The head of United Airlines Thursday said the United States must follow the European Union example of pursuing airline mergers to revive the ailing industry.
Chief Executive Glenn Tilton said EU deals such as the recent tie-up of France's Air Fr
He will appoint James Goodwin and Stephen Wolf to form an exploratory committee on an airline merger for United. ance and Dutch carrier KLM are constructive for the industry and eliminate "unnecessary inefficiency."
I applaud this strategy: Possibly a UA/US merger? Today, most flights I am on are a mix of UA/US codeshare flights. Maybe sell off some pieces, but put these 2 together, achieve economies of scale with administrative costs and you have a winner. Don't let US go down to the LCC's in parts. UA will not get a chance to put together such a complementary route structure ever again. UA plus US's east coast, carribean. I agree!
steves
Sep 16, 04, 10:56 pm
It doesn't seem financially possible in BR - but boy would it make sense!
The head of United Airlines Thursday said the United States must follow the European Union example of pursuing airline mergers to revive the ailing industry.
Chief Executive Glenn Tilton said EU deals such as the recent tie-up of France's Air Fr
He will appoint James Goodwin and Stephen Wolf to form an exploratory committee on an airline merger for United. ance and Dutch carrier KLM are constructive for the industry and eliminate "unnecessary inefficiency."
I applaud this strategy: Possibly a UA/US merger? Today, most flights I am on are a mix of UA/US codeshare flights. Maybe sell off some pieces, but put these 2 together, achieve economies of scale with administrative costs and you have a winner. Don't let US go down to the LCC's in parts. UA will not get a chance to put together such a complementary route structure ever again. UA plus US's east coast, carribean. I agree!
:confused: Are you high? Tilton said nothing about setting up an exploratory committee to evaluate merger partners for UA. Both Goodwin and Wolf were run out of UA in an disgraced manner (arguably) and someone sarcastically posted that Tilton would probably appoint them to head an exploratory committee. If Wolf or Goodwin ever stepped foot on UA property again they would probably be hung.
Tilton's comments lent support to the concept of pairing a strong airline up with an ailing one and said NOTHING about UA seeking a merger with US.
US AIRWAYS FAN
Sep 17, 04, 12:24 am
UA canīt afford to buy US this time around. UA is in debt and canīt afford to carry USīs debt. It wonīt happen.
martin33
Sep 17, 04, 12:40 am
:confused: Are you high? Tilton said nothing about setting up an exploratory committee to evaluate merger partners for UA. Both Goodwin and Wolf were run out of UA in an disgraced manner (arguably) and someone sarcastically posted that Tilton would probably appoint them to head an exploratory committee. If Wolf or Goodwin ever stepped foot on UA property again they would probably be hung.
Tilton's comments lent support to the concept of pairing a strong airline up with an ailing one and said NOTHING about UA seeking a merger with US.
indeed not. it looks like the OP simply tried to copy all of the original thread texts into one post, including the sarcastic comments on the original speech.
it's all a moot discussion anyway. no union in the country is going to allow its airline to merge with UA after Tilton's anticipated moves to terminate the pensions there.
osxanalyst
Sep 17, 04, 6:53 am
it's all a moot discussion anyway. no union in the country is going to allow its airline to merge with UA after Tilton's anticipated moves to terminate the pensions there.
The union may not have any say. IMHO, the most likely outcome, once UA emerges from its own Bankruptcy, is for UAL to pick up the assets of US out of bankruptcy court by assuming most of US's liabilities. The bondholders seem to expect to take a haircut based on trading in US Air's bonds. US Employees/Unions will likely be left swinging in the wind.
The primary problem with US (and other legacy carriers) is excessively high costs (pensions, work rules, salaries, etc) relative to the LCC's. Thus if UA can pick up the assets and leave the labor behind, it would seem to be a great deal.
NYCommuter
Sep 17, 04, 8:46 am
Also, John Kerry was one of the senators who most vocally opposed the US-UA merger a few years ago, and he's been endorsed by many of US's unions. Not trying to start a political discussion; just pointing out that the upcoming election could result in a government that wouldn't look favorably upon such a merger.
ClueByFour
Sep 17, 04, 10:04 am
The primary problem with US (and other legacy carriers) is excessively high costs (pensions, work rules, salaries, etc) relative to the LCC's. Thus if UA can pick up the assets and leave the labor behind, it would seem to be a great deal.
Actually, in US' case, it's easy to think the opposite: at the current numbers, labor could work for free and the CASM would still be higher than Southwests total CASM.
It's the nonlabor costs, at least in US' case. I'm pulling on the flameproof undies, but the stark reality is that the US labor force could literally work for free and still not match the costs of the king of LCCs--which is indicative of a failed strategy and execution thereof, not necessarily labor costs alone.
DC-USCP-UAPE
Sep 17, 04, 5:06 pm
My vote would be a a prearranged bankruptcy. UA and US have already discussed how to merge these airlines. With a prearranged bankruptcy UA can shed those assets and liabilities they don't want. They pick up whatever employees they want to hire.
It works for creditors, it should work for the FAA (it's an election year), and it should work for flyers because it will prevent major disruption of service.
FlyerTim
Sep 17, 04, 5:21 pm
My vote would be a a prearranged bankruptcy. UA and US have already discussed how to merge these airlines. With a prearranged bankruptcy UA can shed those assets and liabilities they don't want. They pick up whatever employees they want to hire.
It works for creditors, it should work for the FAA (it's an election year), and it should work for flyers because it will prevent major disruption of service.
UAL can't even arrange financing to get ITSELF out of bankruptcy - how in the heck is it going to cook up a deal to buy someone else?
DENPremEx
Sep 17, 04, 5:33 pm
My vote would be a a prearranged bankruptcy. UA and US have already discussed how to merge these airlines. With a prearranged bankruptcy UA can shed those assets and liabilities they don't want. They pick up whatever employees they want to hire.
It works for creditors, it should work for the FAA (it's an election year), and it should work for flyers because it will prevent major disruption of service.
correct me if I'm wrong but aren't both of these airlines already in bankruptcy? A prepackaged (prepack) is generally done in conjunction with the creditors to insure a timely exit from bankruptcy when the company can come to terms with the creditors (and unions regarding wage reductions in this case). Prepacks rarely involve a merger or sale to another company, much less another company that's already in bankruptcy. Besides, UA can't even emerge from bankruptcy on their own, how are they going to cram a merger down the throats of the unions and the creditors while trying to line up more financing than they are trying to line up now (so far unsuccesfully) due to the added need for capital because of the addition of US? Furthermore, US's assets are only going to get cheaper when they are repossesed by creditors, why act now if you are a buyer?
DENPremEx
Sep 17, 04, 5:35 pm
UAL can't even arrange financing to get ITSELF out of bankruptcy - how in the heck is it going to cook up a deal to buy someone else?
DC-USCP-UAPE must be more of a financial genius than you and I put together if he can figure this one out.
martin33
Sep 17, 04, 6:01 pm
The union may not have any say. IMHO, the most likely outcome, once UA emerges from its own Bankruptcy, is for UAL to pick up the assets of US out of bankruptcy court by assuming most of US's liabilities. The bondholders seem to expect to take a haircut based on trading in US Air's bonds. US Employees/Unions will likely be left swinging in the wind.
The primary problem with US (and other legacy carriers) is excessively high costs (pensions, work rules, salaries, etc) relative to the LCC's. Thus if UA can pick up the assets and leave the labor behind, it would seem to be a great deal.
several problems with that scenario. first, US is likely to dissolve onto the auction block well before UA exits court protection. second, what assets are we talking as desirable to UA?? "routes" aren't bought and sold, domestically. the gates at PIT are already available, the ones at PHL are long-run poisoned by WN's presence, the ones at CLT will be of little value to UA, the ones at DCA no-go antitrustwise, and that leaves BOS and LGA. none of US's planes would really be needed, as compared to buying planes from anywhere else. third, UA's union contracts (particularly scope agreements with ALPA) allow them to de facto have a veto over any merger-like transaction. fourth, assuming US's liablities is a non-starter given the likely covenants UA's lenders will demand upon its putative exit from court.
NYCommuter
Sep 18, 04, 12:23 pm
I applaud this strategy: Possibly a UA/US merger? Today, most flights I am on are a mix of UA/US codeshare flights. Maybe sell off some pieces, but put these 2 together, achieve economies of scale with administrative costs and you have a winner. Don't let US go down to the LCC's in parts. UA will not get a chance to put together such a complementary route structure ever again. UA plus US's east coast, carribean. I agree!
There is precedent for this: in the early 1970s, a bunch of bankrupt railroads in the Northeast were all forced to merge into Conrail, and I think that even before that happened, the government made some of the larger railroads in the area absorb some of the smaller bankrupt ones.
DENPremEx
Sep 18, 04, 1:46 pm
There is precedent for this: in the early 1970s, a bunch of bankrupt railroads in the Northeast were all forced to merge into Conrail, and I think that even before that happened, the government made some of the larger railroads in the area absorb some of the smaller bankrupt ones.
Your point is well taken but, as my parents used to tell me when I wanted to do something they used to do when they were young, "times have changed." There isn't a domestic carrier in a position to absorb US completely without massive assistance from the feds and I think we all agree the present administration isn't into meddling in the markets. Plus, what would other carriers say were that to happen? This country was founded on capitalism, markets wead out the weak and that's how it should be.
TomBascom
Sep 19, 04, 8:51 am
Actually, in US' case, it's easy to think the opposite: at the current numbers, labor could work for free and the CASM would still be higher than Southwests total CASM.
It's the nonlabor costs, at least in US' case. I'm pulling on the flameproof undies, but the stark reality is that the US labor force could literally work for free and still not match the costs of the king of LCCs--which is indicative of a failed strategy and execution thereof, not necessarily labor costs alone.
In the spirit of flameproof undies ;) another spin on this is that if labor actually knuckled down and did some work from time to time instead of checking the rulebook at every turn US could afford to pay them what they'd like...
The truth is probably somewhere in the middle.
martin33
Sep 19, 04, 3:29 pm
In the spirit of flameproof undies ;) another spin on this is that if labor actually knuckled down and did some work from time to time instead of checking the rulebook at every turn US could afford to pay them what they'd like...
you make an excellent point that higher wages could certainly accompany higher productivity-- most unions, however, run on per-capita dues, and the headcount needed goes down when productivity per worker increases.
that said, at this point US is probably so screwed up now that no amount of fiddling with the unions is going to do the trick. in the orginal post-BK plan, the goal was a labor cost per ASM of 4.2 cents. in the most recent period, the actual reported level was 4.1 cents [making labor the *only* part of the post-BK plan to meet its goals]. if, hypothetically, the unions today simply capitulated and gave the requested $250m per year, that would be roughly another .5 cents (250m into 50bn ASM), for a net level of 3.6. that's not enough to buy more than a few months of continued flying...
NYCommuter
Sep 19, 04, 6:44 pm
Your point is well taken but, as my parents used to tell me when I wanted to do something they used to do when they were young, "times have changed." There isn't a domestic carrier in a position to absorb US completely without massive assistance from the feds and I think we all agree the present administration isn't into meddling in the markets. Plus, what would other carriers say were that to happen? This country was founded on capitalism, markets wead out the weak and that's how it should be.
Good points but it was a Republican president who created Amtrak and Conrail, and W has been known to slap heavy tariffs on imported steel, messing with the free market, when votes can be won in swing states. I read an article stating that if US goes under, the main winners will be LCCs since they can then quickly expand in key airports. I don't think the other legacy airlines want that.
DENPremEx
Sep 19, 04, 6:54 pm
Good points but it was a Republican president who created Amtrak and Conrail, and W has been known to slap heavy tariffs on imported steel, messing with the free market, when votes can be won in swing states. I read an article stating that if US goes under, the main winners will be LCCs since they can then quickly expand in key airports. I don't think the other legacy airlines want that.
Yes, I believe the LCCs will be the big winners if US liqudates BUT the LCCs will continue to win even if US doesn't liquidate. I think, if given the choice, Tilton, Arpey and the rest of the heads of the legacy carriers would choose a US liquidation even if it were clear the LCCs were going to gain ground. The main benefits to the legacy carriers would be easier negotiations with unions, IMHO.
Your point about Bush's steel tarrifs is duly noted.
NYCommuter
Sep 19, 04, 7:49 pm
Yes, I believe the LCCs will be the big winners if US liqudates BUT the LCCs will continue to win even if US doesn't liquidate. I think, if given the choice, Tilton, Arpey and the rest of the heads of the legacy carriers would choose a US liquidation even if it were clear the LCCs were going to gain ground. The main benefits to the legacy carriers would be easier negotiations with unions, IMHO.
Excellent points. I'd imagine that union leaders aren't sleeping too well these days!
DENPremEx
Sep 19, 04, 11:27 pm
Excellent points. I'd imagine that union leaders aren't sleeping too well these days!
I believe you are correct. The airline industry looks a lot like the steel industry did 5 years ago. Overcapicity, rampant price cutting by the minimills (LCCs), legacy producers (USX, Bethlehem, etc.) hobbled by their pensions...etc. One producer would file Ch 11 and emerge with a lower cost structure and would slash prices putting pressure on the rest of the companies who would file Ch 11, slash costs, emerge from bankruptcy and cust prices...the whole cycle would repeat itself over and over. Finally sanity reigned supreme and a few of the majors were consolidated into ISG (International Steel Group), capacity was cut back and then a recovery came in the steel market (Have you tried to by steel or steel components lately? I have and prices are through the roof!). It will be interesting, time will tell but you have probably figured out what I think will happen.
osxanalyst
Sep 20, 04, 8:14 am
... There isn't a domestic carrier in a position to absorb US completely without massive assistance from the feds and I think we all agree the present administration isn't into meddling in the markets. ...
I disagree with your financial analysis. Any one of the airlines could pick up US while it's in bankruptcy court for ZERO cash. How you ask? Simple ... by assuming some portion of their liabilities, how much exactly would be the subject of negotiations with the creditors.
First, however, US mgmt gets an exclusive period where they can propose a restructuring plan. Yet, in the live Washington Post interview with BBB, I asked him about the possibility of a merger with UAL and he also acknowledged that consolidation was needed in the industry. Thus I believe that US mgmt would be open to rekindling the UAL deal.
If one of the carriers thought US's gates, slots and route structure would improve their competitive position, then it would make tremendous sense to "buy" US. UAL has already clearly expressed this opinion in more ways than one (merger attempt, partnership, *A). If they can get out of BK, then I expect shortly thereafter UAL to make a run at US's assets, assuming they are still available.
DENPremEx
Sep 20, 04, 10:39 am
I disagree with your financial analysis. Any one of the airlines could pick up US while it's in bankruptcy court for ZERO cash. How you ask? Simple ... by assuming some portion of their liabilities, how much exactly would be the subject of negotiations with the creditors.
First, however, US mgmt gets an exclusive period where they can propose a restructuring plan. Yet, in the live Washington Post interview with BBB, I asked him about the possibility of a merger with UAL and he also acknowledged that consolidation was needed in the industry. Thus I believe that US mgmt would be open to rekindling the UAL deal.
If one of the carriers thought US's gates, slots and route structure would improve their competitive position, then it would make tremendous sense to "buy" US. UAL has already clearly expressed this opinion in more ways than one (merger attempt, partnership, *A). If they can get out of BK, then I expect shortly thereafter UAL to make a run at US's assets, assuming they are still available.
Domestic routes have little or no value, a carrier simply has to have a gate to park at and apply. In rare instances are new routes not approved. If UA wants to expand their route network they have a surplus of planes in the desert they can use. Furthermore, enpanding their route network internally as opposed to acquisition is a bargaining chip they can use with their unions. Obtaining further concessions in exchange for calling back layed off workers would go a long way toward easing the sting of give backs.
Contrast this with the violent reaction the unions would have to UA picking up US. Also, as I have noted here before, US could have struck a deal to "sell" assets for the assumption of liabilities outside of bankruptcy. On top of all of this, could you explain to me why UAs creditors would accept more liabilities piled on top of the debt they already have?
UA_Flyer
Sep 20, 04, 10:49 am
After reading the Tilton article, I thought he was advocating cross-border merger type of deal such as AF and KLM.
Currently. foreign investors cannot own more than 25% of US airlines. If Congress can raise the limit to say 49%, then either UA or US may attract foreign investment or merging with a foreign carrier.
I know there are anti-trust provisions in the US law, but as many of the posters have already indicated.. no legacy carriers are in any position to merge and take on additional debt, problems, etc.
Buster CT1K
Sep 20, 04, 1:04 pm
I believe you are correct. The airline industry looks a lot like the steel industry did 5 years ago. Overcapicity, rampant price cutting by the minimills (LCCs), legacy producers (USX, Bethlehem, etc.) hobbled by their pensions...etc. One producer would file Ch 11 and emerge with a lower cost structure and would slash prices putting pressure on the rest of the companies who would file Ch 11, slash costs, emerge from bankruptcy and cust prices...the whole cycle would repeat itself over and over. Finally sanity reigned supreme and a few of the majors were consolidated into ISG (International Steel Group), capacity was cut back and then a recovery came in the steel market (Have you tried to by steel or steel components lately? I have and prices are through the roof!). It will be interesting, time will tell but you have probably figured out what I think will happen.
I agree with your analysis save one part: global demand for steel products has increased substantially since the time of low steel prices. Construction in China is, in part, a great driver for world steel prices. On the other hand, Chinese demand for travel is not going to save American air carriers.
osxanalyst
Sep 20, 04, 2:21 pm
Domestic routes have little or no value, a carrier simply has to have a gate to park at and apply. In rare instances are new routes not approved. If UA wants to expand their route network they have a surplus of planes in the desert they can use. Furthermore, enpanding their route network internally as opposed to acquisition is a bargaining chip they can use with their unions. Obtaining further concessions in exchange for calling back layed off workers would go a long way toward easing the sting of give backs.
Contrast this with the violent reaction the unions would have to UA picking up US. Also, as I have noted here before, US could have struck a deal to "sell" assets for the assumption of liabilities outside of bankruptcy. On top of all of this, could you explain to me why UAs creditors would accept more liabilities piled on top of the debt they already have?
A couple of points. vis-a-vis routes - you are mostly correct with one notable exception - DCA. Slots at DCA are exactly the opposite - very rare and hard to get. To a lesser extent, this also applies to LGA, which is basically at capacity.
With respect to the unions - UAL's union would benefit if UAL were to pick up the assets of US Air out of bankruptcy as US's employees would not go with the assets.
With respect to "US could have struck a deal to "sell" assets for the assumption of liabilities outside of bankruptcy." Sure - but a piecemeal sale is not what they want. Both mgmt's have experessed a desire to merge in the past, and "rescuing" US from BK could help get the "merger" through antitrust scrutiny and give UAL truly national presence in one fell swoop.
My humble prediction is thus:
1. UAL emerges from bankruptcy with most if not all of what they are seeking.
2. US survives long enough in BK for UAL to swoop in and pick up the assets of US for the assumption of some portion of its liabilities, leaving US employees with jack, except for the opportunity to apply for jobs at UAL. US mgmt will bless this deal.
DENPremEx
Sep 20, 04, 2:33 pm
A couple of points. vis-a-vis routes - you are mostly correct with one notable exception - DCA. Slots at DCA are exactly the opposite - very rare and hard to get. To a lesser extent, this also applies to LGA, which is basically at capacity.
With respect to the unions - UAL's union would benefit if UAL were to pick up the assets of US Air out of bankruptcy as US's employees would not go with the assets.
With respect to "US could have struck a deal to "sell" assets for the assumption of liabilities outside of bankruptcy." Sure - but a piecemeal sale is not what they want. Both mgmt's have experessed a desire to merge in the past, and "rescuing" US from BK could help get the "merger" through antitrust scrutiny and give UAL truly national presence in one fell swoop.
My humble prediction is thus:
1. UAL emerges from bankruptcy with most if not all of what they are seeking.
2. US survives long enough in BK for UAL to swoop in and pick up the assets of US for the assumption of some portion of its liabilities, leaving US employees with jack, except for the opportunity to apply for jobs at UAL. US mgmt will bless this deal.
Goodwin wanted to merge with US and Goodwin has proven himself about as popular with UA employees and unions as Michael Jackson would be to a group of kindergarten parents.
Your point about spots at DCA and LGA is duly noted but if US folds then capacity problems at LGA become a thing of the past and the feds will surely look to fill US's void at DCA. UA may have to cut back some flights at IAD to appease the regulators but all the have to do is pull planes out of the desert and call back workers. I agree on with your prediction about UA emerging but I'm more skeptical about US's chances.
Spiff
Sep 20, 04, 4:16 pm
"He will appoint James Goodwin and Stephen Wolf to form an exploratory committee on an airline merger for United."
If nothing else, that would give members of the gambling community the opportunity to get a Dead Pool list with these two names on the top of it and start making bets as to who gets murdered first.
Better betting propositions would allow gamblers to wager on scenarios like the game of Clue. (No offense, CB4 :) )
"I'm betting Stephen Wolf will be murdered by An Angry Machinist in the PIT Hangar with the Blowtorch.
"No, James Goodwin will be murdered by a TED Pilot in the Employee Lounge with the Paperweight..."
:D
FlyerTim
Sep 20, 04, 4:45 pm
My humble prediction is thus:
1. UAL emerges from bankruptcy with most if not all of what they are seeking.
2. US survives long enough in BK for UAL to swoop in and pick up the assets of US for the assumption of some portion of its liabilities, leaving US employees with jack, except for the opportunity to apply for jobs at UAL. US mgmt will bless this deal.
1. HOW!? UAL is unable to obtain financing to emerge from bankruptcy, and cannot even offer guidance as to when an exit from Chapter 11 will occur. IMHO, this means that United will not be leaving Chapter 11 for at least 9-12 months -- if at all.
2. Even if UAL emerged from BK tomorrow - it still could not afford to buy or "assume" US Airways. Everyone keeps forgetting that even though assets can change hands for essentially nothing, the costs of INTEGRATION are extremely high in the airline business. Remember, AA purchased TWA's assets for ~$700 million but then had to spend over $1.5 billion to integrate a carrier just 1/5th AA's size. Given the major differences in CRS systems, back-office IT, fleet engine types, cockpit/cabin crew training, and overall customer service standards (just to name a few), United would probably be looking at ~$2 BILLION to integrate the US operation into its own. Now, United has no chance in h*ll of picking up $2B anytime soon, but even if it did, such monies would be MUCH better spent on things like revamping the UA Intl. C and F cabins.
martin33
Sep 20, 04, 8:00 pm
A couple of points. vis-a-vis routes - you are mostly correct with one notable exception - DCA. Slots at DCA are exactly the opposite - very rare and hard to get. To a lesser extent, this also applies to LGA, which is basically at capacity.
With respect to the unions - UAL's union would benefit if UAL were to pick up the assets of US Air out of bankruptcy as US's employees would not go with the assets.
With respect to "US could have struck a deal to "sell" assets for the assumption of liabilities outside of bankruptcy." Sure - but a piecemeal sale is not what they want. Both mgmt's have experessed a desire to merge in the past, and "rescuing" US from BK could help get the "merger" through antitrust scrutiny and give UAL truly national presence in one fell swoop.
My humble prediction is thus:
1. UAL emerges from bankruptcy with most if not all of what they are seeking.
2. US survives long enough in BK for UAL to swoop in and pick up the assets of US for the assumption of some portion of its liabilities, leaving US employees with jack, except for the opportunity to apply for jobs at UAL. US mgmt will bless this deal.
but UAL is in bankruptcy til at least next summer, according to their own management's projections. Odds are very long indeed on US "hanging on" that long in its current predicament.
The DCA assets are valuable, but they're pretty much an antitrust no-go for UA given their market share at IAD.