contrail67

2.8 billion in cash....and then they open up bonds to raise only $175 million?.....something is up.....don't think it is BK either. This is a move to buy someone or something.

Might even be a good idea to fund an early out program for the over 60 folks....but that would make sense; so I doubt it.

JetPilotMike

I wish I had your optimism. More likely GT is funding his golden parachute.

LeeFXDWG

From a business standpoint, the biggest reason to ensure cash on hand is both for the DIP convenants and also to satisfy the reserve requirement for the credit card companies that basically service the airline through the sale of tickets. In the agreements with the card companies, UAUA is bound such that they have to have certain (very large) amount of cash on hand or pay substantial increases for the service. Basically, put the card companies at no risk for the service provided with the requirement for the "restricted" cash in the UA accounts.

Don't have all the numbers, but UA is going to pay some 60 million over 3 years in interest and dividends on the 175 million they get immediate unrestricted access to.......kind of sounds like the financial magic going on with the equity mortgages, "zero" principal refi's, HELOC, etc., mania of a few years back that caused many of the current banking issues????? UA is getting into more creative financing. Prelude to a fall.

One would only have to look into the credit default swaps related to UA's transaction with the bond to get a clearer picture. Yes, the swaps still occur today.......

Also, with regards to the "secured" aspect of the investment bond, perhaps 3dividend payments at best before BK will not make up for the "secured creditor" status when UA goes into BK again. Folks typically have not done well even with the "secured" aspect of aircraft parts. JMHO.

The entities able to take the 250k minimum bet on the bonds for 17.5 interest are rolling the dice big time.

This is a desperation move by UAUA IMO. And, most of wall street is showing their concerns regarding UAUA liquidity as well.....right or wrong, when the street has doubts about you.....perception becomes reality and negative things begin to happen quickly.

It'll be curious to see the 2nd Qtr performance which is usually a strong quarter for UAUA. If bigger than expected losses occur, especially relative to the rest of the industry, I expect the bottom to completely drop out and see a court house visit NLT than March 2010.....in Jan 2010, some large loan servicing comes due and aircraft leases begin to "balloon" negating many of the few gains UA made in BK other than the bottom industry rates of pay for union employees (in relation to other major carriers). BTW, those contracts become ammendable in Jan 2010 as well. Coincidence?

Frats,
Lee (former UAL, 97 hire)

deceptibum

I'm a CAL guy and we join the Star Alliance on Oct 24th leaving the SkyTeam behind. I predict some merger announcement Oct 25th.

contrail67

So with the above said....how would a merger this fall change things?...if it happened.

Daytripper

I really don't think Cal wants to merge. However, when Bethune was at CAL...(yes, I realize he is gone), he made no bones about what a good fit the Chicago hub and Heathrow slots would make. When asked about the other stuff at UAL....he said he would $h..can it. I don't think that idea has left Cal management. I think it's possible UAL gets split in a bidding war. Cal's 10Q is not a good as they would like.....but they still have a good amount of cash....can raise capital at reasonable rates, and are still taking new aircraft.
It's all pure speculation. However...if you really want to know how it's going to shake out....ask Tank...the airbus driver out of EWR.....he knows the date, what survives....what doesn't.....and how the seniority list turns out. And yes....he happy where he ends up. LOL

Ottopilot

What does the alliance have to do with a merger?

WASHINGTON, June 29 (Reuters) - The U.S. Justice Department opposes broad antitrust immunity for Continental Airlines Inc to join UAL Corp's United Airlines and other members of the Star alliance, documents showed.

In a filing late on Friday with the Transportation Department, antitrust enforcers said approval was likely to harm competition on some international routes, including flights between China and U.S. and Canadian cities.

The proposed agreements also could hurt domestic competition and raise fares on some routes, Justice Department lawyers wrote in public comments.

The DOJ also said the alliance had offered little in the way of consumer benefits.

In a statement, Continental declined to comment on specific aspects of the Justice Department's comments. It said it would address those issues in its response to be filed with the Transportation Department, which will make the determination on final approval.

'We remain confident that DOT will approve our application,' the company said. 'That action is necessary to correct the competitive imbalance that now exists and safeguard our future.'

Antitrust immunity would permit carriers to share pricing, scheduling and other information within the Star Alliance. That group includes US Airways Group Inc, Deutsche Lufthansa AG, Air Canada, Air China Ltd , Thai Airways International PCL and several other carriers.

The Transportation Department earlier this year granted provisional approval to the United and Continental application, pending review of public comments.

Continental shares were up 2.3 percent at $8.98 in afternoon trading.

BuffaloA10

Maybe you might want to wait and see if 1) there is a merger announcement and 2) what the response is by the UAL pilots/MEC before you blaspheme people and accuse them of wanting to "rewrite ALPA merger policy".

Maybe I mis-read what you are trying to say - then you can correct me. But who or what are these "certain UAL pilot circles" you seem to be privy too? And even if the two people you know in this "certain circle" said something over beers one day, or pontificated about merged lists, so what? They don't represent UAL ALPA, or equal a legal challenge, or mean anything. There are multiple types of "certain circles" of pilots, or cops or firemen or whatever with all kinds of different views. Does that mean EVERY UAL pilot or cop or fireman must feel the same way?

I know many "certain UAL pilot circles" and they "often state" they hope a CAL merger would get rid of the immoral, corrupt, incompetent UAL manglement and get back to running an airline. Nobody I know has said anything about changing ALPA merger policy. Remember, UAL pilots went thru the ill-fated UAL/AAA merger attempt in 2000 and saw a pilot group advocate something along the lines you just mentioned. Not imaginary but real.

And what's with the little emoticon thrown in there?

How about we wait and see what happens before we throw stones, especially over imaginary BS...

cgull

Having come from a striking CAL family, I know what a horrible airline CAL was under Lorenzo with 2 chp 11 under its belt and looking at a third chp 11 before Buthune came in and saved them. I am at UAL and it reminds me of CAL during the Lorenzo era. UAL is the ENRON of airlines.

Maybe the game is to take both airlines into chp 11 and make a merger happen under the duress of the bankruptcy courts.

The following is from an investment pub service so take it for what its worth which may be nothing. Who is going to be the first one in the bankruptcy court?

I'm about to tell you how I know exactly when Continental Airlines will go bankrupt. You might recall my similar work on GM. I spent about two years explaining, quarter after quarter, that there was no way the company could escape bankruptcy. Even though such information can be incredibly valuable to stock traders, my work inspired a lot of anger from our subscribers, who didn't understand my reasoning had nothing to do with cars, or "America," but simply with mathematics. GM's enormous debt load ($172 billion at last count) couldn't be supported by the car company's dwindling market share and negative profit margins. At a certain point (I'd say 2006), it became mathematically impossible for GM to ever make enough money to repay its obligations. The interest payments were compounding faster than it could ever hope to grow the business, and it didn't have enough equity left to refinance.

These situations are tragic for investors, employees, and customers. There are no easy explanations for why companies sometimes end up in these "no way out" scenarios. Thus, it may seem crass or even immoral for me to demonstrate how these situations can be the best investment opportunities of all. But I'd ask that you, if only for a minute, put aside these "good neighbor" emotions. You see, when you buy a stock, an endless number of things might go wrong. As an analyst, it is impossible for me to identify every possible business risk. And as you know, sooner or later, everything that can go wrong will go wrong.

On the other hand, when you're researching companies that are truly stuck in "no way out" scenarios, there aren't any realistic alternatives. No matter what else happens, their debts and interest payments will come due. And that means you can know, with a far higher degree of certainty, what your investing outcome will be. And so, I ask you: Would you rather own a stock that may or may not increase in value? Or would you rather short a stock that you can know, for certain, will go bankrupt by a specific date in the future?

This kind of analysis has always appealed to me because of the certainty. Most subscribers don't know my very first newsletter, written in 1999, accurately predicted the demise of the original AT&T, which was the most widely held stock in America at the time. Most recently, I told my subscribers Continental Airlines will go bankrupt. And now I can even tell you when...

The company has $105 million of equity sitting under more than $12 billion worth of debt. It operates at a loss because its gross margins have fallen in half in only three years. Fuel costs and competition have rendered its full-service, high-cost, and unionized business model obsolete – much like what happened to General Motors. It has $900 million worth of lease and capital obligations coming due this year and only $2.7 billion worth of cash left. In 2011, 40% of its $6 billion in long-term debt will come due.

But the trigger for Continental's bankruptcy will be an obscure clause in its credit-card processing agreement with Chase Bank. The agreement requires Continental to maintain at least 25% of its current obligations in cash. Next year (2010), the portion of its long-term debt that's due in 2011 will become "current" – due within the next 12 months. That will cause Continental's current obligations to soar to nearly $7 billion. At the same time, its cash reserves will be falling. The collapse of the current ratio will trigger a cascade of debt defaults, pushing the airline into bankruptcy. Thus, Continental will go bankrupt at some point in 2010.

I know Continental can do nothing to avoid a default. It only has $105 million of equity left. That's simply not enough to restructure its debts. And it can't operate profitably enough to afford to repay its debts – it doesn't even have enough cash to pay for the planes it has already agreed to buy from Boeing. If you short the stock today, I'm 100% sure you will double your money in 12 to 18 months.

FlyingViking

Interesting reading, what about UAL, DAL, AA & RAH?