fly18725

Question: do you there might be a major US carrier that just has to go out of business?
Answer: yes, most likely. Something will happen when September roles around [continues to discuss depressed demand].

I don’t think this increases the likelihood that United goes out of business since Boeing’s projection for demand recovery is better than theirs. I’d point out that “major” is defined by the DOT as an airline with more than $1B of revenue and this includes many regionals that are at a high risk of closing. The market continues to believe that AA is at the highest risk of restructuring of the large network airlines.

EWR764

I thought his response was a bit cavalier if he had in mind the failure of one of Boeing's largest customers, with massive outstanding orders.

As for merging United with Delta or American, no. And I think it's even less likely that United will go out of business entirely. There's a reasonable likelihood of an AA Chapter 11 for the purpose of restructuring its massive debt load, but AA will not liquidate in that case, either. United appears to be managing its cash burn situation comparatively well and so while there is a material prospect of a bankruptcy filing if market conditions persist (as poor as they are), they do not find themselves in an imminent liquidity crisis.

I believe there will be further consolidation in the industry coming out of this, but suspect it could come on the regional, or LCC side, which remain more fragmented than the AA/DL/UA/WN. The Big 4 need to manage themselves out of this situation first before getting the lay of the land on the other side. The industry will no doubt be smaller, with the reduced capacity ultimately having the effect of taking an airline or two out of the system.

United also has other, higher-quality assets to mortgage if it needs to raise liquidity. It also, of course, has the government loan (with warrants) but wants to avoid that if at all possible. It should be noted the failed bond offering was essentially a refinance of existing debt, and would not have actually generated new cash.

cjermain

I don't see how people are optimistic regarding UA's survival as an independent airline. Sure, it could work out, but any prediction is guesswork. There's a very real possibility of a serious COVID-19 flareup this fall/winter, and with a presidential election I just wouldn't bet on DC stepping in. So much uncertainty... hope it works out, but I wouldn't bet on it.

EWR764

I agree with respect to the uncertainty, but the likelihood of another airline bailout depends on how one approaches it. If COVID-19 leads to reimposed restrictions on mobility in late 3Q/4Q, especially if there is some light at the end of the vaccine tunnel (I am not optimistic about that, but admittedly have zero expertise in that area), another round of assistance might be seen as a 'bridge' to a more sustainable future, and an attempt to avoid tens of thousands of layoffs a few weeks before a national election.

No doubt any additional assistance would become far more political, and the various competing interests don't necessarily run down party lines, either.

jsloan

So, it's karmic for ~90K people to lose their jobs (potentially) because you didn't like an offer that United made?

Tango

Boeing also does business with Defense and space. Boeing may shrink but I doubt it will go bankrupt.

spartacusmcfly

There is a little-discussed metric to keep in mind. During normal times (now is of course not normal) airlines are one of the few industries in the world (airlines, broadway shows, insurance companies, etc.) where people pay well in advance for a service that won't be consumed for 6-12 months. In UA's example, during normal times, they bring in $2B/mt for travel that won't take place for 6-12 months.

If any good medical news emerges (vaccine, treatment, etc.) I could see airline coffers overflowing with cash in a very short period of time. So yes, if the virus beats us, airlines will suffer in perpetuity, but if we beat the virus, airlines will recover (from a cash perspective) faster than any industry on the planet...

spin88

When a carrier goes into Chapter 7 liquidation, I am 110% sure it will not be either Alaska or Delta. And I would not be surprised to see either AAL or UAL be liquidated. Both are failing to realize the situation they are in - in which travel is likely to continue to be 25% or less of pre-March 2020 levels, and I can assure you that Congress is not going to give either AAL or UAL any more $$$$ given their conduct so far....

Treating people like self loading lab-rats in the middle of a highly contagious pandemic, and doing so using Billions of public funds is just beyond the pale IMHO.

bocastephen

I read an article today, which unfortunately I did not keep open so I can't post the link, but the economist expected at least 1 major airline to fail completely, and it was not going to be WN, B6, DL or AS - which leaves a 50/50 chance it's either AA or UA, both run by Baldanza disciples with a history of arrogance, stupidity and a tone-deaf gross neglect of employees and customers.

spin88

As the guy (I think the only one...) who was saying in February of this year that Covid-19 was coming to US big time, and would decimate the industry, I'll take the over on "if". Chances of an effective vaccine (which 25% of Americans say they will not take, its a Bill Gates plot, don't you know) by this fall are slim, very slim, and I'll take the over on your "if". Combo of no national plan, inadequate testing capacity, and oh, people refusing to social distance, we are not going to get to a level of transmission (R less than 1) necessary to re-open.

But I'm sure United jamming people next to each other on aircraft with 8" between your mouth and the guy next to you in the middle seat, that is going to be the winner for United. Real winner of a carrier. Lots of great selling points. And congress is going to be really, really receptive when they want more $$$$.

fly18725

United took the earliest and most aggressive action of any US airline. They’re planning for zero demand through the end of the year. If they file for bankruptcy or go out of business, it won’t be for lack of good faith efforts to survive.

Often1

If any carrier -- whether UA or someone else -- is insolvent and then seeks bankruptcy protection, either under Ch. 7 or 11, it won't be because they charged more than someone though ought to be charged to keep status! Not how the world works when the key issue are large corporate contracts.

If UA or any of the legacies fail, the US government will not allow that carrier to be liquidated and there will be pre-packaged arrangement for a Chapter 11 takeover by someone else or a consortium of others. Thus, not remotely worth speculating about.

cjermain

I would not be so optimistic late in a presidential election year. The "US government" might not operate in ways that are entirely rational or expected.

wanderingkev

x2 I didn't fly enough , missed the requirement , got offered an alternative , flew a fit , mass job losses are called for

spin88

You are operating under the assumption that demand will be back to 100%, Boeing's CEO just stated that it will not even be 25% come this fall. Let me repeat that - 25%. In that environment what you are suggesting is just not going to happen under US BKR law.

If we suddenly stopped needing 75% of that cars being made in the world, we would not re-organize the industry, with other companies buying the weaker companies, their would be liquidations (what we call chapter 7 in the US). Airlines are not different. If there is only demand for 25% of the planes/staff, etc, the stronger carriers are not going to buy the weaker carriers, and no one will be able to raise funds to "reorganize" the weaker carriers either. And the moment you stop flying, you are done.

Just as a thought experiment, assuming that Congress does not come up with more billions in the fall, and that UA is getting only 25% of it's usual revenue (currently they are getting less than 10%), well they have costs of roughly $10B/quarter. That leaves a $7.5B hole. While United can cut some costs by e.g. firing 75% of it's employees, but they still owe for planes, RE, etc. Maybe UA gets their costs down to $6B - a real stretch I might add - but then has $2.5B in cash flow. If they go Chap 11, then they either need to self-fund their operations or get financing. If not they are not considered a going concern and have to liquidate. The problem is that you can only self finance when the BKR process cuts off enough obligations (debt-payments, etc) or allows the company to shed things that bring the free cash flow positive. There is simply no way that United can do this, and there is no way that United would be able to get financing to keep them operating. Certainly not in a 25% demand environment. Just not possible that they can get their "costs" down to $2.5B. Not gonna happen. UA is a classic Chapter 7 at revenue of $2.5B.

AA is the most vulnerable as it has lots of debt, but UA is clearly the second most vulnerable carrier. And if you are DL or AS, you don't buy or merge with UA (as you can't fill that much capacity) you just let them be liquidated and then buy the assets you want/need (planes, slots) at fire sale prices.

This is why United's decision to just pack people into middle seats is such a crushingly stupid move. Just criminal. Someone - as Boeing's CEO made clear - is going to be liquidated. Three airlines are in the best position to survive DL, WN, AS in that order. I don't know re B6 or F9 or Spirit or the regional. They may all go out of business. But at the top of the food chain, when demand is 25%, someone is not going to survive - unless Congress bails them out.

And when investors and those willing to lend $$$ look at who to back, they are going to be looking at who is getting the existing demand and reputation. United saying "hey, fly us, we will jam your face 8" from the guy in the middle seat for 5 1/2 hours" is not gonna make them a survivor.