"Bama Air"
 

This morning's New York Times reports an interview with RSA head Bonner, wherein he suggests a solution to the company's problems is to bankrupt it, take certain assets, and start over. "We'll call it Bama Air ", he says. This guy is definitely not designed for customer contact. Now we have inmates running the asylum, with cowboys for equity partners. Pray for the help. They need it.

Bronner is getting kind of toxic, isn't he. In retrospect, it seems that if he had been successful with U, he would have aimed to build a hub in Alabama. Looks like the good citizens of BHM will have to continue to settle for connecting through ATL.

The CLT hub seems to be secure....but is it? BHM can serve the same purpose in Alabamy Air.

Mainly they need to put a muzzle on the guy. He probably does a lot of things well, but this isn't one of them. That kind of stuff kills bookings, and must totally demoralize the employees. At some point, they just figure it's over, why give any more back, and shut him down. There are plenty of jobs at the LCC's. When you blur the differences between the products, and remove the pay differential, they might as well fly for Jet Blue or AirTran. Same goes for the customers.

That's not what he suggested as a solution to UAIR's problems
 

You are wrong, deelmakur. Bronner didn't suggest bankruptcy is a solution to the company's problems.

From the FORBES article:

Bronner said that if cost-saving pacts could not be reached with employees before Sept. 30, he will not invest more money into the carrier. "Why would you put new money in, if they don't make a deal?" the chairman asked his interviewer, presumably rhetorically. Bronner then pointed out that he and other investors could well be better off if US Airways did indeed liquidate, as they could buy the carrier's aircraft, gates and routes dirt cheap--and wouldn't be belabored with labor contracts. "It's a whole lot cheaper for me to have the assets and start over, than to have the liabilities," he declared. The newspaper said the chairman then enjoyed a witticism on the matter. He joked that the remains of US Airways could be used to start a new carrier named "'Bama Air," in tribute to his home state of Alabama. But putting frivolity aside, he hastened to underscore that liquidation is "what you want to avoid."

Bronner suggested that INVESTORS WOULD BE BETTER OFF buying UAIR's assets out liquidation and starting a new airline than buying more equity in UAIR with its current ridiculously high labor costs and work rules.

He suggested starting a new airline as a better solution to the RSA's current problem of what to do with their nearly worthless $240 million equity investment in UAIR than flushing more cash down the toilet by further investing in UAIR with its recalcitrant union workforce.

That's a big difference from suggesting that he thinks bankruptcy is a solution to anything.

He already looks like an ... for his investment in UAIR. Bankruptcy will only further hurt his reputation and cost the beneficiaries of the RSA even more harm. He would desparately like to AVOID bankruptcy.

I would tend to agree with you deelmaker. While frankness in a CEO can be refreshing, Bronner's comments could be quite damaging. They have been widely reported, and I suspect U will lose a number of passengers who dont want to risk holding the bag with worthless tickets if U should go under. At its worst, comments like this could worsen U's cash balance by inducing creditors to demand immediate payments, or by inducing credit card companies to withhold payment till the date of travel (aka ATA).

SIMKISS, I may be guilty of oversimplification, but if Bronner is saying it's a better deal to buy the assets out of liquidation, I tend to conclude you primarily get to that point by putting the place in adminstrative control. While not limited to bankruptcy, generally that (or some derivative) is how they do it.

There's one of the problems right there. BRONNER ISN'T THE CEO. But he acts like he is, and people think he is as a result of his antics, and no one dares shut him up and put him in his place.

You are correct, but unfortunately, its worse. He is chairman of the board, and essentially through his control of RSA, owns most of the controlling stock. He is essentially dictator of U and can pretty much do anything he wants.

You still miss the point.

Bronner's comments about buying assets out of bankruptcy were intended to make the point that the RSA isn't putting any more cash into UAIR. Many UAIR employees to whom I have spoken have suggested for *months* that the RSA "couldn't afford" to let UAIR die and in the end would pony up more cash to keep the carrier alive. Bronner made it plain that if the RSA were going to spend more cash on an airline it would be smarter to start a new airline by purchasing the gates and equipment than to keep UAIR alive with its crazy labor contracts.

Bronner has two hats on. He is Chairman of UAIR and runs the RSA. He was speaking as head of the RSA.

You said that Bronner sees buying assets out of a Chapter 7 liquidation as a solution to UAIR's current problems. That's not an oversimplification. It is just plain wrong.

I get it, and I understand where RSA is. For openers, they came in when Bonderman and Texas Pacific got out of the way. TP has industry experience, and presumably saw the thing would be very tough to wring a return out of. Bronner, having had a very good run with formerly regulated businesses (like Park Broadcasting) evidently didn't see the nuances of a business with so much exposure to unanticipated cost, like fuel, and dumb competitors who price below cost. He is outspoken. There is nobody to tell him he shouldn't talk to the press, although Lakefield put out the spin doctors the next day. He tells them he won't put up any more money, but then he doesn't shut it down, even though his equity is trashed, and he has shopped what remains of value with investment bankers, apparently to no avail. What should the employees think? You have an industry in total chaos, a company with executives possessed of limited vision, and an equity holder who practices management by intervention. And that's the good news.

TP didn't exactly get out of the way. They got outbid at the 11th hour by this dumb guy from Alabama who thought he was being taken to the cleaners by these smart guys from Texas. Bronner didn't like his recoveries on the RSA owend UAIR debt being so low, so he stepped in. What an ego. Now he's multiplied his fund losses in UAIR!

Also, I wouldn't blame too many of today's problems with UAIR at all on dumb competitors. The reason UAIR is dying today is that current management did not address labor costs when they had the opportunity to while in bankruptcy earlier this year.

The should have terminated the pension plans, established a defined contribution plan like a 401(k) + profit sharing, tossed out their crazy work rules, and renegotiated all labor contracts.

Instead, they rushed out of bankruptcy, which was horribly irresponsible. And now the chickens have come home to roost....

Bonderman didn't lose the auction. You can't lose an auction unless it demands final, sealed bids. This one hardly did that. He simply walked away, presumably having decided it wasn't a good opportunity. Interestingly, a friend of mine, who knows Bonderman, had called him about a USAirways problem. Even though they were simply in the evaluation stage, the call was returned by Siegel, indicating things were very close. Had they wanted it, they would have taken it. Nobody thinks RSA is dumb, but a little less hubris would go a long way at a time like this.

Deelmakur--my memory of this is similar. Bronner ourbid Bonderman--Bonderman had a chance to revise his offer and chose to walk away rather than match the RSA bid.

UAIR Redux
 

deelmakur:
"Bonderman didn't lose the auction. You can't lose an auction unless it demands final, sealed bids. This one hardly did that. He simply walked away, presumably having decided it wasn't a good opportunity. Interestingly, a friend of mine, who knows Bonderman, had called him about a USAirways problem. Even though they were simply in the evaluation stage, the call was returned by Siegel, indicating things were very close. Had they wanted it, they would have taken it. Nobody thinks RSA is dumb, but a little less hubris would go a long way at a time like this."


IFLYSWA:
"Deelmakur--my memory of this is similar. Bronner ourbid Bonderman--Bonderman had a chance to revise his offer and chose to walk away rather than match the RSA bid."

_____________________

Bonderman *DID* lose the auction. He bid. He was outbid. He chose not to bid any higher. Note that most auctions end this way. The fellow who buys the items up for auction is deemed the "winner" and all other bidders are deemed "losers" regardless of whether the buyer overpaid.

Not all auctions require final, sealed bids. In a bankruptcy case there are rarely if ever "final, sealed bids." Christies, Sotheby's, and eBay are the three best known auctioneers in the world. How many of the three require final, sealed bids in most of their auctions? None.

Bonderman walked away because he was outbid by $40 million... or rather $50 million if you include the TPG transactioin fee of $10,000,000 for the $200,000,000 investment. RSA had no similar fee for their investment.

And RSA certainly did make an 11th hour bid. The hearing to approve the TPG offer was scheduled for the 26th of September 2002. RSA would normally have been required to file a motion to present at that hearing 15 days prior. But they were so late filing and had to petition the court to present to the creditors.

RSA thought that UAIR was worth $50 million / $190 million = 26.3% more than TPG did.

Here's a contemporaneous summary of the US Airways Bankruptcy for your edification:

http://bankrupt.com/usair/usair8.txt

Meanwhile TPG had the Burger King deal to focus on....

Lastly, a lot of people *DO* think that Bonner is dumb as a rock. How one brings an airline OUT of bankruptcy with the highest cost structure per available seat mile is beyond me.