Why United Airlines will fail again

[Ty Webb]

Hedging fuel costs money, Bubba. That is why so many carriers weren't able to do it . . . . they were "burning the furniture to heat the house".

 

[G4G5]

• United is mortgaged to the hilt. United made public relations hay this week with its announcement that it quickly secured $3 billion in exit financing. What it didn't mention was that the loan was secured with just about every asset that United owns: fleet; spare parts; Atlantic and Pacific routes; corporate headquarters building; flight simulators; accounts receivable; and even the Mileage Plus frequent-flier program.

What he left out was, UAL's latest 10Q filing with the SEC states that the loan requires a minimum of $750 million of real, actual CASH on hand at all times. So the loan actually gives UAL $2.25 billion to play with NOT the $3 billion that everyone refers to. The 10Q filing also mentions the payback term is 6 years. With an average variable interest rate of approx 9%.

Currently S&P and Moodies rate UAL bond rating at B or Stable.

He also left out the fact that UAL's managers strike price is $9, so once they report earnings in 6 months (after the best period for earnings) They can cash in their 20%. If the stock does nothing Tilton's 20% is worth around a million in 6 months.

 

[coolyokeluke]

I don't have a dog in this fight, but I'm not persuaded toward the author's views. Here are a few points of my own.
- He mentions different classes of service as a bad thing. The SW model works great for SW, but it's not a one size fits all solution. Most people buy their tickets on the internet these days and it's not that confusing regarding pricing; you put in your location destination and times and see what comes out. If UA has a good fare you buy it. Consumer is not confused.
- He mentions oil prices. Many people predict higher oil prices. I tend to think they're right. But many knowlegable people are predicting lower oil prices. I have no crystal ball and neither does he. We'd all have raided our retirement portfolios and put them in oil futures if we were as confident as he sounded about rising prices.
- Mortgaged to the hilt. When you owe the bank $500,000 dollars the bank owns you. When you owe the bank $5,000,000 you own the bank. The point of my little story is that big players (like GE) have waaay too much money invested in UA staying viable at this point to let them just drift away. If they were going to pull the plug they would've done it quite a while ago.
- He talks about the lack of domestic flying and the pressure put on them by SW and American. When has there not been pressure at United from American? 1920? Everyone's feeling the heat from low cost competition. But legacies have been shedding overhead costs (mostly through brutal labor concessions). And the domestic market is in shambles; it's hard for almost anyone to make money there. All the airlines are shifting more flying overseas where yields are still reasonable. And some of the flying is getting shifted to partners such as Skywest on the domestic front, I'm sure you know about the large CRJ's on order with first class configurations. Oh but that's a bad thing to have two classes or service, right?
- He criticizes United for not having enough aircraft capacity and no new orders (somebody said they had orders on Airbus, I hadn't heard that) in the same article he's criticizing their debt. In an industry with overcapacity and an airline struggling with debt could you imagine his criticism if they were buying new airplanes?
- One point I strongly agree with him on is that the company is focusing on short term gains. I don't know; maybe they have to at this point to get out of BK and take baby steps. But this sick practice of focusing on short term gains instead of long term value is endemic in corporate America and is at the center of what's wrong with a lot of things today. Why do you think that a great company like Bose wants to stay private? The airlines and United are hardly unique in this respect.
- Bitter workers? Have you flown on Delta or Northwest lately? While I jumpseated on NW a month ago I had a gate agent who was openly hostile to me and paying passengers and a flight attendent on the airplane discussed how much she hated NW during the flight. I'm not saying the situation is lucky go happy at UA but they're not unique in this cruel industry.

 

[G4G5]

I wonder if United will hedge fuel? If so, the $67 vs. $50 a barrel comparison is an apples and oranges comparison.

Despite what some have published or believe to be true UAL has NO FUEL HEDGED FOR 2006

This is from UAL's latest 8k SEC filing dated Jan 17, 2006

"The company expects mainline fuel price for the first quarter to average $1.92 per gallon, and for the full-year to average $1.81 per gallon (including taxes). Currently the company has no hedges in place for 2006. For the full-year 2006, the company anticipates fuel expense for mainline and the company's regional affiliates' operations will increase by approximately $885 million over its previous assumption, which was based on a mainline fuel price of $1.48 per gallon (including taxes). The previous assumptions were more fully described in the company's Updated G6 financial projections contained in Exhibit 99.1 to the Form 8-K filed with the SEC on January 17, 2006. The company expects to be able to offset some, but not all, of this increase through higher revenues."

http://app.quotemedia.com/quotetools/showFiling.go?name=UAL%20CORP%20/DE/:%208-K,%20Sub-Doc%203,%20Page%201&link=http%3A//quotemedia.10kwizard.com/filing.xml%3Frepo%3Dtenk%26ipage%3D3916596%26doc%3D3%26num%3D1

So if fuel goes up they plan on offsetting the costs by raising ticket prices not hedging fuel. You go Tilton.

Do these guys pay any attention to what is going on over at SWA? LUV does not have to raise ticket prices, they are making a profit already at current prices.

 

[AA717driver]

G4G5--Well, it's apparent that you're just a UAL basher! Shame on you. Can't you see that UAL is poised to explode from bankruptcy and regain their rightful place in the world?

I personally see a bright future for UAL and its employees--nothing in the forecast but sunshine and 75 degrees from here on out. In fact, I'm so positive about their future, I'm going to go out and get my UAL Chase card and the 1,000,000 FFB signing bonus they're offering!

(Singing: Zippity, do-dah, zippity-ay...) TC

 

[G4G5]

Enjoy Colorado, I bet you look hot in that ski suit

 

[XTW]

I personally see a bright future for UAL and its employees--nothing in the forecast but sunshine and 75 degrees from here on out. In fact, I'm so positive about their future,
(Singing: Zippity, do-dah, zippity-ay...) TC

I heard you have an application on file so you can be a "real" airline pilot!


X

 

[g-code]

Tell me, do you really think that the $3 Bil was an unsecured loan? Are you out of your mind? Looks like we have a new Village Idiot.

Repeat after me . . . . . "Duhhhhhhh. . . . . . "

Here's a quote from a Chicago Tribune article:

http://chicagobusiness.com/cgi-bin/news.pl?id=17564

Read this. Key words being "All debt financing". If you read other news articles you will find the word "unsecured" in there.

You should do some research before tossing out insults.

 

[boeing747-800]

G4G5 captain...southwest just raised ticket prices you idiot!

 

[G4G5]

G4G5 captain...southwest just raised ticket prices you idiot!

Really, then it should be very simple for you to provide me with the link.

PS I just did a Google search " Southwest raises fares" and the last raise that Google showed was 8/2005. I assume that you have something a little more recent than 5 months ago.