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UAL Management speaks! UFB

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Mr.B

Well-known member
Joined
Oct 19, 2003
Posts
365
Can you believe this idiot! UAL can't hedge as effectively as others because of their hubs proximity to the gulf! YGBSM!



Please furlough me soon or just shoot me.





Dear Fellow Employee,

Today, we provided investors with updated guidance on our expected fourth quarter performance in revenue and fuel.

We also provided additional information about a modification to our agreement with Chase, our largest credit card processor, that suspends the requirement for United to post cash reserves should our cash balance fall below certain levels. This revised agreement instead enables us to use our unencumbered assets as collateral. This change provides the company with greater flexibility, and we will still have more than $2 billion in unencumbered hard assets.

As to revenue, several carriers, including Delta, US Airways and Continental have recently lowered their guidance for the fourth quarter, reflecting weakening market conditions. We also adjusted our revenue growth expectations to reflect the current market. Today, we announced that we expect consolidated passenger unit revenue (PRASM) to increase between 2.5 percent and 4.5 percent year-over-year for the quarter. These numbers are in line with what other carriers have announced.

We also announced what our expected fuel price will be for the quarter and the accounting impact of our fuel hedging program.

In the fourth quarter, we expect to pay on average $2.81 per gallon for mainline jet fuel, rather than the $3.01 we expected to pay previously; and this includes the cash losses on our hedge contracts entered into when fuel was much higher in price. This cash fuel price is what investors will focus on.

Clearly fuel prices coming down is good news for us, and for the industry. Every dollar that fuel declines equates to about $60 million in fuel savings per year for United, excluding hedge impacts. It is important to note, as the price of fuel declines, we benefit on the unhedged portion of our fuel purchases.

Over the course of this year, when fuel prices were escalating, we systematically added hedges to protect us from further fuel price increases. With the recent fuel price decline, we are required to post collateral today to cover potential fuel hedge losses that may occur when our contracts settle.

Unlike most of our peers, we do not currently benefit from cash flow hedge accounting which would not require us to book expenses for hedges in place that have not settled.

To qualify for cash flow hedge accounting, the product hedged must correlate closely to actual fuel cost. Fuel hedging is predominately based on West Texas Intermediate Crude Oil (“WTI”).

United’s hubs are not in close proximity to the Gulf Coast region, so our true cost of fuel includes a charge for transportation cost to our hubs in the Midwest. This makes it more difficult to qualify for cash flow hedge accounting compared to peers that have hubs in Texas and Georgia. The large non-cash accounting charges we expect to book this quarter is one of the main reasons we expect our accounting hedge losses this quarter will be larger than those of some other carriers.

As we’ve said, lower fuel prices benefit our company and all of us. In this volatile environment, we are taking the right steps to ensure that we have the flexibility to achieve our business plan, respond to the current market, and ultimately return United to profitability.

Kathryn Mikells
 
BTW, "close proximity" is redundant as it means close, closeness. I gues they are really, very far away from the Gulf.
 
UA Collateral On Fuel Hedges - $1B

UAL collateral on fuel hedges rises to almost $1B
AP ONLINE
Posted: 2008-11-25 13:18:00

MINNEAPOLIS (AP) _ Falling oil prices have forced United Airlines to put up hundreds of million of dollars in new collateral on fuel hedges that have turned against it, and on Tuesday it said it had re-worked a credit card agreement to reduce penalties if its cash balance falls.

Based on Tuesday's oil price of around $51 per barrel, United would have to put up some $990 million in collateral, according to a formula for its fuel hedges that it disclosed on Tuesday. By comparison, as of Sept. 30, it had $378 million in cash deposits held by people on the other side of its bet that fuel prices would keep rising.

Shares of United parent UAL corp. jumped $1.67, or 18.9 percent, to $10.52 in afternoon trading. Other airline shares rose, although not as much, as the price of a barrel of crude oil fell $3.37 on the New York Mercantile Exchange to $51.13.

Falling oil prices have stung United and other airlines because they bet that oil prices would rise. Airlines still save money because their fuel bill shrinks, but the hedging losses have forced them to take non-cash charges that could turn into cash losses if oil prices stay at current levels or fall further.

Based on Thursday's oil prices United said it expects to end the fourth quarter with $232 million in cash hedging losses, and another $138 million in noncash losses.

Chicago-based United said that without hedging it would have paid $2.57 per gallon of jet fuel during the current quarter. Counting hedges that have settled, that price rises to $2.81 per gallon. If current paper hedge losses become a reality, that price would rise to $3.70 per gallon, United said. United said it expects to use 500 million gallons of fuel for its mainline flying during this quarter.

United also said it bought put option contracts aimed at capping hedging losses if oil prices keep falling.

United ended the quarter on Sept. 30 with $2.93 billion in unrestricted cash. If that fell below $2.5 billion, one of its credit card processing agreements required it to put up additional cash reserves above the current $25 million.

On Tuesday United said it had made a deal with the processor to push that cash requirement back to Jan. 20, 2010. In exchange for that leeway, United put up as collateral planes appraised at $800 million.

United can end the arrangement early if it wants to, and revert to its prior deal with the credit card processor. Under that arrangement, United's 25 percent cash reserve requirement jumps to 15 percent of its advance ticket sales if it has less than $2.5 billion in cash, with higher reserves if its cash drops further.

"In an environment where revenue and fuel remain uncertain, we believe the modified agreement provides the company with increased flexibility," United spokeswoman Jean Medina said.
 
Glenn Tilton is an unmitigated A$$clown! When will it end? We're losing money because oil is going up. We're losing money because oil is going down. We're losing money because of labor.

YOU"RE LOSING MONEY BECAUSE OF GLENN! WHERE IS THE BOD????!???!?

PIPE
 
Yeah, what they need is an oilman.....

Glenn Tilton is an unmitigated A$$clown! When will it end? We're losing money because oil is going up. We're losing money because oil is going down. We're losing money because of labor.

YOU"RE LOSING MONEY BECAUSE OF GLENN! WHERE IS THE BOD????!???!?

PIPE

I guess what UAL needs is an oilman, someone who understands the oil industry. Heh, I think Dick Cheney will be available soon......
 
From the letter:

"Clearly fuel prices coming down is good news for us, and for the industry. Every dollar that fuel declines equates to about $60 million in fuel savings per year for United."

Wow! You guys are really fuel efficient for a global mega airline! I flunked calculus in college, but if you save a buck a gallon and save $60M in a year, you use 60M gallons. I would think UA would use a slight bit more gas than this in a year!

He may be using the barrel price, but in the letter he is talking about the gallon price. Maybe Mr. Tilton flunked math as well?
 

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