UAL-Continental’s Huge, Foreseeable Disaster

[Tail Gunner Joe]

United-Continental has committed the classic financial mistake of lending short term and borrowing long term.

source: http://www.investorplace.com/2012/01/ual-continentals-huge-foreseeable-disaster/

Merchants of Debt, meet the new United-Continental.

Basically, in acquiring Continental Airlines for more than $3 billion, United-Continental has committed the classic financial mistake of lending short term and borrowing long term.

Since the merger announcement, the decline in the market capitalization of UAL has roughly equaled the cost of the acquisition. This is nothing new for the airline industry. Republic Airway Holdings (NASDAQ: RJET) acquired Frontier Airlines for $1.1 billion in December 2009. The market capitalization for Republic Airway Holdings is now around $175 million, and it has a short float of over 15%. From the “isn’t it ironic” file, the greatest jump in the stock price of Republic Airways over the last year was when it announced its intentions to sell Frontier Airlines in November 2011. (Big surprise: There have been no takers.) United-Continental now appears to be nose-diving in that direction as well.

 

[Andy]

May 3 2010 vs Friday's close
United: $22.11 vs $19.33
Delta: $12.59 vs $9.41
American: $7.59 vs $0.47
Southwest: $13.40 vs $9.40
US Airways: $7.39 vs $6.37
JetBlue: $5.70 vs $5.44
Hawaiian: $7.25 vs $6.04

Alaska: $45.20 vs $73.52

Maybe it's not just United; perhaps it's just about every airline? Alaska's the outlier.

 

[jonjuan]

May 3 2010 vs Friday's close
United: $22.11 vs $19.33
Delta: $12.59 vs $9.41
American: $7.59 vs $0.47
Southwest: $13.40 vs $9.40
US Airways: $7.39 vs $6.37
JetBlue: $5.70 vs $5.44
Hawaiian: $7.25 vs $6.04

Alaska: $45.20 vs $73.52

Maybe it's not just United; perhaps it's just about every airline? Alaska's the outlier.

No, it's United.

Basically, in acquiring Continental Airlines for more than $3 billion, United-Continental has committed the classic financial mistake of lending short term and borrowing long term. With a debt-to-equity ratio of 5.69, United-Continental’s debt will certainly be long term. In fact, United-Continental’s long-term debt-to-equity ratio is 5.11. In terms of the short-term funds needed to service that long-term debt, earnings growth for United-Continental was -3.78% for the most recent quarter. With a profit margin of just 1.78%, servicing such an onerous debt burden will be crippling.

 

[zonker]

The foreseeable disaster was in not allowing an arrogant ******************** for brains like SmallSack have control.

Please SmallSack... DIAF.

 

[RT8VA]

That article wasn't even worth the time it took to read.

 

[Furloughed80]

Seriously, how does this stuff get published?

 

[Scrapdog]

United-Continental has committed the classic financial mistake of lending short term and borrowing long term.

source: http://www.investorplace.com/2012/01/ual-continentals-huge-foreseeable-disaster/

Merchants of Debt, meet the new United-Continental.

Basically, in acquiring Continental Airlines for more than $3 billion, United-Continental has committed the classic financial mistake of lending short term and borrowing long term.

Since the merger announcement, the decline in the market capitalization of UAL has roughly equaled the cost of the acquisition. This is nothing new for the airline industry. Republic Airway Holdings (NASDAQ: RJET) acquired Frontier Airlines for $1.1 billion in December 2009. The market capitalization for Republic Airway Holdings is now around $175 million, and it has a short float of over 15%. From the “isn’t it ironic” file, the greatest jump in the stock price of Republic Airways over the last year was when it announced its intentions to sell Frontier Airlines in November 2011. (Big surprise: There have been no takers.) United-Continental now appears to be nose-diving in that direction as well.

OMG the biggest airline in the world is gonna fail!! The sky is falling!! GMAFB.

 

[Kugelblitz]

I just love how the same financial entities that promote and endorse these large mega-mergers like we had at UAL/CAL turn around and criticize them as being reckless and ill-advised. After the financial writers, reporters, and their ivy-league, MBA buddies have made their fortunes, that is.