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UAL news..

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Well-known member
Mar 7, 2004
July 28th EyeOnUA

Glenn Tilton

Chicago July 28 /UAL Communications/ It is Thursday morning, July 28th, and
I'm calling today from Chicago.

Today, we reported our financial results for the second quarter, and they
are solidly competitive. Despite the fact that fuel costs were $262 million
higher than in the second quarter of last year, we earned an operating
profit of $48 million.

Of the major network carriers, only three - ourselves, American and
Continental - reported an operating profit this quarter. Delta and
Northwest reported operating losses.

Our mainline unit revenue was up 5 percent, and mainline costs, excluding
fuel, were down 3 percent, year-over-year. These performance measures also
put United in line with our leading network competitors.

Three years ago, Continental was viewed as the leading network carrier in
terms of cost per available seat mile. In the time we have been in
restructuring, we have virtually closed the mainline cost gap ... excluding
fuel ... going from a 16 percent disadvantage to virtual parity today.

Although by no means sufficient, these results show significant progress for
the company, particularly given the dramatically uncompetitive position we
were in three years ago.

In this quarter we have taken a predominantly non-cash charge of $1.4
billion for reorganization items, covering the transfer of pensions to the
PBGC, the rejection of aircraft and other creditor claims.

This non-cash charge will receive some attention and can be confusing, but
because non-cash charges do not affect our operations or our liquidity, the
important number to focus on is our operating earnings, which is the correct
measure of the underlying strength of our business. The non-cash items
will be addressed in the normal bankruptcy process as we exit from Chapter

During the second quarter we also achieved ratified, consensual collective
bargaining agreements with AMFA and the IAM -- meaning that we now have
ratified contracts with all our labor groups.

We also have replacement retirement plans in place for all of United's union
and non-union groups, with the exception of the AFA.

We sustained our strong operational performance during the quarter, improved
productivity and reliability, and continued to see the benefits of aircraft
utilization efforts, with a significant improvement. This means that we
have been able to reduce the size of our fleet by 13 percent while
maintaining 97 percent of our available seat miles for the public.

These results make clear that we have put in place a solid foundation, and
we are ready to move ahead as a much more competitive company.

This progress was made evident by the fact that we were able to increase the
size and reduce the interest rate of our debtor-in-possession financing
agreements in the second quarter.

And, we will soon file United's plan of reorganization -- or POR -- and our
disclosure statement with the court.

The POR filing is not a business plan - it is a court document designed to
initiate the formal process towards exit from Chapter 11. The POR will be
supplemented with additional information when it is filed at a later date.
This information will include a high-level financial forecast for the next
five years, which we are currently discussing with major financial
institutions interested in providing the company with exit financing.

We have used the bankruptcy process to build a competitive foundation for
the future. We now have the opportunity to continue to build on that
foundation and to move toward our goal of becoming the best network carrier
in the United States.

We have earned the opportunity to compete, and that's exactly what we're
going to do.

That's all for now on this call. Until next time, stay United.
Poor Boyd....changing his mind?

"At this point there is almost no way they can go out of business. It's too strong a business," airline consultant Michael Boyd said. "Going forward United will be a permanent part (of the industry). But at some point in time, there has to be some changes in management at the top."

Hmmmm...and how many on this board thought UAL would liquidate?
FutureTEDpilot said:
"At this point there is almost no way they can go out of business. It's too strong a business," airline consultant Michael Boyd said. "Going forward United will be a permanent part (of the industry). But at some point in time, there has to be some changes in management at the top."

Hmmmm...and how many on this board thought UAL would liquidate?

Gotta admit I did ... from a STRICTLY financial review ... no personal ill will.

By dumping the pensions on the PBGC, UAL has saved $645 million/year in obligations. If this previous "obligation" was accounted for (like all other legacies not in ch 11) then the financial picture Mr. Tilton paints would not look quite so rosy.

I had no idea the loan covenants (revenue/profit requirements) would be repeatedly waived thereby allowing UAL to continue to operate. If not for these waivers, UAL would already have been liquidated. This is not to disparage the cost-cutting work that has been accomplished, just meant to clarify why no liquidation has yet occurred.

Going forward I can't imagine the other legacy carriers not leveling the pension obligation field in some manner (either through ch11 or federal legislation). When this is accomplished, UAL will no longer have this financial advantage.

In the end, all the major legacy carriers are saddled with MASSIVE debt going forward. Nearly every asset these companies have is now financially encumbered ... severely limiting their ability to weather another significant blow to the industry (terrorism, oil sustained at $100, etc...)

So (from a strictly financial point of view), I'd say UAL is still very much in intensive care ... but with its prognosis improving slightly.

United Airlines net losses top $1.4B
Bankrupt carrier turns in higher operating profithttp://www.marketwatch.com/1.gif By August Cole, MarketWatch
Last Update: 4:33 PM ET July 28, 2005 E-mail it | Print | Alert | Reprint | [url="http://www.marketwatch.com/images/rss.gif"]http://www.marketwatch.com/images/rss.gif[/url]SAN FRANCISCO (MarketWatch) -- Bankrupt UAL Corp., parent of United Airlines, reported the airline industry's widest net losses yet Thursday for the second quarter after $1.39 billion in charges -- more red ink than Northwest Airlines and Delta Air Lines combined.

I had no idea the loan covenants (revenue/profit requirements) would be repeatedly waived thereby allowing UAL to continue to operate.

Could you go ahead and post all the times the loan covenants were repeatedly waived? Thanks.
UAL posted a loss of $1.4 billion, there was no profit. There was $48 million earned just from operating as an airline. Overall it was still a loss, but the good news is the $48 million was up y.o.y. from $7 million!
skykid said:
Could you go ahead and post all the times the loan covenants were repeatedly waived? Thanks.

Here's the quick results of a Google search for:

"UAL DIP Covenant Waivers"

Lots of references to UAL receiving repeated waivers of its DIP covenants ... some interesting reading from UAL Bankruptcy court transcripts ... basically the lenders are finally balking at granting any further waivers (lowering UAL's minimum performance threshold any further) because they question if they will be paid back. It's all public info available on the internet. Here's a few clips from the transcripts:

UAL, Lenders Seek Crt OK Of Some Waivers Under DIP Loans

Proposed amendments wouldn't change amounts available under the DIP loans

WASHINGTON (Dow Jones Business News) - UAL Corp. (UALAQ), the parent of United Airlines, is asking the bankruptcy court overseeing its case to approve some waivers and amendments under the carrier's debtor-in-possession financing facilities and to pay amendment fees to the lenders.

From the Bankruptcy court transcript:

22 Q And can you describe your role in these
23 negotiations?
24 A Yes. In the wake of a failed effort to
25 achieve financing outside of bankruptcy to hopefully
1 stave off the need for a bankruptcy filing, I was
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Page 50

5_12_2005 United Hearing Transcript.txt
2 involved in the process of negotiating what became an
3 extremely complex DIP financing package and the
4 negotiation of covenants around that package.
5 And those covenants over time have
6 been periodically readdressed in discussions with the
7 DIP lenders. There have been waivers, there have
8 been modifications, and there have been amendments.
9 Q And can you describe the principal
10 covenants in the current DIP agreement and the
11 amendments thereto for the court?
12 A Yes, certainly. There are many provisions
13 in the DIP
14 agreements, as I'm sure everyone in
15 the room knows. I think that for practical purposes
16 today, the covenants that are relevant are the ones
17 that form the basis of my earlier stated opinion is
18 the EBITDAR covenant and the free cash flow -- I'm
19 sorry, the minimum cash test, the minimum liquidity.
20 Q And can you describe a little bit how the
21 EBITDAR covenant itself works?
22 A Yes. As a general manner, the banks have
23 lent money up against a projection, and the
24 projection indicates the companies' best judgment
25 about what it will be able to produce on the EBITDAR
1 line. And the banks have said that, you know,
2 subject to those constraints they're prepared to lend
3 us money and they've done so.
4 And the EBITDAR test tests on a
5 rolling 12-month basis the ability of the company to
6 generate EBITDAR. So in any given month, that month
7 along with the prior 11 months added together create
8 the last 12 months EBITDAR. And that is tested
9 against a series of milestones that are provided for
10 in the agreement.
11 Q You mentioned that the EBITDAR covenants
12 have actually changed over the course of the
13 bankruptcy. Can you describe why that is the case?
14 A Unfortunately, the basis of the negotiation
15 of the original DIP covenants was a more optimistic
16 view of the environment in which we would find
17 ourselves. And we talked a great deal with the
18 impact of fuel and the revenue environment on the
19 companies' ability to produce earnings and cash flow.
20 As a result, there have been a series of covenants
21 that the company has been unable to meet.
22 Q Focusing in on the covenants, if I could
23 ask you to turn to Exhibit D-283 in the binder in
24 front of you.
25 A Yes, I have it.
1 Q What does this exhibit show?
2 A This is a graphic depiction of the serial
3 negotiations with respect to the EBITDAR covenant.
4 It shows along one axis the level of the covenant.
5 You can see, for example, on the far
6 left that the covenant was at one time at a very high
7 level trending upward. And then as it became
8 renegotiated, there was a period when it flattened
9 out and then trended upward again.
10 Subsequently in another renegotiation,
11 the covenant was moved down and the maturity date of
12 the DIP facility itself was extended out into June of
13 '05.
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5_12_2005 United Hearing Transcript.txt
14 And finally in the last negotiation
15 there was another extension out into September of
16 '05. And you can see that in this last -- in this
17 last line, Your Honor, the red line that's circled,
18 you can see that the EBITDAR covenant has been set
19 down to a lower level.
20 Q And are you generally familiar with the
21 companies' Gershwin 5-F business plan EBITDAR
22 projections?
23 A Generally.
24 Q And have you looked at how those
25 projections compare to the current EBITDAR covenants?
1 A Yes, I have seen those numbers compared. I
2 believe that we have a declaration of Mr. Dingboom
3 that addresses those as well.
4 Q And what is your understanding as to what
5 the projections show with regard to the companies'
6 ability to comply with the covenants based upon
7 EBITDAR projections in this business plan?
8 A Tested against Gershwin 5.0, G-5, the
9 covenants are set to be just below what Gershwin 5
10 suggests we'll produce on the EBITDAR line.
11 This particular line actually is set
12 off of an iteration of G-5. You may have heard Ms.
13 Levine raise it yesterday. There's a Gershwin 5.1
14 which had a very limited purpose in life that was
15 solely set up for the purpose of negotiating these
16 covenants, and it has a very small difference from
17 G-5 which address a change in fuel prices and the
18 extension of the maturity I believe.
19 Q Have you looked at the companies' ability
20 to meet the current EBITDAR covenants were it unable
21 to achieve the labor savings relief that it seeks?
22 A Yes. Although we will clear the covenants
23 under G-5, if we do not get the labor savings that we
24 are seeking the projections indicate that sometime in
25 the early to mid-summer we will violate the EBITDAR
1 covenant.
2 Q Now when you're talking about the labor
3 savings, are you referring to the IAM and AMFA
4 specific savings, or are you referring to the $725
5 million as a whole?
6 A No, I'm referring to the 725 as a whole.
7 Q Why is that?
8 A I don't believe they can be separated. We
9 have a series of consensual arrangements with ALPA,
10 with PAFCA, TWU and the AFA as well. And those
11 arrangements provide that the savings that they have
12 consensually agreed to will stay in place with the
13 condition that other parties provide their allocable
14 share of the savings that are being sought or roughly
15 to that number. I don't know remember if the numbers
16 are -- but they're almost on top of each other.
17 Q Now let's assume that the company doesn't
18 get the relief it's seeking and breaches the
19 covenants as you suggested. Could the company just
20 go back to the banks and seek out or obtain
21 additional waivers, in your judgment?
22 A Well, we could certainly go back to the
23 banks and seek them.
24 In my judgment we run a very severe
25 risk of not getting additional waivers to the EBITDAR
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Page 52

5_12_2005 United Hearing Transcript.txt
1 covenant.
2 Q And why do you say that?
3 A Well, I say it for a handful of reasons.
4 I've been having a frequent dialogue with the banks;
5 and based on their comments and conduct, but also on
6 my own view of what we've achieved in the serial
7 EBITDAR renegotiations when we renegotiated the
8 covenant, the result of those negotiations has been
9 to drive the EBITDAR level down to a point at which
10 the banks are asking themselves -- and should be
11 asking themselves, I believe -- whether there is
12 sufficient EBITDAR at these covenant levels to
13 support a refinancing on exit.
14 And we've heard some testimony -- I
15 think you and I may have had some discussion about
16 what those levels are for the refinancing and what
17 the capital markets are looking at. But at these
18 latter EBITDAR covenant levels there is a severe risk
19 in their mind, and I believe they are probably
20 correct, that if you drop materially below that you
21 would likely not be able to raise a sufficient amount
22 of exit financing to pay off the DIP and exit from
23 the bankruptcy.
24 They have acted in accordance with my
25 presumption and my understanding in that way. When
1 we began to renegotiate the covenant in the latter
2 part of this chart we've talked about with the
3 right-hand side, they actually proposed EBITDAR
4 covenants not only with very, very tight headroom
5 that is right on top of the Gershwin 5 projection,
6 but they proposed that the covenant should have
7 levels in excess of the EBITDAR that is projected by
8 the plan. In essence, the covenant should demand
9 that the company out-produce its own business plan
10 because they were becoming insecure about the
11 companies' ability to achieve sufficient EBITDAR to
12 exit finance themselves.
13 So I think that that discussion --
14 which by the way, you know, we negotiated over and we
15 got them back into a line where we felt we could
16 actually pin the covenant to Gershwin; but,
17 nonetheless, I think that conversation is indicative
18 of their concern and why it is I say that we run a
19 very severe risk of not being able to go back and
20 actually achieve an additional waiver
Last edited:
jehtplane said:
So what is it, a 1.4 billion dollar loss or a 48million dollar profit?

<<The No. 2 U.S. carrier, which has been in Chapter 11 since December 2002, said its net loss increased to $1.43 billion, or $12.33 per basic share, from $247 million, or $2.25 per share, a year earlier.

Excluding the special and reorganization items, UAL's net loss for the second quarter totaled $26 million. >>

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