UAL in play (again)
09-25-2006, 09:03 AM
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UAL in play (again)
Sept. 25, 2006
By Julie Johnsson
United Airlines explores its strategic options
Goldman Sachs to scout mergers, other options
Glenn Tilton
United Airlines has hired New York investment bank Goldman Sachs & Co. to explore a range of strategic options, including possible mergers with other carriers.
People close to United expect Goldman to help the airline assess the value of its domestic and international holdings, advise it on sales or purchases of domestic or international routes and scout for mergers. Continental Airlines Inc., based in Houston, and Atlanta-based Delta Air Lines Inc. are considered to be United's likeliest merger partners.
The hiring of an investment banker signals United CEO Glenn Tilton is ready to force action on the industry consolidation he has stumped for as the cure for major U.S. airlines plagued by excess capacity at home and financially healthier rivals abroad. Just last week, Mr. Tilton told the Executives' Club of Chicago that merger activity would pick up and United would participate if it finds the right deal.
That Mr. Tilton is apparently acting on his public pronouncements "does not come as a bald-faced shock," says William Brandt, a Chicago-based restructuring expert. If United strikes a deal with one of the six major U.S. airlines, the remaining players would scramble to follow suit, rapidly winnowing the ranks of big airlines.
A spokeswoman for Elk Grove Township-based United, the nation's second-largest carrier, says, "We don't comment on rumors or speculation."
The hiring of Goldman could reunite Mr. Tilton with one of his most trusted advisers during United's recent 38-month bankruptcy odyssey: lead counsel James Sprayregen. After United emerged from one of the largest and costliest reorganizations in U.S. history earlier this year, Mr. Sprayregen left Chicago law firm Kirkland & Ellis LLP to head Goldman's restructuring practice. A Goldman spokesman declines to comment.
Mr. Tilton learned how to maneuver through consolidation in a 32-year career at Texaco Inc. before he joined United parent UAL Corp. as CEO in 2002. An experienced dealmaker, he helped oversee Texaco's $35-billion merger with Chevron Corp. in 2001.
The airline industry is ripe for a similar shake-up, experts say, provided federal officials don't intervene. With oil prices falling back to the $60 range, the industry's 2007 fuel costs are expected to be $6.5 billion less than previous estimates, freeing up capital that airlines could use for acquisitions, says Kevin Mitchell, chairman of the Business Travel Coalition, a Radnor, Penn.-based group that represents large corporate buyers of business travel services.
While they'll show strong profits for the first time in years, the carriers will have strong motivation to deal. Domestic capacity is expected to increase as much as 4.5%, reversing declines seen this year and making it more difficult for carriers to raise prices. Any slowdown in the economy could also weaken passenger demand.
"I think the due diligence is under way," says Mr. Mitchell. "If consolidation ever made sense, it probably makes sense in this mid-term, 2007 to 2008."
For United, the most logical merger partners appear to be Continental and Delta. Both airlines have strong networks in the Southeastern U.S., Europe and Latin America that could feed passengers into United flights across the U.S. and the Pacific.
Delta did not return calls seeking comment. A Continental spokeswoman says, "We consider it speculation, and we don't comment on speculation."
Though United emerged from bankruptcy financially stronger, it appears to lack sufficient equity to play the role of acquirer without an injection of capital from an outside investor. Private-equity firms, hedge funds or even overseas carriers could provide the funds to facilitate a deal.
Any deal that Mr. Tilton strikes would also have to pass muster with United's unions, all of whom are drafting contingency plans for a merger (Crain's, Aug. 21).
But workers may realize there are benefits to be reaped from a deal that bolsters United's balance sheet, Credit Suisse analyst Daniel McKenzie noted in a report last week. After all, Southwest Airlines Co. employees have become some of the best-paid in the industry because the low-cost carrier is the among the healthiest.
"Mr. Tilton's remarks are yet another data point among several that suggest consolidation is on the horizon," Mr. McKenzie wrote.
By Julie Johnsson
United Airlines explores its strategic options
Goldman Sachs to scout mergers, other options
Glenn Tilton
United Airlines has hired New York investment bank Goldman Sachs & Co. to explore a range of strategic options, including possible mergers with other carriers.
People close to United expect Goldman to help the airline assess the value of its domestic and international holdings, advise it on sales or purchases of domestic or international routes and scout for mergers. Continental Airlines Inc., based in Houston, and Atlanta-based Delta Air Lines Inc. are considered to be United's likeliest merger partners.
The hiring of an investment banker signals United CEO Glenn Tilton is ready to force action on the industry consolidation he has stumped for as the cure for major U.S. airlines plagued by excess capacity at home and financially healthier rivals abroad. Just last week, Mr. Tilton told the Executives' Club of Chicago that merger activity would pick up and United would participate if it finds the right deal.
That Mr. Tilton is apparently acting on his public pronouncements "does not come as a bald-faced shock," says William Brandt, a Chicago-based restructuring expert. If United strikes a deal with one of the six major U.S. airlines, the remaining players would scramble to follow suit, rapidly winnowing the ranks of big airlines.
A spokeswoman for Elk Grove Township-based United, the nation's second-largest carrier, says, "We don't comment on rumors or speculation."
The hiring of Goldman could reunite Mr. Tilton with one of his most trusted advisers during United's recent 38-month bankruptcy odyssey: lead counsel James Sprayregen. After United emerged from one of the largest and costliest reorganizations in U.S. history earlier this year, Mr. Sprayregen left Chicago law firm Kirkland & Ellis LLP to head Goldman's restructuring practice. A Goldman spokesman declines to comment.
Mr. Tilton learned how to maneuver through consolidation in a 32-year career at Texaco Inc. before he joined United parent UAL Corp. as CEO in 2002. An experienced dealmaker, he helped oversee Texaco's $35-billion merger with Chevron Corp. in 2001.
The airline industry is ripe for a similar shake-up, experts say, provided federal officials don't intervene. With oil prices falling back to the $60 range, the industry's 2007 fuel costs are expected to be $6.5 billion less than previous estimates, freeing up capital that airlines could use for acquisitions, says Kevin Mitchell, chairman of the Business Travel Coalition, a Radnor, Penn.-based group that represents large corporate buyers of business travel services.
While they'll show strong profits for the first time in years, the carriers will have strong motivation to deal. Domestic capacity is expected to increase as much as 4.5%, reversing declines seen this year and making it more difficult for carriers to raise prices. Any slowdown in the economy could also weaken passenger demand.
"I think the due diligence is under way," says Mr. Mitchell. "If consolidation ever made sense, it probably makes sense in this mid-term, 2007 to 2008."
For United, the most logical merger partners appear to be Continental and Delta. Both airlines have strong networks in the Southeastern U.S., Europe and Latin America that could feed passengers into United flights across the U.S. and the Pacific.
Delta did not return calls seeking comment. A Continental spokeswoman says, "We consider it speculation, and we don't comment on speculation."
Though United emerged from bankruptcy financially stronger, it appears to lack sufficient equity to play the role of acquirer without an injection of capital from an outside investor. Private-equity firms, hedge funds or even overseas carriers could provide the funds to facilitate a deal.
Any deal that Mr. Tilton strikes would also have to pass muster with United's unions, all of whom are drafting contingency plans for a merger (Crain's, Aug. 21).
But workers may realize there are benefits to be reaped from a deal that bolsters United's balance sheet, Credit Suisse analyst Daniel McKenzie noted in a report last week. After all, Southwest Airlines Co. employees have become some of the best-paid in the industry because the low-cost carrier is the among the healthiest.
"Mr. Tilton's remarks are yet another data point among several that suggest consolidation is on the horizon," Mr. McKenzie wrote.
09-25-2006, 10:26 AM
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Originally Posted by HSLD
Mr. Tilton learned how to maneuver through consolidation in a 32-year career at Texaco Inc. before he joined United parent UAL Corp. as CEO in 2002. An experienced dealmaker, he helped oversee Texaco's $35-billion merger with Chevron Corp. in 2001.
"Mr. Tilton's remarks are yet another data point among several that suggest consolidation is on the horizon," Mr. McKenzie wrote.
"Mr. Tilton's remarks are yet another data point among several that suggest consolidation is on the horizon," Mr. McKenzie wrote.
09-25-2006, 05:34 PM
#4
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Joined APC: Nov 2005
Posts: 758
Originally Posted by duvie
What are the odds of seeing Gordon Bethune in with United at some point in the near future?
http://www.airlinepilotforums.com/showthread.php?t=5917
Gordo has already spoken. He doesn't seem to have much faith in UAL management.
09-25-2006, 06:11 PM
#5
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Joined APC: Apr 2006
Posts: 1,151
I'm curious as to how all of you pilots feel about a possible merger. I've heard a few express positive interest in it. One guy told me that he thought that it was a good thing because he felt that there were too many airlines. Do you guys and gals think that it would empower you both professionally and economically?...just curious.
09-25-2006, 08:17 PM
#6
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Joined APC: Jan 2006
Posts: 80
Originally Posted by Skygirl
I'm curious as to how all of you pilots feel about a possible merger. Do you guys and gals think that it would empower you both professionally and economically?...just curious.
John, UAL furloughee
09-25-2006, 09:09 PM
#8
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Position: 767A (Ret)
Posts: 6,248
Delta/Continental?
Some think that Jerry Grinstein brought Leo Mullin (a banker) to DAL specifically to arrange a merger with CAL. It almost happened, but not quite. Then 9/11, SERPs, bankruptcy, etc. forced Leo out. Maybe Jerry now wants to try the merger himself, just before he retires. 
09-25-2006, 11:11 PM
#9
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Posts: 260
Originally Posted by Skygirl
One guy told me that he thought that it was a good thing because he felt that there were too many airlines.
http://www.aviationplanning.com/asrc1.htm
09-26-2006, 12:34 AM
#10
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Joined APC: Jul 2006
Posts: 4
Originally Posted by tomgoodman
Some think that Jerry Grinstein brought Leo Mullin (a banker) to DAL specifically to arrange a merger with CAL. It almost happened, but not quite. Then 9/11, SERPs, bankruptcy, etc. forced Leo out. Maybe Jerry now wants to try the merger himself, just before he retires.
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