Was CAL Headed for Bankruptcy Before Merger
 

Were there a bunch of pilots running around with stickers saying CAL saved UAL?

Well anyway, I guess career expectations were not really what some might thought they were.

Was Continental Headed for Bankruptcy Before Merging With United? - Seeking Alpha

The airline industry is a highly competitive industry which generally earns low returns because of the high cost of operation. This can bring disaster when times get tough in the economy.

Continental Airlines (CAL) is the fourth largest airline in the US based on revenue passenger miles. It was founded in 1931 and commenced operations in 1934. Continental Airlines had been through Chapter 11 twice. It filed for bankruptcy for the first time in September 1983 and remained under Chapter 11 from 1983 to 1986. Continental filed for its second bankruptcy in 1990 mainly due to the increased jet fuel prices after the Gulf War of 1990. In 1993, Air Canada, Air Partners and Texas Pacific Group enabled Continental to emerge from bankruptcy by investing $450 million in the airline.
Was Continental Airlines heading towards bankruptcy for the third time before merging with United Airlines (UAUA)? Altman Z-score analysis, capital structure analysis, and profitability analysis shows that the company was in distress before the merger was announced.
Altman Z-Score Analysis:
Altman Z-Score decreased to 1.2 in year 2009 from 1.7 in year 2008. At the end of June 2010, the company had a Z-Score of 0.49, which means that the company was in distress zone and chances of financial embarrassment were very high. (Data source: Old School Value)
Zones of Discrimination:
Z > 2.99 –“Safe” Zone
1.8 < Z < 2.99 –“Grey” Zone
Z < 1.80 –“Distress” Zone

Capital Structure Analysis:
At the end of year 2009, the company’s total debt to equity ratio was 1062%. Debt comprised 91.4% of the total capital and equity comprised only 8.6% of the total capital. Also, about 15% of the company’s total debt was due in year 2010 and another 18% was due in year 2011, which would have created problems for the company. The company had approximately $7 billion worth operating lease commitments due in next five years.

Million $
Percent
Debt
6266
91.4%
Equity
590
8.6%
Total
6856
100%


Million $
Percent
LT Debt (Incl. Cap Leases) Due 2010
975
15.6%
LT Debt (Incl. Cap Leases) Due 2011
1148.9
18.3%
LT Debt (Incl. Cap Leases) Due 2012
590.9
9.4%
LT Debt (Incl. Cap Leases) Due 2013
656.9
10.5%
LT Debt (Incl. Cap Leases) Due 2014
338.9
5.4%



Total LT Debt (Incl. Cap Leases) Due in next 5 years
3710.6
59.2%
Total LT Debt (Incl. Cap Leases) Due after 5 years
2555.5
40.8%
Total
6266
100.0%

Million $
Percent
Total Term Long
350
5.6%
Total Senior Bonds and Notes
5272
84.1%
Total Capital Leases
196
3.1%
Total Trust Preferred
248
4.0%
Other Borrowings
200
3.2%
Total
6266
100.0%

Million $
Percent
Operating Lease commitment due 2010
1485
10.5%
Operating Lease commitment due 2011
1432
10.1%
Operating Lease commitment due 2012
1487
10.5%
Operating Lease commitment due 2013
1331
9.4%
Operating Lease commitment due 2014
1285
9.1%



Operating Lease commitment due in next 5 yrs
7020
49.7%
Operating Lease commitment due after 5 yrs
7094
50.3%
Total
14114
100.0%
(Source: Capital IQ)
Profitability Analysis:
Continental Airlines had negative operating earnings in the years 2008 and 2009. The company’s ROA and ROE were also negative in the years 2008 and 2009. In year 2009, the company paid around $330 million in interest expenses.
Jet Fuel Price Analysis:
The airline industry is extremely sensitive to costs such as fuel, labor and borrowing costs. Jet fuel price in 2010 increased by about 10.7% compared to 2009.

Doesn't matter. That's like the CAL guy that was arguing that the 50 widebody orders that the legacy UAL side has on order would have really been theirs but UAL took them instead of CAL, etc.

Whether they would have or not, ALPA merger policy is going to only look at the status quo and not try to extrapolate a bunch of hypothetical scenarios that would not be defensible if this was appealed.

Isn't it time to let this all go, or are we waiting on the SLI first?

Read the comments. Here's one:

Ugh! I hope you're not displaying your proud work as biz school student with this! I'm not sure a paper like this would not make it out of most junior high classes without a plethora of red marks as even a basic essay. Anyway, your graph heavy, some unexplained guy score of "distress", and basic look at some spreadsheets, does not shed any new light on either Continental Airlines, or any other airline for that matter. If I looked at 2008, I could conclude that mutual fund managers lose 30-50% of my money per year! And 20% of people default on mortgages annually! Your snapshot is bad, your stats are buried and non-comprehensible, and you've reached the same conclusion of "No ******* Sherlock" that almost every analyst who covers airlines has reached. Airlines run more like drug dealers than 3M, heavy on cash, ups and downs, getting people hooked on cheap flights and frequent flier miles, and getting credit from the goons who supply him, the lessors (banks) and credit card mileage holders (banks). While I realize there is no comparative model to this, just as there was none to compare Investment bankers and their derivatives to the guy playing 3-card monty on the subway, you shouldn't try to bury us in spreadsheets and trite analysis and think you've created something great. Your analysis of the obvious isn't obvious itself, and that is the real "distress."

The fact is UAL was in trouble before this merger.
Its a tough reality to accept, so if this kind of stuff gives you some comfort, then by all means, indulge :rolleyes:

No.......................

Not in "trouble" at all. Are you kidding?

Anyway its not going to matter.....

I disagree, UAL was in a lot of trouble before the merger.

We parked all the 737's to prepare, Tilton was only interested in the merger, not runing an airline. No capital reinvestment at all, in fact anything that cost money, even stuff that would save money, was not done. RJ's are a lot more expensive to run than 737's. Old 747s no new orders. Yes we were in trouble but only because Tilton was more incompetant than Smizec--barely. It was amazing we were running at all. But to say CO rescued us is more than a stretch.

Good thing ALPA got that old merger policy straightened out for you guys, huh? Excuse me, straightened out again.

Well, smisek has no interest in running an airline either. He is, after all, a Mergers and Acquisitions attorney. Hopefully, he'll leave soon and we'll get an ops guy that actually wants to run an airline and compete with Delta.

Seriously?

I am begging everyone reading this thread to take a deep breath and back away. What's done is done, and now we have to work with what we have and the reality it brings. I enjoy flying airplanes to Rome and having dinner, and any problems I have with my career are not related to whether or not the guy next to me came from CAL or UAL or voted "yes" or voted "no", and SLI will never be changed by pilot hysterics.

Joe Peck
IADFO-756
DOH 4/1/96