if there is no prospect for reducing them, then the company would be worth more to creditors dead than alive. Starting in March, UAL's loan covenants require it to meet a schedule of reductions in operating losses and to break even by October.

If UAL can't meet the timetable, then debtor-in-possession lenders Bank One, J.P. Morgan Chase, Citigroup and CIT Group can begin confiscating planes, spare parts, routes and landing slots. "If things go badly, J.P. Morgan and Citigroup have a big incentive to seek liquidation and get their money back by calling in their collateral," says a lawyer following the bankruptcy. Publicly, United isn't conceding it's in any kind of death-spiral scenario. "The changes we're making should enable us to strengthen our operations and make us competitive," says United spokesman Jeffrey Green.

United declared Chapter 11 bankruptcy in December with $21 billion in debt. A sampling of holders runs the gamut.

UNSECURED CREDITORS Amount($mil)

Debt held in trust $2,900

Indiana government authorities 162

Airbus 48

SECURED CREDITORS Amount($mil)

GE Capital $1,700

Boeing 1,300

Bank of New York 630*

Altria (Philip Morris) 536**

Pitney Bowes 100**

Walt Disney 83

If, that is, the unionized workers accept the changes. In January Tilton proposed to split off a big chunk of the carrier later this year and turn it into a low-cost, no frills airline, rumored to be named Starfish, that could compete with JetBlue (NasdaqNM:JBLU - News) and Southwest (NYSE:LUV - News). Pilots now making $225,000 (down from $316,000 last year) could be forced to trade down to jobs paying a maximum of $153,000.

Continental (NYSE:CAL - News) and US Airways (OTC BB:UAWGQ.OB - News) have gone the low-cost route before, without success. "If this is what they want to do, it's a nonstarter," stated Paul Whiteford, chairman of the 8,500-member United chapter of the Airline Pilots Association. It would, he added, "lead to the death of United Airlines." In other words a strike would push the airline out of business via the same route Eastern traversed.

By mid-March United must get its unions to agree to permanently hack off $2.4 billion in annual pay, or about 34% of their total. (Labor consumed half of UAL's $14.3 billion in revenue last year.) Mechanics and flight attendants have been publicly assailing Tilton for not offering a concrete proposal for them to consider. If no agreement is reached, United must petition the bankruptcy court to impose concessions.

To line up $1.5 billion in debtor-in-possession financing, United had to pay an unusually large 5% commission for a $300 million portion, plus a percentage point more in interest than WorldCom, Kmart or Adelphia paid. The postbankruptcy lenders are first in line during a liquidation, but even so they are taking a significant risk. If the workers won't come to work for reduced pay, then no lender is going to come out whole.

So far United has yet to buzz-cut any of its aircraft leasing deals. In fact, it just agreed to hold on to 154 of its 463 leased planes under the same old terms. But if the carrier starts offering, say, 25 cents on the dollar, big aircraft lessors like GE Capital (which owns 20 United planes) may just repossess and try to redeploy the jets to overseas carriers. When that market is saturated, the only thing to do with a commercial jet plane may be to park it in the desert in the Southwest, along with the 1,800 other jets already there.

Ready to feast on any leftovers are rivals like American, which would benefit from O'Hare's slots and routes. Continental lusts after United's Denver hub and its London Heathrow routes. Other hubs up for grabs would include Washington Dulles, San Francisco and Los Angeles. Delta, US Airways and Northwest would likely jump into the fray. With 20% of traffic already, and a strong tailwind at their backs, the discounters like Southwest, JetBlue and AirTran may be the biggest winners of all.

 

[banned username 2]

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.

 

[120% Torque]

Dow Jones Business News
Judge Denies UAL Attempt To Recover $388M In Tax Payments
Monday March 3, 4:14 pm ET
By Erik Ahlberg, Of DOW JONES NEWSWIRES


CHICAGO (Dow Jones)--UAL Corp. withdrew a motion to force the government to hand over $388 million in tax payments after the judge overseeing its bankruptcy case here refused to go along with the airline's tactics for recovery.
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Judge Eugene R. Wedoff said the automatic stay put into place at the start of the company's bankruptcy proceedings in December wasn't intended to be used as a means to compel payment.

Following Judge Wedoff's recommendation, UAL attorney Marc Kieselstein said the airline would withdraw its emergency motion and file a separate adversary proceeding. It's expected that the court would address that proceeding within the next week.

Late last week, UAL said in court documents that the Internal Revenue Service had been prepared to forward about $126 million in overpayments and a $262 million refund related to so-called net operating losses, but that the Department of Justice "improperly imposed" a freeze on the funds.

The government believes it has about $50 million in prepetition claims that would offset the money payable to the company, a figure UAL "vigorously disputes," according to court documents.

In court testimony, UAL attorney Kieselstein said that without any recovery of the tax payments, the company's cash balances would become inadequate. UAL's utilities and credit-card partners may come back to court seeking special amendments and assurances, he said.

"We're talking about a potential run on the bank," he said. "The company needs the money literally to operate."

 

[Boeingman]

If the above article is true and UAL is down to relying on tax refunds for operating capital, the situation is past critical. That is a financial position which is terminal. When the credit card processors demand guarantees and escrow to ensure their payments, the situation is past the point of no return.

For those with short memories, this was the final nail in the coffin for EAL and FAL. It was when the credit card processors pulled the plug when those companies finally shut down.