US Airways Dividend Miles (Pre-FlightFund Merger) - WSJ-Merger to Be Annoucned This Week--Airbus to Supply Financing

From WSJ Online:

US Airways, America West
Hope to Announce Merger

By SUSAN CAREY
Staff Reporter of THE WALL STREET JOURNAL
May 15, 2005 4:59 p.m.

US Airways Group Inc. and America West Holdings Corp. hope to announce a merger later this week and are in advanced negotiations with potential equity investors to raise as much as $400 million, according to people close to the situation.

The two carriers also are closing in on a $250 million loan from Airbus in return for placing an order for about 20 of the jetliner producer's new A350 model, people close to the situation said. An order would give Airbus its first North American customer for the A350, which is intended to compete with rival Boeing Co.'s new 787 Dreamliner.

Negotiations with stock investors include Air Canada and two hedge funds, according to people familiar with the talks. The two airlines have been hard at work for weeks on a deal that essentially would offer a well-capitalized merger for US Airways' bankruptcy-court reorganization plan.

Money seems to be flowing toward this merger. The projections must be extremely good.

If that is true it would be a great day for US Airways.
A national airline with a close to low cost structure better positioned than most legacy airlines !!
20 new A350 for the international flying making the fleet all A330 and A350 replacing the old B767 would give them one of the best and youngest fleet for transatlantic flights!! It might give them room for expanding their European network as well.
Take the best of US Airways which is the name and corporate design and combine it with the HP mangement team which knows how to manage and operate an airline.
On top of that some solid financing for the deal which is simply surprising for the state of the US Airline industry! The combined new airline would be well ahead of UA, AA and Delta!
Coming up with a better First class for flights above 2-3 hours and getting some new transatlantic birds they could combine a low cost airline for short haul flights with a quality airline for long distance and intercontinental travel plus being part of a meaningfull and arguably the best alliance= Star alliance.
This would be a business plan which can work prety good!

If I may inject some cynicism (who me, never) I don't understand why merging an airline with a low CASM (America West) with an airline with a stubbornly high CASM (USAirways) is going to make things any better. I don't imagine that USAirways CASM is suddenly going to drop, and even if it does drop, I can only imagine the wonderful reaction of some of the more embittered workers (see usaviation.com if you need any proof, or go to Philly).

Yes the route networks overlap, and I guess we can expect more cross country flying to spread out CASM further, but in the short term this won't be good for anyone... but I can see in the long term it may be good. Especially if they decide to use STL as their midwest hub .. then it'll be good for AA and WN who will eat their lunch!

Pitflyer,
first of all they will gain some by economy of scale by domestic passengers they would be in fifth place very close to UA! So some of the famous overhead will be spread over more passengers!
US Airways CASM has gone down quite a bit by the recent round of sacrifies by their employees. You are correct that at the start their combined CASM will be higher than most low cost airlines. It will be much lower though than the other legacy airlines though!
Therefore they still have some markets like the Caribbean and parts of the east cost markets where the average revenue per mile is still higher than in other markets!
The big difference right now to South West is simply the fact that they did hedge against the high fuell price! Without this advantage their competitive advantage would be much smaller!
If this thing goes through and is done the right way it can create a decent airline able to compete with anyone and flying one of the most fuell efficient fleets in the US aviation market!

It isn't pretty, but it's worth a shot. As for the Airbus money, our thanks to the taxpayers of France, Germany, etc. A350's. Now that's the ultimate test drive. As for the line employees, let's hope this is a reward for hanging in. They are good people, and deserve a break.

I find this investment from Airbus hard to believe, but here is some info on the A350. Other sources are saying the same thing.

http://www.mercurynews.com/mld/mercurynews/business/11655166.htm

http://www.reuters.com/financeNewsArticle.jhtml?type=bondsNews&storyID=8494768


http://www.zap16.com/civ%20fact/civ%20airbus%20a350.htm



http://www.eads.net/frame/lang/en/800/content/OF00000000400004/3/82/33205823.html

The combined airline would have a combined workforce of 33.000 and the 2004 revenue of both carriers was 9,46 B.
The new airline would have 304 planes of whom 212 would be Airbus aircraft roughly 2/3 of the fleet. No wonder that Airbus wants to keep them alive as they are the largest Airbus customer in NA!

Is says first delivery of the A350 is 2010 with first flight in 2008, so don't get too excited if the deals do actually happen.

I wish they would buy A380's instead. Those look so awesome!!!!

I wish they would buy A380's instead. Those look so awesome!!!!


Besides the fact that the 380 can't land at any of the hub airports of either HP or US, PHL is already horrible with luggage and passenger service. Can you imaging 600 people and their luggage on one plane at PHL? I don't even want to think about it.....

Besides the fact that the 380 can't land at any of the hub airports of either HP or US, PHL is already horrible with luggage and passenger service. Can you imaging 600 people and their luggage on one plane at PHL? I don't even want to think about it.....
I know, I know. But it's still an awesome plane!! I'm an aviation fanatic so the plane itself impresses me!

A380 is my wallpaper now.

I know, I know. But it's still an awesome plane!! I'm an aviation fanatic so the plane itself impresses me!

Besides the fact that the 380 can't land at any of the hub airports of either HP or US, PHL is already horrible with luggage and passenger service. Can you imaging 600 people and their luggage on one plane at PHL? I don't even want to think about it.....

Couldnt agree more Philly Baggage is an atrocity. Leave it to the EURO's to keep throwing money at a loosing prospect. :rolleyes: Hopefully the new US Americaways will stay in Star Alliance. :D
-UFFA

Can you imaging 600 people and their luggage on one plane at PHL? I don't even want to think about it.....

Yes I can. And then I burst into fits of laughter. "Yeah, I'm going to go ahead and check in to the hotel then come back and get my luggage."

Regards,
-Bouncer-

US Airways CASM has gone down quite a bit by the recent round of sacrifies by their employees. You are correct that at the start their combined CASM will be higher than most low cost airlines. It will be much lower though than the other legacy airlines though!

The big difference right now to South West is simply the fact that they did hedge against the high fuell price!

Um correct me if i'm wrong, but doesn't US Airways have the highest CASM of all the carriers in the United States?? (I believe I saw this in a WSJ chart a few months back)

By contrast WN has the lowest CASM in the industry, the fuel hedge helped big time (and it wasn't all luck either), but it's not all because of that!

P.S. Just for the record, I hate WN and fly US over them whenever possible, but facts are facts, and WN has a much better cost structure than US (and everyone else).

CASM for 1Q 05 as published in WSJ, 12 May 05:
DL 11.62
AS 11.06
NW 10.97
US 10.89
CO 10.56
UA 10.12
AA 9.80
WN 7.70
HP 7.68
B6 6.78

US and WN were the only in the list to have CASM go down from Q404 to Q105. HP was almost the same and the others were up 2.5 to 12% from Q404.

Things that will need to be resolved. Who runs it? USAirways' CEO is a temp, put in by the RSA Board. Seniority. Because of all the layoffs, US flight crews are more senior. They can only keep the systems walled off from each other so long. Doing so limits route synergies. Will AWA take over all ground handling on the west coast (they acutally did that for awhile when they had the CO codeshare)? The unions will figure large in this. They have lost traction in the doomsday scenario, and will want some back. GE, which up to now has been very helpful, may head for the exits, taking more valuable rolling stock. Then there's the new equity. All of it has baggage, from aircraft choice to commuter ops. Will Boeing, with whom there is no love lost (remember the lawsuit over cancelled orders during the Wolf regime?), keep its mouth shut on the Airbus loan. The two manufacturers have been hurling dung at each other over alleged subsidies for months. This one could be a miniseries before it ends.

Pitflyer,
first of all they will gain some by economy of scale by domestic passengers they would be in fifth place very close to UA! So some of the famous overhead will be spread over more passengers!
US Airways CASM has gone down quite a bit by the recent round of sacrifies by their employees. You are correct that at the start their combined CASM will be higher than most low cost airlines. It will be much lower though than the other legacy airlines though!

First, I share the excitement about a potential merger, and news about a fleet update plan is wonderful for passengers.
This merger, however, doesn't do ANYTHING to solve the major problem: an untenable high cost structure by US.
Economies of scale is often used as a red herring in mergers, but has rarely been empirically documented, particularly in the airline business. Now market share is an entirely different concept; here a merger between HP and US could indeed increase marketshare.

I remain skeptical about any deal that keeps existing US management/operations in place. They have demonstrated to this flyer that they simply don't get it or want to get it.

Leave it to the EURO's to keep throwing money at a loosing prospect. :rolleyes:
-UFFA

Then again, KLM-AirFrance merger seems to be a sucess so some European business decisions are not all that bad. Now if KLM-AirFrance buys Alitalia that would be an "American" like business decision ;)

I read the WSJ article this morning, and am cautiously encouraged. As others have pointed out there are still more than a few obstacles to overcome, including securing $500M of refinancing via Air Wisc., the State of Alabama Retirement Fund, and Airbus - not to mention the bankruptcy court and the unions. At least I'm feeling secure about my summer transcons and hopeful for the more distant future. I give US management a great deal of credit for the effort.

Hey, does anyone know how AC will play into this merger, given ACE has been listed as one of many potential sources for funding? Would this allow the new US to further expand its current code-sharing agreements as a result of Star membership? Would this investment by ACE allow some sort of revenue sharing routes similar to what UA and LH are doing with their transatlantic routes?

LAX

Hey, does anyone know how AC will play into this merger
LAX

Just heard that AC may contribute up to $150M by tapping hedge funds...a fair chunk of change.

Hopefully they will keep the US Airways livery...one of the best around IMO.

Here's the WP article (reprinted in Pitt Trib):

http://www.pittsburghlive.com/x/tribune-review/business/s_334661.html

Still can't understand how/why AC is going to end up serving all our international flights...................

Perhaps they're thinking that AC will provide ground staff overseas? Actually operating international flights makes no sense at all.

Other articles claim that AC's interest is in capturing maintenance work. That makes a lot more sense.

Two things:

AC wants in so that they can take the MX work done in Alabama. They (correctly) recognize that there is money to be made.

Where exactly is the combined US/HP going to fly a 7200 mile 290+ pax airplane? PHL-NRT? LAS/PHX to Europe? Where else? Loading up flights to Hawaii seems pretty stupid given the high rate of freebie tickets. I guess they might try South America, but there are landing rights/slots issues in many places, plus they lack the presence in the south (and Florida) to really make it work.

Two things:

AC wants in so that they can take the MX work done in Alabama. They (correctly) recognize that there is money to be made.

Where exactly is the combined US/HP going to fly a 7200 mile 290+ pax airplane? PHL-NRT? LAS/PHX to Europe? Where else? Loading up flights to Hawaii seems pretty stupid given the high rate of freebie tickets. I guess they might try South America, but there are landing rights/slots issues in many places, plus they lack the presence in the south (and Florida) to really make it work.

S. America for one - from PHL, CLT or PHX. Asia - from PHL, PHX and LAS. And Europe from PHX and LAS a well. I think they are all growth markets. Not to mention, the A350 doesn't have to fly that far - it can be a good replacement or frequency expander for exsisting PHL/CLT-Europe markets.

Two things:

AC wants in so that they can take the MX work done in Alabama. They (correctly) recognize that there is money to be made.

Where exactly is the combined US/HP going to fly a 7200 mile 290+ pax airplane? PHL-NRT? LAS/PHX to Europe? Where else? Loading up flights to Hawaii seems pretty stupid given the high rate of freebie tickets. I guess they might try South America, but there are landing rights/slots issues in many places, plus they lack the presence in the south (and Florida) to really make it work.

From what I have read, the A350s are intended to replace their existing B767s. I guess they will just fly wherever the B767s are flying. Besides, the A350s won't come into play until 2010 at the earliest (unlikely, though, given that the program still hasn't been launched officially), so US/HP should be able to figure out how best to utilize them by then. As far as AC is concerned, would they just start up some sort of revenue-sharing routes similar to what UA and LH are doing with their transatlantic routes? By "AC handling the international traffic and US/HP handling domestic traffic", I hope they don't mean all international flights get routed through Canada. Being on the East Coast now, I don't mind doing that going to Asia, but definitely not to Europe, especially from PHL.

LAX

From what I have read, the A350s are intended to replace their existing B767s. I guess they will just fly wherever the B767s are flying. Besides, the A350s won't come into play until 2010 at the earliest (unlikely, though, given that the program still hasn't been launched officially), so US/HP should be able to figure out how best to utilize them by then. As far as AC is concerned, would they just start up some sort of revenue-sharing routes similar to what UA and LH are doing with their transatlantic routes? By "AC handling the international traffic and US/HP handling domestic traffic", I hope they don't mean all international flights get routed through Canada. Being on the East Coast now, I don't mind doing that going to Asia, but definitely not to Europe, especially from PHL.

LAX

Rumour is that AC and US signed a code-sharing agreement a few weeks ago. Since this was before merger talks heated up, one would think it's unrelated. I doubt AC would "take over international flying" especially given the A350s... AC just went with an all-Boeing order.

Not sure what is up with the 330s and the 350s.

If I remember correctly, they converted some of the 320 orders into enough orders for the 330-200 to replace the 767. The 332 varient is closer in size to the 767 then the existing 333.

I don't remember seeing anything that US canceled the 332 orders.

I need a scorecard to keep track of all of the different aircraft that are being turned back, ordered, etc. :)

My guess is that Airbus wants an order for the A350 and that US wants to push out the schedule on the A330-200 order (as I recall that was originally for 2007 or 2008.) So presto! An A350 order for 2010... If the A350 program fizzles the order will magically morph back into A330-200s.

I may be being unbelievably dense here, or have missed the relevant post, but are we assured to keep our miles in the newly merged company? I haven't heard anything about this issue either in the press or on this board, nor have I gotten a reassuring e-mail from US Airways like I did when they went into bankruptcy. Am I worrying for nothing, or is there a chance the new company axes US Air's frequent flier obligations?

My guess is that Airbus wants an order for the A350 and that US wants to push out the schedule on the A330-200 order (as I recall that was originally for 2007 or 2008.) So presto! An A350 order for 2010... If the A350 program fizzles the order will magically morph back into A330-200s.

as always Tom thats an insightful take on the rumored news. the big question is really whether US/HP will survive long enough to make good on ANY of the orders.. Airbus must think so to give away money like this.

I may be being unbelievably dense here, or have missed the relevant post, but are we assured to keep our miles in the newly merged company? I haven't heard anything about this issue either in the press or on this board, nor have I gotten a reassuring e-mail from US Airways like I did when they went into bankruptcy. Am I worrying for nothing, or is there a chance the new company axes US Air's frequent flier obligations?

They won't.
I've got just under 20K miles orphaned in my America West account that I couldn't burn off before I moved from Nebraska (they were a good way to get to California/Mexico from Omaha) and hopefully they'll be able to be reunited with my US account.

TW/AA merged the FF programs.... All the TW miles transferred over, with status being kept and the existing Aviators mileage balance transferred and posted as AAdvantage bonus miles with all lifetime miles counting as well. It made some people instant million milers on AA (one million lifetime miles, including all bonus miles, gives you lifetime Gold status... two million is lifetime Platinum).

as always Tom thats an insightful take on the rumored news. the big question is really whether US/HP will survive long enough to make good on ANY of the orders.. Airbus must think so to give away money like this.

One could respond to this with any number of comments about where Airbus gets their money.... but in the interest of not making this political.... :D

Am I worrying for nothing, or is there a chance the new company axes US Air's frequent flier obligations?

There's always a non-zero chance of such an "axing", but you are indeed worrying for nothing.

There's always a non-zero chance of such an "axing", but you are indeed worrying for nothing.

I ain't that good at math, but my plussing and minusing skills are enough to suggest that if the chance is indeed not zero, then s/he would in fact be worrying for something, not nothing.

Or was your point that short of plugging in another $100m of equity and getting a seat at the table, the poster has no control over the outcome so worrying is wasted effort?

Listened to the America West Shareholders meeting. Was quite entertaining. Doug Parker said at the outset that he was not going to talk about merger issues at all. Which of course led to multiple questions about the merger, all of which he would not answer. In fact, he mentioned that his attorneys had told him that he couldn't even discuss his thoughts on industry consolidation, since that's gotten him into some trouble, as it could send signals about a merger.

Most amusing part was an ol' doctor who held 60,000 shares, and seemed to be pretty peeved. Foaming at the mouth maybe. At one point, the doctor suggested that he should fire Doug Parker, and Parker said something to the effect, that maybe that's not a bad idea (purely out of frustration with dealing with the rabid doctor).

I ain't that good at math, but my plussing and minusing skills are enough to suggest that if the chance is indeed not zero, then s/he would in fact be worrying for something, not nothing.

Or was your point that short of plugging in another $100m of equity and getting a seat at the table, the poster has no control over the outcome so worrying is wasted effort?

Given the assumption that there is a merger (which was a stated assumption in the question) the chances of miles being axed, while non-zero, are IMHO so remote as to be effectively zero. They're similar to the odds of Lakefield and Bonner sinking back to back holes in one. In any event there's not much point to worrying about it.

Most amusing part was an ol' doctor who held 60,000 shares, and seemed to be pretty peeved. Foaming at the mouth maybe. At one point, the doctor suggested that he should fire Doug Parker, and Parker said something to the effect, that maybe that's not a bad idea (purely out of frustration with dealing with the rabid doctor).

The doctor was an idiot.

However, if you had 60k shares of HP, you might be pissed as well. There is a school of thought that HP is turning the corner. Lashing the boat anchor (US) to it, on it's surface, does not sound like a great idea.

Here are a few random thoughts...

Does anyone remember the vendor financing deals in telecom during the late '90s? Let's see...both LU and NT are under $3 each and off highs of roughly $100. Both used vendor financing to sell more equipment into markets that already had excess capacity and no pricing power. Anyone see the similiarities? I guess its not surprising when you realize this is coming from the company that spent $12 Bil developing the A380...(an engineering marvel but who's going to fly it, what markets is it going to serve and where is it going to land once it gets there?)

Are they planning on making up for their high CASM with volume? Someone might want to clue them in on the fact that if you lose money on every transaction then your losses are magnified by increased transactions!

The doctor was an idiot.

However, if you had 60k shares of HP, you might be pissed as well. There is a school of thought that HP is turning the corner. Lashing the boat anchor (US) to it, on it's surface, does not sound like a great idea.


With all due respect, HP isn't "lashing the boat anchor" to their ship. They are trying to stop the Titanic from sinking by tying it to their lifeboat. I believe it was PT Barnum who said "There's a sucker born every minute," and apparently there's a whole colony of them at 111 West Rio Salado Parkway in Tempe.

The French and German taxpayers are stepping up to the table where the Alabama retirees have already dropped a bundle. All we need now is to cast Carly Fiorina as croupier and the show can begin...

More from the meeting. See http://www.charlotte.com/mld/charlotte/living/travel/11672855.htm (free registration required)

It turns out that the doctor is regarded as a heckler (from the Observer):

Several times in a question-and-answer session, a shareholder-heckler, Seymour Licht, wagged his finger at Parker and screamed at him to provide more details of discussions with US Airways.

"I want to know! I'm a shareholder! I'm entitled to know!" Licht yelled. "Don't lie to me!"

Parker, with an arm resting casually on the lectern, smiled broadly at Licht. He said company lawyers won't let him talk about details.

But later, when Licht said America West is pursuing a merger and not caring about employees, Parker cut him off.

"Don't tell me that, because I do," Parker replied. "I'm not going to let you stand here in front of my employees and say that."

I ain't that good at math, but my plussing and minusing skills are enough to suggest that if the chance is indeed not zero, then s/he would in fact be worrying for something, not nothing.

You have a better chance of being struck by lightning twice on the same day than the new USAirways doing away with its members' frequent flier miles. Do you worry every day about being struck by lightning?? :confused:

The dirty little secret that the media is too stupid to figure out and the airlines too coy to advertise is that these FF plans are not liabilities, but assets--they are real bottom-line assets. They give away seats that otherwise would have gone empty and use mileage programs for actual revenue and to drive indirect revenue. If anything I wouldn't be surprised if the new USAirways offered some pretty generous FF promotions to help retain the loyal as they create a new company.

...

US Airways Group Inc. and America West Holdings Corp. hope to announce a merger later this week and are in advanced negotiations with potential equity investors to raise as much as $400 million, according to people close to the situation.

....


I found the following article very interesting.


http://www.usatoday.com/travel/columnist/brancatelli/2005-05-13-brancatelli_x.htm

"Nationalize, reorganize and refloat the Big Six"

:eek: Communism!!! :eek:

I'd rather just go with No More Gift Funds. ;)

Joe's a funny guy.

Aside from the rather creative accounting behind his numbers the only worse idea than letting the current clowns run the asylum would be to hand it over to the government. They can't run security checkpoints on a budget and they're somehow going to fix the airlines? That's good for a chuckle or two...

Joe's a funny guy.

Aside from the rather creative accounting behind his numbers the only worse idea than letting the current clowns run the asylum would be to hand it over to the government. They can't run security checkpoints on a budget and they're somehow going to fix the airlines? That's good for a chuckle or two...

There is precedent for this. As you may recall, the Feds took the bankrupt Penn Central, Central of New Jersey, Erie Lackawanna, Reading and Lehigh Valley railroads and formed them into Consolidated Rail Corp. (Conrail). After a few years on the government dole, Conrail was turned loose and actually thrived. Heck, it was a cash cow when Norfolk and CSX bought it a couple years ago.

I find this investment from Airbus hard to believe, but here is some info on the A350. Other sources are saying the same thing.

http://www.mercurynews.com/mld/mercurynews/business/11655166.htm

http://www.reuters.com/financeNewsArticle.jhtml?type=bondsNews&storyID=8494768


http://www.zap16.com/civ%20fact/civ%20airbus%20a350.htm



http://www.eads.net/frame/lang/en/800/content/OF00000000400004/3/82/33205823.html

The one article states:

General Electric Co. (GE.N: Quote, Profile, Research) , the largest creditor to America West and US Airways, also is finalizing its own deal with the carriers to reduce its financial exposure by $1 billion, the newspaper reported. GE plans to cut off most of the regional-jet financing and take back more leased planes than previously expected.

I believe when GE came to terms with US before, GE was going to help fund the RJs and take back 25 Airbuses. Too bad they didn't want the 767s....

The one article states:

General Electric Co. (GE.N: Quote, Profile, Research) , the largest creditor to America West and US Airways, also is finalizing its own deal with the carriers to reduce its financial exposure by $1 billion, the newspaper reported. GE plans to cut off most of the regional-jet financing and take back more leased planes than previously expected.

I believe when GE came to terms with US before, GE was going to help fund the RJs and take back 25 Airbuses. Too bad they didn't want the 767s....

Too bad they won't leave the mainline aircraft and accept RJs instead. :D

I found the following article very interesting.


http://www.usatoday.com/travel/columnist/brancatelli/2005-05-13-brancatelli_x.htm


Regulation is what got us into this mess to begin with. Airlines could give away the store because anytime they needed more money, they just got the gov't to allow a raise in fares. Since all prices were the same, the airlines competed in perks. So when deregulation occurred, the legacy carriers were saddled with high costs and high expectations from customers.

Besides, if you think UA management is bad, just let the gov't manage it for you...

GE is only interested in saving its a$$. Being junior to the Feds in a liquidation, they are trying to lower their exposure by removing better leased aircraft (which have a ready market to absorb them), before the wall gets hit.
In the process of all this self serving activity by various interested third parties, we might even get a merged airline that stays afloat for a bit. Major thanks to Airbus. Unlike these other devious characters, buying commuter work, or taking nice planes out the side door, Airbus is just being..well, European. It has a lot to do with too much wine at lunch, and lots of vacation time. Bless them, and their semi-new 330 and a half (I mean 350). ;)

You have a better chance of being struck by lightning twice on the same day than the new USAirways doing away with its members' frequent flier miles. Do you worry every day about being struck by lightning?? :confused:

The dirty little secret that the media is too stupid to figure out and the airlines too coy to advertise is that these FF plans are not liabilities, but assets--they are real bottom-line assets. They give away seats that otherwise would have gone empty and use mileage programs for actual revenue and to drive indirect revenue. If anything I wouldn't be surprised if the new USAirways offered some pretty generous FF promotions to help retain the loyal as they create a new company.

Sorry, I should have been more clear in labeling my post 'sarcasm'. I do not worry about being struck by lightning, nor am I afraid that Div Miles will go away if this transaction comes through. While I may disagree slightly with your premise - with my GAAP hat on, it's pretty clear that the future flights represented by outstanding mileage balances are in fact liabilities, even if the value per mile is small due to the nature of the variable cost structure. And on the balance sheet at least there's no offsetting asset recorded for the value of customer loyalty. But I'll concede the spirit of your point which is that even as a buy-now-pay-later scheme for the airlines mileage programs aren't a bad deal due to the customer loyalty and revenue management aspects.

I was just trying to make a smart alec comment that if you believe the chances of Div Miles going away are in fact 'not zero' then one would, in fact, have 'something' to worry about (looking at it in a binary sense). In this case I agree the chances are indeed 'not zero' but darn well close enough.

Anyway, no offense intended.

"Nationalize, reorganize and refloat the Big Six"

:eek: Communism!!! :eek:

I'd rather just go with No More Gift Funds. ;)



Um, EXACTLY! The nationalization of these airlines will be a HUGE burden to the government. Why did we rid ourselves of the Civil Aeronautics Board? Because that kind of intense regulation was complicating and corrupting the industry, and overburdening the Board. The aviation industry is unregulated, for a reason. The airlines need to be left to themselves to compete, and the airlines he mentions, like WN, B6, and HP, are doing an excellent job at competing. If any of the big six will ever liquidate, then so be it, those are the realities of the industry. And taking a fraction of $30 billion to buy them? Am I mistaken, or wouldn't it cost a lot more than just a fraction of $30 billion to buy out the big six, seeing as the five largest of them (AA, UA, DL, NW, CO) are in fact the world's largest airlines (in that order [or is CO the world's sixth largest?])?

(My questions are indeed rhetorical, but if anyone has any hard numbers to either back me up or prove me wrong, please do post them)

Am I mistaken, or wouldn't it cost a lot more than just a fraction of $30 billion to buy out the big six, seeing as the five largest of them (AA, UA, DL, NW, CO) are in fact the world's largest airlines (in that order [or is CO the world's sixth largest?])?




I think the issue here is the difference between equity and enterprise value. Joe's point is that the market cap of these firms is $3.5bn give or take, so in theory if the current owners were willing to sell at that price Bill Gates or the US government could write a check for that amount and take over control of those entities. (All legal issues aside for example antitrust, etc.)

Of course, the new owners (i.e. the USA) would then be liable for the debt of these combined entities. And were the US government to start defaulting on its debt obligations, well, that just ain't gonna happen so let's stop thinking about that doomsday scenario shall we?

So, in essence, the purchase price for the gummint wouldn't be equity value, it would be equity value + face value of all outstanding debt. I don't know what that number is exactly, but it's got to be very, very big.

... with my GAAP hat on, it's pretty clear that the future flights represented by outstanding mileage balances are in fact liabilities...

None of us dispute that -- we're just saying that the program as a whole is a net asset to the airline. Many people fixate on the outstanding miles and the "free trips" and conclude that it's a drag on profitability. They completely forget about the very concreate and even more measurable contributions to income. Obviously it would be even more profitable if they could reap the benefits of loyalty and mileage sales without ever actually delivering anything at all but even the most jaded mileage junky would eventually recognize that as a bad deal...

I believe the carriers are required to show the unclaimed miles as a liability, but many footnote that item with a statement that says they owe them, but control their use, so they do not really represent a threat to earnings. That's kind of how it actually is. As for the various balance sheets, I haven't looked lately, but if they are carrying "goodwill", that number on the plus side is suspect. It often refers to franchise value. With barriers to entry being pretty much gone in the airline business today, such a notion may no longer be relevant.

Airbus desperately needs orders for the A350 (it is being outsold some 280 to 10 by the 787) and with both NW and AC choosing the 787, I would not be surprised if US would go that route when it came time to replace the 767s.

With Airbus providing financing (and probably some sweet maintenance and support packaging), they can land a domestic US order (even if tiny) and probably get USHP to dump their 737 and 757 fleets for more A319/A320/A321 aircraft and become an all-Airbus operator. Such a fleet would provide USHP benefits in crew training, maintenance, and other areas.

Assuming USHP stays a member of Star, they could launch some new long-haul international routes with the A350 or decide to turn them into A330 orders if Airbus cannot land the EK or GF order and decides to cancel the program or send it back for a complete re-think.

None of us dispute that -- we're just saying that the program as a whole is a net asset to the airline. Many people fixate on the outstanding miles and the "free trips" and conclude that it's a drag on profitability. They completely forget about the very concreate and even more measurable contributions to income. Obviously it would be even more profitable if they could reap the benefits of loyalty and mileage sales without ever actually delivering anything at all but even the most jaded mileage junky would eventually recognize that as a bad deal...

In a way, it's like accrued vacation. Shows up as a liability, but either means 1. you were able to get a lot of employees to essentially subsidize current work - you got 52 weeks of work when your contract only pays the employee for 49, effectively, and/or 2. you have a nice fat generous vacation program and it serves as golden handcuffs to keep your employees around, reducing turnover and related costs. Same deal - yes it's a liability, but that doesn't mean it's *bad* per se.

USHP to dump their 737 and 757 fleets for more A319/A320/A321 aircraft and become an all-Airbus operator.

I swear to god. If someone else suggests that HPUS use the A321 as a substitute for the 757, I'm going off. Parker hates the A321.

Assuming USHP stays a member of Star, they could launch some new long-haul international routes with the A350

First, here's to hoping that HP leaves Star. Second why would they need to be a Star member to launch new routes?

I can't quite say that I don't care what Parker thinks but from a customer POV the 321 is a dream. And to a US Airways customer the 757 is a nightmare. So we're understandably biased in favor of the 321.

(Ok, now someone is going to go on about the door placement and pre-flight service and how the FAs supposedly hate it. To which I say "F26".)

I can't quite say that I don't care what Parker thinks but from a customer POV the 321 is a dream. And to a US Airways customer the 757 is a nightmare. So we're understandably biased in favor of the 321.

(Ok, now someone is going to go on about the door placement and pre-flight service and how the FAs supposedly hate it. To which I say "F26".)

The B757, versus the US A321s, has better performance on longer routes... like the transcons. It can take a full load more often without having to stop for fuel on some of the headwind days.

Um, EXACTLY! The nationalization of these airlines will be a HUGE burden to the government. Why did we rid ourselves of the Civil Aeronautics Board? Because that kind of intense regulation was complicating and corrupting the industry, and overburdening the Board. The aviation industry is unregulated, for a reason. The airlines need to be left to themselves to compete, and the airlines he mentions, like WN, B6, and HP, are doing an excellent job at competing. If any of the big six will ever liquidate, then so be it, those are the realities of the industry. And taking a fraction of $30 billion to buy them? Am I mistaken, or wouldn't it cost a lot more than just a fraction of $30 billion to buy out the big six, seeing as the five largest of them (AA, UA, DL, NW, CO) are in fact the world's largest airlines (in that order [or is CO the world's sixth largest?])?

(My questions are indeed rhetorical, but if anyone has any hard numbers to either back me up or prove me wrong, please do post them)

Your point on the numbers is correct, but I'm not sure I agree with you on the overall picture. While HP, WN and B6 are competing, they are doing so by a strategy of opportunism -- finding the easiest markets to compete in and building market share and making money that way. What they do not do is provide a truly national network carrier capable of getting you from any Point A to any Point B. Each LCC has some pretty big gaps in its route network.

My view of the major network carriers is that their survival is essential to the economy overall and that there is therefore a public good aspect to their existence that is not reflected in their profitability, in part because they are being undermined in that department by the opportunistic LCCs. Look at Southwest, for instance. They make money, but they also have no service to some of the nation's largest markets, like DEN, MSP and ATL -- and have no international service at all either. Now, the legacy carriers themselves have brought a lot of this on themselves by charging extortionate fares on the routes they dominate, but the fact remains that the national economy depends upon the continued existence of airlines that can get you from anywhere to anywhere. The total profitability of airlines since they started is somewhere around zero, but their existence has contributed untold billions to the profitability of other entities and a tremendous amount of social benefit that cannot be quantified. So, if the large network carriers are all headed into oblivion, I think the policy point is that some form of continued existence for these carriers is essential to the nation and therefore the question of nationalization or subsidy has to be raised. The fact remains that for long distance travel, there are no real options in the United States. Unlike Europe and a good chunk of the rest of the world, we have long since given up on any meaningful rail network that combines speed with broad coverage, so unless we are prepared to spend billions and billions of dollars on a real rail network, we will wind up spending billions to prop up the large network carriers in order to preserve a long distance transportation system in this country.

Would any of us look forward to travel on an airline run by the government? Probably not, unless you have some nostalgia for the old Aeroflot. However, the alternative -- no major network carriers -- is a real nightmare and a grave threat to the functioning of the economy. With each of the major network airlines in fiscal peril, and with the consequences of their failure so large, it is both prudent and reasonable to open a discussion of what to do if they all go belly up. The legacies are all in varying degrees of trouble and all it would take to push them all into Chapter 11 is another major terrorist incident, a deep recession or a huge spike in fuel costs. Since none of these can be ruled out as highly improbable, it makes sense to devote some thought to what we should do if that happens. Re-regulation or nationalization may not be palatable options, but they beat the alternative should the worst occur.

The B757, versus the US A321s, has better performance on longer routes... like the transcons. It can take a full load more often without having to stop for fuel on some of the headwind days.

I didn't know that was a problem with the A321's because I've flown the CLT-SFO and PHL-SFO route many times and have never stopped for a top off.
I must be on the flights with less than a full load and light headwinds.

First, here's to hoping that HP leaves Star. Second why would they need to be a Star member to launch new routes?
US/HP leaving Star would be a huge strategic mistake. The larger network brings business to the airline and helps recruit FFs. Frankly I think that US's Star membership might be one of its more valuable assets (especially considering that most of its more tangible assets, like planes, are already pledged to various lenders). I have no idea how difficult it is for a new airline to join an alliance like Star. However, I've wondered if perhaps one of the reasons that this US/HP deal is a "merger" instead of a "buyout" (of US by HP) is so that the resultant corporate entity can be US Airways. Presumably this would allow the merged entity to continue US's Star membership, without requiring renegotiation with the rest of the alliance.

I can't quite say that I don't care what Parker thinks but from a customer POV the 321 is a dream. And to a US Airways customer the 757 is a nightmare. So we're understandably biased in favor of the 321.

(Ok, now someone is going to go on about the door placement and pre-flight service and how the FAs supposedly hate it. To which I say "F26".)

I suspect the reason Parker prefers the 757 to to the 321 is because of the markets he's serving. The 757 offers better performance in hot and high climates.

I can't quite say that I don't care what Parker thinks but from a customer POV the 321 is a dream. And to a US Airways customer the 757 is a nightmare. So we're understandably biased in favor of the 321.

(Ok, now someone is going to go on about the door placement and pre-flight service and how the FAs supposedly hate it. To which I say "F26".)

By all measures, the 757 is a better airplane from a performance standpoint. In the old 24 F configuration, I liked it better than the 321 as well. But, it is also out of production, so unless the new airline wants to buy NG737s or used 757s, there aren't a lot of choices out there with that kind of seating capacity and range. With the common pilot type rating to the 320, getting more 321s to replace 757s is too obvious a choice.

US/HP leaving Star would be a huge strategic mistake. The larger network brings business to the airline and helps recruit FFs. Frankly I think that US's Star membership might be one of its more valuable assets (especially considering that most of its more tangible assets, like planes, are already pledged to various lenders). I have no idea how difficult it is for a new airline to join an alliance like Star. However, I've wondered if perhaps one of the reasons that this US/HP deal is a "merger" instead of a "buyout" (of US by HP) is so that the resultant corporate entity can be US Airways. Presumably this would allow the merged entity to continue US's Star membership, without requiring renegotiation with the rest of the alliance.

Agreed. And, it is insurance for Star in the event that UA goes belly up. The last thing Star wants is to be left without an affilated airline serving the domestic US market. By staying within Star and working with UA, HP/US and UA can reduce some of their overcapacity on the West Coast as well.

Agreed. And, it is insurance for Star in the event that UA goes belly up. The last thing Star wants is to be left without an affilated airline serving the domestic US market. By staying within Star and working with UA, HP/US and UA can reduce some of their overcapacity on the West Coast as well.

I would assume that USAmericaways would stay in *A because it is probably good for them. I dont like flying US but becuase of the their partnership with UA and *A I consider them a viable option. I would love for the merger to go through as I think a new USAmericaways with new planes would be a definate upgrade over their tatty fleet of 757's with the sloppy reconfigured FC cabin.
Just my $.02.
-UFFA

US/HP leaving Star would be a huge strategic mistake. The larger network brings business to the airline and helps recruit FFs. Frankly I think that US's Star membership might be one of its more valuable assets (especially considering that most of its more tangible assets, like planes, are already pledged to various lenders). I have no idea how difficult it is for a new airline to join an alliance like Star. However, I've wondered if perhaps one of the reasons that this US/HP deal is a "merger" instead of a "buyout" (of US by HP) is so that the resultant corporate entity can be US Airways. Presumably this would allow the merged entity to continue US's Star membership, without requiring renegotiation with the rest of the alliance.

There is very little chance of that happening, especially if AC is one of players involved with financing. Unless US/HP plans to become stand-alone with multiple partnerships, its combined route structures really don't fit well into other alliances. Besides, when you are in the best (IMHO) alliance, why would you want to throw that away?

LAX

Channel 11 in PIT announced that US has called a press conference for later today.

Channel 11 in PIT announced that US has called a press conference for later today.

To announce management's tee times no doubt...

WSJ says that today's the day, most likely, unless it's not.

http://online.wsj.com/article/0,,SB111646676472337755,00.html?mod=home_whats_new s_us

WSJ link requires subscriptions. Here's another story that doesn't (http://www.post-gazette.com/pg/05139/507055.stm)

It is likely we will continue to see the 757 if the combined carrier wants to fly to Hawaii. The 321 is not capable or certified (correct me if I am wrong) and the combined carrier will not want to take a 767 or 330 off a European route to serve Hawaii given their limited numbers. The question to me is whether they will spend any money to ETOPS certify any of the US 757s or continue the program with the HP 757s currently in place.

Here is too hoping they will add back some rows of first to the US 757. The current configuration in the HP 757 calls for F14 while US is currently F8. It would really be nice if they went back to the F24 though (wishful thinking but not likely to happen given the low-cost emphasis).

It is likely we will continue to see the 757 if the combined carrier wants to fly to Hawaii. The 321 is not capable or certified (correct me if I am wrong) and the combined carrier will not want to take a 767 or 330 off a European route to serve Hawaii given their limited numbers. The question to me is whether they will spend any money to ETOPS certify any of the US 757s or continue the program with the HP 757s currently in place.

Here is too hoping they will add back some rows of first to the US 757. The current configuration in the HP 757 calls for F14 while US is currently F8. It would really be nice if they went back to the F24 though (wishful thinking but not likely to happen given the low-cost emphasis).

A320 EOW? Has a 3000nm range which is enough to reach LAS or PHX. But I admit (with sadness) that the 757 with F8 would make sense for such a lesiure-dominated route.

The current configuration in the HP 757 calls for F14 while US is currently F8. It would really be nice if they went back to the F24 though (wishful thinking but not likely to happen given the low-cost emphasis).


Or why not split the difference with F12? That would be enough for me, I believe. I can't tell you the number of times that I would have cleared into F on a 757 if there had been just one more F seat. (Although row 9 isn't bad for a tall guy.)

Parker hates the A321.

Well the 757 is the better plane, to be sure, and if USHP can justify a single Boeing model in the fleet, more power to them. But that means they need to maintain 757-certified flight crews and maintenance teams and parts.

But zeke320 brings up a good point that an A321 has only 75% of the range (3000nm vs. 4000nm) and the 757 holds 15 more people, which would be important for HI routes.


First, here's to hoping that HP leaves Star. Second why would they need to be a Star member to launch new routes?

They wouldn't, but being a member of STAR (or any alliance) gives them more then just the O&D&C demand from their own route structure. Plus it offers more options for passengers (USHP does not fly to Asia, Africa, or Australia/Oceania) to earn and burn miles.

Given the apparent scheduled news conference, and the presumed announcement, that leaves me wondering what there's left to know other than what has been strategically leaked?

Obviously, the actual merger plan (initial code share, route merging, ..)
Another big investor?
Aircraft order plan?

A320 EOW? Has a 3000nm range which is enough to reach LAS or PHX. But I admit (with sadness) that the 757 with F8 would make sense for such a lesiure-dominated route.

Does either airline have the A320 EOW with sufficient type rating? Hawaii requires ETOPS-120 which would be OK for 767 and 330 but I do not know the rating on the 320s in either fleet.

Given the apparent scheduled news conference, and the presumed announcement, that leaves me wondering what there's left to know other than what has been strategically leaked?

Obviously, the actual merger plan (initial code share, route merging, ..)
Another big investor?
Aircraft order plan?


i'm still wondering why there have been so many leaks. my only guess is that it is a unique way of drumming up parties interesting in financing the deal?

Does either airline have the A320 EOW with sufficient type rating? Hawaii requires ETOPS-120 which would be OK for 767 and 330 but I do not know the rating on the 320s in either fleet.

The 320 family is ETOPS 120 for sure, not sure if they did/are/are going to go for 180 because of the 319CJ. Of course I think US would need to step up the maintenance to get the actual aircraft in compliance themselves.

The 320 family is ETOPS 120 for sure, not sure if they did/are/are going to go for 180 because of the 319CJ. Of course I think US would need to step up the maintenance to get the actual aircraft in compliance themselves.

Maintenance is a good point, I remember reading last winter how US lost its ETOPS-120 rating for the 767 because of engine shutdowns. Not sure whether they regained the certification or what became of it. All this discussion is for not however as the economics of flying a 320 versus a 757 probably dont work in the favor of the 320. Do any airlines fly the 320 from west coast to Hawaii?

I can't quite say that I don't care what Parker thinks but from a customer POV the 321 is a dream. And to a US Airways customer the 757 is a nightmare. So we're understandably biased in favor of the 321.


Well I can understand the customer bias towards more F seats, but from an operational, cost, performance perspective the A321 is an inferior plane. Maybe HP will eventually add another 6 seats to the US metal to match the current HP fleet.

US/HP leaving Star would be a huge strategic mistake. The larger network brings business to the airline and helps recruit FFs.

That may be so, but I guess I'm just biased towards OW. HP in Star was not on my wishlist for the airline.

Post merger, HP will have a partnership with BA and QF. I would like to see them expand that by adding CX and LA.


I suspect the reason Parker prefers the 757 to to the 321 is because of the markets he's serving. The 757 offers better performance in hot and high climates.

Not only that, but the 757 is far more versatile than the A321. Not only can it do short high-density PHX-LAS/LAX hops, but it can also do transcons without weight restriction, and transatlantic flights.

There is very little chance of that happening, especially if AC is one of players involved with financing.

The AC financing has nothing to do with Star membership. From everything reported so far it has to do with aircraft mx.

Maintenance is a good point, I remember reading last winter how US lost its ETOPS-120 rating for the 767 because of engine shutdowns. Not sure whether they regained the certification or what became of it. All this discussion is for not however as the economics of flying a 320 versus a 757 probably dont work in the favor of the 320. Do any airlines fly the 320 from west coast to Hawaii?

Don't know about the 320 but Aloha flies 737-700s, same range and about the same size.

Don't know about the 320 but Aloha flies 737-700s, same range and about the same size.

The 737-700 should have about the same CASM as the 320 so that throws out my economic argument. It seems like they could go ahead and schedule flights to Hawaii using the 320 in the event the 757 is removed from the fleet. In the short term however, I would expect the 757 to remain given the $$$ HP has already spent to get them ETOPS certified. Also, it seems they think the 757 might be more profitable as well because they could have chosen the 320 for Hawaii as they have it in their fleet but opted for the 757 instead.

But zeke320 brings up a good point that an A321 has only 75% of the range (3000nm vs. 4000nm) and the 757 holds 15 more people, which would be important for HI routes.

The 757's are way too valuable to eliminate.

HP's orginal plan for the 757's was Caribbean/Hawaii expansion, but that was before the merger. Now we may possibly see them used transatlantic CO-style.

HP's orginal plan for the 757's was Caribbean/Hawaii expansion, but that was before the merger. Now we may possibly see them used transatlantic CO-style.

Since HP has modified theirs to ETOPS, that's possible. But, doubt we'd see the US '57s as Transatlantic craft. Unless they were ETOPS aircraft out of the box, or were modified to ETOPS standard, my understanding is that it costs a heck of a lot (yeah, I'm sure that's the technical term) to convert a non-ETOPS aircraft to ETOPS standard. It's different radios, better life rafts, and also a maintenance philosophy that US hasn't had to use for their '57s to date.

Plus, with the Airbus infusion, and expected new aircraft (330s and 350s), I think we'll see nothing but widebodies on Transatlantic flights.

Judge Allows US Airways To Weigh Rival Bids
http://news.airwise.com/story/view/1117577242.html

A federal judge on Tuesday allowed bankrupt US Airways to consider any bids that rival its proposed merger with America West.

Judge Stephen Mitchell of the US Bankruptcy Court for the Eastern District of Virginia approved procedures that would give other qualified investors about a month to submit rival plans to help US Airways emerge from bankruptcy.

"We want to shake the tree and see if there are any higher or better offers available," Brian Leitch, US Airways lead bankruptcy attorney, told the court.

And it's no surprise that the Bankruptcy Judge gave US the right to hear competing bids. After all, if there's a better bid out there (like the Southwest bid that trumped AirTran's bid for ATA) - the Court has to consider the creditors first. That being said, I'd be surprised if there's a better bid out there, unless someone want to pay an insane premium for the pieces of the company, and that bid is seen as better for the creditors (would have to be at least $15 million better due to the breakup fee).

And the better news for US is that they seem to have gotten an extension to file their Plan of Reorganization. (Actually, it turns out that the Judge didn't rule on the extension, but it appears that if he's giving 30 days for more bids, he's giving some period of time to extend filing the POR and possibly emergence from bankruptcy).