So UAL has finally reached agreement with its unions. What now? That is
the million dollar question. Or more specifically the $1.8 BILLION
dollar question, since the entire point of this bargaining was to get
the ATSB to guarantee that amount in loans.
First things first, lets give UAL credit for getting this far. To be
quite honest, I was a subscriber to the Jimmy Goodwin school of
thought that UAL would perish sooner rather than later. Not only have
they managed to stick around for over a year longer than Jimmy G. did,
but 2 CEOs later they actually have a fighting chance of making it into
2003 as a solvent entity.
Obviously, the most pressing concern for UAL is the debt that is due in
early December. In normal times, a piddling few hundred million would be
something that UAL could refinance with a couple of phone calls and
nothing more. But these aren't normal times. UAL has proven the old
adage that "The bigger they are the harder they fall". When I look at
this carrier in total disarray today, sometimes I find it hard to
believe it was only a scant 3 years ago that this was the biggest, best
and most profitable airline in history. When the magic words "Chapter
11" escape the lips of someone in senior management and he doesn't get
fired for it, the lenders immediately begin to lock their safes and sit
on the key. Someone at Lufthansa pulled some strings and got
about half of it taken care of last week, but that still leaves $375m
due that UAL simply doesn't have. Time to borrow from Peter to pay to
Paul.
Enter the ATSB. Like most government agencies, this started out as a
good idea but quickly became a political tool. What was intended to be a
lender of last resort to assist with 9/11's aftermath has degenerated
into a benevolent charity. As much as UAL loves to blame it all on Osama
Bin Laden's boys, their true bogeyman lives much closer to home and
answers to the name Rick Dubinsky. And last I checked Rick wasn't
on the CIA's list of known terrorists.
But I digress. The maneuvering has reached the point where the reasons
for UAL's problems are no longer relevant and its time to focus on the
solutions. Even a 10th grade economics student can tell you that when
your CASM is higher than your RASM and your RASM isn't going up enough,
its time to bring the CASM down. That means addressing costs.
In the airline business costs come in two big chunks labeled "labor" and
"fuel" and lots of little chunks that comprise everything else from
maintenance down to the toilet paper. There isn't much UAL can do about
fuel unless they airdrop a bunch of flight attendants into the middle of
Saudi Arabia with orders to keep digging until they find some. However,
it says volumes about the fear that organized labor instills in
management that UAL chose to attack the small chunks first before going
after the big one. That meant cutting some of the very frills and
amenities that gave UAL its brand identity in the first place. Its
all very well to switch to single ply toilet paper, but if you skimp too
much sometimes you wind up getting shit on your hands. And thats a very
fine line to walk.
So once they managed to cut out all the little stuff that they needed to
(and a whole lot that they didn't need to as well), it was time to
finally go after the big chunk. The big chunk consisted of two
workgroups (IAM and ALPA) making "industry leading wages", and one
workgroup (AFA) making (and serving) peanuts. "Industry leading wages"
are wonderful when you are pulling in "industry leading revenue", but
alas UAL's yield for Quarter 2 put them in 5th place out of the Big 6.
These guys had to cut their wages to reflect the changed reality. I'm
leaving the AFA out of the equation here because quite honestly they
make so little that from a financial perspective it doesn't make a
difference what they gave back or not. As a poster on an internet forum
is fond of saying; "If each and every AFA member gave up 10% of their
salary each and every day they went to work, UAL would maybe have enough
money saved to run ONE 747 to Tokyo and back"
Dealing with IAM or ALPA is like pulling teeth at the best of times, but
trying to squeeze money out of them without having anything to give back
is a task that is best left to the masochists. Nonetheless, after a
bunch of threats, tantrums, denials and he-said-she-said these
masochists had the last laugh and managed to extract water from stone.
Is this enough water to satisfy the ATSB's thirst? I don't know. If I
knew either way for sure, I'd either be buying or shorting UAL stock
respectively.
What I do know for sure is that this is a short term fix at best.
All these agreements snap back to current scales in a few years meaning
that we'll go through the same charade again (provided UAL is still
around in its current avatar). In their haste to get things done by
their deadline, they decided to take a pass on SUSTAINABLE savings
in favor of more immediate results. Thus the notoriously inefficient IAM
shop is still a notoriously inefficient IAM shop, except that its
inefficient members now earn 6% less. That is a recipe for disaster.
So lets cut to the chase. What's gonna happen to UAL? Well, I think that
they will survive without having to file Chapter 11 for now. This may
involve the ATSB loan, it may involve fellating the creditors into
deferring the money or it may even involve a refinancing from other
sources. Stranger things have happened. However, they are again just
buying some more time before the inevitable restructuring must take
place. This may happen through an overhaul of the operational model via
voluntary renegotiation of labor workrules, or it may happen through a
court-imposed overhaul during the bankruptcy process. And it better
happen sooner rather than later, otherwise the only thing RISING
at U N I T E D will be the number of employees on furlough.
"Whine And Cheez" is an periodic column
that appears EXCLUSIVELY at
www.airwhiners.net
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