UAL Records Massive Loss
United Airlines parent UAL Corp. posted a massive third-quarter loss of $889 million on Friday but said it was nearing a pact with its unions on employee concessions to help the carrier get a federally backed loan and fly clear of Bankruptcy Court.
However, some analysts maintained that United’s effort would fall short and that the nation’s second-largest airline, behind AMR Corp.’s American, still is headed for Chapter 11 proceedings. Their rationale: United will face a crippling cash crunch before it gets the loan.
United, the largest airline at Los Angeles International Airport in passenger traffic, said it’s working toward a “quick resolution” with its five major unions on combined wage cuts and other concessions totaling $5.8 billion over five years. With the plan nearly in hand, United said it would file an amended application next week for the loan guarantee with the Air Transportation Stabilization Board, the federal panel overseeing the $15-billion bailout of the airlines that followed the Sept. 11 attacks.
The ATSB is demanding substantial concessions from airline workers, creditors and vendors before granting loan guarantees that might put U.S. taxpayers’ money at risk if the airline defaults.
“At this point, nobody should consider a Chapter 11 filing inevitable,” UAL Chairman Glenn Tilton said. Under Chapter 11, a company continues to operate but its debts are frozen while it works out a restructuring plan. Tilton and other UAL executives declined to elaborate; the airline postponed its quarterly conference calls with analysts and the media until its recovery plan is in place.
But UAL did warn that the deep travel slump would leave the airline, based in Elk Grove Village, Ill., with “a significant fourth-quarter and full-year loss.”
The six largest U.S. airlines this week reported combined quarterly losses of $2.2 billion, and the red ink is expected to surpass $7 billion for all of 2002.
UAL’s third-quarter loss, equal to $15.57 a share, was narrower than its loss of $1.16 billion, or $21.43 a share, a year earlier, when the attacks occurred. UAL’s revenue tumbled 9% to $3.7 billion, from $4.1 billion in the same period a year ago.
Like most other airlines, United is responding by slashing costs and shrinking its size. The carrier said its system -- or capacity -- in the current quarter is 16% less than its level two years ago. United said it’s planning unspecified cuts in capacity next year “until this mismatch of supply and demand is corrected.”
Analyst Jim Higgins of Credit Suisse First Boston, who has a “sell” rating on UAL’s battered stock, again said in a report to clients that UAL probably is headed for bankruptcy. Though United has about $2 billion in cash, he said the airline faces nearly $1 billion in debt payments in coming weeks and is burning through $7 million in cash daily.
UAL’s shares fell 2 cents to $1.71 on the New York Stock Exchange. Wall Street now values the entire airline at $98 million, less than the price of a new wide-body jetliner.
