Beware of United Airlines
Dec 18th, 2002, 07:07 AM
#1
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Beware of United Airlines
UA was so desperate when the ATSB declined to guarantee their debt that they agreed to terms with the DIP banks that are virtually impossible to meet.
The terms of the DIP are starky simple. UA got $800 million immediately and will receive an additional $750 million only if they can show cumulative positive cash flow by the time they need the additional $750 million. That means, that they must make up all the deficits in cash flow from the time of the bankruptcy before they get another dime.
At the rate of $20 million a day, they'd run out of cash in about a month.
If they run out of cash, then the DIP takes everything other than that which is already mortgaged or on lease.
Why did they agree to such an arrangement? Because the banks were telling UA last summer that the business plan that UA submitted to the ATSB didn't make sense and that they had better come up with something far more drastic. Well, they didn't, so when the ATSB said no, UA's only alternative other then immediate liquidation was this absurd DIP arrangement.
I've been telling all my customers to stay away from UA. It's not business as usual, even for a few months.
The terms of the DIP are starky simple. UA got $800 million immediately and will receive an additional $750 million only if they can show cumulative positive cash flow by the time they need the additional $750 million. That means, that they must make up all the deficits in cash flow from the time of the bankruptcy before they get another dime.
At the rate of $20 million a day, they'd run out of cash in about a month.
If they run out of cash, then the DIP takes everything other than that which is already mortgaged or on lease.
Why did they agree to such an arrangement? Because the banks were telling UA last summer that the business plan that UA submitted to the ATSB didn't make sense and that they had better come up with something far more drastic. Well, they didn't, so when the ATSB said no, UA's only alternative other then immediate liquidation was this absurd DIP arrangement.
I've been telling all my customers to stay away from UA. It's not business as usual, even for a few months.
Dec 18th, 2002, 08:26 AM
#2
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Dear Maui... Your post really scares me. We have 1st class free tickets to Frankfurt in March and 1st class free tickets to Auckland in May returning July 2.
I assume that if these were "paid for" tickets that other airlines would honor them but what happens to the free tickets (I have them in hand) if United goes "bye bye"? Will other airlines honor these?
I assume that if these were "paid for" tickets that other airlines would honor them but what happens to the free tickets (I have them in hand) if United goes "bye bye"? Will other airlines honor these?
Dec 18th, 2002, 09:40 AM
#3
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Vicki, I think Maui was trying to scare you and every other leisure traveler with UA tickets. UA is not going to drop out of the sky (figuratively speaking) and have you any idea how many passengers they fly to Frankfurt? So many that they will not discontinue that profitable route. Relax, you'll get to Frankfurt fine. I don't know what their load factor for Auckland is but if UA does discontinue that route, at least you didn't pay for your ticket. You are correct in that if your tickets were "paid for" then another airline would accomodate you but not on freebies, i.e frequent flyer tickets
Dec 18th, 2002, 09:42 AM
#4
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Vicki, I think Maui was trying to scare you and every other leisure traveler with UA tickets. UA is not going to drop out of the sky (figuratively speaking) and have you any idea how many passengers they fly to Frankfurt? So many that they will not discontinue that profitable route. Relax, you'll get to Frankfurt fine. I don't know what their load factor for Auckland is but if UA does discontinue that route, at least you didn't pay for your ticket. You are correct in that if your tickets were "paid for" then another airline would accomodate you but not on freebies, especially in first class. They would probably be considered worthless. Have a nice trip nonetheless.
Dec 18th, 2002, 09:57 AM
#5
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Maui
I'm skeptical..where did u get your information?It sounds to me like you are a TravelAgent "all my customers".I dont understand why you would steer them away from UA.Makes me think that maybe you dont understand "high finance",bankruptcy,or "customer service".I havent seen or heard anything near what you are saying here on any news or media reports.Just my opinion of what you have to say.Me, I'm not an expert on anything.
I'm skeptical..where did u get your information?It sounds to me like you are a TravelAgent "all my customers".I dont understand why you would steer them away from UA.Makes me think that maybe you dont understand "high finance",bankruptcy,or "customer service".I havent seen or heard anything near what you are saying here on any news or media reports.Just my opinion of what you have to say.Me, I'm not an expert on anything.
Dec 18th, 2002, 01:42 PM
#6
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THIS IS WHAT IAM READING IN THE PAPER NOW;
UNITED WHICH IS SEEKING $2.4 BILLION IN ANNUAL LABOR CUTS, SAID IT MUST HAVE COST CUTS IN PLACE BY FEB.15TH TO MEET THE CONDITIONS OF IT'S $1.5 BILLION IN BANKRUPTCY FINANCING FROM A GROUP OF BANKS.
IT DOESN'T SAY ANYTHING MORE BUT IT LOOKS LIKE THEY ARE DOWN O THE WIRE. IF US AIR IS STILL ALIVE I'M SURE THAT UNITED WILL HANG IN THERE.
I WANT BE OPTIMISTIC SINCE WE HAVE TICKETS ON UA IN FEB AND WE UPGRADED TO FIRST USING MILES.
UNITED WHICH IS SEEKING $2.4 BILLION IN ANNUAL LABOR CUTS, SAID IT MUST HAVE COST CUTS IN PLACE BY FEB.15TH TO MEET THE CONDITIONS OF IT'S $1.5 BILLION IN BANKRUPTCY FINANCING FROM A GROUP OF BANKS.
IT DOESN'T SAY ANYTHING MORE BUT IT LOOKS LIKE THEY ARE DOWN O THE WIRE. IF US AIR IS STILL ALIVE I'M SURE THAT UNITED WILL HANG IN THERE.
I WANT BE OPTIMISTIC SINCE WE HAVE TICKETS ON UA IN FEB AND WE UPGRADED TO FIRST USING MILES.
Dec 18th, 2002, 03:33 PM
#8
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UA may indeed be on its way out, but your credibility as a financial analyst is seriously undermined by the fact that you don't seem to know what DIP means, one of the most basic concepts in bankruptcy. The lenders are not "DIP banks" nor will the "DIP take everything." The DIP is the debtor-in-possession, in this case, United, and it is obtaining debtor-in-possession financing.
Dec 19th, 2002, 01:22 AM
#9
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Well I hope UA remains in business but the situation is dire. A debtor in possession (DIP) is given priority over other leaders becuase a DIP must be given incentives to lend to a bankrupt. By definition, few would lend to a bankrupt company if they didn't stand first in line if the Chapter 11 was not successful.
Banks are not in the business of speculating in airlines. They are in the business of loaning money at minimum risk. Remember that however well things might turn out for UA, the banks only receive interest and principle. So this DIP agreement puts UA is a race that they can't win. They must not only reverse their negative cash flow of $20 million a day, but they must generate enough cash to make up the deficit in cash that they sustained from the time of bankruptcy until they receive the balance of their DIP loan. If they run out of cash without meeting this obligation, the lenders have two choices, shut the airline down in liquidation or give them more cash. Hopefully, liquidation would be an orderly process with passengers being somehow accomodated, but that's not necessarily so.
I am a part time travel agent, and I've been telling my customers to avoid UA if possible.
Banks are not in the business of speculating in airlines. They are in the business of loaning money at minimum risk. Remember that however well things might turn out for UA, the banks only receive interest and principle. So this DIP agreement puts UA is a race that they can't win. They must not only reverse their negative cash flow of $20 million a day, but they must generate enough cash to make up the deficit in cash that they sustained from the time of bankruptcy until they receive the balance of their DIP loan. If they run out of cash without meeting this obligation, the lenders have two choices, shut the airline down in liquidation or give them more cash. Hopefully, liquidation would be an orderly process with passengers being somehow accomodated, but that's not necessarily so.
I am a part time travel agent, and I've been telling my customers to avoid UA if possible.
Dec 19th, 2002, 04:31 AM
#10
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OK, so they have until Feb to make the deadline.
Maui, I fail to understand how UA can possibly do this if no one is supposed to fly with them between now and then. Perhaps, maybe, a warning about tickets for later next year may be prudent, but to cut off their business earlier (which is what you are advocating) seems like you're helping to nail their coffin.
Maui, I fail to understand how UA can possibly do this if no one is supposed to fly with them between now and then. Perhaps, maybe, a warning about tickets for later next year may be prudent, but to cut off their business earlier (which is what you are advocating) seems like you're helping to nail their coffin.
Dec 19th, 2002, 05:01 AM
#12
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Maui
What is your OTHER "part time" occupation?You say your are a TravelAgent part time.Please tell us what else you do.So we can STAY AWAY from you.You obviously do not understand what you are talking about."Principle"?????? Give me a break.I am NOW convinced you are a total troll.You do NOT understand anything close to the concept of Debtor-in-Possession.Or Banking.Or risk management.Do us all a favor.Go back to sleep.
What is your OTHER "part time" occupation?You say your are a TravelAgent part time.Please tell us what else you do.So we can STAY AWAY from you.You obviously do not understand what you are talking about."Principle"?????? Give me a break.I am NOW convinced you are a total troll.You do NOT understand anything close to the concept of Debtor-in-Possession.Or Banking.Or risk management.Do us all a favor.Go back to sleep.
Dec 19th, 2002, 06:21 AM
#13
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I'm a travel agent and the more people fly on UA the sooner they'll emerge from Chapter 11. Instead of glooming and dooming them, travelers should continue with their travel plans (business and vacation). If everyone avoids UA then they will collapse. That will give the other airlines a bigger piece of "sky pie" and then watch your airfare soar. Less competition = less fare options. Think about it.
Dec 19th, 2002, 09:44 AM
#16
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What amazes me is Uniteds ticket prices are sky high right now. I called to see what it would cost for a ticket for my mom to go with us in Feb and they wanted $1,100. I checked the same flights on their web sight and they wanted $560. Those flights are far from sold out and have the lower classes available. The other major Airlines are considerably cheaper. You would think that they would be alot more competative especially now!
Dec 19th, 2002, 10:48 AM
#17
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Yo Maui - your last post says United has $800K to spend and at $20M per day it won't last long. You're right - it would last about an hour.
If you're going to use numbers in your arguments, please make sure the numbers are correct otherwise you look, well, you know.
If you're going to use numbers in your arguments, please make sure the numbers are correct otherwise you look, well, you know.
Dec 19th, 2002, 02:30 PM
#19
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Lynette, we are going from seattle to miami in feb. Normally this time of year( just before xmas) we could always get a really great price to FL but not on united this year so far. I did some checking today and it was still 500.00. Crazy! On the normal it's always been in the 350.00 range with the exception 2 years ago on Delta it was 218.00.
