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JohnT
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Capitalist
Mar 1999
time: 00:35
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quote:
Originally posted by Oerdin
United is actually one of the lower cost of the traditional style airlines. Delta is much more expensive on a per flight bases and United has benifeted from at least two bankruptcies in the last 20 years. The problem her is the company has bad management and it is being forced to compete against new low cost airlines which have no pensions to pay, use a different business model (point to point instead of hub and spoke, and yes have a lower pay scale and fewer workers per plane. One of those problems the union has contributed to and the rest really are squarely management's fault.
I don't have a problem with united going under because airlines attract lots of new start ups. I do have a problem with employees being blamed for the fallure when clearly they are the lesser problem here and I do have a problem that executives are going to make millions while retirees will lose their pensions. The management always blames their personal failures upon everything and everyone but themselves then management gives themselves a golden parachute while workers get screwed. |
I've had a surprisingly interesting day today as I was reading UAL's latest 10k report, trying to see whether the accusations have any merit, seeing where this once great Airline is going wrong. 10k's (AKA "annual reports") can make for some interesting reading - it was information buried in an 8k (an amendment to a 10k) that eventually sank Enron.
This (UAL) company is ****ed, no two ways about it. Before I go into employment and compensation structure, here are some choice quotes that will drive home just how UAL is but a house of cards, waiting to be blown down:
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To the extent we are unable to restructure any financings that we believe are unaffordable under our revised business plan, we may face the possibility that one or more lessors or lenders may seek to repossess aircraft... |
it then goes on to talk about a group of "mostly public-market financiers" have ordered their planes repossessed, only to have "been enjoined by the Bankruptcy Court." Noting that the financiers could get possession of their planes at the whim of the court, the document concludes that their repossession may adversely materially affect future results. Not that that really matters in the long-run because...
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As of December 31, 2004 all 237 of the aircraft owned by us were encumbered under debt agreements. |
Since 2002, fuel costs have increased by 50%, from $1.921 billion to $2.943 billion. This $1 billion increase in fuel cost in itself accounts for the entirety of their operating loss this past year, not union or executive agreements. (Pages 7, 14)
Security from the 9-11 attacks have cost the corporations hundreds of millions - perversely, those airlines that did the most to prevent attacks prior to 2001 got punished the most:
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In addition, air carriers are required to submit to the government an additional security fee equal to the amount the air carrier paid for security screening of passengers and property in 2000. |
Liquidity - without it, life's a *****. Hidden at the bottom of page 21 is this little gem, courtesy of a corporation with $1.4 trillion in assets:
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The Company's agreement with a bank for MasterCard and Visa processing currently does not provide the bank with the right to withhold any significant cash deposit to secure the bank's potential obligations to card holders in the event the Company does not provide the promised transportation services. This five-year agreement expires on January 16, 2006. The Company is currently negotiating the terms of a replacement agreement. In the event that the Company does not successfully negotiate a replacement agreement on similar terms to the current agreement, it is possible that the Company will be required to provide a significant cash deposit to secure future processing of MasterCard and Visa charges for the Company's ticket sales. |
"A bank" is obviously Citibank, an entity you can't live without if you are interested in Visa and MasterCard sales. If Citibank decides that UAL is likely headed for a shut-down it could hasten the process by demanding a large cash deposit for future Visa transactions. UAL currently has $2.2 billion in cash (page 21.) In 2004, UAL had $16 billion of operating revenues - if $1 billion of that was through Citibank Visa/MasterCard sales, then Citibank could ask for a cash deposit equivalent to three months sales: a quarter-billion dollars.
Item 6 on page 14 is the last thing I want to bring up in this post as it has the basic financial numbers and ratios. Looking at Delta's last 10K (page 24), and comparing them to UAL's we see that Oerdin's correct - Delta is FAR more expensive per Available Seat Mile (ASM) than UAL:
Delta Operating Expense per ASM: $.1207
UAL Operating Expense per ASM: $.102
Delta Operating Revenue per ASM: $.0989
UAL Operating Revenue per ASM: $.097
Delta Passenger Load Factor: 74.7%
Delta Break-Even Passenger Load Factor: 92.62% (  )
UAL Passenger Load Factor: 79.2%
UAL Break-Even Passenger Load Factor: 86.7%
(Delta has always had the edge on fuel costs, however. But then Atlanta has always had some of the cheapest gas in the country. Not that it matters, as Delta lost $5.2 billion in 2004!)
It's also interesting to note that UAL's assets have declined every year since 2001. Losses of the sort of magnitude that the airlines have been suffering are far more than paper losses - they amount to tangible, capital losses of equipment and rights.
Last edited by JohnT on 25-04-2005 at 09:35
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JohnT
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Capitalist
Mar 1999
time: 00:35
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quote:
Originally posted by Trip
All of the unions have been squeezing the company dry, be it pilots, flight attendants, mechanics, etc. They have directly contributed to the plight of the entire company in its most dire day. What about the other employees not in a union? If the entire company folds what happens to them? |
quote:
Originally posted by Oerdin I do have a problem with employees being blamed for the fallure when clearly they are the lesser problem here and I do have a problem that executives are going to make millions while retirees will lose their pensions. The management always blames their personal failures upon everything and everyone but themselves then management gives themselves a golden parachute while workers get screwed. |
quote:
I'm willing to be the middle and upper management of United is bloated with tons more people then they need and that, as usual, they get huge pay checks many times larger then any pilot much less a baggagehandler. |
Both contentions are incorrect. The number of people employed by UAL is 61,000 - of which, 48,000 (80%, page 8) are represented by 1 of 7 unions. The other 13,000 people represent the "bloated middle and upper management" of the airline - note that there are more AFA (flight attendents) and IAM (machinists and aerospace) union members than there are of the "bloated" management ranks.
In 2004, UAL paid out $5 billion in compensation (page 30), of which they want to enact a plan to save $725 million more. The amount of compensation reductions of its non-represented salaried and management employees was $112 million, or $8,600/person. The flight attendents contract was being reduced as much, $8,400/person, while the pilots and the dispatchers take the biggest hits ($28,000 and $18,500 average reductions in salary, respectively).
Three of the unions have not signed on to the compensation savings plans, including the largest, the IAM. The bankruptcy court ordered an 11.5% across-the-board reduction in their salaries anyway.
The executives and other bloated "parasites" of the corporation aren't doing so well either, Oerdin. Page 14 of the 10k states:
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We believe that UAL's presently outstanding equity has no value and will be canceled under any plan of reorganization we propose. For this reason, we urge that caution be exercised with respect to existing and future investments in any UAL security. |
Stock options, kaput. The pension plan covering management and executive personnel was killed last February:
quote:
United has historically provided unde non-qualified plans the portion of the retirement benefits earned under the pension plan that would otherwise be subject to code limitations; however, in February 2005, the Company terminated the non-qualified pension plans for its salaried and management employees. Similarly, the Company believes that in order to obtain exit-financing, and successfully reorganize and emerge from Chapter 11 bankruptcy proceedings, it will also be necessary to terminate and replace its defined benefit pension plans. |
The current Chairman/President/CEO was hired in September 2002 as essentially a bankruptcy specialist - the Board knew where the company was going, so they hired Glenn Tilton away from Texaco (which had its own bankruptcy problems back in the late-80s) for the job. He agreed to a salary of $950,000 and a bonus of $3,000,000 (just like a NFL contract, actually), however he has voluntarily agreed to reductions to $845,000 then to $712,000 then to $605,000, a reduction of 36% of his salary (quite unlike a NFL contract, actually  .) He also received options to purchase 1 million shares of stock at the bargain price of $3.03/share, but as the stock is delisted, his options are now worthless and will always be worthless (page 65). And again he gets no pension from the company, not even one guaranteed by the government (it's the unions pension plans that are being taken over by the government).
As for his stock, the executives were given the right to transfer the worthless stock to a charity organization of their choice, with UAL "purchasing" the stock from the charity organization (page 64). The top five executives earned $3.7 million in total in 2004, or $740,000/person. The CEO barely cleared $1.1 million, and for a position that I guarantee you is just ****in' brutal, far more brutal on the spirit and soul than being a mere football player.
In regards to "the workers", there are no truly comparable figures (they weren't so helpful as to print a chart comparing wages between unions  ) to determine their wage reductions under the bankruptcy plan, but the two recalcitrant unions have their wages reduced 11.5% and 9.8% respectively by the bankruptcy court, likely in line with the other unions (remember that non-union people had their salaries reduced by 11.2% and the CEO took a 15% pay cut, his third in three years.)
So, looking at the facts, I don't see where the outrage is. Everybody is taking a hit, everybody is losing their pensions, and most people - employees, vendors, creditors, are doing all they can to save this company.
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Imran Siddiqui
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The Potterverse
Jan 1970
time: 00:35
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quote:
The CEO barely cleared $1.1 million, and for a position that I guarantee you is just ****in' brutal, far more brutal on the spirit and soul than being a mere football player. |
You're going to have problems convincing the lefties on this site of this truth, John .
quote:
So, looking at the facts, I don't see where the outrage is. Everybody is taking a hit, everybody is losing their pensions, and most people - employees, vendors, creditors, are doing all they can to save this company. |
It's just an f'ed up situation all around and everyone IS getting hit. As you posted, the Top Hat plans (non-qualified pension plans) for the upper management were terminated and they didn't get 'golden parachute' levels, not by a long shot.
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JohnT
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Capitalist
Mar 1999
time: 00:35
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quote:
Originally posted by Oerdin
[QUOTE] Originally posted by Imran Siddiqui
quote:
The CEO barely cleared $1.1 million, and for a position that I guarantee you is just ****in' brutal, far more brutal on the spirit and soul than being a mere football player. |
You're going to have problems convincing the lefties on this site of this truth, John .
[QUOTE]
Please correct me if I'm wrong but I'm guessing that many of these "bankruptcy specialist CEOs" know the system and know they're going to have salary reductions by the court and therefor demand some what more upfront to compensate(1). In any event he knew exactly what he was getting into when he signed up (bankruptcy experience was the reason hee was hired) so I don't feel sorry for him(2). Also your figures in the salry reduction pointedly didn't look at the $3 million dollar bonus he recieved(3). He already got his money and once the company clears bankruptcy court he will likely recieve new stock options so I'm not going to cry over the lose of his old stock options.(4)
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1. The way to see if this assertion is correct is to compare his salary to others in like positions. Delta's CEO made $3.7 million in 2004, SW Airlines CEO James F. Parker took in $694,000 in salary and $214,000 in stock options, JetBlue's CEO took in $335,000 in total compensation, and the CEO of MesaAir made over $4,000,000 in pay and bonuses. (Source: AFL-CIO.) So it looks as if Mr. Tillman took a very middle-of-the-road package, as opposed to your assertion that he is "milking the system."
2. Nor should you. Nor should you feel sorry for a football player who gets injured or a soldier who gets shot - they knew what they were getting into when they signed up. 
3. A complete and total lie. Did you not even read the sentence
quote:
He agreed to a salary of $950,000 and a bonus of $3,000,000 |
4. Then why cry over the loss of the pensions? Mr. Tillman, believe it or not, is a "worker" too - why is he not deserving of the same faux courtesy and respect that you pay lip-service to when it comes to the line workers? He gave up a very lucrative career at Texaco, with a potential FV exceeding $100 million, to try to lead UAL through this difficult period. He has taken the very same hits he is asking his employees to take (rather than lining his pockets, which you are just so wanting to will into reality). He has no pension. His salary has been cut by 1/3, his 401(k) is worthless, and like all the other employees, he's left with just the hope that there's something to salvage on the other side.
I don't feel sorry for him either - he's a grown man, he knows what could happen. However, the accusations and insinuations that you are constantly making are not supported by the facts, which, btw, are freely available for the looking.
quote:
Companies need to stop dumping their pension debts upon the government and they need to stop underfunding their pension systems just so that when something like this happens the public doesn't get ripped off. |
In the Social Security threads, you argue against the government dumping its "pension" responsibilities on the market - here, you are arguing that pensions need to stay private and not be brought under the government aegis. Which is it???
quote:
There needs to be some sort of regulation tieing the hands of management (both of companies and of municipalities) prevent "balloon payments" and other methods used to put off & put off the funding of pensions for retirees. Yes, this will be another burden on already burdened companies but if the pension debt is going to push a compnay over the edge then at least if it happens in one year instead of 5-10 years then the costs to the tax payer are lower. |
I could go for that, with revisions. You do realize that you're asking for hundreds of thousands, millions of job cuts as companies scramble to fund their pensions, don't you?
Last edited by JohnT on 25-04-2005 at 19:23
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JohnT
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Capitalist
Mar 1999
time: 00:35
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quote:
They'll be given a gift of stock instead of options if the numbers don't add up but they will get something at the end of the day. They always do. |
So? Did you even look at the 10k?
Oerdin, it is a brutally difficult job to guide a company though bankruptcy - you are WAY underestimating the amount of time, energy, knowledge, and preparation it takes to even have a chance of winding an organization the size of UAL through America's arcane bankruptcy laws. It's not a job that can be done by just anyone, and there is a reason why people who can do it (like Lee Iacoccoa) are richly rewarded for their efforts.
Good god, this man is trying to save the livelihoods of 61,000 families, while balancing a legal and financial morass of obligations, commitments, and regulations, and you want to say "**** off" when he successfully does the job!
Tell ya what. We'll put a random flight attendent in charge of UAL, give him/her the same compensation package that Tillman gets, and we'll see how long the airline lasts. Better yet, we'll swap the entire executive suite (all 5 of them, those bloated bastards) with random line workers and see what happens.
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JohnT
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Capitalist
Mar 1999
time: 00:35
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quote:
Originally posted by Imran Siddiqui
And I'm asking for proof rathe than "everyone knows it will happen".
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I have no doubt that it will happen, Imran, the point is whether or not somebody who saves 100,000-200,000 jobs is worth a few million after a job well done. Chrysler actually ran out of cash 3 times in 1979-1980, but Iacoccoa and his team from Ford saved the company through a combination of lobbying, cost-cutting, and new car development (many people don't remember, but the K-car was the first American plate to have front-wheel drive as standard). By 1984, Chrysler was swimming in cash, paying the line workers 4 and 5 figure bonuses, and Lee Iaccocoa began a two-year reign as America's highest paid CEO with appx. $35 million in options and salary.
However, he saved the (then) 7th largest industrial agglomeration on the planet, a company that paid out over $2 billion in salaries in 1985. Is that worth $35 million?
I think so. Oerdin thinks not, that it'd be better to lose the $2 billion in salaries as to avoid paying one person $35 million for saving those jobs.
Imagine a system of bigotry and discrimination based upon what job one happens to have!
Last edited by JohnT on 25-04-2005 at 21:05
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25-04-2005 05:20
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