Will United Survive?

[120% Torque]

Will united escape a Chapter 7 breakup and liquidation? It is a hobby of mine to try and figure these things out before they happen. I have been gathering info from various news sources and message boards but some of the info (as with all media) is not always accurate or reliable. What do you guys/girls think of some of the excerpts posted below and United's chances of comming out of this in one piece?

" DIP stipulations require that the company lose NO MORE than $964 Million between 12/01/02 and 02/28/03. That means that during this 90 day period the company can AFFORD to lose NO MORE than an average of $10.7 Million per day. But during the entire month of December the company had already lost $682 Million (at $22/day)...so that means that during January and February the company can AFFORD to lose no more than $282 Million...which averages a maximum of $4.7 Million per day. But the company RIGHT NOW is STILL losing close to $20 Million per day. Current projected payroll cuts for the next 59 days are much less than $282 Million. Tilton already is behind the power curve; the only last-chance option would be to begin immediate asset sales, otherwise the company will be out of operating cash before the end of next month. Remaining DIP funds legally cannot be accessed if the above mentioned conditions are not met by February 28th. The banks will pull the plug. "

Look at the stock chart, this company has been " bleeding out " for years ! Money has been siphoned every place that it could be, including funds that should have gone into the pension fund. This Airline " owns " 50 airplanes out of the 4 or 500 it has posession of. Very soon there will be ZERO equity in this company. Liabilities will equal or surpass it's assets !

Ray Neidl, airline analyst for Blaylock & Partners in New York, said United must take dramatic steps if it is to emerge from bankruptcy as an aggressive competitor. "The bottom line at the end of the day is this airline doesn't survive long-term unless it can get its cost-per-available-seat mile down to 9 cents," he said, noting that United spends more than 11 cents per available seat mile. "It will take every trick in the world to get it that far, and it still will be very iffy [about whether they will survive]," Neidl said.

Michael Boyd, president of the Boyd Group, an airline consulting group based in Evergreen, Colo., dismissed the outline of the restructuring plan as being too little, too late. "This is trendy lunacy. It will go very well in the [business] schools, but in the real world, it's glub, glub city," Boyd said, in reference to his concern that United may not survive. Productivity is the key and the low cost carriers are proof that deregulation is working. The new Model is already in place and the majors are attempting to reinvent themselves to reflect that model. It's absolutely unbelievable that the Break-Even load factor (for UAL) is higher now than before the jet age, with all of the productivity gains of the jets!

Sorry to say. DAL, AMR and UAL will probably not survive, at least with their current business model, (and that's an understatement). It still looks like to me that the management of the majors are expecting an economic recovery to save them, not gonna happen! There is no doubt in my mind that UAL is history. They (UAL management) are now attempting to lineup creditors to loan them the money that they anticipate the feds will co-sign for. If they are having trouble getting loans that they anticipate to be Federally guaranteed what does that say ?

Our aviation industry downturn "remains severe" and predicted market recovery by Boeing is pushed back to 2005. CEO Phil Condit.

Business - USA TODAY Wed Jan 29, 7:32 AM ET
UAL seeks more time to locate lenders. Marilyn Adams USA TODAY: " UAL is asking a bankruptcy judge to give its bankers more time to find additional lenders to contribute to a $1.2 billion loan package needed to keep the company operating. "

In reference to United starting a low cost alter ego airline:
In the biggest threat yet to the troubled carrier's turnaround effort, Paul Whiteford, a member of United’s Pilot union, pledged to fight the plan "by every lawful means available to us." Other union officials couldn't be reached or declined to comment, but some privately expressed deep opposition to the idea of a separate, lower pay scale for United's new discount carrier. "That ain't gonna happen unless the judge forces it down our throat," says one veteran pilot involved in union matters. "That's a strike issue." One analyst stated that slow-downs, sickouts, etc could push the company off the "cliff" into chapter 7

Continued....

 

[120% Torque]

Continued from above......

A letter from the flight attendant leadership:

MEC President Letter January 29, 2003

Ladies and Gentlemen:

AFA is committed to the successful restructure of our airline, and we are focused on working collaboratively to find creative and competitive solutions to emerge from bankruptcy. Our AFA Financial Review Committee has been meeting with the company for over a month and we continue to demand to see a financial, strategic, business plan to ensure the future for our airline.

Without a clear vision for the future, negotiating a new agreement that allows United Airlines to be successful is like throwing darts in the dark. To date we still do not have the information we need to further our ability to reach a collaborative and consensual agreement that will enable United to successfully restructure.

Now it appears that management has begun presenting bits of a “trendy” strategy for our airline in the media. And, their version of this trendy strategy could not be worse.

Here's what we know: current management wants to eliminate anywhere from 20%-40% of United's flying and send it to a completely separate, new, spin-off subsidiary carrier with a separate set of employees. Current management says it wants to do this to compete with Southwest, Frontier and other carriers that compete with United on many routes.

Any strategy that calls for elimination of a large portion of our airline — United Airlines — is not a strategy that will succeed. Any strategy or business plan that has a chance must resonate with the employees, and the interests of all other stakeholders in the process. The Flight Attendants will not support current management's attempt at a partial liquidation of our airline. We will actively fight any attempt to break up our carrier and destroy more Flight Attendant jobs — and our lives — by the thousands.

The plan to form a separate, start-up carrier by siphoning off United's best assets may be a good plan for a new start-up carrier — every airline currently flying has expressed an interest in picking up flying given up by United — but it will be the demise of United Airlines. United has the strongest route network in the world and the most dedicated employees working its flights, but management's plan for success is to rip the airline apart. We are forced to ask the obvious question: why would, or why should, current employees give up thousands of jobs and other cuts to fund the start-up of a new carrier that will only benefit corporate executives and others while it competes with us and drags us down even further?

This Chapter 11 bankruptcy process is supposed to be about successfully restructuring United Airlines. This process is not about stripping United of all its best assets — that process is called liquidation, Chapter 7 bankruptcy.

United’s Executive Vice President and Chief Financial Officer Frederick Brace testified on December 30th in bankruptcy court that United would return to “operating profit in 2004 and net profit in 2005 and beyond.” Brace was testifying about a plan laid out for the debtor in possession (DIP) lenders that did not include operation of a subsidiary. If this plan was good enough to convince the DIP lenders to loan United 1.5 billion, then what could be management’s incentive to create a new strategy that could further erode and cannibalize the core operation?

In addition, there are few in the financial world that supports United’s idea of creating a separate airline. The Chicago Tribune reported on December 14, 2002 that Jan Brueckner, an economics professor at the University of Illinois at Urbana-Champaign, who studied the hub operations of United and its competitors, said:

They're going to create a low-cost airline through the bankruptcy process. So why do you need to create an airline within an airline? If the bankruptcy process is successful, there shouldn't be a need.

In a January 17, 2003 article in USA Today, Adam Pilarski, Senior Vice President at Avitas, an aviation consulting firm said: Their pronouncement that they will meet the low-cost carriers head-on is one of the more moronic ideas I have ever heard. In order to attempt to work collaboratively, we have resisted the chorus of concern and conventional thinking in the financial world that the same management team that led United into bankruptcy cannot also lead the company successfully out of bankruptcy. However, we must now question the direction the old management team is taking in considering splintering the airline as a solution to the company’s survival.

Throughout this process, AFA has taken a leadership role in working towards a collaborative and long-term solution to United’s current financial crisis within the evolution of the US Airline industry. Flight Attendants agreed to sacrifice 9% of our pay to help the carrier. We're committed to doing whatever is necessary to ensure the long term viability of United, and thus have continued to meet daily with current management. When working to restructure this airline, we must look that far into the future, long after current management will be gone from this company. We will continue to keep our options open for alternative solutions that seek United’s success.

In Solidarity,

Greg Davidowitch, President
United Master Executive Council

AIRCRAFT PAYMENTS
United also said on Wednesday that a 60-day window after its bankruptcy filing that prevented aircraft financiers from taking back planes may close before the airline finishes negotiating what it hopes are steep cuts in aircraft payments. United has said it could save perhaps hundreds of millions of dollars by slashing aircraft payments to match current rates, which have plunged since the Sept. 11 attacks.
The airline, which suspended aircraft payments after the bankruptcy filing, said in a message to employees on Wednesday that renegotiating the complex agreements that cover up to 450 of its roughly 550 airplanes could take months. If United wants to continue to use the planes, it must either resume the payments, and pay back amounts due, or strike an agreement with the financiers to extend negotiations. Barring payments, or an agreement, financiers could move to seize the planes.


Reuters
S&P may still cut UAL rtgs that have not defaulted
Friday January 31, 12:49 pm ET
…the airline also faces higher-than-expected fuel prices and likely deterioration in revenues as a possible U.S.-Iraq war approaches. Accordingly, United may breach a key covenant in its debtor-in-possession credit facilities, which measures earnings before interest, taxes, depreciation, amortization and rents (EBITDAR), cumulative from Dec. 1, 2002, when the first covenant calculation occurs at the end of February. Such a breach would allow the banks to accelerate their loans ($700 million), though they could choose to waive the covenant temporarily.

 

[Gumbydammit]

I don't see how they (or even USAir) make it out of this if the war happens...even if it doesn't, it looks doubtful at best. On the bright side, that might be the cure for the rest of the industry's main problem since 2001...excess capacity. Until supply comes down to meet demand...or I guess in the unlikely event that demand actually does return to previous levels anytime soon, all the airlines will suffer...let's face it, even SWA is suffering right now...still making a small profit, but just barely. With UAL out of the mix, the others will emerge from this cycle stronger and happy days will return again...even at what's left of the 'big 3'. Go back a few years and look at the early 80's. The failure of Braniff (among others)sparked one of the greatest growth spurts in AA's history...some guys were holding captain with only 5 years at the company. Those who got on just a few years later were quickly furloughed and are still FO's today. There will always be demand for international travel and 'Open Skies' benefits the American carriers more than most others. As this war and economy drag on and on though, the industry will continue to suffer. How bad will it get? How many airlines will go down? Who the he11 knows...but I sure as he11 wouldn't take any joy in watching any of them go down, or even go Chapter 11, because as they do, so do their pilot contracts and so does your pay even at your well-run, financially successful airline...because parity with ca-ca doesn't pay ca-ca. This sucks the big one for all us pilots right now...those who are hired, furloughed, or just hopeful that someday they will have something to show for the time, effort, and money they sank into what was once (and will eventually be again) the greatest job in the world.

 

[SWA/FO]

I think its all over at UAL

 

[Publishers]

over

To say that it is all over is a bit premature.

There is no question that at some point in time, UAL will have fallen from grace farther than most.

It is unfortunate that so many will advocate an adversial approach to this difficult situation. The management /labor relationship is and always has been key. UAL employees and particularly the pilot and mechanic groups have not readily adapted the changes that they faced.

The fact that they now readily accepted the 29% cut in pay indicates that some have now received the message. It may or may not be too late. Under what ever senario that you choose, the fact is that United went from the top to nowhere instantly.

 

[HA25]

I think that the demise of one of the major airlines will be a good thing for the remainder as it will instantly change the Supply and Demand curve for the entire industry... however, I hope that the airline to go down is not UAL..

 

[JetPilot500]

I think that the demise of one of the major airlines will be a good thing for the remainder as it will instantly change the Supply and Demand curve for the entire industry... however, I hope that the airline to go down is not UAL..

I believe that too.

Demise of UAL and USAir = Recovery for AAL, DAL, NWA, CO, etc.

I will be very sad to see UAL and USAir go. But they are dragging all of the other airlines down with them at this point. With UAL and USAir gone, the Supply will quickly be reduced. Previously 1/2 Full AAL planes will be carrying previous UAL pax too. There is just too much supply right now to support all of the airlines. Sometimes a few have to be sacrificed so the rest can survive.

Good Luck,
JetPilot500

 

[bobbysamd]

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.

 

[Fox2]

JetPilot500's attitude is pervasive in this industry. While not necessarily an untrue statement concerning the demise of UAL, it definitely answers many of the posts that inquire why wages are quickly lowering; why some airlines get away with convincing some pilots to work for free during "training;" and why some captains kick other pilots out of the jump seat.

Just hope we don't end up in a depression where I might need a helping hand from my neighbor!

 

[G4G5]

United says unable to hedge 2003 jet fuel costs Fri January 31, 2003 03:56 PM ET CHICAGO, Jan 31 (Reuters) - The financial troubles that led United Airlines to file the largest ever airline bankruptcy last year also kept the world's second largest airline from hedging against steep fuel price increases in 2003, United said on Friday. Most airlines hedge to some extent against broad price changes in fuel, a key cost for air carriers that is especially uncertain because of a possible U.S. war in Iraq.

"Parties that engage in the fuel hedging process are reluctant to work with companies that may be in financial distress," United said in a taped message to employees. "Due to United's financial situation, the company was unable in 2002 to secure fuel hedges for 2003."

United parent UAL Corp. UAL.N also said on Friday that its average fuel price rose more than 10 percent in the fourth quarter to 86.5 cents per gallon from a year earlier. It also reported a $1.5 billion quarterly net loss. (--Reporting by David Bailey, editing by David Gregorio; [email protected]; Reuters Messaging: [email protected]; 312 408 8135)

You can't survive if you can't protect yourself from the ups and downs of fuel prices. If a war breaks out tomorrow every other airline is locked into a price for fuel, at AA it's approx 60-65c per gallon. Without hedging, UAL will be left out in the cold paying cash for the walk up price.

So to answer your question, No.........

 

[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.