As an outsider, I put forward the following

First Rule of Business- Value is set in the transaction, i.e. I might think my product is worth $10, but if I can only sell it for $4, that's the value.

UAL's and other major's business models need to change. Are there too many employees, too many aircraft, overpaid employees, underutilized employees, excess taxes, fear of terrorism, a bad (abysmal!) economy, and a pending war.....yes it's a combination of all these factors.

I fear for the livelihoods of all the employees for all the majors. In UAL's case the fixes will be so drastic that I'm afraid they won't be implemeneted in time, even if accepted. The lack of trust between labor and management (well deserved it seems) can't be in place at a much worse time for the industry.

Clearly something has to change- or give.

Over millions of miles, I've had great service from UAL, Continental, and in the past- Delta, and I wish them well.

Well put....
 

Those still in that state of denial, would do well to take heed of the statements of OldAg84....and wake up.:eek:

OldAge84

That about sums it up in a nutshell OldAge, and very well said. The current legacy carrier managements do not have an entrepreneur (sp?) in the group. Just a group of corporate dogs that only know how to bash employees, not how to be bigger than life and build something. A really sad state of affairs.

I have asked this question before, on another thread, but didn't receive an answer. I wonder if I'll be lucky this time.

Do you think that Chapter 11, and the Air Transport 'slush fund' are anti competitive?

In other words, they are an apparatus, to prop up airlines that would otherwise fail!!

ie. There are some great offers from US carriers to fly over 'the pond.'

European carriers would (at first sight) not have been so generously bankrolled!!

Tandemrotor - nothing.....absolutely nothing is in place to prop up airlines that want to fail. This is a period of economic involution, when even governments must spend lightly to survive.

Dudley - entrepreneur is the right word. The formula for UAL to survive is for everybod on salary to become one post-haste. If they can all work for about six months with no pay, then they might have a job after that. Otherwise, think toast.

arcniz

Not quite right, I suspect.

Practically anywhere outside the USA, there is no equivalent to the Chapter-11 system. An airline in US Air's state, or UAL's, would have been shut down prior to now and liquidated.

Add together all airline and steel manufacturer Chapter-11-covered assets in the last 15 years, and the total exceeds 90% of all Chapter-11-related assets. Airlines (and steel manufacturers) seem to be abusing the process. TWA is a very good example of an airline that in recent decades has spent more time in Ch-11 than out.

Ch-11 means that an airline is bankrupt. It cannot pay it's creditors. Ch-11 means that the airline does not have to pay what it owes. The intention of Ch-11 was to avoid the (sometimes very large) costs of liquidation (usually costs such as the drop in value caused by a fire-sale, the personnel costs of finding a new job etc) when the underlying business was essentially healthy but needed a reorganisation of finances. The Ch-11 code is set up to allow some very unpalatable choices to be forced on creditors.

The ATSB system is very similar

What's wrong with that? Well, nothing in principle, but in practice no US major (except SWA...) has an underlying essentially healthy business. And in recent Ch-11 cases, various airlines have fairly openly used the Ch-11 procedures arguably unfairly.

US carriers surely are using Ch-11 and the ATSB fund as anti-competitive measures. They are certainly used to prop up airlines that would otherwise fail. Imagine if an airline with a fatally-flawed business (UAL?) were allowed to fail promptly. Its competitors on various routes would immediately benefit. And most likely it will fail eventually anyway - all that is happening is that others are bearing the pain that should rightly be felt by UAL.

So what? Well, the average US investor in airlines (shareholders via their 401Ks, insurance companies etc) now has an average share-holding period of less than 6 months. No-one invests long-term in US airlines. No-one sane would invest in a large US airline except SWA now.

Most pilot groups at the US majors will likely end up giving up at least 15-20% of their salaries, never mind the very risky retirement pension mess, but Continental CEO Gordune Bethune reportedly used words to the effect that labor really is not the main problem (or 'the' problem), but I never read the quote.

One question is just how many "unplanned" furloughs (+ or -300 pilots etc) will take place if they don't get everything they expect at negotiations. These employees can be considered hostages at the bargaining table, but if my company never asked us to go up to 90 monthly credit hours in the 'good old days', then why are they suddenly claiming that this is one of the necessary changes-in order to lay off even more employees?:(

Just two more questions-has JETBLUE made many/any aircraft lease or purchase payments before this winter? If not, was Wall Street aware of this last summer and fall?:} Many pilots have the impression that a lack of payments is how this start-up airline was able to begin service with brand-new 140 (+) seat jets. Of course somebody will say, "oh, they actually have (i.e.) 130 seats-get your facts straight".

Groaner- I don't understand how Ch11 works in practice. In a state of bankruptcy, it appears airlines under Ch11 can cut ticket costs to get income, but how can they pay for fuel/wages costs/landing fees/spares etc? Suppliers are not going to let that business go deeper into hock, so presumably the airlines have to start paying upfront immediately for all new items as well as servicing current debts to a certain extent? So how can they then start discounting?

All in the details....
 

Chapter 11 of the Federal bankruptcy code is used by some companies, who for a short/medium period, find that their cash flow is not presently sufficient to cover all expenses. The law allows a bankruptcy judge to re-schedule payments to creditors so that the company can re-organize and regain profitable operations. To file Ch. 11 does NOT necessarally mean that the company is bankrupt...in fact it has been used in the past with companies whose assets substantially exceed liabilities.

At least that was the intension of the law.

It HAS on occasion been used by those in the know to squeeze concessions out of labor, in order to line their own pockets...something for which the law was not intended.

In the present economic climate, some air carriers, whose management have made very fundimental mistakes will find that the going is tough indeed. In many of these companies, the outright greed of pilot/mechanics/cabin crew unions has certainly NOT helped the financial picture.

Time to pay the piper....and it ain't gonna be pretty.

Here's an overview of Chapter 11 :

http://www.hq.com/reorganization/hq_overview.htm


And here's the actual text from the U.S. Code:

http://www4.law.cornell.edu/uscode/11/ch11.html


Section 1113c is of particular interest in the coming days at UAL as management seeks to get labor costs under control with or without approval of the unions.

no groaner you're wrong...the airline would get a huge infusion from the govt illegally and it would be called something besides state aid:yuk:

Looks like with the earlier "temporary" pay cuts they've cut the losses to only about $12 million a day:

UAL loses $382 million in January

United aims to cement labor changes ahead of March 17

CHICAGO, March 4 — UAL Corp., parent of bankrupt United Airlines, said Tuesday it lost $382 million for the month of January as it pushes ahead with labor talks to cement long-term contract changes before a March 17 deadline.
THE NO. 2 U.S. airline reported in a filing with the Securities and Exchange Commission that it had $1.18 billion in operating revenue and $1.51 billion in operating expenses before additional expenses were included.
Just last week, bankrupt US Airways Group said it lost $98.6 million in January on operating revenue of $476 million, which fell short of projections for the month. US Airways plans to emerge from bankruptcy by the end of March.
Faced with such daunting losses, United is trying to cement long-term contract changes before a March 17 deadline when it may formally ask that all labor agreements be scrapped.
Trading in United shares was halted briefly on the New York Stock Exchange Tuesday. The shares have traded around $1 for some time, after peaking at more than $100 in the late 1990s.
March 17 is the date when the airline may formally ask that all labor agreements be scrapped.
United filed for bankruptcy in December after amassing gigantic losses and failing to get the federal government to back a big loan guarantee.
Since then, fighting for survival under new Chief Executive Glenn Tilton, United has embarked on yet another round of talks about concessions with its labor groups, which are currently working under temporary pay cuts. Those reductions are saving the airline around $70 million a month. UAL in January posted its largest annual net loss ever, $3.2 billion for 2002.
Sticky long-term issues revolve mostly around productivity and, especially important for the pilots’ union, what a proposed low-cost carrier will look like...


http://www.msnbc.com/news/880620.asp?sym=UAL

Tectonic plates of the airline industry are shifting.
 

Airlines in the US are in a crisis situation, we are looking at two possible liquidations by the end of the year. If this happens it will make the Internet meltdown look like a Sunday picnic. Thousands of people with families, homes, mortgages will be out of jobs which then can turn into personal financial crisis sending a ripple effect through the economy.

Structural changes going on in the business world that adversely affects airline traffic. The hub-and-spoke system is probably obsolete and point-to-point maybe the future of air travel. Market segments may include the low-cost budget operations like Southwest and high end like the old Pan Am that served dinner on real China or nowadays fractional jets.

I have noticed at the local airport a lot of the 22-23 year old flight instructors who were on the airline track have disappeared. They probably realized that they we not going to be hired by a major airline anytime soon and did not want to be CFI’s forever and moved on. Becoming a CFI takes years of hard work and $30-40K of earned after tax money. Moving into a major airline slot for the $100k plus income is a strong motivator/sustainer, without those slots I can’t blame the kids for looking for other careers. A major US GA flying magazine recently stated that major airlines will not recall pilots for 5-7 years and may not have new hires for 7-10 years, and that may not include any liquidations factored in.

All of this cost costing is basically window dressing. I have worked a major company that went through Chapter 11 (non-airline) and the new ceo stated in a meeting that “we cannot cost cut our way to profitability.” With losses of 382 million a month 70 million in savings helps but it will not solve the problem.

A looming Gulf war will suppress airline traffic like it did in 1991 and will cause further losses. Many corporations have cut back on travel and rely on conference calls and Internet email rather than flying out for face-to-face meeting at full business fares.

Changing into a low cost carrier like Southwest is a possible solution, however, there is little time to do this and the major obstacle is changing the employees. The aircraft and facilities can be changed overnight. Changing people and corporate culture is one of the hardest things to do as people resist change. At major corporations there is an “institution think”, “we never done it that way before”, etc. is an example of what change agents are up against.

UAL needs a strategy, the ceo must articulate the strategy to the employees, and the employees must believe in the strategy and feel they are part of it.

With regard to income, 70% of something is better than 100% of nothing. Obviously, a major cost challenge is that the majors are being forced to meet the cost structure of Southwest, AirTran, JetBlue and others. In light of the fact that there is no significant service difference in product delivered, why should the passenger pay more? I for one am flying Southwest more and more. Why? The people are friendly, the planes are clean, I'm not going to get a meal on anyone I fly, and they have plenty of flights.

I used to fly Delta almost exclusively, to the point where I purchased Christmas gifts for the gate agents. No more. Why?
The have shelled the frequent flyer program for people like me and I can never cash in my miles for flights- "no seats on that flight, not on that one either." I won't fly Northwest unless they are the last airline running, as the last reservations agent I dealt with was so rude to me it just about ruined my day. United and Continental are much better.

In short, by gutting their inflight and airport service, as well as the frequent flyer plans, the airlines in general have beaten the customer loyalty out of the business traveler. I fly whatever is the quickest and easiest and least expensive and don't care anymore what color the plane is or if I get miles. This truly can't help the airlines bring up their revenues and margins.

This is moving off topic a little, but ATPMBA makes an interesting point about increasing the use of conference calls. The company I work for has increasingly rationalised its national operations into a more global set up, and the initial result was managers on planes most of the time. However a combination of a tougher business climate, an increasingly stressful air travel environment (ie extra security/time taken to get through airports now) and the rapidly improving video/audio conferencing facilities available mean that travel is avoided much more nowadays. For the company this saves a lot of money on airfares/travel time; for the airlines it could be a culture change for many of their erstwhile customers that is irreversible. Not good news for United I suspect.

ATPMBA,

The only difference between 2003 and 1991 is that this time around the government slowed the progress of airlines towards liquidation with the ATSB, thereby harming the rest of the industry.

There is NO ability to shrink an airline to profitability during a recession. The structural costs are too high and remain regardless of whether you keep all the people and fly the aircraft or park the aircraft and layoff all the people. When an airline shrinks during a recession its breakeven loadfactor GOES UP!

The only thing that cures the airline industry during a recession is that 1 or 2 airlines is allowed to liquidate, always to the cries of teutonic shifts and 10s of thousands displaced from work. PAN AM, Eastern, Braniff, Midway, Name the recession since the end of deregulation and I will name the dead airline.

Once USair and or United liquidate the industry can go back to its disfunctional ways untill the next recessions, when another airline will be thrown upon the alter of free enterprise and sacrificed.

The claims of conference calls has also been made in every recession, and while some customers will do that, the economy America grows every year, so as some leave others come, and at the end of the day no one signs a billion dollar contract over the phone. Before you write the check you will still want to look the person in the eye and shake his hands. If business travel shrinks somewhat an airline will be liquidated untill the balance is struck.

When the extreme life or death pressure is let up on the rest of the airline's Oldage 84 I suspect that service will improve at those that are left. But while they are fighting every day for survival that takes a toll in too many ways to count.

Cheers
Wino

Wino,

I agree with your post, but I feel it's somewhat incomplete. The industry is over capacity, no doubt. The near certain war, this week, next week, next month....will possibly (but hopefully not)make all this discussion moot.

Now is the time to focus on customer loyalty and service (within the obvious constraints of today). It doesn't cost any more for someone to smile or be pleasant. On a recent CO flight (and bear in mind I truly like CO) I was upgraded to First Class- on the entire flight 1.25 hours, I was offered one (ONE!) drink, and pretty much ignored. On another, a Northwest Flight Attendant actually sat down and read a magazine in a empty row for about 10-15 minutes. Don't worry, I'll skip a refill on the coffee! Conversely, on a recent roundtrip on Southwest, on both legs, one fairly crowded, the other fairly empty- the cabin crew couldn't have been nicer or more responsive. Air travel is stressful enough without pleasant faces and adequate service.

Why are Southwest and others making money (or losing very little) in today's market? Possibly because they are setting the new standard in a lot of markets.

Southwest also didn't lay off or slash wages or benefits, so its easier to smile. (Infact they have just given out more raises even though they are likely to lose money this quarter)

At many of the majors the cuts have been draconian already (over 20 percent) leaving less people to do more, for less money, leaving them frustrated and harried. When the majors can recall everyone and everyone feels like the light at the end of a tunnel isn't an oncoming train, look for attitudes to improve.

Right now many employees are severely demoralized for good reason, and the airlines are simply trying to preserve cash untill times turn, even though it may hurt them in the short term.

Cheers
Wino

Wino,

My point exactly- I won't be looking for attitudes to improve- I'll be flying elsewhere. I understand why people are demoralized, but it's still a competetive marketplace out there.

Personally, I do more with less than many of my counterparts do. I have my own "issues" at work, but because I'm in sales, I smile and do my best. Reservations, ticket counter, gate agents, and inflight crew better recognize they are, in large fashion, sales people as well. They craft my travel experience, and in light of the fact that frequent flyer plans are becoming less attractive, this is becoming more important-not less.

Because my loyalty (or any potential loyalty) has been squandered by select carriers management and customer contact employees, I'll bring my business elsewhere. Likely, I'll stay there as well, even if things get better.

I'll agree that it is a very tough time for alot of people in the industry but as I said; a smile costs nothing for the airline.

Lest one think I'm trite or insincere- I've flown over 2 million aggregate miles (based on frequent flyer standards). I've flown all the majors domestically in the U.S.. As an aviation buff (that's why I PPrune)- I have the utmost respect for the professionals who make my trip a safe and timely one. I for one wish the market conditions that drive this thread never existed. In the end one can roll over and die- or you can play to win all the way to the end.

OldAg

One and only one simple fact...
 

Unless and until major US air carriers improve their cabin/reservation service, passengers will flow to the best service/lowest fares....and for a VERY long time (overseas routes),
non US carriers will be used by the knowledgeable traveller.
Simple as that.
In short, the malcontents on US carriers should be put OUT to pasture, pronto.
Will it happen...probably not.:rolleyes:

411A-it's refreshing to see people acknowledge the abuse of Chap 11, such as with old CO in '83, in order to void all labor contracts, despite negotiations having begun.

You hit the nail on the head regarding attitudes, and one of our 744 Captains who might already have retired, was on our jumpseat (commuting home)about a year ago, and described this situation which happened on his first flight over to Narita. Edited for brevity!

Anyway, that is only a drop in the bucket, regarding cabin "attitude" at my company (but seems to be apparent mostly on widebody crews), based on many chats with our widebody pilots-it would be interesting to find out what attitudes would be present if we were in Chapter 11. But I'm not saying that the only problems are 'back there'. :)

Ign Override,

Had a similar situation with a chief hostie some years ago, complained to management...and she was ah.....terminated.
A small victory.
Let there be no mistake, service sells....and the overseas airlines have been aware for a LONG time.

Quotes from OldAge84:

In short, by gutting their inflight and airport service, as well as the frequent flyer plans, the airlines in general have beaten the customer loyalty out of the business traveler. I fly whatever is the quickest and easiest and least expensive and don't care anymore what color the plane is or if I get miles. This truly can't help the airlines bring up their revenues and margins.

I won't fly Northwest unless they are the last airline running, as the last reservations agent I dealt with was so rude to me it just about ruined my day.

On a recent roundtrip on Southwest, on both legs, one fairly crowded, the other fairly empty- the cabin crew couldn't have been nicer or more…
- - - - - -

I think OldAge84 and 411A have zeroed in on a major problem in the industry. The four P’s of marketing are product, place, price, promotion. Price is only one of the four “levers” a company can pull. It seems at this point customer service has slipped so much that price is the only lever left to pull. People generally do not buy only on price, if they did we all would be driving Yugo’s. It seems like airlines are a commodity, almost all are the same, all are un-differentiated, just like buying a gallon of gasoline. If airlines can boost their customer service and get rid of attitudes perhaps the travelers would be more inclined to fly or flock to the airline that offered better service (product).


Quote from Wino:

Southwest also didn't lay off or slash wages or benefits, so its easier to smile. (Infact they have just given out more raises even though they are likely to lose money this quarter)
- - - - - -

I could be wrong but it’s my understanding the pay scale at SW is well below other major airlines. A 20% pay hike from $100k is still well below $180k but that 20% still looks good. I once worked for an air taxi firm and we had a term for it, it was called “subsidizing the company”, so there is a tradeoff, take low wages and have a job or go for the gold and risk a furlough. I also heard that pilots have been called in to move baggage, I don’t now if this is SOP or just part of Herb Kelleher’s corporate tales. SW is different from most airlines and that’s why they are successful, it’s called product differentiation.

I recommend that you get a copy of Herb’s book, “NUTS!”, as it contains lot of business wisdom and may serve as a guide for anyone thinking about improving their airline or selecting a model for a startup airline.

Actually you are quite wrong.

Southwest pays quite well, and now excedes most of the other majors in class and craft. There 737 pilots do a lot better than AA's 737 pilots and its only going to get worse for the AA pilots as the drums beat for concessions around the industry.

No it is not true that pilots are called into move baggage, they do sometimes help cross the seatbelts if they have time inorder to board the aircraft quicker. Pilots moving baggage would bring on very expensive disabilty and sick claims for back injuries. That's one of those myths that doesn't make economic sense.

What southwest pilots do is FLY. ALOT, which is all any airline pilot ever wants to do. It is very common for a UAL NWA AA DAL pilot to fly 1 hour to the hub, sit for 3 hours fly an hour out sit for an hour fly another hour sit for 4 hours fly an hour and go to the hotel. That is the major's idea of "efficient" A southwest pilot day is fly an hour, 20 minute turn fly an hour 20 min turn fly an hour 20 min turn fly an hour 20 min turn, till they have flow 6 or 7 hours in a 10 hour period, as opposed the the AA pilot flying 5 hours or less in a 14 hour period. The DAL/AA/NWA pilot goes to work for 14 hours and gets 5 hours of pay (this is on duty time, not including hotels and whatnot) and the Southwest pilot goes to work for 10 hours and gets 7 hours of pay (at an hourly rate that is now equal to the AA/NWA etc pilot.)



That is not the fault of the pilot. That is the fault of the managment of the airline. When you use your resources so inefficently you could fly the airplanes for free and lose money.
That is how you use your resouces efficiently. Using a 100 dollar per hour pilot to load bags is not an efficient use of resources no matter how nice it sounds. He should be FLYING, which is what southwest has them do.
Cheers
Wino

Wino,

Thanks for the correction notice. Sometimes I am wrong or receive incorrect info.

You indicated that pilots spend a lot of downtime at hubs, does the aircraft have downtime too or does another crew fly it? If this is the case why doesn’t the original crew fly it ?

Thanks,

ATPMBA

ATPMBA---Usually the crew sits and the plane continues. Everybody HATES these 3/4-hour 'practice layovers' and would rather be flying. But, because of the direction of flights leaving the hub EB/WB, usually crews wait for a flight departing to the direction from which they came. Most major US carriers have'nt figured out this inefficient, unproductive waste of crewmembers.

They'd better.

Jet careens off tarmac at Melbourne

March 7 2003

A United Airlines passenger jet taxiing to the terminal after landing at Melbourne Airport careened off the tarmac shortly after 11am today. No passengers were hurt in the incident.

The aircraft, flight 815, experienced mechanical problems with its steering which caused it to veer off the taxi route, an airport spokeswoman said.

"All passengers on board were fine and in no danger," she said.

Passengers were asked to disembark from the flight which arrived from Sydney and were taken to the terminal.


Usual press sensationalism here, posted FYI only. :(

Wino.

w.r.t the November 2002 edition of MONEY magazine, pages 78/79. A picture of a married couple, Mr. and Mrs. airline pilot, both captains with SWA. The associated financial profile gives a combined salary of US $280K which the math wizards will work out at $140K each. A good company, but the remuneration isn't par for the course.

>>The associated financial profile gives a combined salary of US $280K which the math wizards will work out at $140K each. A good company, but the remuneration isn't par for the course.<<

We have to remember that the pay is low by U.S. standards. 744 captains make less in many countries.

Wino: yep, and as you, Airbubba and many others know, now and then even our narrowbody crews spend two or so hours at one of our two large hubs, but just as often, many times we are doing a very quick turnaround at a smaller spoke airport, then back at a hub, very busy pulling our bags through a large terminal, no time to eat, in order to check the six feet of flight papers at the next gate (for the laymen here, we scan the flight release/flight plan info and then catch, buried in a very big, mostly disorganized JUMBLE of information: NOTAMs about shortened runways, inop ILS glideslopes, runway braking action 'problems' , see if the planned fuel.... and on certain days, if we bust our butt on four or five legs, we might get paid for five-six intense hours of work.

And this is MUCH more intense, fast-paced work (with very limited minimum fuel on the dispatch release) than what widebody crews experience, except during the descent in a two-man cockpit into Europe with visibility quickly decreasing. But, I would rather be a hard-working narrowbody pilot: I feel more like a pilot...

There seems to always be some irony in an airline's stated goal nowadays to have flightcrews become much more p r o d u c t i v e, when it is ALSO committed to the hub-and-spoke networks, as it stated years ago; is this not an inherent contradiction, especially when most of this fleet's crews (and passengers) must often change airplanes at hubs with very little time built in for this, and so many planes on the same taxiways at times? Southwest certainly did not quickly develop its network-it has been creating it, very carefully, for about twenty five years or so.:D

XL5

As you may or may not know I am married to a fedex pilot. The intracies of two airline pilots living together are that they will never make as much as their peers if they want to see each other and their children. They will drop trips for a loss of pay to make time for each other or they will not have a marriage for long.

Especially when you are both captain's and can't buddy bid each other.

Just saying how much they made doesn't tell the story because you don't know how much they worked. Furthermore the SWA pilots have had extensives raises since that article was published and they would have been looking back a year as well at earnings.

Cheers
Wino

A friend was married to an MD-11 FO there.:)

From the "trust me" department of UAL ALPA...

The UAL MEC is now claiming to have some supersecret plan to save the company. It is so secret that if it leaks out the competition will find out about it and use it to their advantage.

From a special message by the MEC Chairman:

" ...It also is crucial for our competitors to not have access to our plan. With other airlines in bankruptcy, or on the verge of filing, it would be a tremendous disadvantage to us to show our cards at such a critical juncture...

...Going public with details of our proposal would place us at an extreme disadvantage and could produce far-reaching consequences for our pilots. It's a risk I'm not willing to take..."

We'll see, hope they can pull something off.

I know! Their plan is to bring in Steve Bonderman and he promises to save the airline and give ALPA their BOD seats back.

I hear Duane Woerth"less" is endorsing the plan.

And if they're reeeel nice, Steve won't cut their pay more than another 20%.TC

P.S.--In the words of Carl Icahn--"Hey! You f***ed up. You trusted me!".

http://news.bbc.co.uk/1/hi/business/2852095.stm

United Airlines has failed to reach a deal with its employees' unions, making it increasingly likely that the group will miss a key deadline in its bankruptcy filing.

Credit rating group Standard & Poor's said war fears and higher fuel prices could hurt the airline to the point where it would not be able to meet its second set of bankruptcy covenants.

If that happened, its lenders could ask for an immediate re-payment of the $700m they are owed - forcing the airline to shut down altogether.

Very funny, GOOSE (AA717Capt)Iowa Airways! I'll bet you go around cheering up laughing hyenas all day!

See you on SJ's MB!
http://www.starmanauctions.com/twa.gif

PS Did you lose your password?

Interesting comments at http://www.airportplanning.com/apcommentary.htm about Uniteds recent Cash Positive statements..... ummm.... talk about spinning the story - united are getting good at it!

The Growing Shortage At United: Credibility

"While we have seen only the press reports, those figures do not come even close to adding up."
-CSFB Analyst James Higgins, CBS News, March 13,2003, regarding United CFO's claim of being cash-positive in January.

It's becoming sort of the reverse of crying wolf.

Last week, United's CFO got the airline some great press, announcing that United was cash-positive to the tune of $1 million a day in January. Great news. The media headlines trumpeted this achievement, taking the CFO's statement at face value. But there was a lot of skepticism in the industry, given the track record of weird data coming from United's executive offices.

Two days later, Credit Suisse First Boston came out seriously questioning United's claim: "Our only surmise is that United is not making payments on many items...we can think of no way that monthly cash flow could have been even close to positive ... such decisions not to pay are unsustainable."

What's also unsustainable how long this stuff will be taken seriously. Getting called on for playing word games by financial institutions like CSFB does not reflect well on United's senior management. Nor can it build confidence in the carrier's overall direction.

This comes fast on the heels of another sunshine story that left the industry underwhelmed. Two weeks ago United's senior management grandly announced that its new, substantially-lower business fares were "revenue positive" - i.e., the decline in unit revenues was being more than off-set by increases in the number of passengers. Other airlines - which have seen just the opposite - scratched their heads. Bluntly, nobody believed it. Then, just days later, United announced the lay-off of 900 more flight attendants because of lower passenger traffic. First, they tell the world their grand fare scheme is generating more passengers. Then they pink-slip hundreds of employees for low passenger loads.

As they say down on the farm, that cow don't moo. CSFB is right. Something here doesn't seem to add up.

United is not running out of money. It's much worse. It's senior management is running out of credibility. The track record is getting pretty clear. In November there was the laughable, embarrassing ATSB filing, with numbers that were zip codes away from reality. Then there was the flood of obviously advisor-scripted babble about "reconstituting margins" and "transformational models" and describing some passenger segments as "price-driven occasionalists," all of which seemed to indicate more smoke than substance in the front offices.

To get out of bankruptcy, United will need the full confidence of creditors, financial institutions and the flying public.

It seems to be going in the opposite direction.

As predicted, with a history lesson in the article:

United Asks to Void Union Contracts

By MICHELINE MAYNARD


United Airlines asked a federal bankruptcy court judge yesterday to set aside its labor agreements as it seeks deep wage and benefit cuts for its employees.

The motion, filed in Chicago by United's parent, the UAL Corporation, proposed a series of agreements that would permanently reduce wages and benefits by $2.56 billion a year and make changes in schedules for flight crews; pension plans; job security; and various clauses that govern staffing levels and job duties. UAL also wants to create a low-fare airline.

If Judge Eugene Wedoff of United States Bankruptcy Court permits United to revoke its contracts, it will be the first time a major airline has used the bankruptcy code to cancel its labor agreements and impose new work rules since Frank Lorenzo did so in 1983 at Continental Airlines.

The court filing came on the final day that United, which filed in December for bankruptcy protection, was permitted under bankruptcy law to make the request. Otherwise, it would have lost the ability to apply what could be a critical tool as it seeks to reorganize.

Although the action was expected, it had extraordinary significance in the case of United, whose employees owned 55 percent of the airline before it filed for bankruptcy. In addition, United's labor unions held three seats on its board and had the right to veto the selection of a chief executive. Those rights were terminated two weeks ago when employee ownership fell below 20 percent.

The changes United is seeking would permit it to create a low-fare airline, which would take over about 30 percent of its operations. The unions strongly oppose such an airline.

United also said it would place greater emphasis on the use of regional jets, contract out functions now performed by airline employees and expand code-sharing agreements with other airlines.

"We have a plan to fundamentally transform United's business in a way that is durable and sustainable, and we have made solid progress in reducing costs," Glenn F. Tilton, the chief executive of UAL, said. "It strikes a balance in achieving our near-term goal of successfully emerging from bankruptcy with our longer-term commitment to create a resilient, profitable enterprise that can be the industry leader once again."

Industry analysts said they expected negotiations between United and its unions, under way in earnest over the last few weeks, to continue. But United's unions face two deadlines. Yesterday, Mr. Tilton said that the threat of war in Iraq had caused United's bookings to drop significantly. If it cannot reach agreement with its unions within 30 days, he said, the airline will be forced to impose across-the-board cutbacks of at least 9 percent on all 72,500 employees. If war occurs, Mr. Tilton said, the airline is prepared to cut capacity by whatever level is necessary. Last week, in a recording to employees, Mr. Tilton placed that figure at 10 percent to 12 percent.

Another deadline looms on May 1, when United must meet terms of $1.5 billion in debtor-in-possession financing that it obtained when it filed for bankruptcy. Mr. Tilton vowed that the airline would negotiate "around the clock" to reach agreements with its unions by then.

"However, all of us will have to accept changes that are broad and deep, and those changes require that we take an entirely new approach to competing and succeeding in this changed industry," Mr. Tilton said.

United's pilots were said to be "extremely dismayed" by the court filing. "Our contract is the product of 52 years of good-faith collective bargaining conducted under federal labor law," said Paul Whiteford, chairman of the Air Line Pilots Association's master executive council at United and one of the union members on the airline's board. "To seek to wipe out this contract by the stroke of a judge's pen is disheartening,"

Gary Chaison, professor of industrial relations at Clark University in Worcester, Mass., said that the abrogation of a contract is "like the voiding of a sacred oath."

"It's asking for cooperation under threat," he said. "It's going to greatly embitter relations between labor and management."

In addition to the pilots' union contract, United sought to cancel contracts with the Association of Flight Attendants; the International Association of Machinists and Aerospace Workers, which represents mechanics and other airport workers; and the Professional Airline Flight Control Association, representing traffic controllers.

United said the union that represents meteorologists would be exempt from its motion. It reached agreement this weekend with that union, the Transport Workers Union, on a new contract with the concessions it sought. United said meteorologists would vote on the plan by Friday.

Mr. Whiteford, who vehemently opposes the low-fare airline proposal, described the airline's plan as "an overreach," but he said it would be in the labor unions' best interests to reach a negotiated settlement rather than see new contract provisions imposed in court.

The airline industry has one glaring example of the chaos that can occur if that happens. In 1983, amid a nasty dispute with Continental Airlines' unions over his bid for wage and benefit cuts, Mr. Lorenzo filed for Chapter 11 bankruptcy protection and shut down the company for three days, then reopened it with just one-third the number of employees, who were paid 50 percent less.

Continental's unions subsequently went on strike, but Mr. Lorenzo persuaded a bankruptcy court to throw out Continental's contracts and replace them with new ones paying the sharply lower rates. Ultimately, the federal bankruptcy code was changed to make it much harder for airlines to cancel their contracts.

US Airways, which filed for bankruptcy last summer, filed a motion like United's but did not impose new contracts. Instead, it kept negotiating with its unions, and the airline obtained multiple sets of concessions before its restructuring plan was complete. Yesterday, US Airways' creditors' committee endorsed the plan. The airline hopes to emerge from bankruptcy on March 31.


http://www.nytimes.com/2003/03/18/business/18AIR.html

CHICAGO (Reuters) - Bankrupt United Airlines forecast a first-quarter operating loss of $877 million and said for the first time publicly that liquidation is a "distinct possibility."

In the last week alone, UAL Corp's UAL.N United's domestic bookings are down and international bookings have dropped 40 percent due to the impending Iraq conflict.

In papers filed with the bankruptcy court on Monday, United outlined a dire set of circumstances in months ahead as the Iraq war appears imminent.

The projections contrasted with recent announcements from the world's second-largest airline that daily cash flow was positive in January and it was beating the first set of financial requirements set by bankruptcy lenders.

United said in the court document it might cease operations altogether without labor cost reductions from major unions.

Elk Grove Village, Illinois-based United said initiatives so far to cut costs will not return it to profitability. UAL lost a record $3.2 billion in 2002, about a quarter of the $11 billion in net losses by all top eight U.S. carriers combined.

"With war-related jitters increasing and fewer people purchasing tickets, United's near-term revenue forecast through June 2003 has deteriorated by $298 million from projections made just weeks ago," the company said. "At the same time, the cost of fuel, United's second-largest operating expense, has gone in the opposite direction."

"In the wake of the deadlines that have recently been set for Iraq to disarm, United's bookings have begun to drop substantially," it said. "Domestic bookings have recently declined ... the drop in international bookings has been more dramatic."

SOARING FUEL COSTS

Unhedged on its jet fuel purchases for the entire year, United now says it expects the price for fuel in 2003 will be 19 percent higher than it projected in December, when it filed for bankruptcy.

As a result of the higher costs and lower revenues, United will violate its debtor-in-possession financing covenants starting in May 2003, even with temporary wage cuts that are saving $70 million monthly.

"Liquidation is a distinct possibility if United does not receive its proposed labor cost reductions," the airline said. "The consequences of liquidation for all United stakeholders would be catastrophic. In particular, liquidation would mean that all of United's employees would lose their jobs."

In the wake of the Sept. 11, 2001, attacks, United cut about 20 percent of its workforce and 20 percent of its flight schedule, reduced other expenses and tried to restructure its financial obligations.

But those efforts could not offset weak revenue, and after the U.S. government denied an application for $1.8 billion in backing of private-sector loans, the airline filed the largest aviation bankruptcy in history on Dec. 9.

REJECTING CONTRACTS

After winning temporary wage cuts from its unions, United is now seeking to throw out its collective bargaining agreements altogether. Weeks of talks yielded no deal on $2.56 billion annually of longer-term concessions the airline wants.

United said it is not alone in its troubles, noting Continental Airlines CAL.N also recently forecast rough times ahead in transAtlantic travel.

"Other carriers, such as Delta DAL.N , Japan Airlines 9205.T and others, have also felt the conflict's effect on bookings," it said. "The difference between United and its competitors is that, because the company is in Chapter 11, United must disclose its Iraq contingency plans."

United said it has already met with a representative of its DIP lenders to ask for a relaxation of the loan covenants. Four institutions put up $1.5 billion in financing for United -- J.P. Morgan Chase & Co Inc. JPM.N , Citigroup Inc. C.N , CIT Group Inc. CIT.N and Bank One Corp. ONE.N .

But the DIP lenders said they needed hard data from United on the effects of the war, which they assumed would not be available until after it started. More meetings are scheduled for this week.

UAL shares, which traded at more than $100 each in the late 1990s, fell 1 percent on the New York Stock Exchange to 85 cents. Shares of its biggest competitors, AMR Corp. AMR.N and Delta, were higher.

Unintended Consequences
 

If UAL does liquidate there will be unintended consequences that will affect the industry.

Has anyone thought of the regional jets that feed into UAL. If UAL is gone there nothing to feed into, a few passengers may fly, those who do not need a connection. I believe the current revenue stream for regional feeders is they are paid by the flight, not by the number of passengers onboard. Regionals may try to become point-to-point airlines, but they will miss the pay by flight and now have to get out and sell tickets to individuals, a real hard change to implement, with a lot of marketing and sales costs involved

Perhaps regionals can change their structure and develop useful point-to-point routes, even have agreements with other regionals to have a more complete route structure.

If UAL liquidates and the regionals cannot change fast enough then they to would end up following UAL’s footsteps.

It appears the airline that is going to survive needs a business model similar to Southwest and JetBlue. They use smaller aircraft of one model. I can see this will spell trouble for Boeing and possibly Airbus. Sales of B737 may hold up but the new airlines will not be needed B767, B747, B777 aircraft. Boeing could end up shutting down production lines for the larger aircraft. I’m sure there is more profit in a B747 sale than B737 sale. New aircraft sales could be depressed for years as there are many aircraft parked in the desert.

And off course this ripples down to the engine manufactures…