United Airlines: Ripple Effect on Boeing, Airbus

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tsipple (529 posts) Dec-07-02, 07:16 PM (ET) United Airlines: Ripple Effect on Boeing, Airbus The bankruptcy of United Airlines will likely release several relatively young aircraft onto the market as the bankrupt carrier downsizes, further depressing prices in an already depressed airliner market. Excluding regional and commuter affiliates, United flies approximately 550 jets, one of the largest fleets in the world. The average age of a United jet is approximately 9 years -- relatively young by commercial airline standards. United has a mainly Boeing fleet, with nearly every current production Boeing model in its stable, including 737, 747, 757, 767, and 777. (United was Boeing's launch customer for the 777 in fact.) In recent years United has also acquired new Airbus A319 and A320 aircraft, although the airline is still one of the most loyal Boeing customers. If any (or all) of these aircraft were to find their way onto market, the few remaining aircraft buyers would enjoy lower prices, also driving down the prices of new Boeing and Airbus commercial aircraft. A single Boeing 737 aircraft retails for approximately $60 million U.S. dollars new, so losing even a single aircraft sale represents a significant economic impact to manufacturing workers and suppliers. Trouble at U.S. Airways further exacerbates the glut of commercial airliners going to market. U.S. Airways flies a more mixed fleet of Airbus (A319, A320, A321, and A330) and Boeing (737, 757, 767) aircraft, last numbered at 282 planes split about evenly between the two manufacturers. (U.S. Airways, already in bankruptcy, is now threatened with liquidation.)   Alert Edit | Reply | Top

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Subject     Author     Message Date     ID    Do you know what pending orders UAL has with Boeing? IndianaGreen Dec-07-02 1    United Already Called Off Its 2003 Boeing Orders tsipple 12/07/2002 3  U.S. Airways Fleet Age tsipple Dec-07-02 2  Chapter 11 rapier Dec-07-02 4    Trouble in leaseland rapier 12/14/2002 5        There is more. Code_Name_D 12/14/2002 6            yes and no rapier 12/14/2002 7                I agree, mostly. Code_Name_D 12/14/2002 8

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IndianaGreen (13170 posts) Dec-07-02, 07:25 PM (ET) 1. Do you know what pending orders UAL has with Boeing? The Boeing workers saw their jobs go to Texas, a better business climate it was said.   Remove | Alert Edit | Reply | Top

tsipple (529 posts) Dec-07-02, 07:30 PM (ET) Reply to post #1 3. United Already Called Off Its 2003 Boeing Orders Boeing has already delivered every new aircraft on order to United, as far as I know. But news reports indicate that Boeing is on the hook for aircraft payments, should United file for bankruptcy. (Boeing CEO Phil Condit is already talking about setting aside contingency funds to cover losses.) Boeing's defense businesses are doing well right now, but not enough to offset the depression in its commercial lines.   Remove | Alert Edit | Reply | Top

tsipple (529 posts) Dec-07-02, 07:26 PM (ET) 2. U.S. Airways Fleet Age The U.S. Airways fleet averages about 12 years old, which is in the middle of the pack for U.S. airlines. Continental has the youngest fleet among the major U.S. carriers (a bit under 8 years average age), and all-business-class Midwest Express has the oldest (a bit over 27 years average age). Properly maintained, older aircraft are as safe as newer aircraft. The point here is that newer aircraft are more valued (and, hence, depress market prices more significantly), often because newer aircraft are more fuel efficient.   Remove | Alert Edit | Reply | Top

rapier (401 posts) Dec-07-02, 08:28 PM (ET) 4. Chapter 11 LAST EDITED ON Dec-07-02 AT 08:43 PM (ET) United will file chapter 11 and keep flying. They will probably downsize. In other words all those planes are not going to hit the market at once. The hidden cosequense of this lies in the leasing market. There are already 1500+ airliners in mothballs and the market is a shambles. Most aircraft are leased and the leases are futher sliced and diced thru the miracle of modern financial engineering and this blizzard of paper supported by leases and the underlying value of the planes is in disarray. Who knows what sort of suprises lie await in Uniteds books. I say plenty because the powers that be were desperate to save United but at the end of the day they refused the bailout loan. One has to ask why? Probably because there is a lot of rot there. (I would love to place a little wager that there was some real hardball politics on this one and that the White House wanted a bailout loan even if it was doomed to fail. What's another few tens of billions of spending anyhow? The operative rule now is delay troubles and hope for better times soon. Watch for a story about this in a few months about how this loan board stood up to a lot of pressure) Huge losses are being taken by all sorts of entities from the major corporations to wealthy individuals to retirement plans, and of course the banks and GE on these leases and their derivatives. Per usual these losses are being downplayed and to a certain extent hidden. If it seems odd to you that one gigantic bankruptsy after another never seems to cause much harm it is because most of it is still lying on the books hidden, or in 'special purpose entities' in Bahamian PO Box banks. How much longer this can go on is anyones guess. There are probably more big bankruptsies comming soon. Bankruptsy is always due to one thing, inability to pay off debt. That is the definition of default. The amount of debt in the sytem, personal, corporate and govenment is staggering and growing almost exponentially. This year the US overall will add $2.5 trillion in new debt. It is hardly surprising that with so much debt there are so many defaults. One follows the other and this train is gaining speed, with no end in sight. Everyone who is anyone is urgeing everyone to borrow more. Insanity. No individual, no company and no government has ever borrowed and spent their way to prosperity. This bizzare proposition, borrow more and more, is the direct but unintended consequese of 'supply side' economics. The advent of supply side coincided with soaring debt and shrinking savings. 25 years of this suggests this isn't a coincidence.   Remove | Alert Edit | Reply | Top

rapier (401 posts) Dec-14-02, 04:55 PM (ET) Reply to post #4 5. Trouble in leaseland As I said in the above post the first big problem in the UAL bankruptsy is going to be with lease holders. Unfortunately I lost the link but United said late week that they are in effect renouncing all their old leases. They will be sending new terms to the lease holders soon. You can bet your bottom dollar the terms will not be so good for the lease holders. Can they get away with this. For sure. As long as the bankruptsy court allows them forego the old leases then United is probably in the drivers seat in dictating more favorable rates. After all, the aircraft market is terribly weak. If a leesor doesn't like the new terms I am sure United will just give them their plane back and the owner can go park it in the desert and get no return. General Electric is probably the big dog here. Maybe Boeing itself is. Lots of high income idividuals will take a hit as will lots of pension plans and even unrelated corporations. Certainly hundreds of millions of dollars are in question. Al Greenspan will just have to run the dollar presses just a bit faster to make up for it.   Remove | Alert Edit | Reply | Top

Code_Name_D (1025 posts) Dec-14-02, 05:09 PM (ET) Reply to post #5 6. There is more. Aprintly bankrupsey also gives grater flexability in deeling with labor unions. Or should I say, in busting unions. I have to say, I do not see a whole lot of nigitives for United with this bankruptsey things. In fact, bankrupsty may be the new buisness fad to make money. We are not dealing with real buisness people here folks. My pet rock can manage a buisness better by sitting on a brick of gold. These people are confdeine artists, and they will scame money any way they can. And from where I stand, the corts are the next victems. And from the looks of things, the judges will be even dummer than we are. ( ________Iraq doesn't have WMD!________ ) ( Bush is a liar, and is making this up! ) ( _______Bush only wants the oil!_______ ) __/\/\__000 O 000000 By order of the Department of Homeland Security _(_¬ ¬)_. o000000000 the above thought has been censored. \__\/__/ The Wizards of Money at http://wizardsofmoney.org/   Remove | Alert Edit | Reply | Top

rapier (401 posts) Dec-14-02, 07:31 PM (ET) Reply to post #6 7. yes and no LAST EDITED ON Dec-14-02 AT 08:09 PM (ET) Airlines are possibly the worst industry in the world, No airline ever made money consistently, which is why they were always state subsidised or in our case had regulated competition and prices. The era of deregulation and privatization ushered in the era of failure. Airlines have stupendous fixed captial costs, something that is anathma in modern bussiness thinking. The also have gigantic liability issues and are very dependent upon the overall economic cycle. In other words, a nightmare of a bussiness. Airlines are one of the few corners of the corporate world where executives and majority owners did not reap outsized salaries and profits. There was little of the absurd gaming that went on in much of corporate America in the airlines. Not because they didn't want to but because there was so little available to be gamed. While airlines have always had a prestige and required a highly trained workforce which won good wages the unrelenting fact is that they are not consistently profitable. I am absolutely sure that if all results from all airlines were added up since the dawn of aviation you would find that in total they have lost money. While I sympathise with most greivances of airline employees and know that lower wages hurt I can see no way that they can expect above average wages. Unfortuenately 'average' for the American worker is I think destined to go lower as well. One part of me hates this. One part of me knows that our overwroght consumption obsessed lifestyle is obscene in light of 1 billion souls living on $2 a day. No, economics is not a zero sum game. Yet at some point, somewhere inside, we have to be able to be happy with less. Less not compared to the greedheads but less in light of those who have nothing. If that doesn't move you then in relation to the environment.   Remove | Alert Edit | Reply | Top

Code_Name_D (1025 posts) Dec-14-02, 09:26 PM (ET) Reply to post #7 8. I agree, mostly. True, their may not be the depth of skullduggery taking place as in Enron, but the airlines are still assembled under the GOP "greed is good" model. The airline CEO's are getting some action, its how they are motivated to "run a corporation." You can rest assured that they will lay off the workers by the thousands, rather than "engage in a vain gesture" (Is my own CEO said) to see their own compensations cut. This is the heart of the mater that "upsets you." It's a fundamental foundation with in modern business that the workers interests are subordinate to the CEO's interests. In truth, the CEO's interests are superior to all others, security, safety, customer needs, and transportation needs, every thing. The code of an aristocracy. But to a large extent, I agree with you. Airlines are one of those sectors of the economy that do not function well under a privatized model. I think airlines would function better if they were integrated into a much larger public transportation infrastructure. (I am not advocating that air line tickets be free. Some yaw-who is no doubt going to come along an put those words in my mouth.) That is, airlines would play a role in allowing a pedestrian (some one traveling only one foot) assess from any address on the globe, to any address on the globe. In other words, that the function of the air lines, is to be part of a long distance transportation infrastructure. We don't have that. And we won't so long as the prevailing view point of the function of the airlines is to make money. That is the point that I am trying to make. There is a critical disconnect between the practices of business and the needs of society. Especially when money overrules those needs. A dramatic example of this is the lax security (because security is so expensive) that allowed 911 to happen. The airlines have no incentive to protect buildings. And the incentive for security drops even more with this new insurance bill. Money wins out again. Not all of our problems are economic in nature. In truth, it would seem that most of our problems would seem to be sociological. ( ________Iraq doesn't have WMD!________ ) ( Bush is a liar, and is making this up! ) ( _______Bush only wants the oil!_______ ) __/\/\__000 O 000000 By order of the Department of Homeland Security _(_¬ ¬)_. o000000000 the above thought has been censored. \__\/__/ The Wizards of Money at http://wizardsofmoney.org/   Remove | Alert Edit | Reply | Top

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