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Future of United???

TIMP

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United Airlines' stock dives another 21 percent


By Dave Carpenter

ASSOCIATED PRESS

Saturday, August 3, 2002

CHICAGO -- United Airlines' long-descending stock plunged another 21 percent Friday after the airline confirmed that it had hired bankruptcy attorneys months ago.

UAL Corp.'s stock fell $1.07 to $4.15, down from $35 a year ago.

United spokesman Joe Hopkins confirmed that the airline had hired bankruptcy lawyers, although he said the hiring was shortly after last year's terrorist attacks -- not earlier this year, as the Business Week report that prompted Friday's stock dive said.

Hopkins declined to comment directly on the prospects of bankruptcy, although he said the bankruptcy firm, which he would not identify, has been retained.

"We're continuing to try to get our labor costs down as part of our recovery, and we're continuing to pursue our loan guarantee through the Air Transport Stabilization Board," he said.

Last month, United reported a second-quarter loss of $341 million, attributing it to widespread fare reductions by discount air carriers and limited spending by business travelers. It warned that it would suffer losses for the remainder of the year, after losing an industry-record $2.1 billion in 2001.

Among its concerns is paying a $900 million debt due in the fourth quarter.

The Elk Grove Village, Ill.-based airline asked the federal government in June to back 80 percent of a $2 billion loan. The government made $10 billion in loan guarantees available to airlines to help carriers in the wake of the terrorist attacks.

Fears of bankruptcy first surfaced last October, when then-CEO James Goodwin warned that United could go out of business this year if it could not stem huge losses that worsened dramatically after Sept. 11. Goodwin resigned in the resulting furor, replaced on an interim basis by UAL board member Jack Creighton.

United has since shored up its cash position by selling planes and making other cutbacks. Excluding $273 million in restricted cash, it reported a hefty cash balance of $2.4 billion as of June 30.

But the airline has said it is virtually shut out of borrowing markets, hurt by its weak standing and the sputtering economy.

Morningstar analyst Jonathan Schrader said bankruptcy is "certainly a possibility" for United, although not necessarily imminent.

"Eventually, unless they make significant changes to their operating structure, they're going to fold," he said. "Their balance sheet is increasingly weak, and they can't take continuing losses by lowering fares."




Anyone have any opinions about the future of UAL? If they go under what happens to companies like ACA?
 

DesertFalcon

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I think under the current conditions, United could go under, not soon, but in about 1.3 years.

Contradicting my statement, I don't think the government can afford to allow such a large airline to collapse. Air Transportation is too valuable to the counties economy; United is to important to the U.S. Transportation economy.

Look for government intervention should United look like it will go into Bankruptcy.
 
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bigr

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DesertFalcon said:


Look for government intervention should United look like it will go into Bankruptcy.

Unlikely. the gov't has already provided billions in loan guarantees.

If UAL enters bankruptcy, it is not necessarily the end. TWA was in bankruptcy for years and still flew. Although it was a shadow of the airline it once was until AA scooped it up.

Don't look for the gov't to bail UAL out, if you don't believe me discuss it with your Eastern and Pan Am collegues.
 

TurboS7

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If UAL goes Chapter 11 and the stock drops buy, buy, buy, tough times but they will still be around.
 

TIMP

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So if UAL does go into chapter 11, what becomes of the United Express carriers like ACA which rely heavily on them?

Timp
 

airgator

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Let that stock keep going down. The more people sell and the more it goes down the more I'll buy. United is a solid airline, times are tough right now, but they'll come back around eventually. So they hired some bankruptcy lawyers..that does not mean that they're done with.
 

generaltso

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I wouldn't buy any stocks in this market. You know it is funny how people say let UAL keep going down and I'll buy more and more. Do you know how many people did that with Enron, WorldCom, Pan Am, Eastern, and so on?

Yes it's tempting, and no one wants to see UAL go down. But if you really want to invest some money in the stock market maybe you should be shorting UAL or U, although it may even be too late for that.
 

Wiggums

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UAL would be a poor short. If you bought UAL at five and they go bankrupt you'll still be well off in the long term. UAL will run out of cash to close to the 2004 election for this government to allow them to cease to exist.

United's stock has really been beaten down. Their market cap is down to 232 million, compared to AMR's cap of 1.5 billion. If you believe that they aren't going away then UAL should be a good investment.
 

Beechnut

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Hey guys, two points.

Is anyone surprised that they hired those Lawyers? Do you think that a company the size of United decides they may need to use the option of bankruptcy, announce it, but never consult professionals that deal with the very subject for a living?

And better yet: The ERP roadshows are this week. This a perfect opportunity for United to tell those pilots to think long and hard before rejecting the plan.

S.
 

Pileit

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Companies run on money. Don't be fooled. When United runs out of money, it will declare bankruptcy. There will be reorganizations, sale of assets, on & on until slowly the beast will die. Maybe in an earlier day would the govt throw them a life raft, but in todays economic climate don't count on it. Our economic system is based rewarding those who can evolve and compete in and ever changing market. It will be sad when people lose their jobs, and the United heritage is lost, but when it's all said and done the airline industry will be healthier as a stronger player moves in to fill the space.
 

Yeti

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TIMP said:
So if UAL does go into chapter 11, what becomes of the United Express carriers like ACA which rely heavily on them?

Timp

Bump...

How would this hypothetically play out?
 
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Wiggums

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Pileit: Yes, at the current rate of loss, even with the loan guarantees, United will run out of cash in the next two to three years. However, this is assuming everything will stay the same indefinitely. Fortunately, when the economy is going well United, along with other large airlines, usually do very well. Look at 1997-1999, United made over a three billion dollar profit. Yes, right now airlines like Southwest and JetBlue eating away at routes and yields, but the market cannot be served only by Southwests and AirTrans. In the future not all flying will be done on regional jets. There is a need for large international carriers such as United and American.

United did hire bankruptcy lawyers, but this happened right after 9/11. Even so, there are other airlines that are much weaker then United that will go under before them. US Airways only has a little over one billion on cash, and this is after receiving 900 million dollars in federally guaranteed loans. US Airways is still around, even though they haven’t really made any money in over ten years.

United isn’t a slowly dying airline like US Airways, TWA, or Pan Am. It is a pretty decent franchise, with a good route structure. Pay cuts for the pilots and management will save the airline $100 million each quarter for the next three years. Also, as the economy recovers United will slowly bring back equipment and employees, which will further reduce losses and lower the breakeven load factor. The recently announced codeshare agreement with USAir will also help to reduce losses. I expect United to be around and be profitable again when the airline industry recovers.
 

publisher

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question

I do not think that there is any question that United will be around, just what level they will be at.

It si becoming pretty apparent that the differences between low cost carriers and majors on domestic routes is hard for the customer to see anymore.

United has been through a series of things that have not done it any good and the customer base is eroding. Now a strong franchise can get it back to some extent but I think there is a systemic change here that will make it more and more difficult for them to come back to the predominant postion they used to enjoy.
 

TurboS7

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As soon as the major's cut their meal service that was the only thing to seperate them from the SWA and the likes. Now one is the same as the other so why pay the extra, makes no sense.
 

AWACoff

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United has approximately 2.7 billion in cash right now. They have approximately 900 million in debt due immediately. That leaves around 1.8 billion. Since they are losing about 1.3 to 1.5 million a day, that still leaves a good number of years before they go "belly up". Don't panic people.
P.S. These numbers came from one of the owners of Air Wisconsin.
 

JimNtexas

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How can United compete with Southwest, Jet Blue, and other low cost carriers? Their costs are so high in comparison, and the culture of both labor and management seems very dated and inflexible.

The only difference between Southwest and United to the passenger is that you can reserve a seat on United. People won't pay extra just for that.

It's like watching a Greek tragedy. You know what the outcome will be, but it hurts to watch.

Jim
 

Wiggums

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What has changed so suddenly that United cannot compete with low fare airlines? Hasn't United been completing with low fare airlines like Southwest, America West, People Express, and New York Air for over twenty years?
 

habubuaza

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There are so many variables working against Airlines like United. First of all companies like United don't have a lock down on reservations and travel agents. The internet took care of that. They don't have a lock down on the Business travelers market fractional jet ownerships took care of that. And the forgotten economy traveler, the segment of the traveling public that has been forgotten for so long, well JetBlue, SWA and Airtran took care of that. Combine that with massive debt. Combine that with shriveling revenues from cargo and mail. Combine that with out of control labor costs. Last I checked Frontier wasn't doing too bad out of Denver. And who does United pair up with USAirways. It's like 2 rocks tied togethor in a lake. They don't even have a CEO for Christ's sake. I think that United, American, Northwest, Continental, and even Delta have big big problems ahead.
 

TIMP

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Without getting into a quantitative balance sheet analysis I personally can't see how UAL can survive in the future unless they go through some MAJOR structural changes in management, operations, and labor/management relations. They are so large and regimented that they can't seem to adapt to change quickly enough to accommodate unforeseen economic pressures (not just speaking of 9/11).

Unfortunately, I think this is the inevitable fate of any "old school" company that grows so large. Kind of like "hardining of the arteries". Survival is possible, but only through painful restructuring (IBM and Sears come to mind). All those low cost carriers like JB, SWA, etc, are still small enough to flex against pressure. And when they do increase in size they need to work hard to maintain their operating principles that kept them healthy.

UAL and DAL remind me of "full service stock brokers" whereas JB and SWA are the discount brokers. Most of my friends, including myself (average middle-class Americans), go for what ever is cheaper as long as it's not unreasonably inconvenient and gets the job done. For me meals and seat reservations can't justify and extra $200-300.

I do hope they pull through, though.
 
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