US Airways loses $78million
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US Airways loses $78million
October 26, 2006
US Airways Group, formed last year from the merger of US Airways and America West Airlines, on Thursday posted a third-quarter net loss after fuel hedging and merger-related costs.
The number 7 US airline reported a net loss of USD$78 million, compared with a loss of USD$99 million for America West a year earlier. For accounting purposes, America West was treated as the acquiring company.
Excluding special items, US Airways said it earned USD$101 million.
The results were cut by an USD$88 million charge to reduce the book value of some outstanding fuel hedges. Several major airlines, including US Airways, have hedges that locked in prices above current market levels and were unable to take full advantage of a decline in fuel prices since August.
"We have continued to increase our hedge positions," said Chief Financial Officer Derek Kerr.
Kerr said the carrier has hedged 46 percent of its fuel consumption in the third quarter. The airline has hedged 37 percent of its fuel exposure in the first quarter of 2007, 27 percent in the second quarter, 19 percent in the third quarter, and 5 percent in the fourth quarter, he said.
Jet fuel prices have eased since August, but US Airways said it paid USD$179 million more for fuel in the third quarter than it would have if prices remained at the same levels as the year-ago period.
The airline said it has cut its projected fourth-quarter fuel costs by about USD$90 million, and expects to pay between $2 and $2.05 per gallon of jet fuel.
US Airways also reported USD$27 million in merger-related costs. The merger was completed in September 2005.
Its revenue rose to USD$2.97 billion, compared with USD$929 million a year earlier.
Airport security regulations cost the carrier between USD$30 million and USD$40 million in revenue during August and September, Chief Executive Doug Parker said in a statement.
The carrier ended the quarter with USD$3 billion in cash and investments, of which USD$2.3 billion was unrestricted.
(Reuters)
US Airways Group, formed last year from the merger of US Airways and America West Airlines, on Thursday posted a third-quarter net loss after fuel hedging and merger-related costs.
The number 7 US airline reported a net loss of USD$78 million, compared with a loss of USD$99 million for America West a year earlier. For accounting purposes, America West was treated as the acquiring company.
Excluding special items, US Airways said it earned USD$101 million.
The results were cut by an USD$88 million charge to reduce the book value of some outstanding fuel hedges. Several major airlines, including US Airways, have hedges that locked in prices above current market levels and were unable to take full advantage of a decline in fuel prices since August.
"We have continued to increase our hedge positions," said Chief Financial Officer Derek Kerr.
Kerr said the carrier has hedged 46 percent of its fuel consumption in the third quarter. The airline has hedged 37 percent of its fuel exposure in the first quarter of 2007, 27 percent in the second quarter, 19 percent in the third quarter, and 5 percent in the fourth quarter, he said.
Jet fuel prices have eased since August, but US Airways said it paid USD$179 million more for fuel in the third quarter than it would have if prices remained at the same levels as the year-ago period.
The airline said it has cut its projected fourth-quarter fuel costs by about USD$90 million, and expects to pay between $2 and $2.05 per gallon of jet fuel.
US Airways also reported USD$27 million in merger-related costs. The merger was completed in September 2005.
Its revenue rose to USD$2.97 billion, compared with USD$929 million a year earlier.
Airport security regulations cost the carrier between USD$30 million and USD$40 million in revenue during August and September, Chief Executive Doug Parker said in a statement.
The carrier ended the quarter with USD$3 billion in cash and investments, of which USD$2.3 billion was unrestricted.
(Reuters)
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Third Quarter 2006 Earnings Recap for employees
Today, US Airways reported financial results for the third quarter of 2006 (July through September). The airline reported a $78
million loss for the quarter; however, when $179 million in special items – like transition expenses and a fuel hedging loss – are
added back, the company made a profit of $101 million or $1.09 per diluted share, which compares to Wall Street's consensus
estimate of $1.01. Since the employee profit sharing fund is figured before special items, the company did set aside profit sharing
funds of nearly $12 million (10 percent of pre-tax, pre-bonus income excluding special items). Far more details are below, as
we explain the third quarter's income statement, an accounting of the quarter's sales, expenses and net profit or loss.
Money collected from the services that we provide is known as operating revenue. Items 1-4 are services that we provide
that bring money into the company. All figures are in millions, except the earnings per share number at the end.
1. Since we’re in the business of carrying passengers, it’s no big surprise that our largest revenue source is our customers.
Mainline revenue includes passenger revenue collected from all US
Airways mainline flights..................................................... ............$2,052
2. Our Express passengers – both from wholly owned and contract
Express carriers – are also an important source of revenue................ +$703
3. Cargo revenues include money received from transporting mail
and freight..................................................... ............................ +$40
4. In addition, operating revenue also comes from other sources like ground
handling for other airlines, interline handling fees, selling frequent flyer miles,
liquor sales and excess baggage fees........................................................ ....... +$173
From our operating revenue, the following costs must be subtracted. Items 5-15 are known as operating expenses.
5. At the top of the list is fuel, and in the third quarter fuel and related taxes made up
our largest single mainline expense..................................................... ............................... -$719
6. US Airways hedges about 50 percent of its fuel, eight to ten months into the future. Because fuel
prices fluctuate daily, the value of future hedges can go up and down. In this quarter, we booked
what's called an Unrealized hedging Loss. That means that the actual market price of fuel
was less than the price of our hedged position. While we didn't take an actual cash loss during the
quarter, we have to report the potential for future losses. If fuel prices had risen above the hedged
price, this would have been a gain (like we saw in the second quarter)......................................-$88
7. Salaries and related costs include compensation for all employees. This line would
also include Hat Trick and profit sharing (see 7a)............................... -$529
7a. Employee Profit Sharing is included in "salaries and related
costs." Although we reported a loss for this quarter, that loss
was due to special items, and profit sharing is figured excluding
special items. For Q3, the company will put $12 million towards
profit sharing, which now totals $48 million. If we're profitable at
year-end, 10 percent of the company's pre-tax, pre-bonus income
excluding special items will be distributed among employees
8. Next come Express expenses, which include the costs of the wholly owned subsidiaries,
and what we pay to purchase capacity from contract carriers................................................ -$653
From our operating revenue, the following costs must be subtracted. Items 5-15 are known as operating expenses.
7. Salaries and related costs include compensation for all employees. This line would
also include Hat Trick and profit sharing (see 7a)................................... -$529
9. We have to have something to fly, and we rent the majority of our fleet. These
charges are simply called aircraft rent............................................. -$181
10. The cost to maintain and repair our beautiful birds rolls up into
aircraft maintenance expenses.................................................... ... -$142
11. Other rent and landing fees includes rent for facilities at airports,
airports' landing fees, etc......................................................... ......................... -$146
12. Selling expenses include the distribution costs such as credit card fees and fees we
pay to the global distribution systems (Sabre, Apollo, etc.), as well as advertising expenses
............................................................ ............................................................ .... -$120
13. Special Items, net for our third quarter 2006 includes merger-related transition
expenses.................................................... ............................................................ -$27
14. Depreciation and amortization is the allowance for the usage of aircraft parts, office equipment, ground equipment,
and any other assets that the company owns and that we expense over the lifetime of the asset................................ -$42
15. Finally, other expenses include things like hotels, per diem, telephone and utility costs, etc................................. -$305
But this isn’t the end of the story. Next, we must bring our Non-
Operating Expenses and Income into the equation.
16. Interest earned from money that we have in the bank is known as
interest income...................................................... ............................ +$45
17. We incur expenses for borrowed money (debt), and this falls into
interest expense..................................................... ............................. -$74
18. Finally, we incur Other non-operating expenses............................. -$4
19. Next up, Uncle Sam. Without getting too technical, due to the accounting rules
surrounding the merger, US Airways is able to use $59 million of accumulated losses
from the "old" US Airways, which offsets an equivalent amount of goodwill (assets) on
the balance sheet. Therefore, we are taking a non-cash charge of $59 million in addition
to our regular taxes. This does not affect profit sharing.................................................-$61
million loss for the quarter; however, when $179 million in special items – like transition expenses and a fuel hedging loss – are
added back, the company made a profit of $101 million or $1.09 per diluted share, which compares to Wall Street's consensus
estimate of $1.01. Since the employee profit sharing fund is figured before special items, the company did set aside profit sharing
funds of nearly $12 million (10 percent of pre-tax, pre-bonus income excluding special items). Far more details are below, as
we explain the third quarter's income statement, an accounting of the quarter's sales, expenses and net profit or loss.
Money collected from the services that we provide is known as operating revenue. Items 1-4 are services that we provide
that bring money into the company. All figures are in millions, except the earnings per share number at the end.
1. Since we’re in the business of carrying passengers, it’s no big surprise that our largest revenue source is our customers.
Mainline revenue includes passenger revenue collected from all US
Airways mainline flights..................................................... ............$2,052
2. Our Express passengers – both from wholly owned and contract
Express carriers – are also an important source of revenue................ +$703
3. Cargo revenues include money received from transporting mail
and freight..................................................... ............................ +$40
4. In addition, operating revenue also comes from other sources like ground
handling for other airlines, interline handling fees, selling frequent flyer miles,
liquor sales and excess baggage fees........................................................ ....... +$173
From our operating revenue, the following costs must be subtracted. Items 5-15 are known as operating expenses.
5. At the top of the list is fuel, and in the third quarter fuel and related taxes made up
our largest single mainline expense..................................................... ............................... -$719
6. US Airways hedges about 50 percent of its fuel, eight to ten months into the future. Because fuel
prices fluctuate daily, the value of future hedges can go up and down. In this quarter, we booked
what's called an Unrealized hedging Loss. That means that the actual market price of fuel
was less than the price of our hedged position. While we didn't take an actual cash loss during the
quarter, we have to report the potential for future losses. If fuel prices had risen above the hedged
price, this would have been a gain (like we saw in the second quarter)......................................-$88
7. Salaries and related costs include compensation for all employees. This line would
also include Hat Trick and profit sharing (see 7a)............................... -$529
7a. Employee Profit Sharing is included in "salaries and related
costs." Although we reported a loss for this quarter, that loss
was due to special items, and profit sharing is figured excluding
special items. For Q3, the company will put $12 million towards
profit sharing, which now totals $48 million. If we're profitable at
year-end, 10 percent of the company's pre-tax, pre-bonus income
excluding special items will be distributed among employees
8. Next come Express expenses, which include the costs of the wholly owned subsidiaries,
and what we pay to purchase capacity from contract carriers................................................ -$653
From our operating revenue, the following costs must be subtracted. Items 5-15 are known as operating expenses.
7. Salaries and related costs include compensation for all employees. This line would
also include Hat Trick and profit sharing (see 7a)................................... -$529
9. We have to have something to fly, and we rent the majority of our fleet. These
charges are simply called aircraft rent............................................. -$181
10. The cost to maintain and repair our beautiful birds rolls up into
aircraft maintenance expenses.................................................... ... -$142
11. Other rent and landing fees includes rent for facilities at airports,
airports' landing fees, etc......................................................... ......................... -$146
12. Selling expenses include the distribution costs such as credit card fees and fees we
pay to the global distribution systems (Sabre, Apollo, etc.), as well as advertising expenses
............................................................ ............................................................ .... -$120
13. Special Items, net for our third quarter 2006 includes merger-related transition
expenses.................................................... ............................................................ -$27
14. Depreciation and amortization is the allowance for the usage of aircraft parts, office equipment, ground equipment,
and any other assets that the company owns and that we expense over the lifetime of the asset................................ -$42
15. Finally, other expenses include things like hotels, per diem, telephone and utility costs, etc................................. -$305
But this isn’t the end of the story. Next, we must bring our Non-
Operating Expenses and Income into the equation.
16. Interest earned from money that we have in the bank is known as
interest income...................................................... ............................ +$45
17. We incur expenses for borrowed money (debt), and this falls into
interest expense..................................................... ............................. -$74
18. Finally, we incur Other non-operating expenses............................. -$4
19. Next up, Uncle Sam. Without getting too technical, due to the accounting rules
surrounding the merger, US Airways is able to use $59 million of accumulated losses
from the "old" US Airways, which offsets an equivalent amount of goodwill (assets) on
the balance sheet. Therefore, we are taking a non-cash charge of $59 million in addition
to our regular taxes. This does not affect profit sharing.................................................-$61
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US Airways Proposes $8 Billion Delta Air Takeover
By Mary Schlangenstein
Nov. 15 (Bloomberg) -- US Airways Group Inc., formed by the merger of two carriers a year ago, proposed to take over Delta Air Lines Inc. in an $8 billion combination when Delta emerges from bankruptcy protection.
Delta's creditors would receive $4 billion in cash and 78.5 million shares of US Airways worth about $4 billion based on the stock's closing price yesterday, US Airways said in a statement today. The proposal comes 14 months after US Airways combined with America West Holdings Corp. to emerge from its own bankruptcy.
Delta, which sought bankruptcy protection in September 2005, has cut unprofitable flights, reduced labor costs and shed aircraft to prepare to exit court supervision next year. Delta Chief Executive Officer Gerald Grinstein didn't reply to a September 26 letter proposing the merger, US Airways said.
``We believe that the combination of US Airways and Delta, like the US Airways-America West merger we completed in September 2005, is extremely compelling and will create significant value for each of our stakeholders,'' US Airways Chief Executive Officer Doug Parker said. ``The combined company will be a more effective and profitable competitor in the current fragmented marketplace.''
The merged airline would operate under the Delta name and be one of the world's largest carriers, Tempe, Arizona-based US Airways said. US Airways said a merger would provide $1.65 billion in annual cost savings for the two companies.
To contact the reporter on this story: Brendan Walsh in New York at [email protected]
Nov. 15 (Bloomberg) -- US Airways Group Inc., formed by the merger of two carriers a year ago, proposed to take over Delta Air Lines Inc. in an $8 billion combination when Delta emerges from bankruptcy protection.
Delta's creditors would receive $4 billion in cash and 78.5 million shares of US Airways worth about $4 billion based on the stock's closing price yesterday, US Airways said in a statement today. The proposal comes 14 months after US Airways combined with America West Holdings Corp. to emerge from its own bankruptcy.
Delta, which sought bankruptcy protection in September 2005, has cut unprofitable flights, reduced labor costs and shed aircraft to prepare to exit court supervision next year. Delta Chief Executive Officer Gerald Grinstein didn't reply to a September 26 letter proposing the merger, US Airways said.
``We believe that the combination of US Airways and Delta, like the US Airways-America West merger we completed in September 2005, is extremely compelling and will create significant value for each of our stakeholders,'' US Airways Chief Executive Officer Doug Parker said. ``The combined company will be a more effective and profitable competitor in the current fragmented marketplace.''
The merged airline would operate under the Delta name and be one of the world's largest carriers, Tempe, Arizona-based US Airways said. US Airways said a merger would provide $1.65 billion in annual cost savings for the two companies.
To contact the reporter on this story: Brendan Walsh in New York at [email protected]
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From: Munich, Germany
By Mary Schlangenstein
Nov. 15 (Bloomberg) -- US Airways Group Inc., formed by the merger of two carriers a year ago, proposed to take over Delta Air Lines Inc. in an $8 billion combination when Delta emerges from bankruptcy protection.
Delta's creditors would receive $4 billion in cash and 78.5 million shares of US Airways worth about $4 billion based on the stock's closing price yesterday, US Airways said in a statement today. The proposal comes 14 months after US Airways combined with America West Holdings Corp. to emerge from its own bankruptcy.
Delta, which sought bankruptcy protection in September 2005, has cut unprofitable flights, reduced labor costs and shed aircraft to prepare to exit court supervision next year. Delta Chief Executive Officer Gerald Grinstein didn't reply to a September 26 letter proposing the merger, US Airways said.
``We believe that the combination of US Airways and Delta, like the US Airways-America West merger we completed in September 2005, is extremely compelling and will create significant value for each of our stakeholders,'' US Airways Chief Executive Officer Doug Parker said. ``The combined company will be a more effective and profitable competitor in the current fragmented marketplace.''
The merged airline would operate under the Delta name and be one of the world's largest carriers, Tempe, Arizona-based US Airways said. US Airways said a merger would provide $1.65 billion in annual cost savings for the two companies.
To contact the reporter on this story: Brendan Walsh in New York at [email protected]
Nov. 15 (Bloomberg) -- US Airways Group Inc., formed by the merger of two carriers a year ago, proposed to take over Delta Air Lines Inc. in an $8 billion combination when Delta emerges from bankruptcy protection.
Delta's creditors would receive $4 billion in cash and 78.5 million shares of US Airways worth about $4 billion based on the stock's closing price yesterday, US Airways said in a statement today. The proposal comes 14 months after US Airways combined with America West Holdings Corp. to emerge from its own bankruptcy.
Delta, which sought bankruptcy protection in September 2005, has cut unprofitable flights, reduced labor costs and shed aircraft to prepare to exit court supervision next year. Delta Chief Executive Officer Gerald Grinstein didn't reply to a September 26 letter proposing the merger, US Airways said.
``We believe that the combination of US Airways and Delta, like the US Airways-America West merger we completed in September 2005, is extremely compelling and will create significant value for each of our stakeholders,'' US Airways Chief Executive Officer Doug Parker said. ``The combined company will be a more effective and profitable competitor in the current fragmented marketplace.''
The merged airline would operate under the Delta name and be one of the world's largest carriers, Tempe, Arizona-based US Airways said. US Airways said a merger would provide $1.65 billion in annual cost savings for the two companies.
To contact the reporter on this story: Brendan Walsh in New York at [email protected]
Correct me if I'm wrong.
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November 15, 2006
The emergence of low-fare competitors could be a key factor in getting US antitrust authorities to approve US Airways' proposed USD$8 billion purchase of bankrupt rival Delta Air Lines, experts said on Wednesday.
US Airways is likely to argue that low-fare competitors have injected new competition into the industry in hopes of soothing concerns at the Justice Department's antitrust division, according to industry and antitrust experts.
"There's a feeling in the industry that the way mergers are looked at today might be different than the way they were looked at a few years ago," one industry source said.
"The (antitrust) analysis ought to change," this source said, speaking on condition of anonymity.
US Airways almost certainly would have to divest one of the East Coast shuttle services operated by the two carriers, which compete directly with each other in the corridor between Boston, New York and Washington, DC, several antitrust lawyers said.
However, low-fare competition such as JetBlue Airways and AirTran, along with upheaval that has led to billions of dollars in losses in recent years, could help convince antitrust regulators to approve the deal without imposing too many conditions, such as shedding large numbers of routes and giving up airport gates.
The acquisition plan comes more than five years after the department scuttled a proposed merger of United Airlines and US Airways over antitrust concerns.
In that case, the department concluded that the combination would crimp competition on more than 30 routes, leading to higher fares and fewer choices for air travelers.
Antitrust lawyers said the combination of US Airways and Delta would also face close scrutiny. Typically, the Justice Department focuses on whether competition would be curtailed on routes where the two carriers have overlapping service. It also could consider whether they compete for corporate discount programs.
"This is a transaction that the Department of Justice is going to examine very closely," said Washington antitrust lawyer Mark Schechter, of the firm Howrey LLP. "The parties are going to have a very challenging task ahead of them."
US Airways could hope for an outcome like the one it got in June 2005, when the department cleared its merger with America West Airlines.
But in that case, there was little route overlap and the department concluded the deal would be good for consumers, allowing better service to more destinations.
Government antitrust guidelines also include a provision that allows it to approve the buyout of a "failing firm" even when there are serious competition concerns.
However, antitrust lawyers said Delta does not meet the Justice Department's traditional definition of a "failing firm" because, even though it is operating under the protection of bankruptcy proceedings, it is not in imminent danger of exiting the market.
US Airways could argue that a spate of bankruptcies and the success of low-fare airlines have loosened the grip that major carriers used to have on major routes and hub airports. "Their ability to keep out competitors is nonexistent," the industry source said.
(Reuters)
The emergence of low-fare competitors could be a key factor in getting US antitrust authorities to approve US Airways' proposed USD$8 billion purchase of bankrupt rival Delta Air Lines, experts said on Wednesday.
US Airways is likely to argue that low-fare competitors have injected new competition into the industry in hopes of soothing concerns at the Justice Department's antitrust division, according to industry and antitrust experts.
"There's a feeling in the industry that the way mergers are looked at today might be different than the way they were looked at a few years ago," one industry source said.
"The (antitrust) analysis ought to change," this source said, speaking on condition of anonymity.
US Airways almost certainly would have to divest one of the East Coast shuttle services operated by the two carriers, which compete directly with each other in the corridor between Boston, New York and Washington, DC, several antitrust lawyers said.
However, low-fare competition such as JetBlue Airways and AirTran, along with upheaval that has led to billions of dollars in losses in recent years, could help convince antitrust regulators to approve the deal without imposing too many conditions, such as shedding large numbers of routes and giving up airport gates.
The acquisition plan comes more than five years after the department scuttled a proposed merger of United Airlines and US Airways over antitrust concerns.
In that case, the department concluded that the combination would crimp competition on more than 30 routes, leading to higher fares and fewer choices for air travelers.
Antitrust lawyers said the combination of US Airways and Delta would also face close scrutiny. Typically, the Justice Department focuses on whether competition would be curtailed on routes where the two carriers have overlapping service. It also could consider whether they compete for corporate discount programs.
"This is a transaction that the Department of Justice is going to examine very closely," said Washington antitrust lawyer Mark Schechter, of the firm Howrey LLP. "The parties are going to have a very challenging task ahead of them."
US Airways could hope for an outcome like the one it got in June 2005, when the department cleared its merger with America West Airlines.
But in that case, there was little route overlap and the department concluded the deal would be good for consumers, allowing better service to more destinations.
Government antitrust guidelines also include a provision that allows it to approve the buyout of a "failing firm" even when there are serious competition concerns.
However, antitrust lawyers said Delta does not meet the Justice Department's traditional definition of a "failing firm" because, even though it is operating under the protection of bankruptcy proceedings, it is not in imminent danger of exiting the market.
US Airways could argue that a spate of bankruptcies and the success of low-fare airlines have loosened the grip that major carriers used to have on major routes and hub airports. "Their ability to keep out competitors is nonexistent," the industry source said.
(Reuters)
